POST-EFFECTIVE AMENDMENT NO. 38

-----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, APg+NBRRAzaPBChT85TRw6OzTdmloMtMZIqpwDDbTd9FDtI1k9Rxn4xyHqoeZTtr H0xmN2i3XX+TCEjOn+3Wdw== 0000717316-04-000024.txt : 20041229 0000717316-04-000024.hdr.sgml : 20041229 20041229152151 ACCESSION NUMBER: 0000717316-04-000024 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20041229 DATE AS OF CHANGE: 20041229 EFFECTIVENESS DATE: 20041229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CENTURY CALIFORNIA TAX FREE & MUNICIPAL FUNDS CENTRAL INDEX KEY: 0000717316 IRS NUMBER: 946562826 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-82734 FILM NUMBER: 041230944 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CENTURY CALIFORNIA TAX FREE & MUNICIPAL FUNDS CENTRAL INDEX KEY: 0000717316 IRS NUMBER: 946562826 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-03706 FILM NUMBER: 041230945 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 pea38-2004.htm POST-EFFECTIVE AMENDMENT NO. 38 POST-EFFECTIVE AMENDMENT NO. 38

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. 38 [X]

and/or

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

Amendment No. 42 [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 64111
-----------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

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

David C. Tucker, Esq., 4500 Main Street, 9th Floor, Kansas City, MO 64111
---------------------------------------------------------------------------
(Name and Address of Agent for Service)

Approximate Date of Proposed Public Offering: January 1, 2005

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

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on January 1, 2005 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

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

January 1, 2005

American Century
Investments
prospectus

Investor Class

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

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 investments logo and text logo]

Dear Investor,

American Century Investments is committed to helping you achieve your financial
goals. That's why we focus on achieving superior results and building long-term
relationships with our investors. We believe an important first step is to
provide you with an easy-to-read prospectus.

In the prospectus, you will find the information you need to make confident
decisions about your investments. For example, you can find a fund's objectives,
performance history, fees and much more. Additionally, this information is
useful when comparing funds.

We realize you may have questions after reading this prospectus. If so, please
contact our Investor Relations Representatives at 1-800-345-2021. They are
available weekdays from 7 a.m. to 7 p.m. and Saturdays from 9 a.m. to 2 p.m.
Central time. If you prefer, you can visit our Web site, americancentury.com,
for information that may help answer many of your questions.

Thank you for considering American Century for your investment needs.

Sincerely,

/s/ Donna Byers
- -------------------------------
Donna Byers
Senior Vice President
Direct Sales and Services
American Century Services, LLC

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

The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.

Table of Contents

AN OVERVIEW OF THE FUNDS . . . . . . . . . . . . . . . . 2

FUND PERFORMANCE HISTORY . . . . . . . . . . . . . . . . 3

California Tax-Free Money Market Fund . . . . . .3

California Limited-Term Tax-Free Fund

California Intermediate-Term Tax-Free Fund

California Long-Term Tax-Free Fund . . . . . . . 4

FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . .7

OBJECTIVES, STRATEGIES AND RISKS . . . . . . . . . . . . 9

California Tax-Free Money Market Fund . . . . . .9

California Limited-Term Tax-Free Fund

California Intermediate-Term Tax-Free Fund

California Long-Term Tax-Free Fund . . . . . . .10

BASICS OF FIXED-INCOME INVESTING . . . . . . . . . . . .12

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . .14

INVESTING WITH AMERICAN CENTURY . . . . . . . . . . . . 17

SHARE PRICE AND DISTRIBUTIONS . . . . . . . . . . . . . 24

TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 26

FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . .28

[graphic of triangle]

THIS SYMBOL IS USED THROUGHOUT THE BOOK TO HIGHLIGHT DEFINITIONS OF KEY
INVESTMENT TERMS AND TO PROVIDE OTHER HELPFUL INFORMATION.

AN OVERVIEW OF THE FUNDS

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?

The funds seek safety of principal and high current income that is exempt from
federal and California income taxes.

WHAT ARE THE FUNDS' PRIMARY INVESTMENT STRATEGIES AND PRINCIPAL RISKS?

The portfolio managers invest at least 80% of the funds' assets in DEBT
SECURITIES issued by cities, counties and other municipalities in California and
U.S. territories, such as Puerto Rico, that have interest exempt from federal
and California income taxes. Each of the funds invests in different types of
these municipal debt securities and has different risks. The following chart
shows the differences among the funds' primary investments and principal risks.
It is designed to help you compare these funds with each other; it should not be
used to compare these funds with other mutual funds. A more detailed description
of the funds' investment strategies and risks begins on page 9.

[graphic of triangle]

DEBT SECURITIES INCLUDE FIXED-INCOME INVESTMENTS SUCH AS NOTES, BONDS,
COMMERCIAL PAPER AND U.S. TREASURY SECURITIES. VERY SHORT-TERM DEBT
SECURITIES (THOSE WITH MATURITIES SHORTER THAN 397 DAYS) ARE CALLED
MONEY MARKET INSTRUMENTS.

FUND PRIMARY INVESTMENTS PRINCIPAL RISKS
- ------------------------------------------------------------------------------------
Lower Income California High-quality, very California economic risk
More Liquid Tax-Free short-term debt Lowest credit risk
Shorter Term Money Market securities Lowest interest rate risk
Lowest liquidity risk
---------------------------------------------------------------------
California Quality debt securities California economic risk
Limited-Term with a weighted average Moderate credit risk
Tax-Free maturity of 1-5 years Low interest rate risk
Moderate liquidity risk
---------------------------------------------------------------------
California Quality debt securities California economic risk
Intermediate- with a weighted average Moderate credit risk
Term maturity of 5-10 years Moderate interest rate risk
Tax-Free Moderate liquidity risk
---------------------------------------------------------------------
Higher Income California Quality debt securities California economic risk
Less Liquid Long-Term with a weighted Moderate credit risk
Longer Term Tax-Free average maturity High interest rate risk
of 10 or more years Moderate liquidity risk
- ------------------------------------------------------------------------------------

At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.

[graphic of triangle]

AN INVESTMENT IN THE FUNDS IS NOT A BANK DEPOSIT, AND IT IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY
OTHER GOVERNMENT AGENCY.

- ------
2

FUND PERFORMANCE HISTORY

CALIFORNIA TAX-FREE MONEY MARKET FUND

ANNUAL TOTAL RETURNS

The following bar chart shows the performance of the fund's Investor Class
shares for each of the last 10 calendar years. It indicates the volatility of
the fund's historical returns from year to year. Account fees are not reflected
in the chart below. If they had been included, returns would be lower than those
shown.

CALIFORNIA TAX-FREE MONEY MARKET FUND - INVESTOR CLASS(1)

[data from bar chart]

1994 2.42%
1995 3.41%
1996 3.07%
1997 3.19%
1998 2.95%
1999 2.66%
2000 3.30%
2001 2.20%
2002 1.06%
2003 0.60%

(1) AS OF SEPTEMBER 30, 2004, THE END OF THE MOST RECENT CALENDAR QUARTER,
THE FUND'S YEAR-TO-DATE RETURN WAS 0.47%.

The highest and lowest quarterly returns for the periods reflected in the bar
chart are:

HIGHEST LOWEST
- --------------------------------------------------------------------------------
California Tax-Free Money Market 0.89% (2Q 2000) 0.10% (3Q 2003)
- --------------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS

The following table shows the average annual total returns of the fund's
Investor Class shares for the periods indicated.

INVESTOR CLASS

FOR THE CALENDAR YEAR ENDED DECEMBER 31, 2003 1 YEAR 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------
California Tax-Free Money Market
Investor Class 0.60% 1.96% 2.48%
- ------------------------------------------------------------------------------

- ------
3

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

Annual Total Returns

The following bar charts show the performance of the funds' Investor Class
shares for each of the last 10 calendar years or for each full calendar year in
the life of a fund if less than 10 years. They indicate the volatility of the
funds' historical returns from year to year. Account fees are not reflected in
the charts below. If they had been included, returns would be lower than those
shown.

CALIFORNIA LIMITED-TERM TAX-FREE FUND - INVESTOR CLASS(1)

[data from bar chart]

1994 -0.61%
1995 8.32%
1996 3.93%
1997 5.34%
1998 4.91%
1999 1.13%
2000 7.03%
2001 4.95%
2002 6.37%
2003 2.45%

(1) AS OF SEPTEMBER 30, 2004, THE END OF THE MOST RECENT CALENDAR QUARTER,
THE FUND'S YEAR-TO-DATE RETURN WAS 0.85%.

The highest and lowest quarterly returns for the periods reflected in the bar
chart are:

HIGHEST LOWEST
- --------------------------------------------------------------------------------
California Limited-Term Tax-Free 3.09% (3Q 2002) -1.58% (2Q 2004)
- --------------------------------------------------------------------------------

- ------
4

CALIFORNIA INTERMEDIATE-TERM TAX-FREE FUND - INVESTOR CLASS(1)

[data from bar chart]

1994 -3.72%
1995 13.52%
1996 4.25%
1997 7.45%
1998 5.59%
1999 -1.09%
2000 10.14%
2001 4.35%
2002 8.80%
2003 3.23%

(1) AS OF SEPTEMBER 30, 2004, THE END OF THE MOST RECENT CALENDAR QUARTER,
THE FUND'S YEAR-TO-DATE RETURN WAS 1.96%.

The highest and lowest quarterly returns for the periods reflected in the bar
chart are:

HIGHEST LOWEST
- --------------------------------------------------------------------------------
California Intermediate-Term Tax-Free 5.25% (1Q 1995) -3.98% (1Q 1994)
- --------------------------------------------------------------------------------

CALIFORNIA LONG-TERM TAX-FREE FUND - INVESTOR CLASS(1)

[data from bar chart]

1994 -6.51%
1995 19.8%
1996 3.59%
1997 9.74%
1998 6.31%
1999 -5.22%
2000 14.92%
2001 4.23%
2002 8.69%
2003 4.51%

(1) AS OF SEPTEMBER 30, 2004, THE END OF THE MOST RECENT CALENDAR QUARTER,
THE FUND'S YEAR-TO-DATE RETURN WAS 2.80%.

The highest and lowest quarterly returns for the periods reflected in the bar
chart are:

HIGHEST LOWEST
- --------------------------------------------------------------------------------
California Long-Term Tax-Free 7.13% (1Q 1995) -5.71% (1Q 1994)
- --------------------------------------------------------------------------------

- ------
5

AVERAGE ANNUAL TOTAL RETURNS

The following table shows the average annual total returns of the funds'
Investor Class shares calculated three different ways.

Return Before Taxes shows the actual change in the value of fund shares over the
time periods shown, but does not reflect the impact of taxes on fund
distributions or the sale of fund shares. The two after-tax returns take into
account taxes that may be associated with owning fund shares. Return After Taxes
on Distributions is a fund's actual performance, adjusted by the effect of taxes
on distributions made by the fund during the periods shown. Return After Taxes
on Distributions and Sale of Fund Shares is further adjusted to reflect the tax
impact on any change in the value of fund shares as if they had been sold on the
last day of the period.

After-tax returns are calculated using the historical highest federal marginal
income tax rates and do not reflect the impact of state and local taxes. Actual
after-tax returns depend on an investor's tax situation and may differ from
those shown. After-tax returns shown are not relevant to investors who hold fund
shares through tax-deferred arrangements such as 401(k) plans or IRAs.

The benchmarks are unmanaged indices that have no operating costs and are
included in the table for performance comparison.

INVESTOR CLASS
FOR THE CALENDAR YEAR ENDED DECEMBER 31, 2003 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
California Limited-Term Tax-Free
Return Before Taxes 2.45% 4.36% 4.35%
Return After Taxes on Distributions 2.45% 4.33% 4.33%
Return After Taxes on Distributions
and Sale of Fund Shares 2.54% 4.23% 4.27%
Lehman Brothers 3-Year Municipal Bond Index 2.68% 4.82% 4.86%
(reflects no deduction for fees, expenses and taxes)
- --------------------------------------------------------------------------------
California Intermediate-Term Tax-Free
Return Before Taxes 3.23% 5.01% 5.14%
Return After Taxes on Distributions 3.23% 4.94% 5.03%
Return After Taxes on Distributions
and Sale of Fund Shares 3.47% 4.87% 5.00%
Lehman Brothers 5-Year General Obligation Index 4.19% 5.47% 5.41%
(reflects no deduction for fees, expenses and taxes)
- --------------------------------------------------------------------------------
California Long-Term Tax-Free
Return Before Taxes 4.51% 5.22% 5.73%
Return After Taxes on Distributions 4.50% 5.22% 5.63%
Return After Taxes on Distributions
and Sale of Fund Shares 4.55% 5.16% 5.59%
Lehman Brothers Long-Term Municipal Bond Index 6.13% 5.95% 6.40%
(reflects no deduction for fees, expenses and taxes)
- --------------------------------------------------------------------------------

Performance information is designed to help you see how fund returns can vary.
Keep in mind that past performance (before and after taxes) does not predict how
a fund will perform in the future.

For current performance information, including yields, please call us at
1-800-345-2021 or visit us at americancentury.com.

- ------
6

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 same class of shares of other American Century funds
* to redeem your shares other than a $10 fee to redeem by wire

The following tables describe the fees and expenses you may pay if you buy and
hold shares of the funds.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
Investor Class
Maximum Account Maintenance Fee $25(1)
- --------------------------------------------------------------------------------

(1) APPLIES ONLY TO INVESTORS WHOSE TOTAL ELIGIBLE INVESTMENTS WITH
AMERICAN CENTURY ARE LESS THAN $10,000. SEE Account Maintenance Fee UNDER
Investing with American Century FOR MORE DETAILS.

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

DISTRIBUTION TOTAL ANNUAL
MANAGEMENT AND SERVICE OTHER FUND OPERATING
FEE(1) (12B-1) FEES EXPENSES(2) EXPENSES
- --------------------------------------------------------------------------------
California
Tax-Free
Money Market
Investor Class 0.50% None 0.02% 0.52%
- --------------------------------------------------------------------------------
California
Limited-Term
Tax-Free
Investor Class 0.50% None 0.00% 0.50%
- --------------------------------------------------------------------------------
California
Intermediate-Term
Tax-Free
Investor Class 0.50% None 0.00% 0.50%
- --------------------------------------------------------------------------------
California
Long-Term
Tax-Free
Investor Class 0.50% None 0.00% 0.50%
- --------------------------------------------------------------------------------

(1) BASED ON ASSETS DURING THE FUNDS' MOST RECENT FISCAL YEAR. THE FUNDS
HAVE STEPPED FEE SCHEDULES. AS A RESULT, THE FUNDS' MANAGEMENT FEE RATES
GENERALLY DECREASE AS FUND ASSETS INCREASE AND INCREASE AS FUND ASSETS
DECREASE.

(2) OTHER EXPENSES INCLUDE FEES AND EXPENSES OF THE FUNDS' INDEPENDENT
TRUSTEES AND THEIR LEGAL COUNSEL, INTEREST AND, FOR MONEY MARKET FUNDS,
PORTFOLIO INSURANCE.

- ------
7

EXAMPLE

The examples in the table below are intended to help you compare the costs of
investing in a fund with the costs of investing in other mutual funds. Of
course, your actual costs may be higher or lower. 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 Tax-Free Money Market
Investor Class $53 $167 $290 $652
- --------------------------------------------------------------------------------
California Limited-Term Tax-Free
Investor Class $51 $160 $279 $627
- --------------------------------------------------------------------------------
California Intermediate-Term Tax-Free
Investor Class $51 $160 $279 $627
- --------------------------------------------------------------------------------
California Long-Term Tax-Free
Investor Class $51 $160 $279 $627
- --------------------------------------------------------------------------------

- ------
8

OBJECTIVES, STRATEGIES AND RISKS

CALIFORNIA TAX-FREE MONEY MARKET FUND

WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?

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

HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?

The fund's assets are invested in HIGH-QUALITY, very short-term debt securities
of which at least 80% must have interest 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. Income from these securities is
exempt from regular federal income tax, state tax and the alternative minimum
tax.

[graphic of triangle]

A HIGH-QUALITY DEBT SECURITY IS ONE THAT HAS BEEN RATED BY AN
INDEPENDENT RATING AGENCY IN ITS TOP TWO CREDIT QUALITY CATEGORIES OR
DETERMINED BY THE ADVISOR TO BE OF COMPARABLE QUALITY. THE DETAILS OF
THE FUND'S CREDIT QUALITY STANDARDS ARE DESCRIBED IN THE STATEMENT OF
ADDITIONAL INFORMATION.

[graphic of triangle]

MUNICIPALITIES INCLUDE STATES, CITIES, COUNTIES, INCORPORATED TOWNSHIPS,
THE DISTRICT OF COLUMBIA AND U.S. TERRITORIES AND POSSESSIONS. THEY CAN
ISSUE PRIVATE ACTIVITY BONDS AND PUBLIC PURPOSE BONDS.

When determining whether to sell a security, portfolio managers consider, among
other things, current and anticipated changes in interest rates, the credit
quality of a particular issuer, comparable alternatives, general market
conditions and any other factor deemed relevant by the portfolio managers.

A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio securities is available in the fund's
statement of additional information.

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?

Because high-quality, very short-term debt securities are among the safest
securities available, the interest they pay is among the lowest for
income-paying securities. Accordingly, the yield on this fund will likely be
lower than the yield on funds that invest in longer-term or lower-quality
securities.

Because the fund invests in California municipal securities, it will be
sensitive to events that affect California's economy. It may be riskier than
funds that invest in a larger universe of securities.

- ------
9

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

WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?

These funds seek safety of principal and high current income that is exempt from
federal and California income taxes.

HOW DO THE FUNDS PURSUE THEIR INVESTMENT OBJECTIVES?

The portfolio managers buy QUALITY debt securities, and will invest at
least 80% of the funds' assets in debt securities with interest 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.

[graphic of triangle]

A QUALITY DEBT SECURITY IS ONE THAT HAS BEEN RATED BY AN INDEPENDENT
RATING AGENCY IN THE TOP FOUR CREDIT QUALITY CATEGORIES OR DETERMINED BY
THE ADVISOR TO BE OF COMPARABLE CREDIT QUALITY. THE DETAILS OF THE
FUNDS' CREDIT QUALITY STANDARDS ARE DESCRIBED IN THE STATEMENT OF
ADDITIONAL INFORMATION.

[graphic of triangle]

MUNICIPALITIES INCLUDE STATES, CITIES, COUNTIES, INCORPORATED TOWNSHIPS,
THE DISTRICT OF COLUMBIA AND U.S. TERRITORIES AND POSSESSIONS. THEY CAN
ISSUE PRIVATE ACTIVITY BONDS AND PUBLIC PURPOSE BONDS.

The funds may purchase securities in a number of different ways to seek higher
rates of return. For example, by using when-issued and forward commitment
transactions, the funds may purchase securities in advance to generate
additional income.

The funds also may invest in derivative instruments such as options, futures
contracts, options on futures contracts, and swap agreements (including, but not
limited to, credit default swap agreements), or in mortgage- or asset-backed
securities, provided that such investment are in keeping with the funds'
investment objective.

In the event of exceptional market or economic conditions, the funds may, as a
temporary defensive measure, invest all or a substantial portion of their assets
in cash or cash-equivalent securities. To the extent the funds assume a
defensive position, they will not be pursuing their investment objectives and
may generate taxable income. The funds generally limit their purchase of debt
securities to investment-grade obligations.

When determining whether to sell a security, portfolio managers consider,
among other things, current and anticipated changes in interest rates, the
credit quality of a particular issuer, comparable alternatives, general market
conditions and any other factor deemed relevant by the portfolio
managers.

A description of the funds' policies and procedures with respect to the
disclosure of the funds' portfolio securities is available in the funds'
statement of additional information.

- ------
10

WHAT ARE THE DIFFERENCES BETWEEN THE FUNDS?

The funds differ in the maturity of the debt securities they purchase. This
difference is shown in the chart below.

TYPICAL MATURITY WEIGHTED AVERAGE
OF INVESTMENTS MATURITY
- --------------------------------------------------------------------------------
California Limited-Term Tax-Free 1-10 years 1-5 years
- --------------------------------------------------------------------------------
California Intermediate-Term Tax-Free 4 or more years 5-10 years
- --------------------------------------------------------------------------------
California Long-Term Tax-Free 7 or more years 10 or more years
- --------------------------------------------------------------------------------

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?

Because the funds have different WEIGHTED AVERAGE MATURITIES, each fund will
respond differently to changes in interest rates. Funds with longer weighted
average maturities are generally more sensitive to interest rate changes. When
interest rates rise, the funds' share values will decline, but the share values
of funds with longer weighted average maturities generally will decline further.

[graphic of triangle]

WEIGHTED AVERAGE MATURITY IS DESCRIBED IN MORE DETAIL UNDER Basics of
Fixed-Income Investing.

Because the funds invest in California municipal securities, they will be
sensitive to events that affect California's economy. They may be riskier than
funds that invest in a larger universe of securities.

The use of derivative instruments involves risks different from, or possibly
greater than, the risks associated with investing directly in securities and
other traditional instruments. Derivatives are subject to a number of risks
including, liquidity, interest rate, market, and credit risk. They also involve
the risk of mispricing or improper valuation, the risk that changes in the value
of the derivative may not correlate perfectly with the underlying asset, rate or
index, and the risk of default or bankruptcy of the other party to the swap
agreement. Gains or losses involving some futures, options, and other
derivatives may be substantial - in part because a relatively small price
movement in these securities may result in an immediate and substantial gain or
loss for the fund.

At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the
funds.

- ------
11

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 portfolio 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 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 Portfolio 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
portfolio 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 funds face are described below.

INTEREST RATE RISK

Generally, interest rates and the prices of debt securities move in opposite
directions. When interest rates fall, the prices of most debt securities rise;
when interest rates rise, prices fall. Because the funds invest primarily in
debt securities, changes in interest rates will affect the funds' performance.
This sensitivity to interest rate changes is called interest rate risk.

The degree to which interest rate changes affect fund 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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12

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.

Credit quality may be lower when the issuer has any of the following: a high
debt level, a short operating history, a difficult, competitive environment or a
less stable cash flow.

The portfolio 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 the managers
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 funds' credit quality restrictions
apply at the time of purchase; the funds 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.

A COMPARISON OF BASIC RISK FACTORS

The following chart depicts the basic risks of investing in the funds. It is
designed to help you compare these funds with each other; it shouldn't be used
to compare these funds with other mutual funds.

INTEREST RATE RISK CREDIT RISK LIQUIDITY RISK
- --------------------------------------------------------------------------------
California Tax-Free
Money Market Lowest Lowest Lowest
- --------------------------------------------------------------------------------
California Limited-Term
Tax-Free Low Moderate Moderate
- --------------------------------------------------------------------------------
California
Intermediate-Term
Tax-Free Moderate Moderate Moderate
- --------------------------------------------------------------------------------
California Long-Term
Tax-Free High Moderate Moderate
- --------------------------------------------------------------------------------

The funds engage in a variety of investment techniques as they pursue their
investment objectives. Each technique has its own characteristics and may pose
some level of risk to the funds. If you would like to learn more about these
techniques, please review the statement of additional information before making
an investment.

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13

MANAGEMENT

WHO MANAGES THE FUNDS?

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

THE BOARD OF TRUSTEES

The Board of Trustees oversees the management of the funds and meets at least
quarterly to review reports about fund operations. Although the Board of
Trustees does not manage the funds, it has hired an investment advisor to do so.
More than three-fourths of the trustees are independent of the funds' advisor;
that is, they have never been employed by and have no financial interest in the
advisor or any of its affiliated companies (other than as shareholders of
American Century funds).

THE INVESTMENT ADVISOR

The funds' investment advisor is American Century Investment Management, Inc.
(the advisor). 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 funds
and directing the purchase and sale of their investment securities. The advisor
also arranges for transfer agency, custody and all other services necessary for
the funds to operate.

For the services it provided to the funds, the advisor received a unified
management fee based on a percentage of the daily net assets of each specific
class of shares of the funds. The percentage rate used to calculate the
management fee for each class of shares of a fund is determined daily using a
two-component formula that takes into account (i) the daily net assets of the
accounts managed by the advisor that are in the same broad investment category
as each of the funds (the "Category Fee") and (ii) the assets of all funds in
the American Century family of funds (the "Complex Fee"). The management fee is
calculated daily and 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 paid all
expenses of managing and operating the funds except brokerage expenses, taxes,
interest, fees and expenses of the independent trustees (including legal counsel
fees), and extraordinary expenses. A portion of the management fee may be paid
by the funds' advisor to unaffiliated third parties who provide recordkeeping
and administrative services that would otherwise be performed by an affiliate of
the advisor.

MANAGEMENT FEES PAID BY THE FUNDS TO THE ADVISOR
AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE
MOST RECENT FISCAL YEAR ENDED AUGUST 31, 2004 INVESTOR CLASS
- --------------------------------------------------------------------------------
California Tax-Free Money Market 0.50%
- --------------------------------------------------------------------------------
California Limited-Term Tax-Free 0.50%
- --------------------------------------------------------------------------------
California Intermediate-Term Tax-Free 0.50%
- --------------------------------------------------------------------------------
California Long-Term Tax-Free 0.50%
- --------------------------------------------------------------------------------

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14

THE FUND MANAGEMENT TEAMS

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

California Tax-Free Money Market

The fund is managed by the Money Market Team, whose members are identified
below.

G. DAVID MACEWEN

Mr. MacEwen, Chief Investment Officer - Fixed Income and Senior Vice President,
supervises the American Century Money Market team. He has been a member of the
Money Market team since July 2001. He joined American Century in May 1991
as a Municipal Portfolio Manager. In 2000, he was named Senior Vice President
and Senior Portfolio Manager and served in that capacity until being named to
his current position in 2001. He has a bachelor's degree in economics from
Boston University and an MBA in finance from the University of Delaware.

STEVEN M. PERMUT

Mr. Permut, Senior Vice President, Director of Municipal Investments and Senior
Portfolio Manager, has been a member of the Money Market team since June 2003.
He joined American Century in June 1987 as a Municipal Credit Analyst. In
February 2001, he was named Vice President and Senior Portfolio Manager. In July
2001, he was named Vice President of Municipal Portfolio Management and Credit
Research and served in that capacity until being named to his current position
in 2004. 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.

DENISE LATCHFORD

Ms. Latchford, Vice President and Senior Portfolio Manager, has been a member of
the Money Market team since January 1996. She joined American Century in 1988
and became a member of the investment management department in 1991. In 2001,
she was named Vice President and Portfolio Manager and served in that capacity
until being named to her current position in 2002. She has a bachelor's degree
in accounting from San Diego State University and an MBA in finance from Golden
Gate University - San Francisco.

ALAN KRUSS

Mr. Kruss, Portfolio Manager, has been a member of the Money Market team since
November 2001. He joined American Century in 1997 as an Investment
Administrator. In 2000, he was named Fixed Income Trader and in 2001, he was
named Portfolio Manager. He has a bachelor's degree in finance from San
Francisco State University.

TODD PARDULA

Mr. Pardula, Vice President and Portfolio Manager, has been a member of the
Money Market team since May 1994. He joined American Century in February 1990 as
an Investor Services Representative. In April 1994, he was named Portfolio
Manager. He has a bachelor's degree in finance from Santa Clara University. He
is a CFA charterholder.

LYNN PASCHEN

Ms. Paschen, Portfolio Manager, has been a member of the Money Market team since
October 2000. She joined American Century in 1998 as a Senior Fund Accountant.
In 2002, she was named Fixed Income Trader and served in that capacity until
being named to her current position in 2003. She has a bachelor's degree in
finance from the University of Iowa and a master's degree in finance from Golden
Gate University - San Francisco.

- ------
15

California Limited-Term Tax-Free
California Intermediate-Term Tax-Free
California Long-Term Tax-Free

The funds are managed by the Municipal Bond team, whose members are identified
below.

G. DAVID MACEWEN

Mr. MacEwen, Chief Investment Officer - Fixed Income and Senior Vice President,
supervises the American Century Municipal Bond team. He has been a member of the
Municipal Bond team since May 1991, when he joined American Century as a
Municipal Portfolio Manager. In 2000, he was named Senior Vice President and
Senior Portfolio Manager and served in that capacity until being named to his
current position in 2001. He has a bachelor's degree in economics from Boston
University and an MBA in finance from the University of Delaware.

STEVEN M. PERMUT

Mr. Permut, Senior Vice President, Director of Municipal Investments and Senior
Portfolio Manager, has been a member of the Municipal Bond team since June 1987.
He joined American Century in June 1987 as a Municipal Credit Analyst. In
February 2001, he was named Vice President and Senior Portfolio Manager. In July
2001, he was named Vice President of Municipal Portfolio Management and Credit
Research and served in that capacity until being named to his current position
in 2004. 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.

ROBERT J. MILLER

Mr. Miller, Vice President and Portfolio Manager, has been a member of the
Municipal Bond team since June 1998. He joined American Century in June 1998 as
a Senior Municipal Credit Analyst. In 2001, he was named Portfolio Manager and
served in that capacity until being named to his current position in 2003. He
has a bachelor's degree in business administration-finance from San Jose State
University and an MBA from New York University.

KENNETH M. SALINGER

Mr. Salinger, Vice President and Senior Portfolio Manager, has been a member of
the Municipal Bond team since June 1994. He joined American Century in April
1992. In 1998, he was named Portfolio Manager. In 2001, he was named Vice
President and Portfolio Manager and served in that capacity until being named to
his current position in 2004. He has a bachelor's degree in quantitative
economics from the University of California - San Diego. He is a CFA
charterholder.

CODE OF ETHICS

American Century has a Code of Ethics designed to ensure that the interests of
fund shareholders come before the interests of the people who manage the funds.
Among other provisions, the Code of Ethics prohibits portfolio managers and
other investment personnel from buying securities in an initial public offering
or profiting from the purchase and sale of the same security within 60 calendar
days. It also contains limits on short-term transactions in American
Century-managed funds. In addition, the Code of Ethics requires portfolio
managers and other employees with access to information about the purchase or
sale of securities by the funds to obtain approval before executing personal
trades.

FUNDAMENTAL INVESTMENT POLICIES

Fundamental investment policies contained in the statement of additional
information and the investment objectives of the funds may not be changed
without shareholder approval. The Board of Trustees and/or the advisor may
change any other policies and investment strategies.

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16

INVESTING WITH AMERICAN CENTURY

SERVICES AUTOMATICALLY AVAILABLE TO YOU

Most accounts automatically will have access to the services listed below when
the account is opened. If you do not want these services, see CONDUCTING
BUSINESS IN WRITING. If you have questions about the services that apply to your
account type, please call us.

CONDUCTING BUSINESS IN WRITING

If you prefer to conduct business in writing only, you can indicate this on the
account application. If you choose this option, you must provide written
instructions to invest, exchange and redeem. All account owners must sign
transaction instructions (with signatures guaranteed for redemptions in excess
of $100,000). If you want to add services later, you can complete an Investor
Service Options form. By choosing this option, you are not eligible to enroll
for exclusive online account management to waive the account maintenance fee.
See ACCOUNT MAINTENANCE FEE in this section.

A NOTE ABOUT MAILINGS TO SHAREHOLDERS

To reduce the amount of mail you receive from us, we may deliver a single copy
of certain investor documents (such as shareholder reports and prospectuses) to
investors who share an address, even if accounts are registered under different
names. If you prefer to receive multiple copies of these documents individually
addressed, please call 1-800-345-2021. If you invest in American Century mutual
funds through a financial intermediary, please contact them directly. For
American Century Brokerage accounts, please call 1-888-345-2071.

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.

WAYS TO MANAGE YOUR ACCOUNT

- --------------------------------------------------------------------------------
ONLINE
- --------------------------------------------------------------------------------

americancentury.com

OPEN AN ACCOUNT

If you are a current or new investor, you can open an account by completing and
submitting our online application. Current investors also can open an account by
exchanging shares from another American Century account.

EXCHANGE SHARES

Exchange shares from another American Century account.

MAKE ADDITIONAL INVESTMENTS

Make an additional investment into an established American Century account if
you have authorized us to invest from your bank account.

SELL SHARES*

Redeem shares and proceeds will be electronically transferred to your authorized
bank account.

* ONLINE REDEMPTIONS UP TO $25,000 PER DAY.

- ------
17

- --------------------------------------------------------------------------------
BY TELEPHONE
- --------------------------------------------------------------------------------

Investor Relations
1-800-345-2021

Business, Not-For-Profit and
Employer-Sponsored Retirement Plans
1-800-345-3533

Automated Information Line
1-800-345-8765

OPEN AN ACCOUNT

If you are a current investor, you can open an account by exchanging shares from
another American Century account.

EXCHANGE SHARES

Call or use our Automated Information Line if you have authorized us to accept
telephone instructions.

MAKE ADDITIONAL INVESTMENTS

Call or use our Automated Information Line if you have authorized us to invest
from your bank account.

SELL SHARES

Call a Service Representative.

- --------------------------------------------------------------------------------
BY WIRE
- --------------------------------------------------------------------------------

Please remember, if you request redemptions by wire, $10 will be deducted from
the amount redeemed. Your bank also may charge a fee.

OPEN AN ACCOUNT

Call to set up your account or mail a completed application to the address
provided in the BY MAIL OR FAX section. Give your bank the following information
to wire money.

* Our bank information
Commerce Bank N.A.
Routing No. 101000019
Account No. Please call for the appropriate account number
* The fund name
* Your American Century account number, if known*
* Your name
* The contribution year (for IRAs only)
*FOR ADDITIONAL INVESTMENTS ONLY

MAKE ADDITIONAL INVESTMENTS

Follow the BY WIRE - OPEN AN ACCOUNT instructions.

SELL SHARES

You can receive redemption proceeds by wire or electronic transfer.

EXCHANGE SHARES

Not available.

- ------
18

- --------------------------------------------------------------------------------
BY MAIL OR FAX
- --------------------------------------------------------------------------------

P.O. Box 419200
Kansas City, MO 64141-6200

Fax
816-340-7962

OPEN AN ACCOUNT

Send a signed, completed application and check or money order payable to
American Century Investments.

EXCHANGE SHARES

Send written instructions to exchange your shares from one American Century
account to another.

MAKE ADDITIONAL INVESTMENTS

Send your check or money order for at least $50 with an investment slip or $250
without an investment slip. If you don't have an investment slip, include your
name, address and account number on your check or money order.

SELL SHARES

Send written instructions or a redemption form to sell shares. Call a Service
Representative to request a form.

- --------------------------------------------------------------------------------
AUTOMATICALLY
- --------------------------------------------------------------------------------

OPEN AN ACCOUNT

Not available.

EXCHANGE SHARES

Send written instructions to set up an automatic exchange of your shares from
one American Century account to another.

MAKE ADDITIONAL INVESTMENTS

With the automatic investment service, you can purchase shares on a regular
basis. You must invest at least $600 per year per account.

SELL SHARES

If you have at least $10,000 in your account, you may sell shares automatically
by establishing Check-A-Month or Automatic Redemption plans.

- --------------------------------------------------------------------------------
IN PERSON
- --------------------------------------------------------------------------------

If you prefer to handle your transactions in person, visit one of our Investor
Centers and a representative can help you open an account, make additional
investments, and sell or exchange shares.

4500 Main Street 4917 Town Center Drive
Kansas City, Missouri Leawood, Kansas
8 a.m. to 5 p.m., Monday - Friday 8 a.m. to 5 p.m., Monday - Friday
8 a.m. to noon, Saturday

1665 Charleston Road 10350 Park Meadows Drive
Mountain View, California Littleton, Colorado
8 a.m. to 5 p.m., Monday - Friday 8:30 a.m. to 5 p.m., Monday - Friday

- ------
19

MINIMUM INITIAL INVESTMENT AMOUNTS

To open an account, the minimum investment for California Tax-Free Money Market
is $2,500. The minimum for all other funds is $5,000. These funds are not
available for retirement accounts.

ACCOUNT MAINTENANCE FEE

If you hold Investor Class shares of any American Century fund, or Institutional
Class shares of the American Century Diversified Bond fund, in an American
Century account (i.e., not a financial intermediary or retirement plan account),
we may charge you a $12.50 semiannual account maintenance fee if the value of
those shares is less than $10,000. We will determine the amount of your total
eligible investments twice per year, generally the last Friday in October and
April. If the value of those investments is less than $10,000 at that time, we
will redeem shares automatically in one of your accounts to pay the $12.50 fee.
Please note that you may incur a tax liability as a result of the redemption. In
determining your total eligible investment amount, we will include your
investments in all PERSONAL ACCOUNTS (including American Century Brokerage
accounts) registered under your Social Security number. We will not charge the
fee as long as you choose to manage your accounts exclusively online. You may
enroll for exclusive online account management on our Web site. To find out more
about exclusive online account management, visit americancentury.com/info/demo.

[graphic of triangle]

PERSONAL ACCOUNTS INCLUDE INDIVIDUAL ACCOUNTS, JOINT ACCOUNTS, UGMA/UTMA
ACCOUNTS, PERSONAL TRUSTS, COVERDELL EDUCATION SAVINGS ACCOUNTS, IRAS
(INCLUDING TRADITIONAL, ROTH, ROLLOVER, SEP-, SARSEP- AND SIMPLE-IRAS),
AND CERTAIN OTHER RETIREMENT ACCOUNTS. IF YOU HAVE ONLY BUSINESS,
BUSINESS RETIREMENT, EMPLOYER-SPONSORED OR AMERICAN CENTURY BROKERAGE
ACCOUNTS, YOU ARE CURRENTLY NOT SUBJECT TO THIS FEE, BUT YOU MAY BE
SUBJECT TO OTHER FEES.

REDEMPTIONS

Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.

[graphic of triangle]

A FUND'S NET ASSET VALUE, OR NAV, IS THE PRICE OF THE FUND'S SHARES.

However, we reserve the right to delay delivery of redemption proceeds up to
seven days. For example, each time you make an investment with American Century,
there is a seven-day holding period before we will release redemption proceeds
from those shares, unless you provide us with satisfactory proof that your
purchase funds have cleared. For funds with CheckWriting privileges, we will not
honor checks written against shares subject to this seven-day holding period.
Investments by wire generally require only a one-day holding period. If you
change your address, we may require that any redemption request made within 15
days be submitted in writing and be signed by all authorized signers with their
signatures guaranteed. If you change your bank information, we may impose a
15-day holding period before we will transfer or wire redemption proceeds to
your bank.

In addition, we reserve the right to honor certain redemptions with securities,
rather than cash, as described in the next section.

- ------
20

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 a 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 portfolio
managers would select these securities from the fund's portfolio.

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, you 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 a fund and its remaining investors.

REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS

If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, we will notify you and
give you 90 days to meet the minimum. If you do not meet the deadline, American
Century reserves the right to redeem the shares in the account and send the
proceeds to your address of record. Please note that you may incur a tax
liability as a result of the redemption.

SIGNATURE GUARANTEES

A signature guarantee - which is different from a notarized signature - is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions:

* Your redemption or distribution check, Check-A-Month or automatic
redemption is made payable to someone other than the account owners

* Your redemption proceeds or distribution amount is sent by wire or EFT to
a destination other than your personal bank account

* You are transferring ownership of an account over $100,000

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. Each 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

Short-term trading and other so-called market timing practices are not defined
or explicitly prohibited by any federal or state law. However, short-term
trading and other abusive trading practices may disrupt portfolio management
strategies and harm fund performance. If the cumulative amount of short-term
trading activity is significant relative to a fund's net assets, the fund may
incur trading costs that are higher than necessary as securities are first
purchased then quickly sold to meet the redemption request. In such case, the
fund's performance could be negatively impacted by the increased trading costs
created by short-term trading if the additional trading costs are significant.

- ------
21

Because of the potentially harmful effects of abusive trading practices, the
funds' board of trustees has approved American Century's abusive trading
policies and procedures, which are designed to reduce the frequency and effect
of these activities in our funds. These policies and procedures include
monitoring trading activity, imposing trading restrictions on certain accounts,
imposing redemption fees on certain funds, and using fair value pricing when
current market prices are not readily available. Although these efforts are
designed to discourage abusive trading practices, they cannot eliminate the
possibility that such activity will occur and will vary depending on the type of
fund, the class of shares or whether the shares are held directly or indirectly
with American Century. American Century seeks to exercise its judgment in
implementing these tools to the best of its abilities in a manner that it
believes is consistent with shareholder interests.

American Century uses a variety of techniques to monitor for and detect abusive
trading practices. These techniques may change from time to time as determined
by American Century in its sole discretion. To minimize harm to the funds and
their shareholders, we reserve the right to reject any purchase order (including
exchanges) from any shareholder we believe has a history of abusive trading or
whose trading, in our judgment, has been or may be disruptive to the funds. In
making this judgment, we may consider trading done in multiple accounts under
common ownership or control.

Currently, for shares held directly with American Century, we may deem the sale
of all or a substantial portion of a shareholder's purchase of fund shares to be
abusive if the sale is made

* within seven days of the purchase, or

* within 30 days of the purchase, if it happens more than once per year.

To the extent practicable, we try to use the same approach for defining abusive
trading for shares held through financial intermediaries. American Century
reserves the right, in its sole discretion, to identify other trading practices
as abusive and to modify its monitoring and other practices as necessary to deal
with novel or unique abusive trading practices.

In addition, American Century reserves the right to accept purchases and
exchanges in excess of the trading restrictions discussed above if it believes
that such transactions would not be inconsistent with the best interests of fund
shareholders or this policy.

American Century's policies do not permit us to enter into arrangements with
fund shareholders that permit such shareholders to engage in frequent purchases
and redemptions of fund shares. Due to the complexity and subjectivity involved
in identifying abusive trading activity and the volume of shareholder
transactions American Century handles, there can be no assurance that American
Century's efforts will identify all trades or trading practices that may be
considered abusive. In addition, American Century's ability to monitor trades
that are placed by the individual shareholders within group, or omnibus,
accounts maintained by financial intermediaries is severely limited because
American Century generally does not have access to the underlying shareholder
account information. However, American Century monitors aggregate trades placed
in omnibus accounts and seeks to work with financial intermediaries to
discourage shareholders from engaging in abusive trading practices and to impose
restrictions on excessive trades. There may be limitations on the ability of
financial intermediaries to impose restrictions on the trading practices of
their clients. As a result, American Century's ability to monitor and discourage
abusive trading practices in omnibus accounts may be limited.

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22

INVESTING THROUGH FINANCIAL INTERMEDIARIES

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

* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
* trading restrictions

Please contact your FINANCIAL INTERMEDIARY for a complete description of its
policies. Copies of the funds' annual reports, semiannual reports and statement
of additional information are available from your intermediary.

[graphic of triangle]

FINANCIAL INTERMEDIARIES INCLUDE BANKS, BROKER-DEALERS, INSURANCE
COMPANIES AND INVESTMENT ADVISORS.

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, the advisor will pay such
service providers a fee for performing those services. Also, the advisor and the
funds' distributor may make payments for various additional services or other
expenses out of their profits or other available sources. Such expenses may
include distribution services, shareholder services or marketing, promotional or
related expenses. The amount of any payments described by this paragraph is
determined by the advisor or the distributor and is not paid by you.

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 funds.

The funds have authorized certain financial intermediaries to accept orders on
each 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.

RIGHT TO CHANGE POLICIES

We reserve the right to change any stated investment requirement, including
those that relate to purchases, exchanges and redemptions. We also may alter,
add or discontinue any service or privilege. Changes may affect all investors or
only those in certain classes or groups. In addition, from time to time we may
waive a policy on a case-by-case basis, as the advisor deems appropriate.

- ------
23

SHARE PRICE AND DISTRIBUTIONS

SHARE PRICE

American Century will price the fund shares you purchase, exchange or redeem at
the net asset value (NAV) next determined after your order is received and
accepted by the fund's transfer agent, or other financial intermediary with the
authority to accept orders on the fund's behalf. We determine the NAV of each
fund as of the close of regular trading (usually 4 p.m. Eastern time) on the New
York Stock Exchange (NYSE) on each day the NYSE is open. On days when the NYSE
is closed (including certain U.S. national holidays), we do not calculate the
NAV. A fund's NAV is the current value of the fund's assets, minus any
liabilities, divided by the number of shares outstanding.

The fund values portfolio securities for which market quotations are readily
available at their market price. As a general rule, equity securities listed on
a U.S. exchange are valued at the last current reported sale price as of the
time of valuation. Securities listed on the NASDAQ National Market System
(Nasdaq) are valued at the Nasdaq Official Closing Price (NOCP), as determined
by Nasdaq, or lacking an NOCP, at the last current reported sale price as of the
time of valuation. The fund may use pricing services to assist in the
determination of market value. Unlisted securities for which market quotations
are readily available are valued at the last quoted sale price or the last
quoted ask price, as applicable, except that debt obligations with 60 days or
less remaining until maturity may be valued at amortized cost. Exchange-traded
options, futures and options on futures are valued at the settlement price as
determined by the appropriate clearing corporation.

If the fund determines that the market price for a portfolio security is not
readily available or that the valuation methods mentioned above do not reflect
the security's fair value, such security is valued at its fair value as
determined in good faith by, or in accordance with procedures adopted by, the
fund's board or its designee (a process referred to as "fair valuing" the
security). Circumstances that may cause the fund to fair value a security
include, but are not limited to:

* for funds investing in foreign securities, if, after the close of the
foreign exchange on which a portfolio security is principally traded, but
before the close of the NYSE, an event occurs that may materially affect the
value of the security;

* for funds that invest in debt securities, a debt security has been
declared in default; or

* trading in a security has been halted during the trading day.

If such circumstances occur, the fund will fair value the security if the fair
valuation would materially impact the fund's NAV. While fair value
determinations involve judgments that are inherently subjective, these
determinations are made in good faith in accordance with procedures adopted by
the fund's board.

The effect of using fair value determinations is that the fund's NAV will be
based, to some degree, on security valuations that the board or its designee
believes are fair rather than being solely determined by the market.

With respect to any portion of the fund's assets that are invested in one or
more open-end management investment companies that are registered with the SEC
(RICs), the fund's NAV will be calculated based upon the NAVs of such RICs.
These RICs are required by law to explain the circumstances under which they
will use fair value pricing and the effects of using fair value pricing in their
prospectuses.

- ------
24

Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.

Trading of securities in foreign markets may not take place every day the NYSE
is open. Also, trading in some foreign markets and on some electronic trading
networks may take place on weekends or holidays when the fund's NAV is not
calculated. So, the value of the fund's portfolio may be affected on days when
you will not be able to purchase, exchange or redeem fund shares.

DISTRIBUTIONS

Federal tax laws require each fund to make distributions to its shareholders in
order to qualify as a regulated investment company. Qualification as a regulated
investment company means that the funds will not be subject to state or federal
income tax on amounts distributed. The distributions generally consist of
dividends and interest received by a fund, as well as CAPITAL GAINS realized by
a fund on the sale of its investment securities.

[graphic of triangle]

CAPITAL GAINS ARE INCREASES IN THE VALUES OF CAPITAL ASSETS, SUCH AS
STOCK, FROM THE TIME THE ASSETS ARE PURCHASED.

MONEY MARKET FUNDS

A money market fund declares distributions from net income daily. These
distributions are paid on the last business day of each month. Distributions are
reinvested automatically in additional shares unless you elect to have dividends
and/or capital gains sent to another American Century account, to your bank
electronically, or to your home address or to another address by check.

Except as described in the next paragraph, you will begin to participate in fund
distributions the next business day after your purchase is effective. If you
redeem shares, you will receive the distribution declared for the day you
redeem.

You will begin to participate in fund distributions on the day your instructions
to purchase are received if you

* notify us of your purchase prior to 11 a.m. Central time AND

* pay for your purchase by bank wire transfer prior to 3 p.m. Central time
on the same day.

Also, we will wire your redemption proceeds to you by the end of the business
day if you request your redemption before 11 a.m. Central time.

OTHER FUNDS

Each fund pays distributions from net income monthly, and generally pays capital
gain distributions, if any, once a year, usually in December. A fund may make
more frequent distributions, if necessary, to comply with Internal Revenue Code
provisions. Distributions are reinvested automatically in additional shares
unless you elect to have dividends and/or capital gains sent to another American
Century account, to your bank electronically, or to your home address or to
another address by check.

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 that a distribution is declared, you will not receive that
distribution. If you redeem shares, you will receive any distribution declared
on the day you redeem. If you redeem all shares, we will include any
distributions received with your redemption proceeds.

- ------
25

TAXES

TAX-EXEMPT INCOME

Most of the income that the funds receive from 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.

TAXABLE INCOME

The funds' investment performance also is based on sources other than income
from municipal securities. These investment performance sources, while not the
primary source of fund distributions, will generate taxable income to you. Some
of these investment performance sources are

* MARKET DISCOUNT PURCHASES. The funds may buy a tax-exempt security for a
price less than the principal amount of the bond. If the price of the bond
increases over time, a portion of the gain may be treated as ordinary income
and taxable as ordinary income 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.

TAXABILITY OF DISTRIBUTIONS

Fund distributions may consist of income such as dividends and interest earned
by a fund from its investments, or capital gains generated by a fund from the
sale of its investment securities. Distributions of income are generally exempt
from regular federal income tax. However, if distributions are federally
taxable, such distributions may be designated as QUALIFIED DIVIDEND INCOME. If
so, and if you meet a minimum required holding period with respect to your
shares of the fund, such distributions of income are taxed as long-term capital
gains.

[graphic of triangle]

QUALIFIED DIVIDEND INCOME IS A DIVIDEND RECEIVED BY A FUND FROM THE
STOCK OF A DOMESTIC OR QUALIFYING FOREIGN CORPORATION, PROVIDED THAT THE
FUND HAS HELD THE STOCK FOR A REQUIRED HOLDING PERIOD.

For capital gains and for income distributions designated as qualified dividend
income, the following rates apply:

TAX RATE FOR 10% TAX RATE FOR
TYPE OF DISTRIBUTION AND 15% BRACKETS ALL OTHER BRACKETS
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary Income Ordinary Income
- --------------------------------------------------------------------------------
Long-term capital gains (> 1 year)
and Qualified Dividend Income 5% 15%
- --------------------------------------------------------------------------------

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 or your financial
intermediary 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, you may want to consult your tax professional about
federal, state and local tax consequences.

- ------
26

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 exchange 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 withholding, we
are required to withhold and pay to the IRS the applicable federal withholding
tax rate on taxable dividends, capital gains distributions and redemption
proceeds.

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 funds distribute those gains to you, after subtracting any losses,
even if you did not own the shares when the gains occurred.

If you buy a dividend, you incur the full tax liability of the distribution
period, but you may not enjoy the full benefit of the gains realized in the
fund's portfolio.

- ------
27

FINANCIAL HIGHLIGHTS

UNDERSTANDING THE FINANCIAL HIGHLIGHTS

The tables on the next few pages itemize what contributed to the changes in
share price during the most recently ended fiscal year. They also show the
changes in share price for this period in comparison to changes over the last
five fiscal years.

On a per-share basis, each 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

Each 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 investment portfolio
that is replaced during the period

The Financial Highlights have been audited by PricewaterhouseCoopers LLP,
independent registered public accounting firm. Their Report of Independent
Registered Public Accounting Firm and the financial statements are included in
the funds' Annual Report, which is available upon request.

- ------
28

CALIFORNIA TAX-FREE MONEY MARKET FUND
Investor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
- ------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------
PER-SHARE DATA
- ------------------------------------------------------------------------------------------
Net Asset Value, $1.00 $1.00 $1.00 $1.00 $1.00
Beginning of Period
- ------------------------------------------------------------------------------------------
Income From Investment
Operations
- -----------------------------------
Net Investment Income 0.01 0.01 0.01 0.03 0.03
- ------------------------------------------------------------------------------------------
Distributions
- -----------------------------------
From Net Investment Income (0.01) (0.01) (0.01) (0.03) (0.03)
- ------------------------------------------------------------------------------------------
Net Asset Value, $1.00 $1.00 $1.00 $1.00 $1.00
End of Period
- ------------------------------------------------------------------------------------------
TOTAL RETURN(1) 0.58% 0.73% 1.24% 2.86% 3.11%

RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.52% 0.51% 0.51% 0.50% 0.49%
- -----------------------------------
Ratio of Net Investment
Income to Average Net Assets 0.57% 0.76% 1.24% 2.84% 3.07%
- -----------------------------------
Net Assets, End of Period
(in thousands) $600,882 $621,747 $528,188 $551,722 $640,476
- ------------------------------------------------------------------------------------------

(1) TOTAL RETURN ASSUMES REINVESTMENT OF NET INVESTMENT INCOME AND CAPITAL
GAINS DISTRIBUTIONS, IF ANY.

- ------
29

CALIFORNIA LIMITED-TERM TAX-FREE FUND
Investor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
- --------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.70 $10.82 $10.69 $10.40 $10.27
- --------------------------------------------------------------------------------------------
Income From Investment Operations
- ------------------------------------
Net Investment Income 0.28 0.30 0.35 0.42 0.41
- ------------------------------------
Net Realized and 0.01 (0.10) 0.16 0.29 0.13
Unrealized Gain (Loss)
- --------------------------------------------------------------------------------------------
Total From Investment 0.29 0.20 0.51 0.71 0.54
Operations
- --------------------------------------------------------------------------------------------
Distributions
- ------------------------------------
From Net Investment Income (0.28) (0.30) (0.35) (0.42) (0.41)
- ------------------------------------
From Net Realized Gains -(1) (0.02) (0.03) - -
- --------------------------------------------------------------------------------------------
Total Distributions (0.28) (0.32) (0.38) (0.42) (0.41)
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.71 $10.70 $10.82 $10.69 $10.40
- --------------------------------------------------------------------------------------------
TOTAL RETURN(2) 2.75% 1.87% 4.91% 6.94% 5.44%

RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.50% 0.51% 0.51% 0.51% 0.51%
- ------------------------------------
Ratio of Net Investment
Income to Average Net Assets 2.59% 2.78% 3.30% 3.97% 4.05%
- ------------------------------------
Portfolio Turnover Rate 55% 34% 50% 63% 97%
- ------------------------------------
Net Assets, End of Period
(in thousands) $219,949 $228,030 $205,066 $163,929 $142,205
- --------------------------------------------------------------------------------------------

(1) PER-SHARE AMOUNT WAS LESS THAN $0.005.

(2) TOTAL RETURN ASSUMES REINVESTMENT OF NET INVESTMENT INCOME AND CAPITAL
GAINS DISTRIBUTIONS, IF ANY.

- ------
30

CALIFORNIA INTERMEDIATE-TERM TAX-FREE FUND
Investor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
- ---------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $11.28 $11.55 $11.47 $11.08 $10.85
- ---------------------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------
Net Investment Income 0.44 0.45 0.47 0.50 0.50
- -------------------------------------
Net Realized and 0.13 (0.23) 0.15 0.39 0.23
Unrealized Gain (Loss)
- ---------------------------------------------------------------------------------------------
Total From Investment 0.57 0.22 0.62 0.89 0.73
Operations
- ---------------------------------------------------------------------------------------------
Distributions
- -------------------------------------
From Net Investment Income (0.44) (0.45) (0.47) (0.50) (0.50)
- -------------------------------------
From Net Realized Gains - (0.04) (0.07) - -
- ---------------------------------------------------------------------------------------------
Total Distributions (0.44) (0.49) (0.54) (0.50) (0.50)
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.41 $11.28 $11.55 $11.47 $11.08
- ---------------------------------------------------------------------------------------------
TOTAL RETURN(1) 5.13% 1.91% 5.63% 8.22% 6.95%

RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.50% 0.51% 0.51% 0.51% 0.51%
- -------------------------------------
Ratio of Net Investment
Income to Average Net Assets 3.87% 3.89% 4.13% 4.45% 4.64%
- -------------------------------------
Portfolio Turnover Rate 20% 25% 41% 94% 73%
- -------------------------------------
Net Assets, End of Period
(in thousands) $418,655 $451,131 $477,494 $449,975 $444,571
- ---------------------------------------------------------------------------------------------

(1) TOTAL RETURN ASSUMES REINVESTMENT OF NET INVESTMENT INCOME AND CAPITAL
GAINS DISTRIBUTIONS, IF ANY.

- ------
31

CALIFORNIA LONG-TERM TAX-FREE FUND
Investor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
- ---------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------
PER-SHARE DATA
- ---------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $11.43 $11.75 $11.70 $11.11 $10.86
- ---------------------------------------------------------------------------------------------
Income From Investment Operations
- -------------------------------------
Net Investment Income 0.51 0.53 0.53 0.55 0.56
- -------------------------------------
Net Realized and 0.26 (0.32) 0.05 0.59 0.25
Unrealized Gain (Loss)
- ---------------------------------------------------------------------------------------------
Total From Investment 0.77 0.21 0.58 1.14 0.81
Operations
- ---------------------------------------------------------------------------------------------
Distributions
- -------------------------------------
From Net Investment Income (0.51) (0.53) (0.53) (0.55) (0.56)
- -------------------------------------
From Net Realized Gains -(1) - - - -
- ---------------------------------------------------------------------------------------------
Total Distributions (0.51) (0.53) (0.53) (0.55) (0.56)
- ---------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.69 $11.43 $11.75 $11.70 $11.11
- ---------------------------------------------------------------------------------------------
TOTAL RETURN(2) 6.83% 1.81% 5.14% 10.55% 7.79%

RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets 0.50% 0.51% 0.51% 0.51% 0.51%
- -------------------------------------
Ratio of Net Investment
Income to Average Net Assets 4.39% 4.54% 4.58% 4.87% 5.24%
- -------------------------------------
Portfolio Turnover Rate 19% 23% 43% 31% 24%
- -------------------------------------
Net Assets, End of Period
(in thousands) $468,891 $497,165 $327,150 $331,090 $303,480
- ---------------------------------------------------------------------------------------------

(1) PER-SHARE AMOUNT WAS LESS THAN $0.005.

(2) TOTAL RETURN ASSUMES REINVESTMENT OF NET INVESTMENT INCOME AND CAPITAL
GAINS DISTRIBUTIONS, IF ANY.

- ------
32

NOTES

- ------
33

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.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains a more detailed, legal description of the funds' operations,
investment restrictions, policies and practices. The SAI is incorporated by
reference into this prospectus. This means that it is legally part of this
prospectus, even if you don't request a copy.

You may obtain a free copy of the SAI or annual and semiannual reports, and ask
questions about the funds or your accounts, by contacting American Century at
the address or telephone numbers listed below.

You also can get information about the funds (including the SAI) from the
Securities and Exchange Commission (SEC). 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 sec.gov
* By email request at publicinfo@sec.gov

BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102

This prospectus shall not constitute an offer to sell securities of a fund in
any state, territory, or other jurisdiction where the fund's shares have not
been registered or qualified for sale, unless such registration or qualification
is not required, or under any circumstances in which such offer or solicitation
would be unlawful.

FUND REFERENCE FUND CODE TICKER NEWSPAPER LISTING
- --------------------------------------------------------------------------------
California Tax-Free
Money Market Fund
Investor Class 930 BCTXX AmC CATF
- --------------------------------------------------------------------------------
California Limited-Term
Tax-Free Fund
Investor Class 936 BCSTX CaLtdTF
- --------------------------------------------------------------------------------
California Intermediate-Term
Tax-Free Fund
Investor Class 931 BCITX CaIntTF
- --------------------------------------------------------------------------------
California Long-Term
Tax-Free Fund
Investor Class 932 BCLTX CaLgTF
- --------------------------------------------------------------------------------

Investment Company Act File No. 811-0816

American Century Investments
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
americancentury.com

0501
SH-PRS-40780

January 1, 2005

American Century Investments
prospectus

Investor Class

CALIFORNIA HIGH-YIELD MUNICIPAL FUND

EFFECTIVE JANUARY 30, 2003, CALIFORNIA HIGH-YIELD MUNICIPAL CLOSED TO NEW RETAIL
INVESTORS, BUT IS AVAILABLE THROUGH FINANCIAL INTERMEDIARIES. ANY SHAREHOLDER
WITH AN OPEN ACCOUNT AS OF JANUARY 30, 2003 MAY MAKE ADDITIONAL INVESTMENTS AND
REINVEST DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS AS LONG AS SUCH ACCOUNT
REMAINS OPEN.

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 investments logo and text logo]

Dear Investor,

Thank you for considering American Century for your investment needs.

Sincerely,

/s/Donna Byers

Donna Byers
Senior Vice President
Direct Sales and Services
American Century Services, LLC

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

The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.

Table of Contents

AN OVERVIEW OF THE FUND . . . . . . . . . . . . . .2

FUND PERFORMANCE HISTORY . . . . . . . . . . . . . 3

FEES AND EXPENSES . . . . . . . . . . . . . . . . .5

OBJECTIVES, STRATEGIES AND RISKS . . . . . . . . . 6

BASICS OF FIXED-INCOME INVESTING . . . . . . . . . 8

MANAGEMENT . . . . . . . . . . . . . . . . . . . .10

INVESTING WITH AMERICAN CENTURY . . . . . . . . . 12

SHARE PRICE AND DISTRIBUTIONS . . . . . . . . . . 19

TAXES . . . . . . . . . . . . . . . . . . . . . . 21

MULTIPLE CLASS INFORMATION . . . . . . . . . . . .23

FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . .24

[graphic of triangle]

THIS SYMBOL IS USED THROUGHOUT THE BOOK TO HIGHLIGHT DEFINITIONS OF KEY
INVESTMENT TERMS AND TO PROVIDE OTHER HELPFUL INFORMATION.

AN OVERVIEW OF THE FUND

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

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

The portfolio managers invest at least 80% of the fund's assets in municipal
securities with income payments exempt from federal and California income taxes.
Cities, counties and other municipalities in California and U. S. territories
usually issue these securities for public projects, such as schools, roads, and
water and sewer systems.

* 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 - It is possible to lose money by investing in the fund.

A more detailed description of the fund's investment strategies and risks begins
on page 6.

[graphic of triangle]

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

FUND PERFORMANCE HISTORY

Annual Total Returns

CALIFORNIA HIGH-YIELD MUNICIPAL FUND - INVESTOR CLASS(1)

[data from bar chart]

1994 -5.36%
1995 18.29%
1996 5.89%
1997 10.50%
1998 6.73%
1999 -3.31%
2000 12.70%
2001 5.02%
2002 9.10%
2003 5.72%

(1) AS OF SEPTEMBER 30, 2004, THE END OF THE MOST RECENT CALENDAR QUARTER,
THE FUND'S YEAR-TO-DATE RETURN WAS 4.63%.

The highest and lowest quarterly returns for the periods reflected in the bar
chart are:

HIGHEST LOWEST
- --------------------------------------------------------------------------------
California High-Yield Municipal 7.18% (1Q 1995) -4.54% (1Q 1994)
- --------------------------------------------------------------------------------

Average Annual Total Returns

The following table shows the average annual total returns of the fund's
Investor Class shares calculated three different ways.

Return Before Taxes shows the actual change in the value of fund shares over the
periods shown, but does not reflect the impact of taxes on fund distributions or
the sale of fund shares. The two after-tax returns take into account taxes that
may be associated with owning fund shares. Return After Taxes on Distributions
is a fund's actual performance, adjusted by the effect of taxes on distributions
made by the fund during the period shown. Return After Taxes on Distributions
and Sale of Fund Shares is further adjusted to reflect the tax impact on any
change in the value of fund shares as if they had been sold on the last day of
the period.

- ------
3

The benchmark is an unmanaged index that has no operating costs and is included
in the table for performance comparison.

Return Before Taxes 5.72% 5.71% 6.32%
Return After Taxes on Distributions 5.73% 5.71% 6.25%
Return After Taxes on Distributions
and Sale of Fund Shares 5.61% 5.66% 6.19%
Lehman Brothers Long-Term Municipal Bond Index 6.13% 5.95% 6.40%
(reflects no deduction for fees, expenses and taxes)
- --------------------------------------------------------------------------------------

Performance information is designed to help you see how fund returns can vary.
Keep in mind that past performance (before and after taxes) does not predict how
a fund will perform in the future.

For current performance information, including yields, please call us at
1-800-345-2021 or visit us at americancentury.com.

- ------
4

FEES AND EXPENSES

There are no sales loads, fees or other charges

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
Investor Class

Maximum Account Maintenance Fee $25(1)
- --------------------------------------------------------------------------------

(1) APPLIES ONLY TO INVESTORS WHOSE TOTAL ELIGIBLE INVESTMENTS WITH
AMERICAN CENTURY ARE LESS THAN $10,000. SEE Account Maintenance Fee UNDER
Investing with American Century FOR MORE DETAILS.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
DISTRIBUTION TOTAL ANNUAL
MANAGEMENT AND SERVICE OTHER FUND OPERATING
FEE(1) (12B-1) FEES EXPENSES(2) EXPENSES
- -------------------------------------------------------------------------------
California High-Yield
Municipal

Investor Class 0.53% None 0.00% 0.53%
- -------------------------------------------------------------------------------

(1) BASED ON ASSETS DURING THE FUND'S 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 AND INCREASES AS FUND ASSETS
DECREASE.

(2) OTHER EXPENSES INCLUDE THE FEES AND EXPENSES OF THE FUND'S INDEPENDENT
TRUSTEES AND THEIR LEGAL COUNSEL, AS WELL AS INTEREST.

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. Of
course, your actual costs may be higher or lower. 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

Investor Class $54 $170 $296 $664
- --------------------------------------------------------------------------------

- ------
5

OBJECTIVES, STRATEGIES AND RISKS

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVE?

The portfolio managers must invest at least 80% of the fund's assets in
MUNICIPAL 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, roads and water and sewer systems.

[graphic of triangle]

MUNICIPAL SECURITIES ARE A DEBT OBLIGATION ISSUED BY OR ON BEHALF OF A
STATE, ITS POLITICAL SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, THE
DISTRICT OF COLUMBIA OR A U.S. TERRITORY OR POSSESSION.

The portfolio 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 portfolio managers seek to invest in securities that will result in a high
yield for the fund. To accomplish this, the portfolio managers buy
investment-grade securities, securities rated below investment grade, including
so-called junk bonds and bonds that are in technical or monetary default, or
unrated securities determined by the advisor to be of similar quality. 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.

Although California High-Yield Municipal invests primarily for income, it also
employs techniques designed to realize capital appreciation. For example, the
portfolio managers may select bonds with maturities and coupon rates that
position the fund for potential capital appreciation for a variety of reasons,
including their view on the direction of future interest-rate movements and the
potential for a credit upgrade.

The fund also may invest in derivative instruments such as options, futures
contracts, options on futures contracts, and swap agreements (including, but not
limited to, credit default swap agreements), or in mortgage- or asset-backed
securities, provided that such investments are in keeping with the fund's
investment objective.

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.

A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio securities is available in the fund's
statement of additional information.

- ------
6

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 fund may invest in securities rated below investment grade or that are
unrated, including bonds that are in technical or monetary default. By
definition, the issuers of many of these securities have had and may continue to
have problems making interest and principal payments.

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 8 for more information about the effects of changing interest rates on
the fund's portfolio.

The fund is NONDIVERSIFIED. As such, it may hold large positions in a small
number of securities. If so, a price change in any one of those securities may
have a greater impact on the fund's share price than would be the case in a
diversified fund.

[graphic of triangle]

A NONDIVERSIFIED FUND MAY INVEST A GREATER PERCENTAGE OF ITS ASSETS IN A
SMALLER NUMBER OF SECURITIES THAN A DIVERSIFIED FUND.

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.

The use of derivative instruments involves risks different from, or possibly
greater than, the risks associated with investing directly in securities and
other traditional instruments. Derivatives are subject to a number of risks
including, liquidity, interest rate, market, and credit risk. They also involve
the risk of mispricing or improper valuation, the risk that changes in the value
of the derivative may not correlate perfectly with the underlying asset, rate or
index, and the risk of default or bankruptcy of the other party to the swap
agreement. Gains or losses involving some futures, options, and other
derivatives may be substantial -- in part because a relatively small price
movement in these securities may result in an immediate and substantial gain or
loss for the fund.

At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the fund.

- ------
7

BASICS OF FIXED-INCOME INVESTING

DEBT SECURITIES

The portfolio 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 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

Because a bond fund will own many debt securities, the portfolio 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
portfolio managers would calculate the weighted average maturity for a fund that
owned only two debt securities.

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.

- ------
8

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:

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 funds will not necessarily sell debt
securities if they are downgraded by a rating agency.

The fund engages in a variety of investment techniques as it pursues its
investment objectives. Each technique has its own characteristics and may pose
some level of risk to the fund. If you would like to learn more about these
techniques, please review the statement of additional information before making
an investment.

Liquidity Risk

- ------
9

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 three-fourths of the trustees are independent of the fund's advisor;
that is, they have never been employed by and have no financial interest in the
advisor or any of its affiliated companies (other than as shareholders of
American Century funds).

THE INVESTMENT ADVISOR

The fund's investment advisor is American Century Investment Management, Inc.
(the advisor). 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 portfolio 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 provided to the fund, the advisor received a unified
management fee based on a percentage of the daily net assets of each specific
class of shares of the fund. The percentage rate used to calculate the
management fee for each class of shares of each specific fund is determined
daily using a two-component formula that takes into account (i) the daily net
assets of the accounts managed by the advisor that are in the same broad
investment category as the fund (the "Category Fee") and (ii) the assets of all
the funds in the American Century family of funds (the "Complex Fee"). The
management fee is calculated daily and 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 paid all
expenses of managing and operating the fund except brokerage expenses, taxes,
interest, fees and expenses of the independent trustees (including legal counsel
fees), and extraordinary expenses. A portion of the 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.

MANAGEMENT FEE PAID BY THE FUND TO THE ADVISOR
AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE MOST
RECENT FISCAL YEAR ENDED AUGUST 31, 2004 INVESTOR CLASS
- --------------------------------------------------------------------------------
California High-Yield Municipal 0.53%
- --------------------------------------------------------------------------------

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 a fund as they see fit, guided by the fund's investment
objectives and strategy.

- ------
10

The fund is managed by the Municipal Bond team, whose members are identified
below.

G. DAVID MACEWEN

STEVEN M. PERMUT

ROBERT J. MILLER

KENNETH M. SALINGER

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. It also contains limits on short-term transactions in American Century-
managed funds. 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 personal trades.

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 and/or the advisor may change any
other policies and investment strategies.

- ------
11

INVESTING WITH AMERICAN CENTURY

SERVICES AUTOMATICALLY AVAILABLE TO YOU

CONDUCTING BUSINESS IN WRITING

A NOTE ABOUT MAILINGS TO SHAREHOLDERS

YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS

WAYS TO MANAGE YOUR ACCOUNT

- --------------------------------------------------------------------------------
ONLINE

- --------------------------------------------------------------------------------

americancentury.com

OPEN AN ACCOUNT

EXCHANGE SHARES

Exchange shares from another American Century account.

MAKE ADDITIONAL INVESTMENTS

Make an additional investment into an established American Century account if
you have authorized us to invest from your bank account.

SELL SHARES*

Redeem shares and proceeds will be electronically transferred to your authorized
bank account.

* ONLINE REDEMPTIONS UP TO $25,000 PER DAY.

- ------
12

- --------------------------------------------------------------------------------
BY TELEPHONE
- --------------------------------------------------------------------------------

Investor Relations

1-800-345-2021

Business, Not-For-Profit and
Employer-Sponsored Retirement Plans

1-800-345-3533

Automated Information Line

1-800-345-8765

OPEN AN ACCOUNT

If you are a current investor, you can open an account by exchanging shares from
another American Century account.

EXCHANGE SHARES

Call or use our Automated Information Line if you have authorized us to accept
telephone instructions.

MAKE ADDITIONAL INVESTMENTS

Call or use our Automated Information Line if you have authorized us to invest
from your bank account.

SELL SHARES

Call a Service Representative.

- --------------------------------------------------------------------------------
BY WIRE

- --------------------------------------------------------------------------------

Please remember, if you request redemptions by wire, $10 will be deducted from
the amount redeemed. Your bank also may charge a fee.

OPEN AN ACCOUNT

Call to set up your account or mail a completed application to the address
provided in the BY MAIL OR FAX section. Give your bank the following information
to wire money.

* Our bank information
Commerce Bank N.A.
Routing No. 101000019

Account No. Please call for the appropriate account number
* The fund name
* Your American Century account number, if known*
* Your name
* The contribution year (for IRAs only)
*FOR ADDITIONAL INVESTMENTS ONLY

MAKE ADDITIONAL INVESTMENTS

Follow the BY WIRE -- OPEN AN ACCOUNT instructions.

SELL SHARES

You can receive redemption proceeds by wire or electronic transfer.

EXCHANGE SHARES

Not available.

- ------
13

- --------------------------------------------------------------------------------
BY MAIL OR FAX
- --------------------------------------------------------------------------------

P.O. Box 419200
Kansas City, MO 64141-6200

Fax

816-340-7962

OPEN AN ACCOUNT

Send a signed, completed application and check or money order payable to
American Century Investments.

EXCHANGE SHARES

Send written instructions to exchange your shares from one American Century
account to another.

MAKE ADDITIONAL INVESTMENTS

SELL SHARES

Send written instructions or a redemption form to sell shares. Call a Service
Representative to request a form.

- --------------------------------------------------------------------------------
AUTOMATICALLY

- --------------------------------------------------------------------------------

OPEN AN ACCOUNT

Not available.

EXCHANGE SHARES

Send written instructions to set up an automatic exchange of your shares from
one American Century account to another.

MAKE ADDITIONAL INVESTMENTS

With the automatic investment service, you can purchase shares on a regular
basis. You must invest at least $600 per year per account.

SELL SHARES

If you have at least $10,000 in your account, you may sell shares automatically
by establishing Check-A-Month or Automatic Redemption plans.

- --------------------------------------------------------------------------------
IN PERSON

- --------------------------------------------------------------------------------

If you prefer to handle your transactions in person, visit one of our Investor
Centers and a representative can help you open an account, make additional
investments, and sell or exchange shares.

4500 Main Street 4917 Town Center Drive
Kansas City, Missouri Leawood, Kansas
8 a.m. to 5 p.m., Monday - Friday 8 a.m. to 5 p.m., Monday - Friday
8 a.m. to noon, Saturday

1665 Charleston Road 10350 Park Meadows Drive
Mountain View, California Littleton, Colorado
8 a.m. to 5 p.m., Monday - Friday 8:30 a.m. to 5 p.m., Monday - Friday

- ------
14

MINIMUM INITIAL INVESTMENT AMOUNTS

To open an account, the minimum investment is $5,000 for all accounts. This fund
is not available for retirement accounts.

ACCOUNT MAINTENANCE FEE

[graphic of triangle]

REDEMPTIONS

Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.

[graphic of triangle]

A FUND'S NET ASSET VALUE, OR NAV, IS THE PRICE OF THE FUND'S SHARES.

- ------
15

SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS

REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS

SIGNATURE GUARANTEES

A signature guarantee -- which is different from a notarized signature -- is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions:

* Your redemption or distribution check, Check-A-Month or automatic
redemption is made payable to someone other than the account owners

* Your redemption proceeds or distribution amount is sent by wire or EFT to
a destination other than your personal bank account

* You are transferring ownership of an account over $100,000

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

- ------
16

Currently, for shares held directly with American Century, we may deem the sale
of all or a substantial portion of a shareholder's purchase of fund shares to be
abusive if the sale is made

* within seven days of the purchase, or

* within 30 days of the purchase, if it happens more than once per year.

- ------
17

INVESTING THROUGH FINANCIAL INTERMEDIARIES

* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
* trading restrictions

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.

[graphic of triangle]

FINANCIAL INTERMEDIARIES INCLUDE BANKS, BROKER-DEALERS, INSURANCE
COMPANIES AND INVESTMENT ADVISORS.

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, the advisor will pay such
service providers a fee for performing those services. Also, the advisor and the
fund's distributor may make payments for various additional services or other
expenses out of their profits or other available sources. Such expenses may
include distribution services, shareholder services or marketing, promotional or
related expenses. The amount of any payments described by this paragraph is
determined by the advisor or the distributor and is not paid by you.

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.

RIGHT TO CHANGE POLICIES

- ------
18

SHARE PRICE AND DISTRIBUTIONS

SHARE PRICE

* for funds that invest in debt securities, a debt security has been
declared in default; or

* trading in a security has been halted during the trading day.

Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.

- ------
19

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 that 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 and generally pays distributions of
capital gains, if any, once a year, usually in December. The fund may make more
frequent distributions, if necessary, to comply with Internal Revenue Code
provisions. Distributions are reinvested automatically in additional shares
unless you elect to have dividends and/or capital gains sent to another American
Century account, to your bank electronically, or to your home address or to
another address by check.

[graphic of triangle]

CAPITAL GAINS ARE INCREASES IN THE VALUES OF CAPITAL ASSETS, SUCH AS
STOCK, FROM THE TIME THE ASSETS ARE PURCHASED.

- ------
20

TAXES

Tax-Exempt Income

Most of the income that the fund receives from 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 fund 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 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 the 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.

Taxability of Distributions

[graphic of triangle]

QUALIFIED DIVIDEND INCOME IS A DIVIDEND RECEIVED BY A FUND FROM THE
STOCK OF A DOMESTIC OR QUALIFYING FOREIGN CORPORATION, PROVIDED THAT THE
FUND HAS HELD THE STOCK FOR A REQUIRED HOLDING PERIOD.

For capital gains and for income distributions designated as qualified dividend
income, the following rates apply:

TAX RATE FOR 10% TAX RATE FOR
TYPE OF DISTRIBUTION AND 15% BRACKETS ALL OTHER BRACKETS
- -------------------------------------------------------------------------------
Short-term capital gains Ordinary Income Ordinary Income
- -------------------------------------------------------------------------------
Long-term capital gains (> 1 year)
and Qualified Dividend Income 5% 15%
- -------------------------------------------------------------------------------

- ------
21

Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.

Taxes on Transactions

Your redemptions--including exchanges to other American Century funds--are subject
to capital gains tax. The table above can provide a general guide for your
potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange 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.

Buying a Dividend

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.

- ------
22

MULTIPLE CLASS INFORMATION

American Century offers four classes of shares of the fund through financial
intermediaries: Investor Class, A Class, B Class and C Class. The shares offered
by this prospectus are Investor Class shares, which have no upfront or deferred
charges, commissions or 12b-1 fees.

The other classes have different fees, expenses and/or minimum investment
requirements from the class offered by this prospectus. The difference in the
fee structures between the classes is the result of their separate arrangements
for shareholder and distribution services. It is not the result of any
difference in advisory or custodial fees or other expenses related to the
management of the fund's assets, which do not vary by class. Different fees and
expenses will affect performance. For additional information concerning the A, B
or C Class shares, call us at 1-800-378-9878.

You also can contact a sales representative or financial intermediary who offers
that class of shares.

Except as described herein, all classes of shares of the fund have identical
voting, dividend, liquidation and other rights, preferences, terms and
conditions. The only differences among 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 such class; (d) each class may
have different exchange privileges; and (e) the B Class provides for automatic
conversion from that class into shares of the A Class of the same fund after
eight years.

- ------
23

FINANCIAL HIGHLIGHTS

UNDERSTANDING THE FINANCIAL HIGHLIGHTS

The table on the next page itemizes what contributed to the changes in 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.

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 investment portfolio
that is replaced during the period

- ------
24

CALIFORNIA HIGH-YIELD MUNICIPAL FUND
Investor Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
- -------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.65 $9.84 $9.79 $9.44 $9.36
- -------------------------------------------------------------------------------------------
Income From Investment Operations

- -------------------------------------
Net Investment Income 0.52 0.52 0.52 0.52 0.52
- -------------------------------------
Net Realized and 0.28 (0.19) 0.05 0.35 0.08
Unrealized Gain (Loss)
- -------------------------------------------------------------------------------------------
Total From Investment Operations 0.80 0.33 0.57 0.87 0.60
- -------------------------------------------------------------------------------------------
Distributions

- -------------------------------------
From Net Investment Income (0.52) (0.52) (0.52) (0.52) (0.52)
- -------------------------------------------------------------------------------------------
Net Asset Value, End of Period $9.93 $9.65 $9.84 $9.79 $9.44
- -------------------------------------------------------------------------------------------
TOTAL RETURN(1) 8.48% 3.35% 6.07% 9.50% 6.70%

RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Ratio of Operating Expenses

to Average Net Assets 0.53% 0.54% 0.54% 0.54% 0.54%
- -------------------------------------
Ratio of Net Investment

Income to Average Net Assets 5.30% 5.24% 5.37% 5.45% 5.64%
- -------------------------------------
Portfolio Turnover Rate 19% 30% 32% 47% 52%
- -------------------------------------
Net Assets, End of Period

(in thousands) $332,434 $334,032 $373,061 $336,400 $318,197
- -------------------------------------------------------------------------------------------

(1) TOTAL RETURN ASSUMES REINVESTMENT OF NET INVESTMENT INCOME AND CAPITAL
GAINS DISTRIBUTIONS, IF ANY. THE TOTAL RETURN OF THE CLASSES MAY NOT
PRECISELY REFLECT THE CLASS EXPENSE DIFFERENCES BECAUSE OF THE IMPACT OF
CALCULATING THE NET ASSET VALUES TO TWO DECIMAL PLACES. IF NET ASSET VALUES
WERE CALCULATED TO THREE DECIMAL PLACES, THE TOTAL RETURN DIFFERENCES WOULD
MORE CLOSELY REFLECT THE CLASS EXPENSE DIFFERENCES. THE CALCULATION OF NET
ASSET VALUES TO TWO DECIMAL PLACES IS MADE IN ACCORDANCE WITH SEC
GUIDELINES AND DOES NOT RESULT IN ANY GAIN OR LOSS OF VALUE BETWEEN ONE
CLASS AND ANOTHER.

- ------
25

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 sec.gov
* By email request at publicinfo@sec.gov

BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102

FUND REFERENCE FUND CODE TICKER NEWSPAPER LISTING
- --------------------------------------------------------------------------------
California High-Yield Municipal Fund

Investor Class 933 BCHYX CaHYMu
- --------------------------------------------------------------------------------

Investment Company Act File No. 811-0816

AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200
1-800-345-2021 or 816-531-5575
americancentury.com

0501

SH-PRS-40781

January 1, 2005

American Century Investments
prospectus

A Class
B Class
C Class

CALIFORNIA HIGH-YIELD MUNICIPAL FUND

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 investments logo and text logo]

Dear Investor:

American Century Investments is committed to helping people make the most of
their financial opportunities. That's why we are focused on achieving superior
results and building long-term relationships with investors.

We believe our relationship with you begins with an easy-to-read prospectus that
provides you with the information you need to feel confident about your
investment decisions.

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,

/s/Brian Jeter

Brian Jeter
Senior Vice President
Third Party Sales and Services
American Century Investment Services, Inc.

American Century Investments
P.O. Box 419786, Kansas City, Mo 64141-6786

The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.

Table of Contents

AN OVERVIEW OF THE FUND . . . . . . . . . . . . . . 2

FUND PERFORMANCE HISTORY . . . . . . . . . . . . . 3

FEES AND EXPENSES . . . . . . . . . . . . . . . . . 5

OBJECTIVES, STRATEGIES AND RISKS . . . . . . . . . 7

BASICS OF FIXED-INCOME INVESTING . . . . . . . . . .9

MANAGEMENT . . . . . . . . . . . . . . . . . . . .11

INVESTING WITH AMERICAN CENTURY . . . . . . . . . .13

SHARE PRICE AND DISTRIBUTIONS . . . . . . . . . . .21

TAXES . . . . . . . . . . . . . . . . . . . . . . 23

MULTIPLE CLASS INFORMATION . . . . . . . . . . . . 25

FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . 26

[graphic of triangle]

THIS SYMBOL IS USED THROUGHOUT THE BOOK TO HIGHLIGHT DEFINITIONS OF KEY
INVESTMENT TERMS AND TO PROVIDE OTHER HELPFUL INFORMATION.

AN OVERVIEW OF THE FUND

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

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

* 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.

* PRINCIPAL LOSS - It is possible to lose money by investing in the fund.

A more detailed description of the fund's investment strategies and risks begins
on page 7.

[graphic of triangle]

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

FUND PERFORMANCE HISTORY

When the A, B or 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

If the A, B or C Class had existed during the periods presented, their
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 other classes would have been lower because of their
higher expense ratios.

Annual Total Returns

CALIFORNIA HIGH-YIELD MUNICIPAL FUND - INVESTOR CLASS(1)

[data from bar chart]

1994 -5.36%
1995 18.29%
1996 5.89%
1997 10.50%
1998 6.73%
1999 -3.31%
2000 12.70%
2001 5.02%
2002 9.10%
2003 5.72%

(1) AS OF SEPTEMBER 30, 2004, THE END OF THE MOST RECENT CALENDAR QUARTER,
THE FUND'S YEAR-TO-DATE RETURN WAS 4.63%.

The highest and lowest quarterly returns for the periods reflected in the bar
chart are:

- ------
3

Average Annual Total Returns

The following table shows the average annual total returns of the fund's
Investor Class shares calculated three different ways. This information is
provided because the fund's A, B and C Class shares did not have a full calendar
year's worth of performance.

The benchmark is an unmanaged index that has no operating costs and is included
in the table for performance comparison.

Performance information is designed to help you see how fund returns can vary.
Keep in mind that past performance (before and after taxes) does not predict how
the fund will perform in the future.

For current performance information, including yields, please call us at
1-800-378-9878.

- ------
4

FEES AND EXPENSES

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
A CLASS B CLASS C CLASS
- -----------------------------------------------------------------------------
Maximum Sales Charge (Load) 4.50% None None
Imposed on Purchases
(as a percentage of offering price)
- -----------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None(1) 5.00%(2) 1.00%(3)
(as a percentage of the original offering
price for B Class shares or the lower
of the original offering price or redemption
proceeds for A and C Class shares)
- -----------------------------------------------------------------------------

(1) INVESTMENTS OF $1 MILLION OR MORE IN A CLASS SHARES MAY BE SUBJECT TO
A CONTINGENT DEFERRED SALES CHARGE OF 1.00% IF THE SHARES ARE REDEEMED
WITHIN ONE YEAR OF THE DATE OF PURCHASE.

(2) THIS CHARGE IS 5.00% DURING THE FIRST YEAR AFTER PURCHASE, DECLINES
OVER THE NEXT FIVE YEARS AS SHOWN ON PAGE 15, AND IS ELIMINATED AFTER SIX
YEARS.

(3) THE CHARGE IS 1.00% DURING THE FIRST YEAR AFTER PURCHASE AND IS
ELIMINATED THEREAFTER.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
DISTRIBUTION TOTAL ANNUAL
MANAGEMENT AND SERVICE OTHER FUND OPERATING
FEE(1) (12B-1) FEES(2) EXPENSES(3) EXPENSES
- -------------------------------------------------------------------------------
California High-Yield
Municipal
A Class 0.53% 0.25% 0.00% 0.78%
- -------------------------------------------------------------------------------
B Class 0.53% 1.00% 0.00% 1.53%
- -------------------------------------------------------------------------------
C Class 0.53% 1.00%(4) 0.00% 1.53%(4)
- -------------------------------------------------------------------------------

(2) THE 12B-1 FEE IS DESIGNED TO PERMIT INVESTORS TO PURCHASE SHARES
THROUGH BROKER-DEALERS, BANKS, INSURANCE COMPANIES AND OTHER FINANCIAL
INTERMEDIARIES. THE FEE MAY BE USED TO COMPENSATE SUCH FINANCIAL
INTERMEDIARIES FOR DISTRIBUTION AND OTHER SHAREHOLDER SERVICES. FOR MORE
INFORMATION, SEE Service, Distribution and Administrative Fees, PAGE 25.

(3) OTHER EXPENSES INCLUDE THE FEES AND EXPENSES OF THE FUND'S INDEPENDENT
TRUSTEES AND THEIR LEGAL COUNSEL, AS WELL AS INTEREST.

(4) FOR THE FISCAL YEAR ENDED AUGUST 31, 2004, THE DISTRIBUTION AND
SERVICES FEES WERE 0.95%. EFFECTIVE JANUARY 2, 2004, THE DISTRIBUTION AND
SERVICE FEES FOR C CLASS INCREASED FROM 0.75% TO 1.00%. FOR THE FISCAL YEAR
ENDED AUGUST 31, 2004, THE TOTAL ANNUAL FUND OPERATING EXPENSES WERE 1.48%.

- ------
5

EXAMPLE

The examples in the tables below are intended to help you compare the costs of
investing in the fund with the costs of investing in other mutual funds. Of
course, your actual costs may be higher or lower. 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
A Class $526 $688 $863 $1,370
- -------------------------------------------------------------------------------
B Class $555 $781 $929 $1,611
- -------------------------------------------------------------------------------
C Class $155 $481 $829 $1,810
- -------------------------------------------------------------------------------

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
A Class $526 $688 $863 $1,370
- -------------------------------------------------------------------------------
B Class $155 $481 $829 $1,611
- -------------------------------------------------------------------------------
C Class $155 $481 $829 $1,810
- -------------------------------------------------------------------------------

- ------
6

OBJECTIVES, STRATEGIES AND RISKS

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

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

HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVE?

[graphic of triangle]

MUNICIPAL SECURITIES ARE A DEBT OBLIGATION ISSUED BY OR ON BEHALF OF A
STATE, ITS POLITICAL SUBDIVISIONS, AGENCIES OR INSTRUMENTALITIES, THE
DISTRICT OF COLUMBIA OR A U.S. TERRITORY OR POSSESSION.

A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio securities is available in the fund's
statement of additional information.

- ------
7

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?

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 9 for more information about the effects of changing interest rates on
the fund's portfolio.

[graphic of triangle]

A NONDIVERSIFIED FUND MAY INVEST A GREATER PERCENTAGE OF ITS ASSETS IN A
SMALLER NUMBER OF SECURITIES THAN A DIVERSIFIED FUND.

Some or all of the fund's income may be subject to the federal alternative
minimum tax.

At any given time your shares may be worth more or less than the price you paid
for them. In other words, it is possible to lose money by investing in the fund.

- ------
8

BASICS OF FIXED-INCOME INVESTING

DEBT SECURITIES

The portfolio 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 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

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.

- ------
9

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:

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

- ------
10

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 INVESTMENT ADVISOR

For the services it provided to the fund, the advisor received a unified
management fee based on a percentage of the daily net assets of each specific
class of shares of the fund. The percentage rate used to calculate the
management fee for each class of shares of the fund is determined daily using a
two-component formula that takes into account (i) the daily net assets of the
accounts managed by the advisor that are in the same broad investment category
as the fund (the "Category Fee") and (ii) the assets of all the funds in the
American Century family of funds (the "Complex Fee"). The management fee is
calculated daily and 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 trustees (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.

MANAGEMENT FEES PAID BY THE FUND TO THE ADVISOR
AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE MOST
RECENT FISCAL YEAR ENDED AUGUST 31, 2004 A CLASS B CLASS C CLASS
- --------------------------------------------------------------------------------
California High-Yield Municipal 0.53% 0.53% 0.53%
- --------------------------------------------------------------------------------

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
objective and strategy.

- ------
11

The fund is managed by the Municipal Bond team, whose members are identified
below.

G. DAVID MACEWEN

STEVEN M. PERMUT

ROBERT J. MILLER

KENNETH M. SALINGER

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. It also contains limits on short-term transactions in American
Century-managed funds. 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 personal
trades.

FUNDAMENTAL INVESTMENT POLICIES

- ------
12

INVESTING WITH AMERICAN CENTURY

CHOOSING A SHARE CLASS

The shares offered by this prospectus are intended for purchase through
investment advisors, broker-dealers, banks, insurance companies and other
financial intermediaries that provide various administrative and distribution
services.

The fund offers the A, B, and C Classes through this prospectus. Although each
class of shares represents an interest in the same fund, each has a different
cost structure, as described below. Which class is right for you depends on many
factors, including how long you plan to hold the shares, how much you plan to
invest, the fee structure of each class, and how you wish to compensate your
financial advisor for the services provided to you. Your financial advisor can
help you choose the option that is most appropriate.

The following chart provides a summary description of each class offered by this
prospectus:

A CLASS B CLASS
- -----------------------------------------------------------------------------
Initial sales charge(1) No initial sales charge
- -----------------------------------------------------------------------------
Generally no CDSC(2) Contingent deferred sales charge
on redemptions within six years
- -----------------------------------------------------------------------------
12b-1 fee of 0.25% 12b-1 fee of 1.00%
- -----------------------------------------------------------------------------
No conversion feature Convert to A Class shares eight
years after purchase
- -----------------------------------------------------------------------------
Generally more appropriate Aggregate purchases limited
for long-term investors to amounts less than $100,000
- -----------------------------------------------------------------------------

C CLASS
- -----------------------------------------------------------------------------
No initial sales charge
- -----------------------------------------------------------------------------
Contingent deferred sales charge on redemptions within 12 months
- -----------------------------------------------------------------------------
12b-1 fee of 1.00%
- -----------------------------------------------------------------------------
No conversion feature
- -----------------------------------------------------------------------------
Aggregate purchases limited to amounts less than $1,000,000;
generally more appropriate for short-term investors
- -----------------------------------------------------------------------------

(1) THE SALES CHARGE FOR A CLASS SHARES DECREASES DEPENDING ON THE SIZE OF
YOUR INVESTMENT, AND MAY BE WAIVED FOR SOME PURCHASES. THERE IS NO SALES
CHARGE FOR PURCHASES OF $1,000,000 OR MORE.

(2) A CDSC OF 1.00% WILL BE CHARGED ON CERTAIN PURCHASES OF $1,000,000 OR
MORE THAT ARE REDEEMED WITHIN ONE YEAR OF PURCHASE.

MINIMUM INITIAL INVESTMENT AMOUNTS (FOR ALL CLASSES)

To open an account, the minimum investment is $5,000 for all accounts. This fund
is not available for retirement accounts.

- ------
13

CALCULATION OF SALES CHARGES

A Class

A Class shares are sold at their offering price, which is net asset value plus
an initial sales charge. This sales charge varies depending on the amount of
your investment, and is deducted from your purchase before it is invested. The
sales charges and the amounts paid to your financial advisor are:

SALES CHARGE SALES CHARGE AMOUNT PAID TO
AS A % OF AS A % OF FINANCIAL ADVISOR
PURCHASE AMOUNT OFFERING PRICE NET AMOUNT INVESTED AS A % OF OFFERING PRICE
- -----------------------------------------------------------------------------------------
Less than $50,000 4.50% 4.71% 4.00%
- -----------------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 4.71% 4.00%
- -----------------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 3.63% 3.00%
- -----------------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56% 2.00%
- -----------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04% 1.75%
- -----------------------------------------------------------------------------------------
$1,000,000 - $3,999,999 0.00% 0.00% 1.00%(1)
- -----------------------------------------------------------------------------------------
$4,000,000 - $9,999,999 0.00% 0.00% 0.50%(1)
- -----------------------------------------------------------------------------------------
$10,000,000 or more 0.00% 0.00% 0.25%(1)
- -----------------------------------------------------------------------------------------

(1) FOR PURCHASES OVER $1,000,000 BY QUALIFIED RETIREMENT PLANS, NO
UPFRONT AMOUNT WILL BE PAID TO FINANCIAL ADVISORS.

There is no front-end sales charge for purchases of $1,000,000 or more, but if
you redeem your shares within one year of purchase you will pay a 1.00% deferred
sales charge, subject to the exceptions listed below. No sales charge applies to
reinvested dividends.

Reductions and Waivers of Sales Charges for A Class

You may qualify for a reduction or waiver of certain sales charges, but you or
your financial advisor must provide certain information, including the account
numbers of any accounts to be aggregated, to American Century at the time of
purchase in order to take advantage of such reduction or waiver.

You and your immediate family (your spouse and your children under the age of
21) may combine investments to reduce your A Class sales charge in the following
ways:

ACCOUNT AGGREGATION. Investments made by you and your immediate family may be
aggregated at each account's current market value if made for your own
account(s) and/or certain other accounts, such as:

* Certain trust accounts

* Solely controlled business accounts

* Single-participant retirement plans

* Endowments or foundations established and controlled by you or an
immediate family member

For purposes of aggregation, only investments made through individual-level
accounts, rather than accounts aggregated at the intermediary level, may be
included.

CONCURRENT PURCHASES. You may combine simultaneous purchases in A, B or C Class
shares of any two or more American Century Advisor Funds (funds that offer A, B
and C Class shares) to qualify for a reduced A Class sales charge.

RIGHTS OF ACCUMULATION. You may take into account the current value of your
existing holdings in A, B or C Class shares of any American Century Advisor Fund
to determine your A Class sales charge.

- ------
14

LETTER OF INTENT. A Letter of Intent allows you to combine all non-money market
fund purchases of all A, B and C Class shares you intend to make over a 13-month
period to determine the applicable sales charge. Such purchases will be valued
at their historical cost for this purpose. At your request, purchases made
during the previous 90 days may be included; however, capital appreciation,
capital gains and reinvested dividends do not apply toward these combined
purchases. A portion of your account will be held in escrow to cover additional
A Class sales charges that will be due if your total investments over the
13-month period do not qualify for the applicable sales charge reduction.

WAIVERS FOR CERTAIN INVESTORS. The sales charge on A Class shares may be waived
for:

* Purchases by registered representatives and other employees of certain
financial intermediaries (and their immediate family members) having sales
agreements with the advisor or distributor

* Wrap accounts maintained for clients of certain financial intermediaries
who have entered into agreements with American Century

* Present or former officers, directors and employees (and their families)
of American Century

* Qualified retirement plan purchases

* IRA Rollovers from any American Century Advisor Fund held in a qualified
retirement plan

* Certain other investors as deemed appropriate by American Century

The information regarding A Class sales charges provided herein is included free
of charge and in a clear and prominent format at americancentury.com in the
INVESTING USING ADVISORS and FINANCIAL INTERMEDIARY portions of the Web site.
From the description of A Class shares, a hyperlink will take you directly to
this disclosure.

B Class

B Class shares are sold at their net asset value without an initial sales
charge. However, if you redeem your shares within six years of purchase date you
will pay a contingent deferred sales charge (CDSC). There is no CDSC on shares
acquired through reinvestment of dividends or capital gains.

REDEMPTIONS DURING CDSC AS A % OF ORIGINAL PURCHASE PRICE
- --------------------------------------------------------------------------------
1st year 5.00%
- --------------------------------------------------------------------------------
2nd year 4.00%
- --------------------------------------------------------------------------------
3rd year 3.00%
- --------------------------------------------------------------------------------
4th year 3.00%
- --------------------------------------------------------------------------------
5th year 2.00%
- --------------------------------------------------------------------------------
6th year 1.00%
- --------------------------------------------------------------------------------
After 6th year None
- --------------------------------------------------------------------------------

B Class shares will automatically convert to A Class shares in the month of the
eight-year anniversary of the purchase date.

C Class

C Class shares are sold at their net asset value without an initial sales
charge. However, if you redeem your shares within 12 months of purchase you will
pay a CDSC of 1.00% of the original purchase price or the current market value
at redemption, whichever is less.

The CDSC will not be charged on shares acquired through the reinvestment of
dividends or distributions or increases in the net asset value of shares.

- ------
15

CALCULATION OF CONTINGENT DEFERRED SALES CHARGE (CDSC)

To minimize the amount of the CDSC you may pay when you redeem shares, the fund
will first redeem shares acquired through reinvested dividends and capital gain
distributions, which are not subject to a CDSC. Shares that have been in your
account long enough that they are not subject to a CDSC are redeemed next. For
any remaining redemption amount, shares will be sold in the order they were
purchased (earliest to latest).

CDSC WAIVERS

Any applicable contingent deferred sales charge may be waived in the following
cases:

* redemptions through systematic withdrawal plans not exceeding annually:

* 12% of the lesser of the original purchase cost or current market
value for A Class shares

* 12% of the original purchase cost for B Class shares

* 12% of the lesser of the original purchase cost or current market
value for C Class shares

* distributions from IRAs due to attainment of age 59-1/2 for A Class shares
and for C Class shares

* required minimum distributions from retirement accounts upon reaching age
70-1/2

* tax-free returns of excess contributions to IRAs

* redemptions due to death or post-purchase disability

* exchanges, unless the shares acquired by exchange are redeemed within the
original CDSC period

* IRA rollovers from any American Century Advisor Fund held in a qualified
retirement plan, for A Class shares only

* if no broker was compensated for the sale

REINSTATEMENT PRIVILEGE

Within 90 days of a redemption of any A or B Class shares, you may reinvest all
of the redemption proceeds in A Class shares of any American Century Advisor
Fund at the then-current net asset value without paying an initial sales charge.
Any CDSC you paid on an A Class redemption that you are reinvesting will be
credited to your account. You or your financial advisor must notify the fund's
transfer agent in writing at the time of the reinvestment to take advantage of
this privilege, and you may use it only once.

EXCHANGING SHARES

You may exchange shares of the fund for shares of the same class of another
American Century Advisor Fund without a sales charge if you meet the following
criteria:

* The exchange is for a minimum of $100

* For an exchange that opens a new account, the amount of the exchange must
meet or exceed the minimum account size requirement for the fund receiving
the exchange

For purposes of computing any applicable CDSC on shares that have been
exchanged, the holding period will begin as of the date of purchase of the
original fund owned. Exchanges from a money market fund are subject to a sales
charge on the fund being purchased, unless the money market fund shares were
acquired by exchange from a fund with a sales charge or by reinvestment of
dividends or capital gains distributions.

- ------
16

BUYING AND SELLING SHARES

Your ability to purchase, exchange, redeem and transfer shares will be affected
by the policies of the financial intermediary through which you do business.
Some policy differences may include

* minimum investment requirements
* exchange policies
* fund choices
* cutoff time for investments
* trading restrictions

In addition, your financial intermediary may charge a transaction fee for the
purchase or sale of fund shares. Please contact your intermediary or plan
sponsor 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.

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 the 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.

[graphic of triangle]

FINANCIAL INTERMEDIARIES INCLUDE BANKS, BROKER-DEALERS, INSURANCE
COMPANIES AND INVESTMENT ADVISORS.

MODIFYING OR CANCELING AN INVESTMENT

ABUSIVE TRADING PRACTICES

- ------
17

Currently, for shares held directly with American Century, we may deem the sale
of all or a substantial portion of a shareholder's purchase of fund shares to be
abusive if the sale is made

* within seven days of the purchase, or
* within 30 days of the purchase, if it happens more than once per year.

- ------
18

YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS

REDEMPTIONS

If you sell your B or C Class or, in certain cases, A Class shares within a
certain time after their purchase, you will pay a sales charge the amount of
which is contingent upon the amount of time you have held your shares, as
described above.

Your redemption proceeds will be calculated using the NET ASSET VALUE (NAV) next
determined after we receive your transaction request in good order.

[graphic of triangle]

A FUND'S NET ASSET VALUE, OR NAV, IS THE PRICE OF THE FUND'S SHARES.

SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS

- ------
19

REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS

If your account balance falls below the minimum initial investment amount for
any reason other than as a result of market fluctuation, we will notify you and
give you 90 days to meet the minimum. If you do not meet the deadline, American
Century reserves the right to redeem the shares in the account and send the
proceeds to your address of record. Please note that shares redeemed in this
manner may be subject to a sales charge if held less than the applicable time
period. You also may incur tax liability as a result of the redemption.

SIGNATURE GUARANTEES

A signature guarantee - which is different from a notarized signature - is a
warranty that the signature presented is genuine. We may require a signature
guarantee for the following transactions:

* Your redemption or distribution check, Check-A-Month or automatic
redemption is made payable to someone other than the account owners

* Your redemption proceeds or distribution amount is sent by wire or EFT to
a destination other than your personal bank account

* You are transferring ownership of an account over $100,000

We reserve the right to require a signature guarantee for other transactions, at
our discretion.

A NOTE ABOUT MAILINGS TO SHAREHOLDERS

RIGHT TO CHANGE POLICIES

- ------
20

SHARE PRICE AND DISTRIBUTIONS

SHARE PRICE

* for funds that invest in debt securities, a debt security has been
declared in default; or

* trading in a security has been halted during the trading day.

Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.

- ------
21

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 that 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 and generally pays distributions of
capital gains, if any, once a year, usually in December. A fund may make more
frequent distributions, if necessary, to comply with Internal Revenue Code
provisions. Distributions are reinvested automatically in additional shares
unless you elect to have dividends and/or capital gains sent to another American
Century account, to your bank electronically, or to your home address or to
another address by check.

[graphic of triangle]

CAPITAL GAINS ARE INCREASES IN THE VALUES OF CAPITAL ASSETS, SUCH AS
STOCK, FROM THE TIME THE ASSETS ARE PURCHASED.

- ------
22

TAXES

Tax-Exempt Income

Taxable Income

* CAPITAL GAINS. When the 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.

Taxability of Distributions

[graphic of triangle]

QUALIFIED DIVIDEND INCOME IS A DIVIDEND RECEIVED BY A FUND FROM THE
STOCK OF A DOMESTIC OR QUALIFYING FOREIGN CORPORATION, PROVIDED THAT THE
FUND HAS HELD THE STOCK FOR A REQUIRED HOLDING PERIOD.

For capital gains and for income distributions designated as qualified dividend
income, the following rates apply:

- ------
23

Distributions also may be subject to state and local taxes. Because everyone's
tax situation is unique, you may want to consult your tax professional about
federal, state and local tax consequences.

Taxes on Transactions

Your redemptions-including exchanges to other American Century funds-are subject
to capital gains tax. The table above can provide a general guide for your
potential tax liability when selling or exchanging fund shares. Short-term
capital gains are gains on fund shares you held for 12 months or less. Long-term
capital gains are gains on fund shares you held for more than 12 months. If your
shares decrease in value, their sale or exchange will result in a long-term or
short-term capital loss. However, you should note that loss realized upon the
sale or exchange 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.

Buying a Dividend

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.

- ------
24

MULTIPLE CLASS INFORMATION

American Century offers four classes of shares of the fund through financial
intermediaries: A Class, B Class, C Class and Investor Class. The shares offered
by this prospectus are A, B and C Class shares, which are offered primarily
through institutions like investment advisors, banks, broker-dealers and
insurance companies.

The other class has different fees, expenses and/or minimum investment
requirements from the classes offered by this prospectus. The difference in the
fee structures between the classes is the result of their separate arrangements
for shareholder and distribution services. It is not the result of any
difference in advisory or custodial fees or other expenses related to the
management of the fund's assets, which do not vary by class. Different fees and
expenses will affect performance. For additional information concerning the
other class of shares not offered by this prospectus, call us at 1-800-378-9878.

You also can contact a sales representative or financial intermediary who offers
that class of shares.

Except as described herein, all classes of shares of the fund 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 such class; (d) each class may
have different exchange privileges; and (e) the B Class provides for automatic
conversion from that class into shares of the A Class of the same fund after
eight years.

SERVICE, DISTRIBUTION AND ADMINISTRATIVE 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. Each class offered by this prospectus has a 12b-1 plan. The plans
provide for the fund to pay annual fees of 0.25% for A Class and 1.00% for B and
C Class to the distributor. The distributor may use these fees to pay for
certain ongoing shareholder and administrative services and for distribution
services, including past distribution services. The distributor pays all or a
portion of such fees to the investment advisors, banks, broker-dealers and
insurance companies that make the classes available. Because these fees are used
to pay for services that are not related to prospective sales of the fund, each
class will continue to make payments under its plan even if it is closed to new
investors. 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 other types of sales charges. The higher fees for B and C
Class shares may cost you more over time than paying the initial sales charge
for A Class shares. For additional information about the plans and their terms,
see MULTIPLE CLASS STRUCTURE in the statement of additional information.

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, the advisor will pay such
service providers a fee for performing those services. Also, the advisor and the
fund's distributor may make payments for various additional services or other
expenses out of their profits or other available sources. Such expenses may
include distribution services, shareholder services or marketing, promotional or
related expenses. The amount of any payments described by this paragraph is
determined by the advisor or the distributor and is not paid by you.

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25

FINANCIAL HIGHLIGHTS

UNDERSTANDING THE FINANCIAL HIGHLIGHTS

The tables on the next pages itemize what contributed to the changes in share
price during the most recently ended fiscal year. They also shows the changes in
share price for this period in comparison to changes over the last five fiscal
years.

On a per-share basis, the tables include 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 tables also include 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 investment portfolio
that is replaced during the period

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26

CALIFORNIA HIGH-YIELD MUNICIPAL FUND
A Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
- -------------------------------------------------------------------------------
2004 2003(1)
- -------------------------------------------------------------------------------
PER-SHARE DATA
- -------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.65 $9.79
- -------------------------------------------------------------------------------
Income From Investment Operations
- ----------------------------------------------------
Net Investment Income 0.50 0.29
- ----------------------------------------------------
Net Realized and Unrealized Gain (Loss) 0.28 (0.14)
- -------------------------------------------------------------------------------
Total From Investment Operations 0.78 0.15
- -------------------------------------------------------------------------------
Distributions
- ----------------------------------------------------
From Net Investment Income (0.50) (0.29)
- -------------------------------------------------------------------------------
Net Asset Value, End of Period $9.93 $9.65
================================================================================
TOTAL RETURN(2) 8.21% 1.48%

RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 0.78% 0.78%(3)
- ----------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 5.05% 5.04%(3)
- ----------------------------------------------------
Portfolio Turnover Rate 19% 30%(4)
- ----------------------------------------------------
Net Assets, End of Period (in thousands) $11,499 $1,286
- -------------------------------------------------------------------------------

(1) JANUARY 31, 2003 (COMMENCEMENT OF SALE) THROUGH AUGUST 31, 2003.

(2) TOTAL RETURN ASSUMES REINVESTMENT OF NET INVESTMENT INCOME AND CAPITAL
GAINS DISTRIBUTIONS, IF ANY, AND DOES NOT INCLUDE ANY APPLICABLE SALES
CHARGES. TOTAL RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
THE TOTAL RETURN OF THE CLASSES MAY NOT PRECISELY REFLECT THE CLASS EXPENSE
DIFFERENCES BECAUSE OF THE IMPACT OF CALCULATING THE NET ASSET VALUES TO
TWO DECIMAL PLACES. IF NET ASSET VALUES WERE CALCULATED TO THREE DECIMAL
PLACES, THE TOTAL RETURN DIFFERENCES WOULD MORE CLOSELY REFLECT THE CLASS
EXPENSE DIFFERENCES. THE CALCULATION OF NET ASSET VALUES TO TWO DECIMAL
PLACES IS MADE IN ACCORDANCE WITH SEC GUIDELINES AND DOES NOT RESULT IN ANY
GAIN OR LOSS OF VALUE BETWEEN ONE CLASS AND ANOTHER.

(3) ANNUALIZED.

(4) PORTFOLIO TURNOVER IS CALCULATED AT THE FUND LEVEL. PERCENTAGE
INDICATED WAS CALCULATED FOR THE YEAR ENDED AUGUST 31, 2003.

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27

CALIFORNIA HIGH-YIELD MUNICIPAL FUND
B Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
2004 2003(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.65 $9.79
- --------------------------------------------------------------------------------
Income From Investment Operations
- ----------------------------------------------------
Net Investment Income 0.42 0.25
- ----------------------------------------------------
Net Realized and Unrealized Gain (Loss) 0.28 (0.14)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.70 0.11
- --------------------------------------------------------------------------------
Distributions
- ----------------------------------------------------
From Net Investment Income (0.42) (0.25)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $9.93 $9.65
================================================================================
TOTAL RETURN(2) 7.40% 1.05%

RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 1.53% 1.53%(3)
- ----------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 4.30% 4.43%(3)
- ----------------------------------------------------
Portfolio Turnover Rate 19% 30%(4)
- ----------------------------------------------------
Net Assets, End of Period (in thousands) $866 $352
- --------------------------------------------------------------------------------

(1) JANUARY 31, 2003 (COMMENCEMENT OF SALE) THROUGH AUGUST 31, 2003.

(3) ANNUALIZED.

(4) PORTFOLIO TURNOVER IS CALCULATED AT THE FUND LEVEL. PERCENTAGE
INDICATED WAS CALCULATED FOR THE YEAR ENDED AUGUST 31, 2003.

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28

CALIFORNIA HIGH-YIELD MUNICIPAL FUND
C Class

FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
- --------------------------------------------------------------------------------
2004 2003(1)
- --------------------------------------------------------------------------------
PER-SHARE DATA
- --------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $9.65 $9.79
- --------------------------------------------------------------------------------
Income From Investment Operations
- ----------------------------------------------------
Net Investment Income 0.43 0.26
- ----------------------------------------------------
Net Realized and Unrealized Gain (Loss) 0.28 (0.14)
- --------------------------------------------------------------------------------
Total From Investment Operations 0.71 0.12
- --------------------------------------------------------------------------------
Distributions
- ----------------------------------------------------
From Net Investment Income (0.43) (0.26)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $9.93 $9.65
================================================================================
TOTAL RETURN(2) 7.49% 1.22%

RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets 1.48% 1.28%(3)
- ----------------------------------------------------
Ratio of Net Investment Income to Average Net Assets 4.35% 4.59%(3)
- ----------------------------------------------------
Portfolio Turnover Rate 19% 30%(4)
- ----------------------------------------------------
Net Assets, End of Period (in thousands) $7,416 $2,681
- --------------------------------------------------------------------------------

(1) JANUARY 31, 2003 (COMMENCEMENT OF SALE) THROUGH AUGUST 31, 2003.

(3) ANNUALIZED.

(4) PORTFOLIO TURNOVER IS CALCULATED AT THE FUND LEVEL. PERCENTAGE
INDICATED WAS CALCULATED FOR THE YEAR ENDED AUGUST 31, 2003.

- ------
29

MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS

Annual and Semiannual Reports

Statement of Additional Information (SAI)

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 sec.gov
* By email request at publicinfo@sec.gov

BY MAIL SEC Public Reference Section
Washington, D.C. 20549-0102

FUND REFERENCE FUND CODE TICKER NEWSPAPER LISTING
- --------------------------------------------------------------------------------
California High-Yield Municipal Fund
A Class 133 CAYAX CaHYMu
- --------------------------------------------------------------------------------
B Class 333 CAYBX CaHYMu
- --------------------------------------------------------------------------------
C Class 433 CAYCX CaHYMu
- --------------------------------------------------------------------------------

Investment Company Act File No. 811-0816

AMERICAN CENTURY INVESTMENTS
P.O. Box 419786
Kansas City, Missouri 64141-6786
1-800-378-9878

0501
SH-PRS-40782

AMERICAN CENTURY INVESTMENTS
STATEMENT OF
ADDITIONAL INFORMATION
January 1, 2005

American Century Investments
statement of additional information

American Century California Tax-Free and Municipal Funds

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

THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUNDS'
PROSPECTUSES DATED JANUARY 1, 2005, BUT IS NOT A PROSPECTUS. THE STATEMENT OF
ADDITIONAL INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUNDS' CURRENT
PROSPECTUSES. IF YOU WOULD LIKE A COPY OF A PROSPECTUS, PLEASE CONTACT US AT ONE
OF THE ADDRESSES OR TELEPHONE NUMBERS LISTED ON THE BACK COVER OR VISIT AMERICAN
CENTURY'S WEB SITE AT 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.

[american century investments logo and text logo]

The American Century Investments logo, American Century and American Century
Investments are service marks of American Century Proprietary Holdings, Inc.

Table of Contents

The Funds' History . . . . . . . . . . . . . . . . . . . . . . . . 2

Fund Investment Guidelines . . . . . . . . . . . . . . . . . . . . 2

California Tax-Free Money Market Fund . . . . . . . . . . .3

California Limited-Term Tax-Free Fund,

California Intermediate-Term Tax-Free Fund,

California Long-Term Tax-Free Fund . . . . . . . . . . . . 4

California High-Yield Municipal Fund . . . . . . . . . . . 4

Fund Investments and Risks . . . . . . . . . . . . . . . . . . . . 5

Investment Strategies and Risks . . . . . . . . . . . . . .5

Investment Policies . . . . . . . . . . . . . . . . . . . 29

Fundamental Investment Policies . . . . . . . . . . . . . 30

Temporary Defensive Measures . . . . . . . . . . . . . . .31

Portfolio Turnover . . . . . . . . . . . . . . . . . . . .32

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

The Board of Trustees . . . . . . . . . . . . . . . . . . 35

Ownership of Fund Shares . . . . . . . . . . . . . . . . .39

Code of Ethics . . . . . . . . . . . . . . . . . . . . . .39

Proxy Voting Guidelines . . . . . . . . . . . . . . . . . 40

Disclosure of Portfolio Holdings . . . . . . . . . . . . .41

The Funds' Principal Shareholders . . . . . . . . . . . . . . . . 44

Service Providers . . . . . . . . . . . . . . . . . . . . . . . . 45

Investment Advisor . . . . . . . . . . . . . . . . . . . .45

Transfer Agent and Administrator . . . . . . . . . . . . .48

Distributor . . . . . . . . . . . . . . . . . . . . . . . 49

Other Service Providers . . . . . . . . . . . . . . . . . . . . . 49

Custodian Banks . . . . . . . . . . . . . . . . . . . . . 49

Independent Registered Public Accounting Firm . . . . . . 49

Brokerage Allocation . . . . . . . . . . . . . . . . . . . . . . .50

Regular Broker-Dealers . . . . . . . . . . . . . . . . . .50

Information About Fund Shares . . . . . . . . . . . . . . . . . . 50

Multiple Class Structure . . . . . . . . . . . . . . . . .51

Buying and Selling Fund Shares . . . . . . . . . . . . . .58

Valuation of a Fund's Securities . . . . . . . . . . . . .58

Money Market Funds . . . . . . . . . . . . . . . . . . . .58

Non-Money Market Funds . . . . . . . . . . . . . . . . . .59

Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Federal Income Tax . . . . . . . . . . . . . . . . . . . .60

Alternative Minimum Tax . . . . . . . . . . . . . . . . . 61

State and Local Taxes . . . . . . . . . . . . . . . . . . 62

Financial Statements . . . . . . . . . . . . . . . . . . . . . . .62

Explanation of Fixed-Income Securities Ratings . . . . . . . . . .62

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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 investment objective,
strategy, management team, assets, and 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 Limited-Term Tax-Free Fund

Investor Class BCSTX 06/01/1992
- -------------------------------------------------------------------------------
California Intermediate-Term Tax-Free Fund

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

Investor Class BCLTX 11/09/1983
- -------------------------------------------------------------------------------
California High-Yield Municipal Fund

Investor Class BCHYX 12/30/1986
- -------------------------------------------------------------------------------
A Class CAYAX 01/31/2003
- -------------------------------------------------------------------------------
B Class CAYBX 01/31/2003
- -------------------------------------------------------------------------------
C Class CAYCX 01/31/2003
- -------------------------------------------------------------------------------

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

Each fund is diversified as defined in the Investment Company Act of 1940 (the
Investment Company Act), with the exception of California High-Yield Municipal
Fund which is non-diversified. Diversified means that, with respect to 75% of
its total assets, a 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. Nondiversified means that a fund may invest a
greater percentage of its assets in a smaller number of securities than a
diversified fund.

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.

California Tax-Free Money Market operates pursuant to Rule 2a-7 under the
Investment Company Act of 1940, which permits the valuation of portfolio
securities on the basis of amortized cost. To rely on Rule 2a-7, the fund must
comply with the definition of diversified under the rule.

- ------
2

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 fund may
invest up to 5% of its total assets in shares of money market funds; the
non-money market funds may invest in money market funds managed by the advisor.

Each fund will invest at least 80% of its net assets in obligations with
interest exempt from regular federal income tax. California High-Yield
Municipal, unlike the other funds, may invest substantially all of its assets in
securities that are subject to the alternative minimum tax. See ALTERNATIVE
MINIMUM TAX, page 61.

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 62.

CALIFORNIA TAX-FREE MONEY MARKET FUND

California Tax-Free Money Market seeks to maintain a $1 share price, although
there is no guarantee it will be able to do so. Shares of the fund are neither
insured nor guaranteed by the U.S. government. The money market fund may be
appropriate for investors seeking share price stability who can accept the lower
yields that short-term obligations typically provide.

In selecting investments for the money market fund, 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, the 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, and

* 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 (or one if only one has rated the obligation), or

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

- ------
3

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

* 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 to be of a quality comparable to
the securities listed above.

CALIFORNIA HIGH-YIELD MUNICIPAL FUND

California High-Yield Municipal invests at least 80% of its assets in municipal
securities with income payments exempt from federal and California income taxes.
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.
Unrated securities may be less liquid than comparable rated securities and may
involve the risk that the portfolio managers may not accurately evaluate the
security's comparative credit rating. Analyzing the creditworthiness of issuers
of lower-quality, unrated bonds may be more complex than analyzing the
creditworthiness of issuers of higher-quality bonds. 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 60.

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4

FUND INVESTMENTS AND RISKS

INVESTMENT STRATEGIES AND RISKS

This section describes the investment vehicles and strategies that the portfolio
managers can use in managing a fund's assets. It also details the risks
associated with each, because each investment vehicle and strategy contributes
to a fund's overall risk profile.

Concentration in Types of Municipal Activities

From time to time, a significant portion of a fund's assets may be invested in
municipal obligations that are related to the extent that economic, business or
political developments affecting one of these obligations could affect the other
obligations in a similar manner. For example, if a fund invested a significant
portion of its assets in utility bonds and a state or federal government agency
or legislative body promulgated or enacted new environmental protection
requirements for utility providers, projects financed by utility bonds could
suffer as a group. Additional financing might be required to comply with the new
environmental requirements, and outstanding debt might be downgraded in the
interim. Among other factors that could negatively affect bonds issued to
finance similar types of projects are state and federal legislation regarding
financing for municipal projects, pending court decisions relating to the
validity or means of financing municipal projects, material or manpower
shortages, and declining demand for projects or facilities financed by the
municipal bonds.

About the Risks Affecting 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, the largest among the 50 states and one of the largest in
the world, has major components in high technology, trade, entertainment,
agriculture, manufacturing, tourism, construction and services. The state's July
1, 2003 population, over 35 million, representing approximately 12% of the U. S.
population has grown by nearly 11% since 1997. California's population is
concentrated in metropolitan areas. As of the April 1, 2000 census, 97 percent
of California's population resided in the 25 Metropolitan Statistical Areas in
the state. As of July 1, 2002, the 5-county Los Angeles area accounted for 49
percent of the state's population, with over 17 million residents, and the
10-county San Francisco Bay Area represented 20 percent, with a population of
over 7.0 million.

After experiencing strong employment gains in the second half of the 1990's,
California's economy slipped into a recession in early 2001, losing
approximately 290,000 jobs between March 2001 and January 2002. The recession
was concentrated in the State's high-tech

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5

sector and, geographically, in the San Francisco Bay area. Although the Bay Area
is still slow to recover from the most recent downturn, the state as a whole has
rebounded. Total non-farm employment for California was up 0.7% for the year
ending June 30, 2004.

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 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
affects 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.

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6

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 August 1, 2004, the state had outstanding approximately $45.9 billion in
aggregate principal amount of long-term general obligation bonds, and unused
voter authorizations for the future issuance of approximately $34.5 billion of
long-term general obligation bonds.

The California Economic Recovery Bond Act (proposition 57) was approved by the
voters in a statewide primary election on March 2, 2004. Proposition 57
authorizes the issuance of up to $15 billion in economic recovery bonds to
finance the negative general fund reserve balance as of June 30, 2004 and other
general fund obligations undertaken prior to June 30, 2004. In May 2004 the
state issued $10.9 billion in Economic Recovery Bonds resulting in the deposit
of net proceeds to the general fund of approximately $11.25 billion during the
2003-04 fiscal year (of which, for budgetary purposes, approximately $9.2
billion was applied to the 2003-04 fiscal year and approximately $2 billion will
be applied to offset fiscal year 2004-05 general fund expenditures). On June 18,
2003, the state issued $10.97 billion of 2003 Revenue Anticipation Warrants,
which matured and were paid in full on June 16, 2004. The state also issued $3
billion of RANs on October 28, 2003, which matured and were paid in full on June
23, 2004. The most recent cash flow projections prepared by the Department of
Finance anticipate the issuance of $6 billion of RANs in October 2004 to mature
in June 2005.

State Finances

The state's principal sources of General Fund revenues for fiscal year 2003-04
were the California personal income tax (45% of total revenues), the sales tax
(32% of total revenues), and bank and corporations taxes (9% of total revenues).
Historically, the state has paid the principal of and interest on its general
obligation bonds, lease-purchase debt and short-term obligations when due.

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.

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, especially
in a weaker economic environment.

State finances have improved from fiscal year 1995 to fiscal year 2001, due
primarily to stronger-than-anticipated revenue and lower-than-anticipated social
spending. The state finished fiscal year 2000-01 with an estimated $6.6 billion
General Fund balance (on a budgetary basis), down from a balance of $8.5 billion
the prior year.

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7

But over the past few years, California has suffered from a weakened fiscal
position as a result of dramatic revenue underperformance in fiscal 2002 and
fiscal 2003 stemming primarily from lower-than-expected personal income tax
receipts combined with continued expenditure pressures of the late 1980s and
early 1990s. California faced its most serious fiscal challenge in its history
as it has experienced the most dramatic decline in revenues since World War II.
The decline in state revenues is attributable in large part to declines in
personal income tax receipts, principally due to reduced stock market related
income tax revenues, such as capital gains realizations and stock option income,
in a state that derives a large share of its revenue from a sharply progressive
personal income tax. The state estimates that stock market related personal
income tax revenue declined from $17.9 billion in fiscal year 2000-01 to $6.1
billion in fiscal year 2001-02, and to $5.0 billion in 2002-03, a total 72%
decline.

The 2004-05 Governor's Budget, released on January 9, 2004, reported that, in
the absence of corrective actions to change existing policies, operating
deficits, estimated at $14 billion for fiscal 2004-05, would continue to be
incurred. The May Revision released on May 13, 2004, projected a June 30, 2005
General Fund reserve of $998 million, up $363 million from the 2004-05
Governor's Budget projections. The increase in the reserve was the result of a
$2.229 billion increase in prior year adjustments, a $245 million increase in
revenues (over both fiscal years 2003-04 and 2004-05), a $1 billion reduction in
the sale of economic recovery bonds and a $1.112 billion increase in
expenditures (over both fiscal years 2003-04 and 2004-05).

Under the 2004 Budget Act, General Fund revenues are projected to increase 3.6%,
from $74.6 billion in fiscal year 2003-04 (which includes approximately $2.3
billion in tobacco securitization bond proceeds) to $77.3 billion in fiscal year
2004-05. The revenue projections assume a continuing rebound in California's
economy as reflected in several key indicators. The 2004 Budget Act largely
reflects the budget proposals contained in the May Revision (released on May 13,
2004) to the original 2004-05 Governor's Budget proposed on January 9, 2004.
Revenue increases since the May Revision reflected in the 2004 Budget Act total
$542 million. In addition, expenditures increased by $1.1 billion since the May
Revision. In summary, the 2004 Budget Act addressed a projected $13.9 billion
budget shortfall through expenditure cuts ($4.0 billion or 28.7% ), cost
avoidance ($4.4 billion or 31.7%), fund shifts ($1.6 billion or 11.2%), loans or
borrowing ($2.1 billion or 15.4%), and transfers and other revenue ($1.8 billion
or 13.0 %).

The 2004 Budget Act contains the following major components:

(1) REBASING PROPOSITION 98 MINIMUM FUNDING GUARANTEE--The level of
Proposition 98 appropriations is to be reset at a level approximately $2
billion less than would otherwise be required for fiscal year 2004-05
pursuant to legislation relating to the 2004 Budget Act.

(2) HIGHER EDUCATION--A new fee policy for higher education is implemented
whereby future undergraduate and graduate level fee increases are tied to
increases in per-capita personal income, with flexibility to increase fees
by not more than an average of 10% a year over the next three years. Under
the fee policy, graduate fees may increase at rates in excess of
undergraduate fees until a 50% differential is achieved. In fiscal year
2004-05, fees are increased 14% for undergraduates and 20% for graduate
students (25% for CSU graduate students majoring in non-teacher preparation
programs). The new long-term policy is designed to ensure that public
university students are protected from future dramatic fee increases as a
consequence of declines in General Fund resources. The 2004 Budget Act
includes $750 million in various spending reductions for higher education
from otherwise mandated levels.

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8

(3) HEALTH AND HUMAN SERVICES--While the administration has proposed major
reforms of the Medi-Cal program, any such reforms are expected to take at
least one year to implement. As a result, the 2004 Budget Act does not
include any savings attributed to Medi-Cal redesign. Other strategies
independent of the Medi-Cal redesign have been included in the 2004 Budget
Act, such as the implementation of Medi-Cal rate increases for County
Organized Health Systems and Pharmacy Reimbursement Realignment. In
addition, increased work incentives under the CalWORKs program are
proposed. The budget includes $992 million in reductions in various social
service programs from otherwise mandated levels.

(4) PENSION REFORM--The 2004 Budget Act eliminates state contributions to
CalPERS on behalf of new state employees for the first two years of
employment. In addition, the 2004 Budget Act assumes the issuance of $929
million pension obligation bonds to cover a portion of the state's
required contributions to CalPERS in fiscal year 2004-05. Of this amount,
$577 million is reflected as a revenue transfer and $352 million as
savings.

(5) SUBSTANTIALLY REDUCED EXTERNAL BORROWINGS--As stated, the 2004 Budget
Act assumes the issuance of $929 million in pension obligation bonds to pay
a portion of the pension obligations in fiscal year 2004-05. In addition,
approximately $2 billion of economic recovery bond proceeds will be
deposited in a deficit recovery fund and will be used to offset fiscal year
2004-05 General Fund expenditures.

(6) TAX RELIEF--The 2004 Budget Act reflects the elimination of the VLF
offset program beginning in fiscal year 2004-05.

(7) INDIAN GAMING--The 2004 Budget Act includes $300 million in additional
revenues as a result of the renegotiation of tribal gaming compacts and the
negotiation of new compacts with tribes that wish to expand gaming
activities. The 2004 Budget Act authorizes the state to sell the revenue
stream to be received from payments made by certain Indian tribes to secure
up to $1.5 billion of securities, the proceeds of which will be used by the
state to repay prior transportation loans. Issuance of these securities is
contingent upon the failure of Propositions 68 and 70, which relate to
Indian gaming and have qualified for the November 2004 ballot. Pending
litigation relating to the Indian gaming compacts could also affect these
additional revenues.

(8) OTHER REVENUE ENHANCEMENTS AND EXPENDITURE REDUCTIONS--The 2004 Budget
Act includes: $1.21 billion in savings for the suspension of the
Transportation Investment Fund transfer, $450 million in savings from
deposits of punitive damages awards used to offset general fund costs in
fiscal year 2004-05, $206 million for spending reductions that would result
from changes in the correctional system and $150 million of additional
savings pursuant to Control Section 4.10 of the 2004 Budget Act (which
gives the Department of Finance the authority to reduce appropriations in
certain circumstances).

In its May 17, 2004 "Overview of the 2004-05 May Revision," the Legislative
Analyst's Office ("LAO") projected that a $6 billion operating shortfall would
re-emerge in fiscal year 2005-06. Although the LAO expects that the shortfall
could be substantially offset through accessing carryover reserves and using the
remaining Proposition 57 authorization, the state budget would still be modestly
out of balance. The LAO further projected that following fiscal year 2005-06,
the state would again face major budget shortfalls, absent significant
corrective actions. The LAO estimates that the fiscal year 2006-07 shortfall
would approach $8 billion, and that annual operating deficits above $6.5 billion
would persist for the forecast period (through fiscal year 2008-09). The LAO has
not revised its May 17, 2004 forecast of revenues, expenditures and the state's
potential structural deficit since the adoption of the 2004 Budget Act. Although
the administration projects that, given current spending rates, there will be an
operating deficit in fiscal year 2005-06, the Legislature is required to send
and the administration is required to sign a balanced budget, as

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9

specified in the constitution. Savings, which cannot be determined at this time,
are anticipated from various budget reform proposals, such as Medi-Cal and from
recommendations made by the California Performance Review that will be
implemented. These savings will help reduce the operating deficit in fiscal year
2005-06.

The state's credit ratings initially declined due to the budget crisis but have
since rebounded due to an uptrend in the economy and the state's liquidity
position. In September 2004, Fitch upgraded the state's general obligation
credit rating to "A-." In August 2004, Standard & Poor's upgraded the state's
general obligation credit rating to "A" and in May 2004, Moody's Investors
Services upgraded such rating to "A3" with a positive outlook. In January 2004,
these ratings were "BBB," "BBB" and "Baa1," respectively.

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.

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.

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10

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,
school districts 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 seaport facilities and hospitals.

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 instruments are issued by corporations, financial
institutions, states, municipalities, and government agencies and
instrumentalities. 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.
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. The rate adjustment
mechanisms are designed to result in a market value for the VRDO or FRDO that
approximates par value. Although money market funds typically limit their
investments to securities with remaining maturities of 397 days or less, they
may invest in variable- and floating-rate instruments that have nominal (or
stated) maturities in excess of 397 days, provided that such instruments have
demand features and/or interest rate reset mechanisms consistent with regulatory
requirements for money market funds.

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.

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11

The advisor expects that the funds will pay more for securities with puts
attached than for securities without these liquidity features.

Some obligations with term puts attached may be issued by municipalities. The
portfolio 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, 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 put provider'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
portfolio managers monitor the credit quality of bonds underlying the funds' TOB
holdings and intend to sell or put back any TOB if the ratings on the underlying
bond fall below regulatory requirements under Rule 2a-7.

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 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.

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12

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 (buy/sell back transactions), 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 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. For example, market rates of interest on debt securities at
the time of delivery may be higher or lower than those contracted for on the
when-issued security. Accordingly, the value of the security may decline prior
to delivery, which could result in a loss to the fund. 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.

When purchasing securities on a when-issued or forward commitment basis, a fund
will segregate cash equivalents or other appropriate liquid securities on its
records 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 portfolio 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.

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13

Many leases and contracts include non-appropriation 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 fund) may hold inverse floaters. An inverse
floater is a type of derivative that bears an interest rate that moves inversely
to market interest rates. As market interest rates rise, the interest rate on
inverse floaters goes down, and vice versa. Generally, this is accomplished by
expressing the interest rate on the inverse floater as an above-market fixed
rate of interest, reduced by an amount determined by reference to a market-based
or bond-specific floating interest rate (as well as by any fees associated with
administering the inverse floater program).

Inverse floaters may be issued in conjunction with an equal amount of Dutch
Auction floating-rate bonds (floaters), or a market-based index may be used to
set the interest rate on these securities. A Dutch Auction is an auction system
in which the price of the security is gradually lowered until it meets a
responsive bid and is sold. Floaters and inverse floaters may be brought to
market by

(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.

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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. The ability of an issuer to make
payment could be affected by litigation, legislation or other political events,
or the bankruptcy of the issuer. Lower-quality municipal bonds are more
susceptible to these risks than higher-quality municipal bonds. In addition,
lower-quality bonds may be unsecured or subordinated to other obligations of the
issuer.

Projects financed through the issuance of lower-quality bonds often carry higher
levels of risk. 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, a higher level of
debt, or a lack of needed additional financing.

Lower-quality bonds generally are unsecured and often are subordinated to other
obligations of the issuer. These bonds may 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 a negative tax impact on 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 may be
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, each fund may invest a portion of its 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

* Money Market funds

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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.

Structured and Derivative Securities

To the extent permitted by its investment objectives and policies, each fund may
invest in structured securities and securities that are commonly referred to as
derivative securities. Generally, a derivative security is a financial
arrangement, the value of which is based on, or derived from, a traditional
security, asset, or market index.

Certain derivative securities may be described as structured investments. A
structured investment is a security whose value or performance is linked to an
underlying index or other security or asset class. Structured investments
include asset-backed securities (ABS), commercial and residential
mortgage-backed securities (CMBS and MBS), and collateralized mortgage
obligations (CMO), which are described more fully below. Structured investments
also include securities backed by other types of collateral. Structured
investments involve the transfer of specified financial assets to a special
purpose entity, generally a corporation or trust, or the deposit of financial
assets with a custodian; and the issuance of securities or depository receipts
backed by, or representing interests in, those assets.

Some structured investments are individually negotiated agreements or are traded
over the counter. Structured investments may be organized and operated to
restructure the investment characteristics of the underlying security. The cash
flow on the underlying instruments may be apportioned among the newly issued
structured securities to create securities with different investment
characteristics, such as varying maturities, payment priorities and interest
rate provisions, and the extent of such payments made with respect to structured
securities is dependent on the extent of the cash flow on the underlying
instruments. Because structured securities typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. Structured securities are subject to such risks as the
inability or unwillingness of the issuers of the underlying securities to repay
principal and interest, and requests by the issuers of the underlying securities
to reschedule or restructure outstanding debt and to extend additional loan
amounts.

Some derivative securities, such as mortgage-related and other asset-backed
securities, are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities.

There are many different types of derivative securities and many different ways
to use them. Futures and options are commonly used for traditional hedging
purposes to attempt to protect a fund from exposure to changing interest rates,
securities prices or currency exchange rates, and for cash management purposes
as a low-cost method of gaining exposure to a particular securities market
without investing directly in those securities.

The return on a derivative security may increase or decrease, depending upon
changes in the reference index or instrument to which it relates.

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There are a range of risks associated with investments in derivative securities,
including:

* the risk that the underlying security, interest rate, market index or
other financial asset will not move in the direction the portfolio managers
anticipate;

* the possibility that there may be no liquid secondary market, or the
possibility that price fluctuation limits may be imposed by the exchange,
either of which may make it difficult or impossible to close out a position
when desired;

* the risk that adverse price movements in an instrument can result in a
loss substantially greater than a fund's initial investment; and

* the risk that the counterparty will fail to perform its obligations.

A fund may not invest in a derivative security unless the reference index or the
instrument to which it relates is an eligible investment for the fund. For
example, a security whose underlying value is linked to the price of oil would
not be a permissible investment because the funds may not invest in oil and gas
leases or futures. A fund may not invest in a derivative security if its credit,
interest rate, liquidity, counterparty and other risks associated with ownership
of the security are outside acceptable limits set forth in the fund's
prospectus. The Board of Trustees has approved the advisor's policy regarding
investments in derivative securities. That policy specifies factors that must be
considered in connection with a purchase of derivative securities and provides
that a fund may not invest in a derivative security if it would be possible for
a fund to lose more money than the notional value of the investment. The policy
also establishes a committee that must review certain proposed purchases before
the purchases can be made. The advisor will report on fund activity in
derivative securities to the Board of Trustees as necessary.

Swap Agreements

Each fund, other than money market funds, may invest in swap agreements,
consistent with its investment objective and strategies. A fund may enter into a
swap agreement in order to, for example, attempt to obtain or preserve a
particular return or spread at a lower cost than obtaining a return or spread
through purchases and/or sales of instruments in other markets; protect against
currency fluctuations; attempt to manage duration to protect against any
increase in the price of securities the fund anticipates purchasing at a later
date; or gain exposure to certain markets in the most economical way possible.

Swap agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate,
in a particular foreign currency, or in a "basket" of securities representing a
particular index. Forms of swap agreements include, for example, interest rate
swaps, under which fixed- or floating-rate interest payments on a specific
principal amount are exchanged and total return swaps, under which one party
agrees to pay the other the total return of a defined underlying asset (usually
an index, stock, bond or defined portfolio of loans and mortgages) in exchange
for fee payments, often a variable stream of cashflows based on LIBOR. The funds
may enter into credit default swap agreements to hedge an existing position by
purchasing or selling credit protection. Credit default swaps enable an investor
to buy/sell protection against a credit event of a specific issuer. The seller
of credit protection against a security or basket of securities receives an
up-front or periodic payment to compensate against potential default event(s).
The fund may enhance returns by selling protection or attempt to mitigate credit
risk by buying protection. Market supply and demand factors may cause
distortions between the cash securities market and the credit default swap
market.

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Whether a fund's use of swap agreements will be successful depends on the
advisor's ability to predict correctly whether certain types of investments are
likely to produce greater returns than other investments. Interest rate swaps
could result in losses if interest rate changes are not correctly anticipated by
the fund. Total return swaps could result in losses if the reference index,
security, or investments do not perform as anticipated by the fund. Credit
default swaps could result in losses if the fund does not correctly evaluate the
creditworthiness of the issuer on which the credit default swap is based.
Because they are two-party contracts and because they may have terms of greater
than seven days, swap agreements may be considered to be illiquid. Moreover, a
fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. The funds will enter into swap agreements only with counterparties
that meet certain standards of creditworthiness. Certain restrictions imposed on
the funds by the Internal Revenue Code may limit the funds' ability to use swap
agreements. The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.

Inflation-Indexed Securities

The funds may purchase inflation-indexed securities issued by the U.S. Treasury,
U.S. government agencies and instrumentalities other than the U.S. Treasury, and
entities other than the U.S. Treasury or U.S. government agencies and
instrumentalities.

Inflation-Indexed Treasury Securities

Inflation-indexed U.S. Treasury securities are U.S. Treasury securities with a
final value and interest payment stream linked to the inflation rate.
Inflation-indexed U.S. Treasury securities may be issued in either note or bond
form. Inflation-indexed U.S. Treasury notes have maturities of at least one
year, but not more than 10 years. Inflation-indexed U.S. Treasury bonds have
maturities of more than 10 years.

Inflation-indexed U.S. Treasury securities may be attractive to investors
seeking an investment backed by the full faith and credit of the U.S. government
that provides a return in excess of the rate of inflation. These securities were
first sold in the U.S. market in January 1997. Inflation-indexed U.S. Treasury
securities are auctioned and issued on a quarterly basis.

STRUCTURE AND INFLATION INDEX

The principal value of inflation-indexed U.S. Treasury securities will be
adjusted to reflect changes in the level of inflation. The index for measuring
the inflation rate for inflation-indexed U.S. Treasury securities is the
non-seasonally adjusted U.S. City Average All Items Consumer Price for All Urban
Consumers Index (Consumer Price Index) published monthly by the U.S. Department
of Labor's Bureau of Labor Statistics.

Semiannual coupon interest payments are made at a fixed percentage of the
inflation-indexed principal value. The coupon rate for the semiannual interest
rate of each issuance of inflation-indexed U.S. Treasury securities is
determined at the time the securities are sold to the public (i.e., by
competitive bids in the auction). The coupon rate will likely reflect real
yields available in the U.S. Treasury market; real yields are the prevailing
yields on U.S. Treasury securities with similar maturities, less then-prevailing
inflation expectations. While a reduction in inflation will cause a reduction in
the interest payment made on the securities, the repayment of principal at the
maturity of the security is guaranteed by the U.S. Treasury to be no less than
the original face or par amount of the security at the time of issuance.

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INDEXING METHODOLOGY

The principal value of inflation-indexed U.S. Treasury securities will be
indexed, or adjusted, to account for changes in the Consumer Price Index.
Semiannual coupon interest payment amounts will be determined by multiplying the
inflation-indexed principal amount by one-half the stated rate of interest on
each interest payment date.

TAXATION

The taxation of inflation-indexed U.S. Treasury securities is similar to the
taxation of conventional bonds. Both interest payments and the difference
between original principal and the inflation-adjusted principal will be treated
as interest income subject to taxation. Interest payments are taxable when
received or accrued. The inflation adjustment to the principal is subject to tax
in the year the adjustment is made, not at maturity of the security when the
cash from the repayment of principal is received. If an upward adjustment has
been made (which typically should happen), investors in non-tax-deferred
accounts will pay taxes on this amount currently. Decreases in the indexed
principal can be deducted only from current or previous interest payments
reported as income.

Inflation-indexed U.S. Treasury securities therefore have a potential cash flow
mismatch to an investor, because investors must pay taxes on the
inflation-adjusted principal before the repayment of principal is received. It
is possible that, particularly for high income tax bracket investors,
inflation-indexed U.S. Treasury securities would not generate enough income in a
given year to cover the tax liability they could create. This is similar to the
current tax treatment for zero-coupon bonds and other discount securities. If
inflation-indexed U.S. Treasury securities are sold prior to maturity, capital
losses or gains are realized in the same manner as traditional bonds.

Investors in a fund will receive dividends that represent both the interest
payments and the principal adjustments of the inflation-indexed securities held
in the fund's portfolio. An investment in a fund may, therefore, be a means to
avoid the cash flow mismatch associated with a direct investment in
inflation-indexed securities. For more information about taxes and their effect
on you as an investor in the funds, see TAXES, page 60.

U.S. GOVERNMENT AGENCIES

A number of U.S. government agencies and instrumentalities other than the U.S.
Treasury may issue inflation-indexed securities. Some U.S. government agencies
have issued inflation-indexed securities whose design mirrors that of the
inflation-indexed U.S. Treasury securities described above.

OTHER ENTITIES

Entities other than the U.S. Treasury or U.S. government agencies and
instrumentalities may issue inflation-indexed securities.

SHARE PRICE VOLATILITY

Inflation-indexed securities are designed to offer a return linked to inflation,
thereby protecting future purchasing power of the money invested in them.
However, inflation-indexed securities provide this protected return only if held
to maturity. In addition, inflation-indexed securities may not trade at par
value. Real interest rates (the market rate of interest less the anticipated
rate of inflation) change over time as a result of many factors, such as what
investors are demanding as a true value for money. When real rates do change,
inflation-indexed securities prices will be more sensitive to these changes than
conventional bonds, because these securities were sold originally based upon a
real interest rate that is no longer prevailing. Should market expectations for
real interest rates rise, the price of inflation-indexed securities and the
share price of a fund holding these securities will fall. Investors in the funds
should be prepared to accept not only this share price volatility but also the
possible adverse tax consequences it may cause.

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An investment in securities featuring inflation-adjusted principal and/or
interest involves factors not associated with more traditional fixed-principal
securities. Such factors include the possibility that the inflation index may be
subject to significant changes, that changes in the index may or may not
correlate to changes in interest rates generally or changes in other indices, or
that the resulting interest may be greater or less than that payable on other
securities of similar maturities. In the event of sustained deflation, it is
possible that the amount of semiannual interest payments, the inflation-adjusted
principal of the security and the value of the stripped components, will
decrease. If any of these possibilities are realized, a fund's net asset value
could be negatively affected.

Mortgage-Related Securities

To the extent permitted by its investment objectives and policies, each fund,
other than the money market funds, may invest in mortgage-related securities.

BACKGROUND

A mortgage-backed security represents an ownership interest in a pool of
mortgage loans. The loans are made by financial institutions to finance home and
other real estate purchases. As the loans are repaid, investors receive payments
of both interest and principal.

Like fixed-income securities such as U.S. Treasury bonds, mortgage-backed
securities pay a stated rate of interest during the life of the security.
However, unlike a bond, which returns principal to the investor in one lump sum
at maturity, mortgage-backed securities return principal to the investor in
increments during the life of the security.

Because the timing and speed of principal repayments vary, the cash flow on
mortgage-backed securities is irregular. If mortgage holders sell their homes,
refinance their loans, prepay their mortgages or default on their loans, the
principal is distributed pro rata to investors.

As with other fixed-income securities, the prices of mortgage-backed securities
fluctuate in response to changing interest rates; when interest rates fall, the
prices of mortgage-backed securities rise, and vice versa. Changing interest
rates have additional significance for mortgage-backed securities investors,
however, because they influence prepayment rates (the rates at which mortgage
holders prepay their mortgages), which in turn affect the yields on
mortgage-backed securities. When interest rates decline, prepayment rates
generally increase. Mortgage holders take advantage of the opportunity to
refinance their mortgages at lower rates with lower monthly payments. When
interest rates rise, mortgage holders are less inclined to refinance their
mortgages. The effect of prepayment activity on yield depends on whether the
mortgage-backed security was purchased at a premium or at a discount.

A fund may receive principal sooner than it expected because of accelerated
prepayments. Under these circumstances, the fund might have to reinvest returned
principal at rates lower than it would have earned if principal payments were
made on schedule. Conversely, a mortgage-backed security may exceed its
anticipated life if prepayment rates decelerate unexpectedly. Under these
circumstances, a fund might miss an opportunity to earn interest at higher
prevailing rates.

GNMA CERTIFICATES

The Government National Mortgage Association (GNMA) is a wholly owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934 (Housing Act), as amended,
authorizes GNMA to guarantee the timely payment of interest and repayment of
principal on certificates that are backed by a pool of mortgage loans insured by
the Federal Housing Administration under the Housing Act, or by Title V of the
Housing Act of 1949 (FHA Loans), or guaranteed by the Veterans' Affairs under
the Servicemen's Readjustment Act of 1944 (VA Loans), as amended, or by pools of
other eligible mortgage loans. The Housing Act provides that

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20

the full faith and credit of the U.S. government is pledged to the payment of
all amounts that may be required to be paid under any guarantee. GNMA has
unlimited authority to borrow from the U.S. Treasury in order to meet its
obligations under this guarantee.

GNMA certificates represent a pro rata interest in one or more pools of the
following types of mortgage loans: (a) fixed-rate level payment mortgage loans;
(b) fixed-rate graduated payment mortgage loans (GPMs); (c) fixed-rate growing
equity mortgage loans (GEMs); (d) fixed-rate mortgage loans secured by
manufactured (mobile) homes (MHs); (e) mortgage loans on multifamily residential
properties under construction (CLCs); (f) mortgage loans on completed
multifamily projects (PLCs); (g) fixed-rate mortgage loans that use escrowed
funds to reduce the borrower's monthly payments during the early years of the
mortgage loans (buydown mortgage loans); and (h) mortgage loans that provide for
payment adjustments based on periodic changes in interest rates or in other
payment terms of the mortgage loans.

FANNIE MAE CERTIFICATES

The Federal National Mortgage Association (FNMA or Fannie Mae) is a federally
chartered and privately owned corporation established under the Federal National
Mortgage Association Charter Act. Fannie Mae was originally established in 1938
as a U.S. government agency designed to provide supplemental liquidity to the
mortgage market and was reorganized as a stockholder-owned and privately managed
corporation by legislation enacted in 1968. Fannie Mae acquires capital from
investors who would not ordinarily invest in mortgage loans directly and thereby
expands the total amount of funds available for housing. This money is used to
buy home mortgage loans from local lenders, replenishing the supply of capital
available for mortgage lending.

Fannie Mae certificates represent a pro rata interest in one or more pools of
FHA Loans, VA Loans, or, most commonly, conventional mortgage loans (i.e.,
mortgage loans that are not insured or guaranteed by a government agency) of the
following types: (a) fixed-rate level payment mortgage loans; (b) fixed-rate
growing equity mortgage loans; (c) fixed-rate graduated payment mortgage loans;
(d) adjustable-rate mortgage loans; and (e) fixed-rate mortgage loans secured by
multifamily projects.

Fannie Mae certificates entitle the registered holder to receive amounts
representing a pro rata interest in scheduled principal and interest payments
(at the certificate's pass-through rate, which is net of any servicing and
guarantee fees on the underlying mortgage loans), any principal prepayments, and
a proportionate interest in the full principal amount of any foreclosed or
otherwise liquidated mortgage loan. The full and timely payment of interest and
repayment of principal on each Fannie Mae certificate is guaranteed by Fannie
Mae; this guarantee is not backed by the full faith and credit of the U.S.
government.

FREDDIE MAC CERTIFICATES

The Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) is a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970 (FHLMC Act), as amended. Freddie Mac was established
primarily for the purpose of increasing the availability of mortgage credit. Its
principal activity consists of purchasing first-lien conventional residential
mortgage loans (and participation interests in such mortgage loans) and
reselling these loans in the form of mortgage-backed securities, primarily
Freddie Mac certificates.

Freddie Mac certificates represent a pro rata interest in a group of mortgage
loans (a Freddie Mac certificate group) purchased by Freddie Mac. The mortgage
loans underlying Freddie Mac certificates consist of fixed- or adjustable-rate
mortgage loans with original terms to maturity of between 10 and 30 years,
substantially all of which are secured by first-liens on one- to four-family
residential properties or multifamily projects. Each mortgage loan must meet
standards set forth in the FHLMC Act. A Freddie Mac certificate group may
include whole loans, participation interests in whole loans, undivided interests
in whole loans, and participations composing another Freddie Mac certificate
group.

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21

Freddie Mac guarantees to each registered holder of a Freddie Mac certificate
the timely payment of interest at the rate provided for by the certificate.
Freddie Mac also guarantees ultimate collection of all principal on the related
mortgage loans, without any offset or deduction, but generally does not
guarantee the timely repayment of principal. Freddie Mac may remit principal at
any time after default on an underlying mortgage loan, but no later than 30 days
following (a) foreclosure sale, (b) payment of a claim by any mortgage insurer,
or (c) the expiration of any right of redemption, whichever occurs later, and in
any event no later than one year after demand has been made upon the mortgager
for accelerated payment of principal. Obligations guaranteed by Freddie Mac are
not backed by the full faith and credit pledge of the U.S. government.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

A CMO is a multiclass bond backed by a pool of mortgage pass-through
certificates or mortgage loans. CMOs may be collateralized by (a) GNMA, Fannie
Mae or Freddie Mac pass-through certificates; (b) unsecured mortgage loans
insured by the Federal Housing Administration or guaranteed by the Department of
Veterans' Affairs; (c) unsecuritized conventional mortgages; or (d) any
combination thereof.

In structuring a CMO, an issuer distributes cash flow from the underlying
collateral over a series of classes called tranches. Each CMO is a set of two or
more tranches, with average lives and cash flow patterns designed to meet
specific investment objectives. The average life expectancies of the different
tranches in a four-part deal, for example, might be two, five, seven and 20
years.

As payments on the underlying mortgage loans are collected, the CMO issuer pays
the coupon rate of interest to the bondholders in each tranche. At the outset,
scheduled and unscheduled principal payments go to investors in the first
tranches. Investors in later tranches do not begin receiving principal payments
until the prior tranches are paid off. This basic type of CMO is known as a
sequential pay or plain vanilla CMO.

Some CMOs are structured so that the prepayment or market risks are transferred
from one tranche to another. Prepayment stability is improved in some tranches
if other tranches absorb more prepayment variability.

The final tranche of a CMO often takes the form of a Z-bond, also known as an
accrual bond or accretion bond. Holders of these securities receive no cash
until the earlier tranches are paid in full. During the period that the other
tranches are outstanding, periodic interest payments are added to the initial
face amount of the Z-bond but are not paid to investors. When the prior tranches
are retired, the Z-bond receives coupon payments on its higher principal balance
plus any principal prepayments from the underlying mortgage loans. The existence
of a Z-bond tranche helps stabilize cash flow patterns in the other tranches. In
a changing interest rate environment, however, the value of the Z-bond tends to
be more volatile.

As CMOs have evolved, some classes of CMO bonds have become more prevalent. The
planned amortization class (PAC) and targeted amortization class (TAC), for
example, were designed to reduce prepayment risk by establishing a sinking-fund
structure. PAC and TAC bonds assure to varying degrees that investors will
receive payments over a predetermined period under various prepayment scenarios.
Although PAC and TAC bonds are similar, PAC bonds are better able to provide
stable cash flows under various prepayment scenarios than TAC bonds because of
the order in which these tranches are paid.

The existence of a PAC or TAC tranche can create higher levels of risk for other
tranches in the CMO because the stability of the PAC or TAC tranche is achieved
by creating at least one other tranche -- known as a companion bond, support or
non-PAC bond -- that absorbs the variability of principal cash flows. Because
companion bonds have a high degree of average life variability, they generally
pay a higher yield. A TAC bond can have some of the prepayment variability of a
companion bond if there is also a PAC bond in the CMO issue.

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22

Floating-rate CMO tranches (floaters) pay a variable rate of interest that is
usually tied to the LIBOR. Institutional investors with short-term liabilities,
such as commercial banks, often find floating-rate CMOs attractive investments.
Super floaters (which float a certain percentage above LIBOR) and inverse
floaters (which float inversely to LIBOR) are variations on the floater
structure that have highly variable cash flows.

STRIPPED MORTGAGE-BACKED SECURITIES

Stripped mortgage-backed securities are created by segregating the cash flows
from underlying mortgage loans or mortgage securities to create two or more new
securities, each with a specified percentage of the underlying security's
principal or interest payments. Mortgage-backed securities may be partially
stripped so that each investor class receives some interest and some principal.
When securities are completely stripped, however, all of the interest is
distributed to holders of one type of security, known as an interest-only
security, or IO, and all of the principal is distributed to holders of another
type of security known as a principal-only security, or PO. Strips can be
created in a pass-through structure or as tranches of a CMO.

The market values of IOs and POs are very sensitive to interest rate and
prepayment rate fluctuations. POs, for example, increase (or decrease) in value
as interest rates decline (or rise). The price behavior of these securities also
depends on whether the mortgage collateral was purchased at a premium or
discount to its par value. Prepayments on discount coupon POs generally are much
lower than prepayments on premium coupon POs. IOs may be used to hedge a fund's
other investments because prepayments cause the value of an IO strip to move in
the opposite direction from other mortgage-backed securities.

ADJUSTABLE-RATE MORTGAGE LOANS (ARMS)

ARMs eligible for inclusion in a mortgage pool generally will provide for a
fixed initial mortgage interest rate for a specified period of time, generally
for either the first three, six, 12, 24, 36, 60 or 84 scheduled monthly
payments. Thereafter, the interest rates are subject to periodic adjustment
based on changes in an index.

ARMs have minimum and maximum rates beyond which the mortgage interest rate may
not vary over the lifetime of the loan. Certain ARMs provide for additional
limitations on the maximum amount by which the mortgage interest rate may adjust
for any single adjustment period. Negatively amortizing ARMs may provide
limitations on changes in the required monthly payment. Limitations on monthly
payments can result in monthly payments that are greater or less than the amount
necessary to amortize a negatively amortizing ARM by its maturity at the
interest rate in effect during any particular month.

There are two types of indices that provide the basis for ARM rate adjustments:
those based on market rates and those based on a calculated measure, such as a
cost-of-funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year, three-year and five-year constant maturity U.S.
Treasury rates (as reported by the Federal Reserve Board); the three-month
Treasury bill rate; the 180-day Treasury bill rate; rates on longer-term
Treasury securities; the Eleventh District Federal Home Loan Bank Cost of Funds
Index (EDCOFI); the National Median Cost of Funds Index; the one-month,
three-month, six-month or one-year London Interbank Offered Rate (LIBOR); or
six-month CD rates. Some indices, such as the one-year constant maturity
Treasury rate or three-month LIBOR, are highly correlated with changes in market
interest rates. Other indices, such as the EDCOFI, tend to lag behind changes in
market rates and be somewhat less volatile over short periods of time.

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23

The EDCOFI reflects the monthly weighted average cost of funds of savings and
loan associations and savings banks whose home offices are located in Arizona,
California and Nevada (the Federal Home Loan Bank Eleventh District) and who are
member institutions of the Federal Home Loan Bank of San Francisco (the FHLB of
San Francisco), as computed from statistics tabulated and published by the FHLB
of San Francisco. The FHLB of San Francisco normally announces the Cost of Funds
Index on the last working day of the month following the month in which the cost
of funds was incurred.

One-year and three-year Constant Maturity Treasury (CMT) rates are calculated by
the Federal Reserve Bank of New York, based on daily closing bid yields on
actively traded Treasury securities submitted by five leading broker-dealers.
The median bid yields are used to construct a daily yield curve.

The National Median Cost of Funds Index, similar to the EDCOFI, is calculated
monthly by the Federal Home Loan Bank Board (FHLBB) and represents the average
monthly interest expenses on liabilities of member institutions. A median,
rather than an arithmetic mean, is used to reduce the effect of extreme numbers.

LIBOR is the rate at which banks in London offer Eurodollars in trades between
banks. LIBOR has become a key rate in the U.S. domestic money market because it
is perceived to reflect the true global cost of money.

The portfolio managers may invest in ARMs whose periodic interest rate
adjustments are based on new indices as these indices become available.

Commercial Mortgage-Backed Securities (CMBS)

CMBS are securities created from a pool of commercial mortgage loans, such as
loans for hotels, shopping centers, office buildings, apartment buildings, and
the like. Interest and principal payments from these loans are passed on to the
investor according to a particular schedule of payments. They may be issued by
U.S. government agencies or by private issuers. The credit quality of CMBS
depends primarily on the quality of the underlying loans and on the structure of
the particular deal. Generally, deals are structured with senior and subordinate
classes. Multiple classes may permit the issuance of securities with payment
terms, interest rates, or other characteristics differing both from those of
each other and those of the underlying assets. Examples include classes having
characteristics such as floating interest rates or scheduled amortization of
principal. Rating agencies rate the individual classes of the deal based on the
degree of seniority or subordination of a particular class and other factors.
The value of these securities may change because of actual or perceived changes
in the creditworthiness of individual borrowers, their tenants, the servicing
agents, or the general state of commercial real estate and other factors.

CMBS may be partially stripped so that each investor class receives some
interest and some principal. When securities are completely stripped, however,
all of the interest is distributed to holders of one type of security, known as
an interest-only security (IO), and all of the principal is distributed to
holders of another type of security known as a principal-only security (PO). The
funds are permitted to invest in IO classes of CMBS. As interest rates rise and
fall, the value of IOs tends to move in the same direction as interest rates.
The cash flows and yields on IO classes are extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets. In the cases of IOs, prepayments affect the amount of cash flows
provided to the investor. If the underlying mortgage assets experience greater
than anticipated prepayments of principal, an investor may fail to fully recoup
its initial investment in an IO class of a stripped mortgage-backed security,
even if the IO class is rated AAA or Aaa or is derived from a full faith and
credit obligation. However, because commercial mortgages are often locked out
from prepayment, or have high prepayment penalties or a defeasance mechanism,
the prepayment risk associated with a CMBS IO class is generally less than that
of a residential IO.

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24

Asset-Backed Securities (ABS)

ABS are structured like mortgage-backed securities, but instead of mortgage
loans or interest in mortgage loans, the underlying assets may include, for
example, such items as motor vehicle installment sales or installment loan
contracts, leases of various types of real and personal property, home equity
loans, student loans, small business loans, and receivables from credit card
agreements. The ability of an issuer of asset-backed securities to enforce its
security interest in the underlying assets may be limited. The value of an ABS
is affected by changes in the market's perception of the assets backing the
security, the creditworthiness of the servicing agent for the loan pool, the
originator of the loans, the financial institution providing any credit
enhancement, and subordination levels.

Payments of principal and interest passed through to holders of ABS are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guarantee by another entity or a priority to
certain of the borrower's other securities. The degree of credit enhancement
varies, and generally applies to only a fraction of the asset-backed security's
par value until exhausted. If the credit enhancement of an ABS held by the fund
has been exhausted, and if any required payments of principal and interest are
not made with respect to the underlying loans, the fund may experience losses or
delays in receiving payment.

Some types of ABS may be less effective than other types of securities as a
means of "locking in" attractive long-term interest rates. One reason is the
need to reinvest prepayments of principal; another is the possibility of
significant unscheduled prepayments resulting from declines in interest rates.
These prepayments would have to be reinvested at lower rates. As a result, these
securities may have less potential for capital appreciation during periods of
declining interest rates than other securities of comparable maturities,
although they may have a similar risk of decline in market value during periods
of rising interest rates. Prepayments may also significantly shorten the
effective maturities of these securities, especially during periods of declining
interest rates. Conversely, during periods of rising interest rates, a reduction
in prepayments may increase the effective maturities of these securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates than traditional debt securities, and, therefore,
potentially increasing the volatility of the fund.

The risks of investing in ABS are ultimately dependent upon the repayment of
loans by the individual or corporate borrowers. Although a fund would generally
have no recourse against the entity that originated the loans in the event of
default by a borrower, ABS typically are structured to mitigate this risk of
default.

Asset-backed securities are generally issued in more than one class, each with
different payment terms. Multiple class asset-backed securities may be used as a
method of providing credit support through creation of one or more classes whose
right to payments is made subordinate to the right to such payments of the
remaining class or classes. Multiple classes also may permit the issuance of
securities with payment terms, interest rates or other characteristics differing
both from those of each other and from those of the underlying assets. Examples
include so-called strips (asset-backed securities entitling the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security), and securities with classes
having characteristics such as floating interest rates or scheduled amortization
of principal.

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25

Futures and Options

Each non-money market fund may enter into futures contracts, options or options
on futures contracts. 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. Some futures and options strategies, such as selling futures, buying puts
and writing calls, hedge a fund's investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure. The funds do not use futures and options transactions
for speculative purposes.

Although other techniques may be used to control a fund's exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.

Futures contracts 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 portfolio managers consider it

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26

appropriate or desirable to do so. In the event of adverse price movements, a
fund would be required to continue making daily cash payments to maintain its
required margin. If the fund had insufficient cash, it might have to sell
portfolio securities to meet daily margin requirements at a time when the
advisor would not otherwise elect to do so. In addition, a fund may be required
to deliver or take delivery of instruments underlying futures contracts it
holds. The 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

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 segregate cash, cash equivalents or other appropriate liquid assets on
its records in an amount sufficient to cover its obligations under the futures
contracts and options.

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27

Municipal Bond Insurers

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

Ambac Financial Group, Inc. (AMBAC) is a Delaware-domiciled stock insurance
corporation. Ambac Assurance Corporation is a wholly owned subsidiary of AMBAC,
a publicly held company. Ambac Assurance Corporation's claims-paying ability is
rated Aaa/AAA/AAA by Moody's Investors Service, Inc. (Moody's), Standard &
Poor's Corporation (S&P) and Fitch, Inc. (Fitch), respectively.

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

MBIA Insurance Corporation (MBIA) is a monoline insurance company, which is a
wholly owned subsidiary of MBIA Inc. organized as a Connecticut corporation.
MBIA's claims-paying ability is 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 in 2000. FSA's claims-paying ability is rated Aaa/AAA/AAA by Moody's,
S&P and Fitch, respectively.

XL Capital Assurance Inc. (XLCA) was formed in 1999 as an indirect, wholly owned
New York-domiciled subsidiary of XL Capital Ltd. XLCA's claims-paying ability is
rated Aaa/AAA/AAA by Moody's, S&P and Fitch, respectively.

CDC IXIS Financial Guaranty North America is a wholly owned subsidiary of CDC
IXIS Financial Guaranty Holding. The parent of the holding company is CDC IXIS,
which is an AAA-rated French financial institution that owns 100% of the holding
company. Each of the three companies' claims-paying ability is rated Aaa/AAA/AAA
by Moody's, S&P and Fitch, respectively.

Radian Asset Assurance Inc. (Radian) is the surviving entity and name for the
former Asset Guaranty. Radian is an operating subsidiary of Radian Group Inc., a
Delaware corporation. Radian's claims-paying ability is rated Aaa by Moody's and
AA by S&P and Fitch.

American Capital Access Holdings, Inc. is the parent company of ACA Financial
Guaranty Corp. (ACA). The parent of ACA is owned by several institutional
investors. Recently, S&P put ACA's rating on negative creditwatch. In August
2004, Fitch withdrew its rating based on ACA's decision to no longer provide
information necessary for Fitch to maintain its rating. S&P may restore its
previous A rating and stable outlook for ACA if certain capital transactions are
closed by ACA.

Restricted and Illiquid Securities

The funds may, from time to time, purchase restricted or illiquid securities
when they present attractive investment opportunities that otherwise meet the
funds' criteria for selection. "Restricted Securities" include securities that
cannot be sold to the public without registration under the Securities Act of
1933 or the availability of an exemption from registration (such as Rules 144 or
144A), or that are "not readily marketable" because they are subject to other
legal or contractual delays in or restrictions on resale. 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

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28

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 portfolio managers. The board retains the responsibility to monitor the
implementation of the guidelines and procedures it has adopted.

Because the secondary market for restricted securities is generally 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.

Other Investment Companies

Each fund may invest up to 10% of its total assets in other investment
companies, such as mutual funds, provided that the investment is consistent with
the fund's investment policies and restrictions. These investments may include
investments in money market funds managed by the advisor. Under the Investment
Company Act, a fund's investment in such securities, subject to certain
exceptions, currently is limited to:

* 3% of the total voting stock of any one investment company;

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

* 10% of the fund's total assets in the aggregate.

Such purchases will be made in the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary brokers'
commissions. As a shareholder of another investment company, a fund would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in addition
to the management fee that each fund bears directly in connection with its own
operations.

Each fund may invest in exchange traded funds (ETFs), such as Standard & Poor's
Depository Receipts (SPDRs) and the NASDAQ-100 index-tracking ETF (CUBES or
QQQs), with the same percentage limitations as investments in registered
investment companies. ETFs are a type of index fund bought and sold on a
securities exchange. An ETF trades like common stock and represents a fixed
portfolio of securities designed to track the performance and dividend yield of
a particular domestic or foreign market index. A fund may

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29

purchase an ETF to temporarily gain exposure to a portion of the U.S. or a
foreign market while awaiting purchase of underlying securities. The risks of
owning an ETF generally reflect the risks of owning the underlying securities
they are designed to track, although the lack of liquidity on an ETF could
result in it being more volatile. Additionally, ETFs have management fees, which
increase their cost.

FUNDAMENTAL INVESTMENT POLICIES

The funds' fundamental investment policies are set forth below. These investment
policies and the funds' investment objectives set forth in their prospectuses
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 A fund may not issue senior securities, except as permitted
Securities under the Investment Company Act.

- --------------------------------------------------------------------------------
Borrowing A fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in
an amount not exceeding 33-1/3% of the fund's total assets.

- --------------------------------------------------------------------------------
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 costs 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

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30

(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,

(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 fund may not purchase or sell futures
Options contracts or call options. This limitation does not apply to
options attached to, or acquired or traded together with, their
underlying securities, and does not apply to securities that
incorporate features similar to options or futures contracts.

- --------------------------------------------------------------------------------
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 fund) 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.

- --------------------------------------------------------------------------------

The Investment Company Act imposes certain additional restrictions upon the
funds' ability to acquire securities issued by insurance companies,
broker-dealers, underwriters or investment advisors, and upon transactions with
affiliated persons as defined by the Act. It also defines and forbids the
creation of cross and circular ownership. Neither the SEC nor any other agency
of the federal or state government participates in or supervises the management
of the funds or their investment practices or policies.

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.

To the extent a fund assumes a defensive position, it will not be pursuing its
investment objectives and may generate taxable income.

- ------
31

PORTFOLIO TURNOVER

The portfolio turnover rate of each fund (except the money market fund) is
listed in the Financial Highlights table in the prospectuses. Because of the
short-term nature of the money market fund's investments, portfolio turnover
rates are not generally used to evaluate their trading activities.

MANAGEMENT

The individuals listed below serve as trustees or officers of the funds. Each
trustee serves until his or her successor is duly elected and qualified or until
he or she retires. Effective March 2004, mandatory retirement age for
independent trustees is 73. However, the mandatory retirement age may be
extended for a period not to exceed two years with the approval of the remaining
independent trustees. The independent trustees have extended the mandatory
retirement age of Mr. Eisenstat to 75. Mr. Scott may serve until age 77 based on
an extension granted under retirement guidelines in effect prior to March 2004.
Those listed as interested trustees are "interested" primarily by virtue of
their engagement as officers of American Century Companies, Inc. (ACC) or its
wholly-owned, direct or indirect, subsidiaries, including the funds' investment
advisor, American Century Investment Management, Inc. (ACIM or the advisor); the
funds' principal underwriter, American Century Investment Services, Inc. (ACIS);
and the funds' transfer agent, American Century Services, LLC (ACS LLC).

The other trustees (more than three-fourths of the total number) are
independent; that is, they have never been employees or officers of, and have no
financial interest in, ACC or any of its wholly-owned, direct or indirect,
subsidiaries, including ACIM, ACIS and ACS LLC. The trustees serve in this
capacity for eight registered investment companies in the American Century
family of funds.

All persons named as officers of the funds also serve in similar capacities for
the other 13 investment companies advised by ACIM, unless otherwise noted. Only
officers with policy-making functions are listed. No officer is compensated for
his or her service as an officer of the funds. The listed officers are
interested persons of the funds and are appointed or re-appointed on an annual
basis.

NUMBER OF
PORTFOLIOS
IN FUND
LENGTH COMPLEX OTHER
POSITION(S) OF TIME OVERSEEN DIRECTORSHIPS
NAME, ADDRESS HELD WITH SERVED PRINCIPAL OCCUPATION(S) BY HELD BY
(YEAR OF BIRTH) FUNDS (YEARS) DURING PAST 5 YEARS TRUSTEE TRUSTEE
- --------------------------------------------------------------------------------------------------------------
Interested Trustees

- --------------------------------------------------------------------------------------------------------------
William M. Lyons Trustee 7 Chief Executive Officer, ACC 33 None
4500 Main Street and other ACC subsidiaries
Kansas City, MO (September 2000 to present)
64111 President, ACC
(1955) (June 1997 to present)
President, ACIM
(September 2002 to present)
President, ACIS
(July 2003 to present)
Chief Operating Officer, ACC
(June 1996 to September 2000)
Also serves as: Executive
Vice President , ACS LLC and
other ACC subsidiaries

- --------------------------------------------------------------------------------------------------------------
Independent Trustees

- --------------------------------------------------------------------------------------------------------------
Albert Eisenstat Trustee 9 Retired, Private Investor 33 Independent
1665 Charleston Road Director,SUNGARD
Mountain View, CA DATA SYSTEMS
94043 (1991 to present)
(1930) Independent
Director, BUSINESS
OBJECTS S/A
(1994 to present)
Independent
Director
COMMERCIAL METALS
(1983-2001)
- --------------------------------------------------------------------------------------------------------------

- ------
32

- ---------------------------------------------------------------------------------------------------------------
John Freidenrich Advisory Less Member and Manager, REGIS 33 None
1665 Charleston Road Board than MANAGEMENT COMPANY, LLC
Mountain View, CA 94043 Member 1 year (April 2004 to present)
(1937) Partner and Founder,
BAY PARTNERS (Venture
capital firm, 1976 to present)
Partner and Founder, WARE &
FREIDENRICH (1968 to present)

- ---------------------------------------------------------------------------------------------------------------
Ronald J. Gilson Trustee, 9 Charles J. Meyers Professor 33 None
1665 Charleston Road Chairman of Law and Business,
Mountain View, CA 94043 STANFORD LAW SCHOOL
(1946) (1979 to present)
Mark and Eva Stern
Professor of Law and
Business, COLUMBIA
UNIVERSITY SCHOOL OF LAW
(1992 to present)

- ---------------------------------------------------------------------------------------------------------------
Kathryn A. Hall Trustee 3 Co-Chief Executive Officer 33 None
1665 Charleston Road and Chief Investment Officer,
Mountain View, CA 94043 OFFIT HALL CAPITAL
(1957) MANAGEMENT, LLC
(April 2002 to present)
President and Managing
Director, LAUREL MANAGEMENT
COMPANY, L.L.C.
(1996 to April 2002)
- ---------------------------------------------------------------------------------------------------------------
Myron S. Scholes Trustee 24 Chairman, Oak Hill 33 Director,
1665 Charleston Road Platinum Partners, and a DIMENSIONAL
Mountain View, CA 94043 Partner, OAK HILL CAPITAL FUND ADVISORS
(1941) MANAGEMENT, (investment advisor,
(1999 to present) 1982 to present)
Frank E. Buck Professor Director, CHICAGO
of Finance-Emeritus, STANFORD MERCANTILE EXCHANGE
GRADUATE SCHOOL OF BUSINESS (2000 to present)
(1981 to present)
- ---------------------------------------------------------------------------------------------------------------
Kenneth E. Scott Trustee 33 Ralph M. Parsons Professor 33 None
1665 Charleston Road of Law and Business,
Mountain View, CA 94043 STANFORD LAW SCHOOL
(1928) (1972 to present)
- ---------------------------------------------------------------------------------------------------------------
John B. Shoven Trustee 2 Professor of Economics, 33 Director, CADENCE
1665 Charleston Road STANFORD UNIVERSITY DESIGN SYSTEMS
Mountain View, CA 94043 (1977 to present) (1992 to present)
(1947) Director, WATSON
WYATT WORLDWIDE
(2002 to present)
Director,

PALMSOURCE INC.
(2002 to present)
- ---------------------------------------------------------------------------------------------------------------

- ------
33

- ----------------------------------------------------------------------------------------------------------------
Jeanne D. Wohlers Trustee 20 Retired, Director and Partner, 33 Director,
1665 Charleston Road WINDY HILL PRODUCTIONS, LP QUINTUS
Mountain View, CA 94043 (educational software, CORPORATION
(1945) 1994 to 1998) (automation
solutions,
1995 to
present)

- ----------------------------------------------------------------------------------------------------------------
Officers

- ----------------------------------------------------------------------------------------------------------------
William M. Lyons President 4 See entry above under Not See entry
4500 Main Street "Interested Trustees." applicable above
Kansas City, MO 64111 under
(1955) "Interested
Trustees."

- ----------------------------------------------------------------------------------------------------------------
Robert T. Jackson Executive 4 Chief Administrative Officer, Not Not
4500 Main St. Vice ACC (August 1997 to present) applicable applicable
Kansas City, MO 64111 President Chief Financial Officer, ACC
(1946) (May 1995 to October 2002)
Chairman, AMERICAN
CENTURY VENTURES, INC.
(April 2004 to present)
President, ACS LLC
(January 1999 to present)
Executive Vice President,
ACC (May 1995 to present)
Also serves as: Executive
Vice President and Chief
Financial Officer, ACIM, ACIS
and other ACC subsidiaries,
and Treasurer, ACIM

- ----------------------------------------------------------------------------------------------------------------
Maryanne Roepke Senior Vice 4 Senior Vice President Not Not
4500 Main St. President, (April 1998 to present) applicable applicable
Kansas City, MO 64111 Treasurer and Assistant Treasurer,
(1956) and Chief ACS LLC, ACIM AND ACIS
Accounting (September 1985 to present)
Officer
- ----------------------------------------------------------------------------------------------------------------
David C. Tucker Senior Vice 6 Senior Vice President Not Not
4500 Main St. President and General Counsel, applicable applicable
Kansas City, MO 64111 and ACIM, ACIS, ACS LLC and
(1958) General other ACC subsidiaries
Counsel (June 1998 to present)
Vice President and
General Counsel, ACC
(June 1998 to present)
- ----------------------------------------------------------------------------------------------------------------
David H. Reinmiller Vice President 3 Chief Compliance Officer, Not Not
4500 Main St. and ACS LLC and ACIM applicable applicable
Kansas City, MO 64111 Chief less (March 2001 to present)
(1963) Compliance than Vice President, ACS LLC
Officer 1 year (March 2000 to present)
Vice President, ACIM
(March 2002 to present)
Vice President, ACIS
(March 2003 to present)
Assistant General Counsel,
ACS LLC
(December 1996 to
January 2001)
Associate General
Counsel, ACS LLC
(July 2001 to present)
- ----------------------------------------------------------------------------------------------------------------

- ------
34

- --------------------------------------------------------------------------------------------------------------
C. Jean Wade Controller(1) 8 Vice President, ACS LLC Not Not
4500 Main St. (February 2000 to present) applicable applicable
Kansas City, MO 64111 Controller-Investment
(1964) Accounting, ACSC
(June 1997 to present)

- --------------------------------------------------------------------------------------------------------------
Robert Leach Controller 8 Vice President, ACS LLC Not Not
4500 Main St. (February 2000 to present) applicable applicable
Kansas City, MO 64111 Controller-Investment
(1966) Accounting, ACSC
(June 1997 to present)

- --------------------------------------------------------------------------------------------------------------
Jon Zindel Tax Officer 7 Vice President, Corporate Not Not
4500 Main St. Tax, ACS LLC applicable applicable
Kansas City, MO 64111 (April 1998 to present)
(1967) Vice President, ACIM, ACIS
and other ACC subsidiaries
(April 1999 to present)
President, AMERICAN
CENTURY EMPLOYEE BENEFIT
SERVICES, INC.
(January 2000 to
December 2000)
Director, AMERICAN CENTURY
BENEFIT SERVICES, INC.
(February 2000 to
December 2003)
Treasurer, AMERICAN
CENTURY EMPLOYEE
BENEFIT SERVICES, INC.
(December 2000 to
December 2003)
Treasurer, AMERICAN
CENTURY VENTURES, INC.
(December 1999
to April 2001)

- --------------------------------------------------------------------------------------------------------------

(1) MS. WADE SERVES IN A SIMILAR CAPACITY FOR SEVEN OTHER INVESTMENT
COMPANIES ADVISED BY ACIM.

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. The
trustees, in carrying out their fiduciary duty under the Investment Company Act
of 1940, are responsible for approving new and existing management contracts
with the funds' advisor. In carrying out these responsibilities, the board
reviews material factors to evaluate such contracts, including (but not limited
to) assessment of information related to the advisor's performance and expense
ratios, estimates of income and indirect benefits (if any) accruing to the
advisor, the advisor's overall management and projected profitability, and
services provided to the funds and their investors.

The board has the authority to manage the business of the funds on behalf of
their investors, and it has all powers necessary or convenient to carry out that
responsibility. Consequently, the trustees may adopt Bylaws providing for the
regulation and management of the affairs of the funds and may amend and repeal
them to the extent that such Bylaws do not reserve that right to the funds'
investors. They may fill vacancies in or reduce the number of board members, and
may elect and remove such officers and appoint and terminate such agents as they
consider appropriate. They may appoint from their own number and establish and
terminate one or more committees consisting of two or more trustees who may
exercise the powers and authority of the board to the extent that the trustees
determine. They may, in general, delegate such authority as they consider
desirable to any officer of the funds, to any committee of the board and to any
agent or employee of the funds or to any custodian, transfer or investor
servicing agent, or principal underwriter. Any determination as to what is in
the interests of the funds made by the trustees in good faith shall be
conclusive.

- ------
35

The Advisory Board

The funds also have an Advisory Board. Members of the Advisory Board function
like fund trustees in many respects, but do not possess voting power. Advisory
Board members attend all meetings of the Board of Trustees and the independent
trustees and receive any materials distributed in connection with such meetings.
Advisory Board members may be considered as candidates to fill vacancies on the
Board of Trustees.

Board Review of Investment Management Contracts

The Board of Trustees oversees each fund's management and performance on a
continuous basis, and the board determines annually whether to approve and renew
the fund's investment management agreement. ACIM provides the board with
monthly, quarterly, or and annual analyses of ACIM's performance in the
following areas:

* Investment performance of the funds (short-, medium- and long-term);

* Management of brokerage commission and trading costs (equity funds only);

* Shareholder services provided;

* Compliance with investment restrictions; and

* Fund accounting services provided (including the valuation of portfolio
securities);

Leaders of each fund's portfolio management team meet with the board
periodically to discuss the management and performance of the fund.

When considering whether to renew an investment advisory contract, the board
examines several factors, but does not identify any particular factor as
controlling their decision. Some of the factors considered by the board include:
the nature, extent, and quality of the advisory services provided as well as
other material facts, such as the investment performance of the fund's assets
managed by the advisor and the fair market value of the services provided. To
assess these factors, the board reviews both ACIM's performance and that of its
peers, as reported by independent gathering services such as Lipper Analytical
Services (for fund performance and expenses) and National Quality Review (for
shareholder services).

Additional information is provided to the board detailing other sources of
revenue to ACIM or its affiliates from its relationship with the fund and
intangible or "fall-out" benefits that accrue to the advisor and its affiliates,
if relevant, and the advisor's control of the investment expenses of the fund,
such as transaction costs, including ways in which portfolio transactions for
the fund are conducted and brokers are selected.

The board also reviews the investment performance of each fund compared with a
peer group of funds and an appropriate index or combination of indexes, in
addition to a comparative analysis of the total expense ratios of, and advisory
fees paid by, similar funds.

At the last review of the investment advisory contract, the board considered the
level of ACIM's profits in respect to the management of the American Century
family of funds, including the profitability of managing each fund. The board
conducted an extensive review of ACIM's methodology in allocating costs to the
management of each fund. The board concluded that the cost allocation
methodology employed by ACIM has a reasonable basis and is appropriate in light
of all of the circumstances. They considered the profits realized by ACIM in
connection with the operation of each fund and whether the amount of profit is a
fair entrepreneurial profit for the management of each fund. The board also
considered ACIM's profit margins in comparison with available industry data,
both accounting for and excluding marketing expenses.

When considering whether to approve the investment advisory contract for a new
fund, the board examined many of the same factors. While profitability of a
non-existent fund cannot be measured, they considered the entrepreneurial risk
that the advisor assumes in launching a new fund. In particular, they considered
the effect of the unified management fee structure and the fact that the total
expense ratio of the fund would require the advisor to assume a substantial part
of the start-up costs of the fund. They compared the resulting total expense
ratio of the fund against its peers. They considered the experience of the

- ------
36

portfolio management staff designated to manage the fund. Finally, they
considered the position that the new fund would take in the line up of the
American Century family of funds and the benefits to shareholders of existing
funds and the new fund of the broadened product offering.

Based on their evaluation of all material factors assisted by the advice of
independent legal counsel, the board, including the independent trustees,
concluded that the management fee structures are fair and reasonable and that
the investment management contracts, as described above, should be continued.

Committees

The board has five standing committees to oversee specific functions of the
funds' operations. Information about these committees appears in the table
below. The trustee first named serves as chairman of the committee.

NUMBER OF

MEETINGS

HELD DURING
LAST FISCAL
COMMITTEE MEMBERS FUNCTION YEAR
- -----------------------------------------------------------------------------------------------
Audit Kenneth E. Scott The Audit Committee approves the 5
Albert A. Eisenstat engagement of the funds' independent
Jeanne D. Wohlers registered public accounting firm,
recommends approval of such
engagement to the independent trustees,
and oversees the activities of the funds'
independent registered public
accounting firm. The Committee
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 funds.

- -----------------------------------------------------------------------------------------------
Corporate Ronald J. Gilson The Corporate Governance Committee 2
Governance (additional membership reviews Board procedures and committee
to be determined) structures. It may recommend the
creation of new committees,
evaluate the membership structure
of new and existing committees,
consider the frequency and duration
of Board and committee meetings
and otherwise evaluate the
responsibilities, processes,
resources, performance and compensation
of the Board.

- -----------------------------------------------------------------------------------------------
Nominating Jeanne D. Wohlers The Nominating Committee primarily 3
Kenneth E. Scott considers and recommends individuals
Ronald J. Gilson for nomination as trustees. The names of
Albert Eisenstat potential trustee candidates are drawn
Myron S. Scholes from a number of sources, including
Kathryn A. Hall recommendations from members of the
John B. Shoven board, management and shareholders.
The Nominating Committee does not
currently have a policy governing the
circumstances under which it will or
will not consider nominees
recommended by shareholders.

- -----------------------------------------------------------------------------------------------
Portfolio Myron S. Scholes The Portfolio Committee reviews 6
Kathryn A. Hall quarterly the investment activities
William M. Lyons (ad hoc) 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 Ronald J. Gilson The Quality of Service Committee 5
of John B. Shoven reviews the level and quality of
Service William M. Lyons (ad hoc) transfer agent and administrative
services provided to the funds
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.

- -----------------------------------------------------------------------------------------------

- ------
37

Compensation of Trustees

The trustees serve as trustees or directors 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 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 funds for the
periods indicated and by the eight investment companies served by the 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, 2004
- --------------------------------------------------------------------------------
TOTAL COMPENSATION TOTAL COMPENSATION FROM THE
NAME OF TRUSTEE FROM THE FUNDS(1) AMERICAN CENTURY FAMILY OF FUNDS(2)
- --------------------------------------------------------------------------------
Albert Eisenstat $8,694 $84,750
- --------------------------------------------------------------------------------
Ronald J. Gilson $9,086 $89,000
- --------------------------------------------------------------------------------
Kathyrn A. Hall $8,506 $82,500
- --------------------------------------------------------------------------------
Myron S. Scholes $8,293 $80,000
- --------------------------------------------------------------------------------
Kenneth E. Scott $9,070 $89,000
- --------------------------------------------------------------------------------
Jeanne D. Wohlers $8,290 $80,250
- --------------------------------------------------------------------------------
John Shoven $8,421 $81,750
- --------------------------------------------------------------------------------

(1) INCLUDES COMPENSATION PAID TO THE TRUSTEES DURING THE FISCAL YEAR
ENDED AUGUST 31, 2004, AND ALSO INCLUDES AMOUNTS DEFERRED AT THE ELECTION
OF THE TRUSTEES UNDER THE AMERICAN CENTURY MUTUAL FUNDS' INDEPENDENT
DIRECTORS' DEFERRED COMPENSATION PLAN.

(2) INCLUDES COMPENSATION PAID BY THE EIGHT INVESTMENT COMPANY MEMBERS OF
THE AMERICAN CENTURY FAMILY OF FUNDS SERVED BY THIS BOARD. THE TOTAL
AMOUNT OF DEFERRED COMPENSATION INCLUDED IN THE PRECEDING TABLE IS AS
FOLLOWS: MR. EISENSTAT, $84,750; MR. GILSON, $89,000; MS. HALL, $41,250;
MR. SCHOLES, $71,000; MR. SCOTT, $89,000 AND MR. SHOVEN, $81,750.

The funds have adopted the American Century Mutual Funds' Independent Directors'
Deferred Compensation Plan. 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 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.

- ------
38

No deferred fees were paid to any trustee under the plan during the fiscal year
ended August 31, 2004.

OWNERSHIP OF FUND SHARES

The trustees owned shares in the funds as of December 31, 2003, as shown in the
table below:

NAME OF TRUSTEES
- --------------------------------------------------------------------------------------------------
WILLIAM M. ALBERT RONALD J. MYRON S.
LYONS EISENSTAT GILSON SCHOLES
- --------------------------------------------------------------------------------------------------
Dollar Range of Equity Securities in the Funds:
California Tax-Free Money Market A A C B
- --------------------------------------------------------------------------------------------------
California Limited-Term Tax-Free A A A A
- --------------------------------------------------------------------------------------------------
California Intermediate-Term Tax-Free A A C A
- --------------------------------------------------------------------------------------------------
California Long-Term Tax-Free A A A A
- --------------------------------------------------------------------------------------------------
California High-Yield Municipal A A C A
- --------------------------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Securities in all Registered Investment
Companies Overseen by Trustee in

Family of Investment Companies E E E E
- --------------------------------------------------------------------------------------------------

NAME OF TRUSTEES
- --------------------------------------------------------------------------------------------------
KENNETH E. JEANNE D. KATHRYN A. JOHN B.
SCOTT WOHLERS HALL SHOVEN
- --------------------------------------------------------------------------------------------------
Dollar Range of Equity Securities in the Funds:
California Tax-Free Money Market B E A A
- --------------------------------------------------------------------------------------------------
California Limited-Term Tax-Free E A A A
- --------------------------------------------------------------------------------------------------
California Intermediate-Term Tax-Free E A A A
- --------------------------------------------------------------------------------------------------
California Long-Term Tax-Free A A A A
- --------------------------------------------------------------------------------------------------
California High-Yield Municipal A A A A
- --------------------------------------------------------------------------------------------------
Aggregate Dollar Range of Equity
Securities in all Registered Investment
Companies Overseen by Trustee in

Family of Investment Companies E E C D
- --------------------------------------------------------------------------------------------------

RANGES: A--NONE, B--$1-$10,000, C--$10,001-$50,000, D--$50,001-$100,000, E--MORE THAN
$100,000

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.

- ------
39

PROXY VOTING GUIDELINES

The advisor is responsible for exercising the voting rights associated with the
securities purchased and/or held by the funds. In exercising its voting
obligations, the advisor is guided by general fiduciary principles. It must act
prudently, solely in the interest of the funds, and for the exclusive purpose of
providing benefits to them. The advisor attempts to consider all factors of its
vote that could affect the value of the investment. The funds' Board of Trustees
has approved the advisor's Proxy Voting Guidelines to govern the advisor's proxy
voting activities.

The advisor and the board have agreed on certain significant contributors to
shareholder value with respect to a number of matters that are often the subject
of proxy solicitations for shareholder meetings. The Proxy Voting Guidelines
specifically address these considerations and establish a framework for the
advisor's consideration of the vote that would be appropriate for the funds. In
particular, the Proxy Voting Guidelines outline principles and factors to be
considered in the exercise of voting authority for proposals addressing:

* Election of Directors
* Ratification of Selection of Auditors
* Equity-Based Compensation Plans
* Anti-Takeover Proposals

* Cumulative Voting
* Staggered Boards

* "Blank Check" Preferred Stock
* Elimination of Preemptive Rights
* Non-targeted Share Repurchase
* Increase in Authorized Common Stock

* "Supermajority" Voting Provisions or Super Voting Share Classes
* "Fair Price" Amendments
* Limiting the Right to Call Special Shareholder Meetings
* Poison Pills or Shareholder Rights Plans
* Golden Parachutes
* Reincorporation
* Confidential Voting
* Opting In or Out of State Takeover Laws

* Shareholder Proposals Involving Social, Moral or Ethical Matters
* Anti-Greenmail Proposals
* Changes to Indemnification Provisions
* Non-Stock Incentive Plans
* Director Tenure
* Directors' Stock Options Plans
* Director Share Ownership

- ------
40

Finally, the Proxy Voting Guidelines establish procedures for voting of proxies
in cases in which the advisor may have a potential conflict of interest.
Companies with which the advisor has direct business relationships could
theoretically use these relationships to attempt to unduly influence the manner
in which American Century votes on matters for the funds. To ensure that such a
conflict of interest does not affect proxy votes cast for the funds, all
discretionary (including case-by-case) voting for these companies will be voted
in direct consultation with a committee of the independent trustees of the
funds.

A copy of the advisor's Proxy Voting Guidelines and information regarding how
the advisor voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 are available on the ABOUT US page at
americancentury.com. The advisor's proxy voting record also is available on the
SEC's website at sec.gov.

DISCLOSURE OF PORTFOLIO HOLDINGS

In order to ensure appropriate access to portfolio holdings information about
American Century funds, and to ensure that disclosure of such information is
consistent with the best interests of fund shareholders, ACIM has adopted a
policy for the disclosure of fund portfolio holdings and characteristics to
non-affiliates including individual investors, institutional investors,
intermediaries that distribute the Funds' shares, third party service providers,
and rating and ranking organizations as follows:

Distribution to the Public

Full portfolio holdings will be made available for distribution to the public
quarterly with a lag time of 30 days, in addition to the portfolio disclosure in
annual and semi-annual reports. Full holdings are posted on americancentury.com
quarterly on the 31st day after the end of the fiscal quarter for each issuer.

Top 10 holdings will be made available for distribution monthly with a lag time
of 30 days. Certain portfolio characteristics (as determined by the advisor from
time to time) will be made available for distribution monthly with a lag time of
30 days. These holdings will be posted monthly on americancentury.com.

Distribution to Service Providers

ACIM recognizes that certain parties (generally investment consultants who
provide regular analysis of fund portfolios for their clients, or intermediaries
who pass through information to fund shareholders) may have legitimate needs for
holdings information prior to the times prescribed above. These needs include
preparing reports for customers who invest in the funds, creating analyses of
fund characteristics for intermediary or consultant clients, reformatting the
information for distribution to the intermediary's clients, and reviewing fund
performance for ERISA fiduciary purposes. Therefore, for these service
providers, portfolio holdings and characteristics may be provided prior to the
lapse of 30 days as long as the service provider enters a non-disclosure
agreement with ACIM in which it represents that the information will be used
only for the services provided to its clients and agrees to treat the
information confidentially until the general disclosure release date.

- ------
41

Those service providers who have entered such non-disclosure agreements as of
October 18, 2004 are as follows:

* Aetna Inc.

* American Express Financial Corporation
* American Fidelity Assurance Co.
* Ameritas Life Insurance Corporation
* AUL/American United Life Insurance Company
* Bell Globemedia Publishing
* Bellwether Consulting, LLC
* Bidart & Ross
* Business Men's Assurance Co. of America
* Callen Associates, Inc.

* Commerce Bank, N.A.

* Connecticut General Life Insurance Company
* Defined Contribution Advisors, Inc.
* EquiTrust Life Insurance Company
* Farm Bureau Life Insurance Company
* First MetLife Investors Insurance Company
* Frank Russell Company
* Fund Evaluation Group, LLC
* Gartmore Mutual Fund Capital Trust (GMFCT)
* Hewitt Associates LLC
* ICMA Retirement Corporation
* ING
* ING Life Insurance & Annuity Co.
* Investors Securities Services, Inc.
* Iron Capital Advisors
* J.P. Morgan Retirement Plan Services LLC
* Jefferson National Life Insurance Company
* Jefferson Pilot Financial
* Kansas City Life Insurance Company
* Kmotion, Inc
* Manulife Financial
* Massachusetts Mutual Life Insurance Company
* MetLife Investors Insurance Company
* MetLife Investors Insurance Company of California
* Midland National Life Insurance Company
* Minnesota Life Insurance Company
* Morgan Stanley DW, Inc.
* Morningstar Associates LLC

- ------
42

* Morningstar Investment Services, Inc.
* Mutual of America Life Insurance Company
* National Life Insurance Company
* Nationwide Financial

* NYLife Distributors, LLC
* Principal Life Insurance Company
* Prudential Financial
* S&P Financial Communications
* SAFECO Life
* Scotia McLeod
* Scudder Distributors, Inc.
* Security Benefit Life Insurance Co.
* Skandia
* Smith Barney
* State Street Global Markets
* SunTrust Bank
* The Guardian Life Insurance & Annuity Company, Inc.
* The Lincoln National Life Insurance Company
* The Union Central Life Insurance Company
* Trusco Capital Management
* Union Bank of California, n.a.

* VALIC Financial Advisors
* VALIC Retirement Services Company
* Wachovia Bank, n.a.

* Wells Fargo Bank, n.a.

Distribution in One-on-One Presentations

ACIM recognizes that from time to time it may receive requests for proposals
(RFPs) from consultants or potential clients that request holdings information
as of a certain date and for certain periods that may be more frequent than the
parameters set out above. As long as such requests are on a one-time basis, and
do not result in continued receipt of data, such information may be provided in
the RFP. Such information will be provided with a confidentiality legend and
only in cases where the recipient has indicated that the data will be used only
for legitimate purposes.

Distribution of portfolio holdings information, including compliance with this
policy and the resolution of any potential conflicts that may arise, is
monitored quarterly. Any distribution of holdings information other than in
compliance with this policy would have to be authorized by the funds' chief
investment officer and ACIM's Legal Department. The funds' board of directors
has received and reviewed a summary of ACIM's policy and will be informed of any
changes to or material violations of such policy on a quarterly basis.

ACIM does not receive any compensation from any party for the distribution of
portfolio holdings information.

ACIM reserves the right to change part or all of this policy at any time.

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43

THE FUNDS' PRINCIPAL SHAREHOLDERS

As of December 3, 2004, the following shareholders, beneficially or of record,
owned more than 5% of the outstanding shares of any class of the funds.

PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
FUND/ SHARES OWNED SHARES OWNED
CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
- --------------------------------------------------------------------------------
California Tax-Free Money Market

- --------------------------------------------------------------------------------
Investor Class

Morgan Guaranty Trust of NY 12% 0%
Newark, DE
- --------------------------------------------------------------------------------
California Limited-Term Tax-Free

- --------------------------------------------------------------------------------
Investor Class

Charles Schwab & Co. 30% 0%
San Francisco, CA
National Financial Services Corp. 10% 0%
New York, NY

- --------------------------------------------------------------------------------
California Intermediate-Term Tax-Free

- --------------------------------------------------------------------------------
Investor Class

Charles Schwab & Co. 16% 0%
San Francisco, CA
- --------------------------------------------------------------------------------
California Long-Term Tax-Free

- --------------------------------------------------------------------------------
Investor Class

Charles Schwab & Co. 8% 0%
San Francisco, CA
- --------------------------------------------------------------------------------
California High-Yield Municipal

- --------------------------------------------------------------------------------
Investor Class

Charles Schwab & Co. 24% 0%
San Francisco, CA
- --------------------------------------------------------------------------------
A Class

Charles Schwab & Co. 50% 0%
San Francisco, CA
M L P F & S Inc. 24% 0%
Jacksonville, FL

- --------------------------------------------------------------------------------
B Class

M L P F & S Inc. 27% 0%
Jacksonville, FL

American Enterprise Investment Svcs 26% 0%
Minneapolis, MN
Howard Tung and Rachel P. Tung 11% 0%
Rancho Santa Fe, CA

- --------------------------------------------------------------------------------

(1) IF SHARES ARE REGISTERED IN AN INDIVIDUAL'S NAME OR IN THE NAME OF AN
INTERMEDIARY FOR THE BENEFIT OF A NAMED PARTY, WE REPORT THOSE SHARES AS
BEING BENEFICIALLY OWNED. OTHERWISE, AMERICAN CENTURY HAS NO INFORMATION
CONCERNING BENEFICIAL OWNERSHIP OF FUND SHARES.

- ------
44

PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING
SHARES OWNED SHARES OWNED
FUND/CLASS SHAREHOLDER OF RECORD BENEFICIALLY(1)
- --------------------------------------------------------------------------------
California High-Yield Municipal

- --------------------------------------------------------------------------------
C Class

M L P F & S Inc. 51% 0%
Jacksonville, FL

Citigroup Global Markets Inc. 34% 0%
New York, NY
- --------------------------------------------------------------------------------

The funds are unaware of any other shareholders, beneficial or of record, who
own more than 5% of a fund's outstanding shares. The funds are unaware of any
other shareholders, beneficial or of record, who own more than 25% of the voting
securities of American Century California Tax-Free and Municipal Funds. A
shareholder owning of record or beneficially more than 25% of a fund's
outstanding shares may be considered a controlling person. The vote of any such
person could have a more significant effect on matters presented at a
shareholders' meeting than votes of other shareholders. As of December 3, 2004,
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, ACS LLC and ACIS are wholly owned, directly or indirectly, by ACC. James
E. Stowers, Jr. controls ACC by virtue of his ownership of a majority of its
voting stock.

INVESTMENT ADVISOR

American Century Investment Management, Inc. (ACIM) serves as the investment
advisor for each of the funds. A description of the responsibilities of the
advisor appears in the prospectuses under the heading MANAGEMENT.

For the services provided to the funds, the advisor receives a daily fee based
on a percentage of the net assets of a fund. The annual rate at which this fee
is assessed is determined daily in a multi-step process. First, each of the
trust's funds is categorized according to the broad asset class in which it
invests (e.g., money market, bond or equity), and the assets of the funds in
each category are totaled ("Fund Category Assets"). Second, the assets are
totaled for certain other accounts managed by the advisor ("Other Account
Category Assets"). To be included, these accounts must have the same management
team and investment objective as a fund in the same category with the same board
of trustees as the trust. Together, the Fund Category Assets and the Other
Account Category Assets comprise the "Investment Category Assets." The
Investment Category Fee Rate is then calculated by applying a fund's Investment
Category Fee Schedule to the Investment Category Assets and dividing the result
by the Investment Category Assets.

Finally, a separate Complex Fee Schedule is applied to the assets of all of the
funds in the American Century family of funds (the "Complex Assets"), and the
Complex Fee Rate is calculated based on the resulting total. The Investment
Category Fee Rate and the Complex Fee Rate are then added to determine the
Management Fee Rate payable by a class of the fund to the advisor.

- ------
45

For purposes of determining the assets that comprise the Fund Category Assets,
Other Account Category Assets and Complex Assets, the assets of registered
investment companies managed by the advisor that invest primarily in the shares
of other registered investment companies shall not be included.

The schedules by which the unified management fee is determined are shown below.

INVESTMENT CATEGORY FEE SCHEDULE FOR CALIFORNIA TAX-FREE MONEY MARKET
- --------------------------------------------------------------------------------
CATEGORY ASSETS FEE RATE
- --------------------------------------------------------------------------------
First $1 billion 0.2700%
- --------------------------------------------------------------------------------
Next $1 billion 0.2270%
- --------------------------------------------------------------------------------
Next $3 billion 0.1860%
- --------------------------------------------------------------------------------
Next $5 billion 0.1690%
- --------------------------------------------------------------------------------
Next $15 billion 0.1580%
- --------------------------------------------------------------------------------
Next $25 billion 0.1575%
- --------------------------------------------------------------------------------
Thereafter 0.1570%
- --------------------------------------------------------------------------------

INVESTMENT CATEGORY FEE SCHEDULE FOR CALIFORNIA LIMITED-TERM TAX-FREE,
CALIFORNIA INTERMEDIATE-TERM TAX-FREE AND CALIFORNIA LONG-TERM TAX-FREE
- --------------------------------------------------------------------------------
CATEGORY ASSETS FEE RATE
- --------------------------------------------------------------------------------
First $1 billion 0.2800%
- --------------------------------------------------------------------------------
Next $1 billion 0.2280%
- --------------------------------------------------------------------------------
Next $3 billion 0.1980%
- --------------------------------------------------------------------------------
Next $5 billion 0.1780%
- --------------------------------------------------------------------------------
Next $15 billion 0.1650%
- --------------------------------------------------------------------------------
Next $25 billion 0.1630%
- --------------------------------------------------------------------------------
Thereafter 0.1625%
- --------------------------------------------------------------------------------

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

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46

The Complex Fee is determined according to the schedule below for Investor, A, B
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 billion 0.2985%
- --------------------------------------------------------------------------------
Next $25 billion 0.2970%
- --------------------------------------------------------------------------------
Next $25 billion 0.2870%
- --------------------------------------------------------------------------------
Next $25 billion 0.2800%
- --------------------------------------------------------------------------------
Next $25 billion 0.2700%
- --------------------------------------------------------------------------------
Next $25 billion 0.2650%
- --------------------------------------------------------------------------------
Next $25 billion 0.2600%
- --------------------------------------------------------------------------------
Next $25 billion 0.2550%
- --------------------------------------------------------------------------------
Thereafter 0.2500%
- --------------------------------------------------------------------------------

On each calendar day, each class of each fund accrues a management fee that is
equal to the class's Management Fee Rate times the net assets of the class
divided by 365 (366 in leap years). On the first business day of each month, the
funds pay a management fee to the advisor for the previous month. The fee for
the previous month is the sum of the calculated daily fees for each class of a
fund during the previous month.

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

* the funds' Board of Trustees, or a majority of outstanding shareholder
votes (as defined in the Investment Company Act) and

* 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

- ------
47

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, 2004, 2003 and 2002, are indicated in the following table.

UNIFIED MANAGEMENT FEES
- -------------------------------------------------------------------------------
FUND 2004 2003 2002
- -------------------------------------------------------------------------------
California Tax-Free
Money Market

Investor Class $3,097,755 $3,245,204 $2,670,101
- -------------------------------------------------------------------------------
California Municipal
Money Market

Investor Class N/A(1) N/A(1) $900,329
- -------------------------------------------------------------------------------
California Limited-Term
Tax-Free

Investor Class $1,152,924 $1,151,762 $893,389
- -------------------------------------------------------------------------------
California Intermediate-Term
Tax-Free

Investor Class $2,201,086 $2,384,424 $2,291,824
- -------------------------------------------------------------------------------
California Long-Term
Tax-Free

Investor Class $2,426,504 $2,687,720 $1,615,104
- -------------------------------------------------------------------------------
California Insured
Tax-Free

Investor Class N/A(2) N/A(2) $1,120,811
- -------------------------------------------------------------------------------
California High-Yield
Municipal

Investor Class $1,772,552 $1,920,220 $1,799,729
- -------------------------------------------------------------------------------
A Class $26,881 $1,751(3) N/A
- -------------------------------------------------------------------------------
B Class $3,777 $422(3) N/A
- -------------------------------------------------------------------------------
C Class $24,897 $3,840(3) N/A
- -------------------------------------------------------------------------------

(1) THE FUND WAS COMBINED WITH THE CALIFORNIA TAX-FREE MONEY MARKET FUND
IN A TAX-FREE REORGANIZATION ON SEPTEMBER 3, 2002.

(2) THE FUND WAS COMBINED WITH THE CALIFORNIA LONG-TERM TAX-FREE FUND IN A
TAX-FREE REORGANIZATION ON SEPTEMBER 3, 2002.

(3) JANUARY 31, 2003 (COMMENCEMENT OF SALE) THROUGH AUGUST 31, 2003.

TRANSFER AGENT AND ADMINISTRATOR

American Century Services, LLC, 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 ACS
LLC's costs for serving as transfer agent and dividend-paying agent for the
funds out of the advisor's unified management fee. For a

- ------
48

description of this fee and the terms of its payment, see the above discussion
under the caption INVESTMENT ADVISOR on page 45.

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 American Century Investment Services, Inc.
(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. The advisor pays
ACIS's costs for serving as principal underwriter of the funds' shares out of
the advisor's unified management fee. For a description of this fee and the
terms of its payments, see the above discussion under the caption INVESTMENT
ADVISOR on page 45. ACIS does not earn commissions for distributing the funds'
shares.

Certain financial intermediaries unaffiliated with the distributor or the funds
may perform various administrative and shareholder services for their clients
who are invested in the funds. These services may include assisting with fund
purchases, redemptions and exchanges, distributing information about the funds
and their performance, preparing and distributing client account statements, and
other administrative and shareholder services, and would otherwise be provided
by the distributor or its affiliates. The distributor may pay fees to such
financial intermediaries for the provision of these services out of its own
resources.

OTHER SERVICE PROVIDERS

CUSTODIAN BANKS

JPMorgan Chase Bank, 4 Metro Tech Center, Brooklyn, New York, 11245, 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 REGISTERED PUBLIC ACCOUNTING FIRM

PricewaterhouseCoopers LLP serves as the independent registered public
accounting firm of the funds. The address of PricewaterhouseCoopers LLP is 1055
Broadway, 10th floor, Kansas City, Missouri 64105. As the independent registered
public accounting firm of the funds, PricewaterhouseCoopers LLP provides
services including

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

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

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

- ------
49

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, 2004, 2003 and 2002, the funds did not pay any brokerage commissions.

REGULAR BROKER-DEALERS

As of the end of its most recently completed fiscal year, none of the funds
owned securities of its regular brokers or dealers (as defined by Rule 10b-1
under the Investment Company Act of 1940) or of their parent companies.

INFORMATION ABOUT FUND SHARES

The Declaration of Trust permits the Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest without par value,
which may be issued in a series (or funds). Each of the funds named on the front
of this statement of additional information is a series of shares issued by the
Trust. In addition, each series (or fund) may be divided into separate classes.
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.
Shares of each fund have equal voting rights, although each fund votes
separately on matters affecting that fund exclusively.

The Trust shall continue unless terminated by (1) approval of at least
two-thirds of the shares of each fund entitled to vote or (2) by the Trustees by
written notice to shareholders of each fund. Any fund may be terminated by (1)
approval of at least two-thirds of the shares of that fund or (2) by the
Trustees by written notice to shareholders of that fund.

Upon termination of the Trust or a fund, as the case may be, the Trust shall pay
or otherwise provide for all charges, taxes, expenses and liabilities belonging
to the Trust or the fund. Thereafter, the Trust shall reduce the remaining
assets belonging to each fund (or the particular fund) to cash, shares of other
securities or any combination thereof, and distribute the proceeds belonging to
each fund (or the particular fund) to the shareholders of that fund ratably
according to the number of shares of that fund held by each shareholder on the
termination date.

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

- ------
50

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.

The assets belonging to each series are held separately by the custodian and the
shares of each series represent a beneficial interest in the principal, earnings
and profit (or losses) of investments and other assets held for each series.
Your rights as a shareholder are the same for all series of securities unless
otherwise stated. Within their respective fund or class, all shares have equal
redemption rights. Each share, when issued, is fully paid and non-assessable.

In the event of complete liquidation or dissolution of a fund or class,
shareholders of the fund or class of shares shall be entitled to receive, pro
rata, all of the assets less the liabilities of that fund or class.

MULTIPLE CLASS STRUCTURE

The Board of Trustees has adopted a multiple class plan (the Multiclass Plan)
pursuant to Rule 18f-3 adopted by the SEC. The plan is described in the
prospectus of any fund that offers more than one class. Pursuant to such plan,
the funds may issue up to four classes of shares: Investor Class, A Class, B
Class and C Class. Not all funds offer all four classes.

The Investor Class of most funds is made available to investors directly without
any load or commission, for a single unified management fee. It is also
available through some financial intermediaries. The Investor Class of those
funds which have A and B Classes is not available directly at no load. The A, B
and C Classes also are made available through financial intermediaries, for
purchase by individual investors who receive advisory and personal services from
the intermediary. The unified management fee is the same as for Investor Class,
but the A, B and C Class shares each are subject to a separate Master
Distribution and Individual Shareholder Services Plan (the A Class Plan, B Class
Plan and C Class Plan, collectively, the Plans) described below. The Plans have
been adopted by the funds' Board of Trustees 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' A, B and C Classes have approved
and entered into the A Class Plan, B Class Plan and C Class Plan, respectively.
The Plans are described below.

In adopting the Plans, the Board of Trustees (including a majority of trustees
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 Plans would benefit the funds and the
shareholders of the affected class. Some of the anticipated benefits include
improved name recognition of the funds generally; and growing assets in existing
funds, which helps retain and attract investment management talent, provides a
better environment for improving fund performance, and can lower the total
expense ratio for funds with stepped-fee schedules. Pursuant to Rule 12b-1,
information with respect to revenues and expenses under the Plans is presented
to the

- ------
51

Board of Trustees quarterly for its consideration in connection with its
deliberations as to the continuance of the Plans. Continuance of the Plans must
be approved by the Board of Trustees (including a majority of the independent
trustees) annually. The Plans may be amended by a vote of the Board of Trustees
(including a majority of the independent trustees), except that the Plans 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 Plans
terminate 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 Plans will be made in accordance with Section 26 of the
Conduct Rules of the National Association of Securities Dealers (NASD).

A Class Plan

As described in the prospectus, the A 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 funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.

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

To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Trustees has adopted the A Class Plan. Pursuant to the A Class Plan,
the A Class pays the funds' distributor 0.25% annually of the average daily net
asset value of the A Class shares. The distributor may use these fees to pay for
certain ongoing shareholder and administrative services (as described below) and
for distribution services, including past distribution services (as described
below). This payment is fixed at 0.25% and is not based on expenses incurred by
the distributor. During the fiscal year ended August 31, 2004, the aggregate
amount of fees paid under the A Class Plan was:

California High Yield Municipal $12,696

The distributor then makes these payments to the financial intermediaries who
offer the A Class shares for the services described below. No portion of these
payments is used by the distributor to pay for advertising, printing costs or
interest expenses.

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.

- ------
52

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 A Class shares, which services
may include but are not limited to:

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

(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' A 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 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 Conduct Rules of the NASD; and

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

B Class Plan

As described in the prospectus, the B 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 funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.

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

- ------
53

To enable the funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Trustees has adopted the B Class Plan. Pursuant to the B Class Plan,
the B Class pays the funds' distributor 1.00% annually of the average daily net
asset value of the funds' B Class shares, 0.25% of which is paid for certain
ongoing individual shareholder and administrative services (as described below)
and 0.75% of which is paid for distribution services, including past
distribution services (as described below). This payment is fixed at 1.00% and
is not based on expenses incurred by the distributor. During the fiscal year
ended August 31, 2004, the aggregate amount of fees paid under the B Class Plan
was:

California High-Yield Municipal $7,128

The distributor then makes these payments to the financial intermediaries who
offer the B Class shares for the services described below. No portion of these
payments is used by the distributor to pay for advertising, printing costs or
interest expenses.

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 B Class shares, which services
may include but are not limited to:

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

(b) compensation to registered representatives or other employees of the
distributor who engage in or support distribution of the funds' B 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;

- ------
54

(k) organizing and conducting 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 Conduct Rules of the NASD; and

C Class Plan

As described in the prospectus, 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 funds' shares and/or the use of
the funds' shares in various investment products or in connection with various
financial services.

Certain recordkeeping and administrative services that are provided by the
funds' 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 funds' shares to be made available through such plans and
financial intermediaries, and to compensate them for such services, the funds'
Board of Trustees has adopted the C Class Plan. Pursuant to the C Class Plan,
the C Class pays the funds' distributor 1.00% annually of the average daily net
asset value of the funds' C Class shares, 0.25% of which is paid for certain
ongoing individual shareholder and administrative services (as described below)
and 0.75% of which is paid for distribution services, including past
distribution services (as described below). This payment is fixed at 1.00% and
is not based on expenses incurred by the distributor. During the fiscal year
ended August 31, 2004, the aggregate amount of fees paid under the C Class Plan
was:

California High-Yield Municipal $44,661

The distributor then makes these payments to the financial intermediaries who
offer the C Class shares for the services described below. No portion of these
payments is used by the distributor to pay for advertising, printing costs or
interest expenses.

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.

- ------
55

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 Conduct Rules 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.

Sales Charges

The sales charges applicable to the A, B and C Classes of the funds are
described in the prospectuses for those classes in the section titled "Choosing
a Share Class." Shares of the A Class are subject to an initial sales charge,
which declines as the amount of the purchase increases pursuant to the schedule
set forth in the prospectus. This charge may be waived in the following
situations:

* Qualified retirement plan purchases

* Certain individual retirement account rollovers

* Purchases by registered representatives and other employees of certain
financial intermediaries (and their immediate family members) having sales
agreements with the advisor or distributor

- ------
56

* Wrap accounts maintained for clients of certain financial intermediaries
who have entered into agreements with American Century

* Purchases by current and retired employees of American Century and their
immediate family members (spouses and children under age 21) and trusts or
qualified retirement plans established by those persons

* Purchases by certain other investors that American Century deems
appropriate, including but not limited to current or retired directors,
trustees and officers of funds managed by the advisor, employees of those
persons and trusts and qualified retirement plans established by those

persons

There are several ways to reduce the sales charges applicable to a purchase of A
Class shares. These methods are described in the relevant prospectuses. You or
your financial advisor must indicate at the time of purchase that you intend to
take advantage of one of these reductions.

Shares of the A, B and C Classes are subject to a contingent deferred sales
charge upon redemption of the shares in certain circumstances. The specific
charges and when they apply are described in the relevant prospectuses. The
contingent deferred sales charge may be waived for certain redemptions by some
shareholders, as described in the prospectuses.

The aggregate contingent deferred sales charges paid to the distributor in the
fiscal year ended August 31, 2004, were:

California High-Yield Municipal
A Class $0

B Class $2,012
C Class $6,135

Dealer Concessions

The funds' distributor expects to pay sales commissions to the financial
intermediaries who sell A, B and/or C Class shares of the funds at the time of
such sales. Payments for A Class shares will be as follows:

PURCHASE AMOUNT DEALER CONCESSION
- --------------------------------------------------------------------------------
LESS THAN $50,000 4.00%
- --------------------------------------------------------------------------------
$50,000 - $99,999 4.00%
- --------------------------------------------------------------------------------
$100,000 - $249,999 3.00%
- --------------------------------------------------------------------------------
$250,000 - $499,999 2.00%
- --------------------------------------------------------------------------------
$500,000 - $999,999 1.75%
- --------------------------------------------------------------------------------
$1,000,000 - $3,999,999 1.00%
- --------------------------------------------------------------------------------
$4,000,000 - $9,999,999 0.50%
- --------------------------------------------------------------------------------
> $10,000,000 0.25%
- --------------------------------------------------------------------------------

No concession will be paid on purchases by qualified retirement plans. Payments
will equal 4.00% of the purchase price of B Class shares and 1.00% of the
purchase price of the C Class shares sold by the intermediary. The distributor
will retain the 12b-1 fee paid by the C Class of funds for the first 12 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. Beginning with the first day of the 13th month, the
distributor will make the C Class distribution and individual shareholder
services fee payments described above to the financial intermediaries involved
on a quarterly basis. In addition, B and C Class purchases and A Class purchases
greater than $1,000,000 are subject to a contingent deferred sales charge as
described in the prospectuses.

- ------
57

From time to time, the distributor may provide additional concessions to
dealers, including but not limited to payment assistance for conferences and
seminars, provision of sales or training programs for dealer employees and/or
the public (including, in some cases, payment for travel expenses for registered
representatives and other dealer employees who participate), advertising and
sales campaigns about a fund or funds, and assistance in financing
dealer-sponsored events. Other concessions may be offered as well, and all such
concessions will be consistent with applicable law, including the then-current
rules of the National Association of Securities Dealers, Inc. Such concessions
will not change the price paid by investors for shares of the funds.

BUYING AND SELLING FUND SHARES

Information about buying, selling, exchanging and, if applicable, converting
fund shares is contained in the funds' prospectuses. The prospectuses are
available to investors without charge and may be obtained by calling us.

VALUATION OF A FUND'S SECURITIES

All classes of the funds except the A Class are offered at their net asset
value, as described below. The A Class shares of the funds are offered at their
public offering price, which is the net asset value plus the appropriate sales
charge. This calculation may be expressed as a formula:

Offering Price = Net Asset Value/(1 - Sales Charge as a % of Offering Price)

For example, if the net asset value of a fund's A Class shares is $5.00, the
public offering price would be $5.00/(1-4.50%)=$5.24.

Each fund's net asset value per share (NAV) is calculated as of the close of
regular trading on the New York Stock Exchange (NYSE) on each day the NYSE is
open. The NYSE usually closes at 4 p.m. Eastern time. The NYSE 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 NYSE may modify its holiday schedule at any
time.

A fund's NAV is the current value of a fund's assets, minus any liabilities,
divided by the number of shares outstanding. Expenses and interest earned on
portfolio securities are accrued daily.

MONEY MARKET FUND

Securities held by the money market fund are valued at amortized cost. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium paid at the time of
purchase. Although this method provides certainty in valuation, it generally
disregards the effect of fluctuating interest rates on an instrument's market
value. Consequently, the instrument's amortized cost value may be higher or
lower than its market value, and this discrepancy may be reflected in the fund's
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.

- ------
58

As required by Rule 2a-7, 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 fund has been delegated to the
portfolio 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 fund's portfolio holdings at such intervals as are reasonable in light of
current market conditions to determine whether the money market fund's net asset
value calculated by using available market quotations deviates from the
per-share value based on amortized cost. The procedures also prescribe the
action to be taken by the advisor if such deviation should exceed 0.25%.

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 fund has obtained private insurance that partially protects the money market
fund 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 fund will be charged premiums by an insurance company
for coverage of specified types of losses related to default or bankruptcy on
certain securities, the fund may incur losses regardless of the insurance. The
insurance does not guarantee or insure that the fund 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. Information
about how the fair market value of a security is determined is contained in the
funds' prospectuses.

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.

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59

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, each 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 fund in the same manner in which they were
realized by the fund.

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 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. Market
discount is calculated 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, 2004, the funds in the table below had the following capital
loss carryover, which expire in the years and amounts listed. When a fund has a
capital loss carryover, it does not make capital gains distributions until the
loss has been offset or expired.

FUND 2005 2006 2007 2008 2009 2012
- ----------------------------------------------------------------------------------------------------
California
Tax-Free

Money Market ($743) ($506) ($35) ($4,297) -- --
- ----------------------------------------------------------------------------------------------------
California
Limited-Term

Tax-Free -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------
California
Intermediate-Term

Tax-Free -- -- -- -- -- ($205,608)
- ----------------------------------------------------------------------------------------------------
California
Long-Term

Tax-Free -- -- -- -- -- ($1,223,452)
- ----------------------------------------------------------------------------------------------------
California
High-Yield

Municipal -- -- -- ($727,045) ($2,950,561) --
- ----------------------------------------------------------------------------------------------------

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

- ------
60

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. In addition, although
highly unlikely, the Internal Revenue Service may determine that a bond issued
as tax-exempt should in fact be taxable. If a fund were to hold such a bond, it
might have to distribute taxable income or reclassify as taxable income
previously distributed as tax-free.

If you have not complied with certain provisions of the Internal Revenue Code
and Regulations, either American Century or your financial intermediary is
required by federal law to withhold and remit the applicable federal withholding
rate of reportable payments (which may include taxable dividends, capital gains
distributions and redemption proceeds) to the IRS. Those regulations require you
to certify that the Social Security number or tax identification number you
provide is correct and that you are not subject to withholding for previous
under-reporting to the IRS. You will be asked to make the appropriate
certification on your account application. Payments reported by us to the IRS
that omit your Social Security number or tax identification number will subject
us to a non-refundable penalty of $50, which will be charged against your
account if you fail to provide the certification by the time the report is
filed.

A redemption of shares of a fund (including a redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
you generally will recognize gain or loss in an amount equal to the difference
between the basis of the shares and the amount received. 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 Code, resulting in a postponement of the recognition of such loss
for federal income tax purposes.

ALTERNATIVE MINIMUM TAX

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

California High-Yield Municipal may 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 High-Yield Municipal fund shareholders annually
of the amount of distributions derived from interest payments on private
activity bonds.

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61

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.

FINANCIAL STATEMENTS

The financial statements for the fiscal year ended August 31, 2004 have been
audited by PricewaterhouseCoopers LLP, independent registered public accounting
firm. Their Report of Independent Registered Public Accounting Firm and the
financial statements included in the funds' Annual Reports for the fiscal year
ended August 31, 2004 are incorporated herein by reference.

EXPLANATION OF FIXED-INCOME
SECURITIES RATINGS

As described in the prospectuses, the funds will invest in fixed-income
securities. Those investments, however, are subject to certain credit quality
restrictions, as noted in the prospectuses. The following is a summary of the
rating categories referenced in the prospectus disclosure.

RATINGS OF CORPORATE DEBT SECURITIES
- --------------------------------------------------------------------------------
Standard & Poor's

- --------------------------------------------------------------------------------
AAA This is the highest rating assigned by S&P to a debt obligation.
It indicates an extremely strong capacity to pay interest and
repay principal.

- --------------------------------------------------------------------------------
AA Debt rated in this category is considered to have a very
strong capacity to pay interest and repay principal. It differs
from the highest-rated obligations only in small degree.

- --------------------------------------------------------------------------------
A Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.

- --------------------------------------------------------------------------------
BBB Debt rated in this category is regarded as having an adequate
capacity to pay interest and repay principal. While 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 is regarded as having significant
speculative characteristics.
- --------------------------------------------------------------------------------
BB Debt rated in this category 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 also is used for
debt subordinated to senior debt that is assigned an actual or
implied BBB rating.

- --------------------------------------------------------------------------------

- ------
62

STANDARD & POOR'S
- --------------------------------------------------------------------------------
B Debt rated in this category is more vulnerable to nonpayment than
obligations rated 'BB', but currently has the capacity to pay interest and
repay principal. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to pay interest and
repay principal.

- --------------------------------------------------------------------------------
CCC Debt rated in this category is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
B or B- rating.
- --------------------------------------------------------------------------------
CC Debt rated in this category is currently highly vulnerable to
nonpayment. This rating category is also applied to debt
subordinated to senior debt that is assigned an actual or implied
CCC rating.

- --------------------------------------------------------------------------------
C The rating C typically is applied to debt subordinated to senior debt,
and is currently highly vulnerable to nonpayment of interest and
principal. This rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but debt
service payments are being continued.

- --------------------------------------------------------------------------------
D Debt rated in this category is in default. This rating is used when
interest payments or principal repayments 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.
It also will be used upon the filing of a bankruptcy petition for the
taking of a similar action if debt service payments are jeopardized.

- --------------------------------------------------------------------------------

MOODY'S INVESTORS SERVICE, INC.
- --------------------------------------------------------------------------------
Aaa This is the highest rating assigned by Moody's to a debt obligation. It
indicates an extremely strong capacity to pay interest and repay
principal.

- --------------------------------------------------------------------------------
Aa Debt rated in this category is considered to have a very strong
capacity to pay interest and repay principal and differs from Aaa issues
only in a small degree. Together with Aaa debt, it comprises what are
generally known as high-grade bonds.

- --------------------------------------------------------------------------------
A Debt rated in this category possesses many favorable investment
attributes and is to be considered as upper-medium-grade debt.
Although capacity to pay interest and repay principal are considered
adequate, it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories.

- --------------------------------------------------------------------------------
Baa Debt rated in this category is considered as medium-grade debt having
an adequate capacity to pay interest and repay principal. While 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 Baa is
regarded as having significant speculative characteristics.

- --------------------------------------------------------------------------------
Ba Debt rated 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. Often the protection of interest and principal payments may
be very moderate.

- --------------------------------------------------------------------------------
B Debt rated B has a greater vulnerability to default, but currently has
the capacity to meet financial commitments. Assurance of interest
and principal payments or of maintenance of other terms of the
contract over any long period of time may be small. The B rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied Ba or Ba3 rating.

- --------------------------------------------------------------------------------

- ------
63

MOODY'S INVESTORS SERVICE, INC.
- --------------------------------------------------------------------------------
Caa Debt rated Caa is of poor standing, 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. Such issues may be in default or there
may be present elements of danger with respect to principal or
interest. The Caa rating is also used for debt subordinated to senior
debt that is assigned an actual or implies B or B3 rating.
- --------------------------------------------------------------------------------
Ca Debt rated in this category represent obligations that are speculative
in a high degree. Such debt is often in default or has other marked
shortcomings.

- --------------------------------------------------------------------------------
C This is the lowest rating assigned by Moody's, and debt rated C can
be regarded as having extremely poor prospects of attaining
investment standing.

- --------------------------------------------------------------------------------

FITCH, INC.
- ---------------------------------------------------------------------------------
AAA Debt rated in this category has the lowest expectation of credit
risk. Capacity for timely payment of financial commitments is
exceptionally strong and highly unlikely to be adversely affected
by foreseeable events.

- ---------------------------------------------------------------------------------
AA Debt rated in this category has a very low expectation of credit
risk. Capacity for timely payment of financial commitments is very
strong and not significantly vulnerable to
foreseeable events.

- ---------------------------------------------------------------------------------
A Debt rated in this category has a low expectation of credit risk.
Capacity for timely payment of financial commitments is strong,
but may be more vulnerable to changes in circumstances or in
economic conditions than debt rated in higher categories.

- ---------------------------------------------------------------------------------
BBB Debt rated in this category currently has a low expectation of
credit risk and an adequate capacity for timely payment of
financial commitments. However, adverse changes in circumstances
and in economic conditions are more likely to impair this capacity.
This is the lowest investment grade category.

- ---------------------------------------------------------------------------------
BB Debt rated in this category has a possibility of developing credit
risk, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available
to allow financial commitments to be met. Securities rated in
this category are not investment grade.

- ---------------------------------------------------------------------------------
B Debt rated in this category has significant credit risk, but a
limited margin of safety remains. Financial commitments
currently are being met, but capacity for continued debt service
payments is contingent upon a sustained, favorable business and
economic environment.

- ---------------------------------------------------------------------------------
CCC, CC, C Debt rated in these categories has a real possibility for default.
Capacity for meeting financial commitments depends solely
upon sustained, favorable business or economic developments.
A CC rating indicates that default of some kind appears probable;
a C rating signals imminent default.

- ---------------------------------------------------------------------------------
DDD, DD, D The ratings of obligations in this category are based on their
prospects for achieving partial or full recovery in a reorganization
or liquidation of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any precision,
the following serve as general guidelines. 'DDD' obligations
have the highest potential for recovery, around 90%-100% of
outstanding amounts and accrued interest. 'DD' indicates
potential recoveries in the range of 50%-90% and 'D' the
lowest recovery potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of
their obligations. Entities rated 'DDD' have the highest prospect
for resumption of performance or continued operation with or
without a formal reorganization process. Entities rated 'DD' and
'D' are generally undergoing a formal reorganization or liquidation
process; those rated 'DD' are likely to satisfy a higher portion of
their outstanding obligations, while entities rated 'D' have a poor
prospect of repaying all obligations.

- ---------------------------------------------------------------------------------

- ------
64

COMMERCIAL PAPER RATINGS
- --------------------------------------------------------------------------------
S&P MOODY'S DESCRIPTION
- --------------------------------------------------------------------------------
A-1 Prime-1 This indicates that the degree of safety regarding
(P-1) timely payment is strong. 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
(P-2) is satisfactory, but the relative 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
(P-3) that carry this rating are 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.

- --------------------------------------------------------------------------------

- ------
65

MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS

Annual and Semiannual Reports

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 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 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

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
1-800-345-3533

SH-SAI-40783 0501

PART C OTHER INFORMATION

Item 22. Exhibits

(a) Amended and Restated Agreement and Declaration of Trust, dated March
26, 2004 (filed electronically as Exhibit a to Post-Effective Amendment No. 37
to the Registration Statement of the Registrant on October 24, 2004, File No.
2-82734, and incorporated herein by reference).

(b) Amended and Restated Bylaws, dated August 26, 2004, are included
herein.

(c) Registrant hereby incorporates by reference, as though set forth
fully herein, Article III, Article IV, Article V, Article VI and Article VIII of
Registrant's Amended and Restated Agreement and Declaration of Trust, included
as Exhibit (a) herein, and Article II, Article VII, Article VIII and Article IX
of Registrant's Amended and Restated Bylaws, incorporated by reference as
Exhibit (b) herein.

(d) Amended and Restated Management Agreement between American Century
California Tax-Free and Municipal Funds and American Century Investment
Management, Inc., dated August 1, 2004 (filed electronically as Exhibit d to
Post-Effective Amendment No. 37 to the Registration Statement of the Registrant
on October 24, 2004, File No. 2-82734, and incorporated herein by reference).

(e) (1) Amended and Restated Distribution Agreement with American Century
Investment Services, Inc., dated November 17, 2004 (filed electronically as
Exhibit e to Post-Effective Amendment No. 106 to the Registration Statement of
American Century Mutual Funds, Inc. on November 29, 2004, File No. 2-14213, and
incorporated herein by reference).

(f) Not applicable.

(g) (1) Master Agreement with Commerce Bank N.A., dated January 22, 1997
(filed electronically as Exhibit b8e to Post-Effective Amendment No. 76 to the
Registration Statement of American Century Mutual Funds, Inc., on February 28,
1997, File No. 2-14213, and incorporated herein by reference).

(2) Global Custody Agreement with The Chase Manhattan Bank, dated
August 9, 1996 (filed electronically as Exhibit b8 to Post-Effective Amendment
No. 31 to the Registration Statement of the American Century Government Income
Trust, on February 7, 1997, File No. 2-99222, and incorporated herein by
reference).

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

(4) Amendment No. 2 to the Global Custody Agreement between American
Century Investments and the JPMorgan Chase Bank, dated as of May 1, 2004 (filed
electronically as Exhibit g4 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
April 29, 2004, File No. 33-19589, and incorporated herein by reference).

(5) Chase Manhattan Bank Custody Fee Schedule, dated October 19, 2000
(filed electronically as Exhibit g5 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century Quantitative Equity Funds, Inc. on
April 29, 2004, File No. 33-19589, and incorporated herein by reference).

(h) (1) Transfer Agency Agreement with 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, and
incorporated herein by reference).

(2) Amendment No. 1 to the Transfer Agency Agreement with American
Century Services Corporation, dated June 29, 1998 (filed electronically as
Exhibit b9b to Post-Effective Amendment No. 23 to the Registration Statement of
American Century Quantitative Equity Funds on June 29, 1998, File No. 33-19589,
and incorporated herein by reference).

(3) Amendment No. 2 to the Transfer Agency Agreement with 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, and incorporated herein
by reference).

(4) Amendment No. 3 to the Transfer Agency Agreement with American
Century Services Corporation, dated August 1, 2001 (filed electronically as
Exhibit h5 to Post-Effective Amendment No. 44 to the Registration Statement of
American Century Government Income Trust, on July 31, 2001, File No. 2-99222,
and incorporated herein by reference).

(5) Amendment No. 4 to the Transfer Agency Agreement with American
Century Services Corporation, dated December 3, 2001 (filed electronically as
Exhibit h6 to Post-Effective Amendment No. 16 to the Registration Statement of
American Century Investment Trust on November 30, 2001, File No. 33-65170, and
incorporated herein by reference).

(6) Amendment No. 5 to the Transfer Agency Agreement with American
Century Services Corporation, dated July 1, 2002 (filed electronically as
Exhibit h6 to Post-Effective Amendment No. 17 to the Registration Statement of
American Century Investment Trust on June 28, 2002, File No. 33-65170, and
incorporated herein by reference).

(7) Amendment No. 6 to the Transfer Agency Agreement with American
Century Services Corporation, dated September 3, 2002 (filed electronically as
Exhibit h9 to Post-Effective Amendment No. 35 to the Registration Statement of
American Century Municipal Trust on September 30, 2002, File No. 2-91229, and
incorporated herein by reference).

(8) Amendment No. 7 to the Transfer Agency Agreement with American
Century Services Corporation, dated December 31, 2002 (filed electronically as
Exhibit h7 to Post-Effective Amendment No. 4 to the Registration Statement of
American Century Variable Portfolios II, Inc., on December 23, 2002, File No.
333-46922, and incorporated herein by reference).

(9) Credit Agreement with JPMorgan Chase Bank, as Administrative
Agent, dated December 17, 2003 (filed electronically as Exhibit h9 to
Post-Effective Amendment No. 39 to the Registration Statement of American
Century Target Maturities Trust on January 30, 2004, File No. 2-94608, and
incorporated herein by reference).

(10) Termination, Replacement and Restatement Agreement with JPMorgan
Chase Bank N.A., as Administrative Agent, dated December 15, 2004, is included
herein.

(11) Customer Identification Program Reliance Agreement, dated August
26, 2004 (filed electronically as Exhibit h2 to Post-Effective Amendment No. 1
to the Registration Statement of American Century Asset Allocation Portfolios,
Inc., on September 1, 2004, File No. 333-116351, and incorporated herein by
reference).

(i) Opinion and Consent of Counsel, dated December 29, 2004, is included
herein.

(j) (1) Consent of PricewaterhouseCoopers LLP, independent registered
public accounting firm, dated December 23, 2004, is included herein.

(2) Power of Attorney, dated December 9, 2004, is included herein.

(3) Secretary's Certificate, dated December 10, 2004, is included
herein.

(k) Not applicable.

(l) Not applicable.

(m) (1) Master Distribution and Individual Shareholder Services Plan (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, and
incorporated herein by reference).

(2) Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated August 1, 2001 (filed electronically
as Exhibit m5 to Post-Effective Amendment No. 44 to the Registration Statement
of American Century Government Income Trust, on July 31, 2001, File No. 2-99222,
and incorporated herein by reference).

(3) Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated December 3, 2001 (filed
electronically as Exhibit m7 to Post-Effective Amendment No. 16 to the
Registration Statement of American Century Investment Trust on November 30,
2001, File No. 33-65170, and incorporated herein by reference).

(4) Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated July 1, 2002 (filed electronically as
Exhibit m9 to Post-Effective Amendment No. 17 to the Registration Statement of
American Century Investment Trust on June 28, 2002, File No. 33-65170, and
incorporated herein by reference).

(5) Amendment No. 4 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated September 3, 2002 (filed
electronically as Exhibit m5 to Post-Effective Amendment No. 35 to the
Registration Statement of American Century Municipal Trust on September 30,
2002, File No. 2-91229, and incorporated herein by reference).

(6) Amendment No. 5 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated January 2, 2004 (filed electronically
as Exhibit m6 to Post-Effective Amendment No. 42 to the Registration Statement
of the Registrant on February 26, 2004, File No. 2-91229, and incorporated
herein by reference).

(7) Amendment No. 6 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated May 1, 2004 (filed electronically as
Exhibit m13 to Post-Effective Amendment No. 35 to the Registration Statement of
American Century Quantitative Equity Funds, Inc. on April 29, 2004, File No.
33-19589, and incorporated herein by reference).

(8) Master Distribution and Individual Shareholder Services Plan (A
Class), dated September 3, 2002 (filed electronically as Exhibit m6 to
Post-Effective Amendment No. 34 to the Registration Statement of American
Century California Tax-Free and Municipal Funds on October 1, 2002, File No.
2-82734, and incorporated herein by reference).

(9) Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated February 27, 2004 (filed
electronically as Exhibit m18 to Post-Effective Amendment No. 104 to the
Registration Statement of American Century Mutual Funds, Inc. on February 26,
2004, File No. 2-14213, and incorporated herein by reference).

(10) Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated September 30, 2004 (filed
electronically as Exhibit m22 to Post-Effective Amendment No. 106 to the
Registration Statement of American Century Mutual Funds, Inc. on November 29,
2004, File No. 2-14213, and incorporated herein by reference).

(11) Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated November 17, 2004 (filed
electronically as Exhibit m23 to Post-Effective Amendment No. 106 to the
Registration Statement of American Century Mutual Funds, Inc. on November 29,
2004, File No. 2-14213, and incorporated herein by reference).

(12) Master Distribution and Individual Shareholder Services Plan (B
Class), dated September 3, 2004 (filed electronically as Exhibit m7 to
Post-Effective Amendment No. 34 to the Registration Statement of American
Century California Tax-Free and Municipal Funds on October 1, 2002, File No.
2-82734, and incorporated herein by reference).

(13) Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated February 27, 2004 (filed
electronically as Exhibit m20 to Post-Effective Amendment No. 104 to the
Registration Statement of American Century Mutual Funds, Inc. on February 26,
2004, File No. 2-14213, and incorporated herein by reference).

(14) Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated September 30, 2004 (filed
electronically as Exhibit m26 to Post-Effective No. 106 to the Registration
Statement of American Century Mutual Funds, Inc. on November 29, 2004, File No.
2-14213, and incorporated herein by reference).

(15) Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated November 17, 2004 (filed
electronically as Exhibit m27 to Post-Effective Amendment No. 106 to the
Registration Statement of American Century Mutual Funds, Inc. on November 29,
2004, File No. 2-14213, and incorporated herein by reference).

(n) (1) Amended and Restated Multiple Class Plan, dated September 3,
2002,(filed electronically as Exhibit n1 to Post-Effective Amendment No. 35 to
the Registration Statement of the Registrant on December 17, 2002 File No.
2-82734, and incorporated herein by reference).

(2) Amendment No. 1 to the Amended and Restated Multiple Class Plan,
dated December 31, 2002 (filed electronically as Exhibit n2 to Post-Effective
Amendment No. 39 to the Registration Statement of American Century Municipal
Trust on December 23, 2002, File No. 2-91229, and incorporated herein by
reference).

(3) Amendment No. 2 to the Amended and Restated Multiple Class Plan,
dated August 29, 2003 (filed electronically as Exhibit n3 to Post-Effective
Amendment No. 17 to the Registration Statement of American Century Strategic
Asset Allocations, Inc. on August 28, 2003, File No. 33-79482, and incorporated
herein by reference).

(4) Amendment No. 3 to the Amended and Restated Multiple Class Plan,
dated February 27, 2004 (filed electronically as Exhibit n4 to Post-Effective
Amendment No. 104 to the Registration Statement of American Century Mutual
Funds, Inc. on February 26, 2004, File No. 2-14213, and incorporated herein by
reference).

(5) Amendment No. 4 to the Amended and Restated Multiple Class Plan,
dated May 1, 2004 (filed electronically as Exhibit n5 to Post-Effective
Amendment No. 35 to the Registration Statement of American Century Quantitative
Equity Funds, Inc. on April 29, 2004, File No. 33-19589, and incorporated herein
by reference).

(6) Amendment No. 5 to the Amended and Restated Multiple Class Plan,
dated August 1, 2004 (filed electronically as Exhibit n6 to Post-Effective
Amendment No. 24 to the Registration Statement of American Century Investment
Trust on August 1, 2004, File No. 33-65170, and incorporated herein by
reference).

(7) Amendment No. 6 to the Amended and Restated Multiple Class Plan,
dated as of September 30, 2004 (filed electronically as Exhibit n7 to
Post-Effective Amendment No. 20 to the Registration Statement of American
Century Strategic Asset Allocations, Inc. on September 29, 2004, File No.
33-79482, and incorporated herein by reference).

(8) Amendment No. 7 to the Amended and Restated Multiple Class Plan,
dated November 17, 2004 (filed electronically as Exhibit n8 to Post-Effective
Amendment No. 106 to the Registration Statement of American Century Mutual
Funds, Inc. on November 29, 2004, File No. 2-14213, and incorporated herein by
reference).

(o) Reserved.

(p) (1) American Century Investments Code of Ethics amended January 1,
2005, is included herein.

(2) Independent Directors' Code of Ethics amended March 4, 2000
(filed electronically as Exhibit p2 to Post-Effective Amendment No. 106 to the
Registration Statement of American Century Mutual Funds, Inc. on November 29,
2004, File No. 2-14213, and incorporated herein by reference).

Item 23. Persons Controlled by or Under Control with Fund

The persons who serve as the trustees or directors of the Registrant also serve,
in substantially identical capacities, of the following investment companies:

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 Quantitative Equity Funds, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios II, Inc.

Item 24. Indemnification

As stated in Article VII, Section 3 of the Amended and Restated Agreement
and Declaration of Trust, filed herein within Exhibit (a), 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, Sections 2, 3 and 4 of the Registrant's Amended and Restated
Bylaws, dated March 26, 2004, appearing as Exhibit b to Post-Effective Amendment
No. 19 to the Registration Statement of American Century International Bond
Funds filed on April 29, 2004, File No. 33-43321.

The Registrant has purchased an insurance policy insuring its officers and
directors against certain liabilities which such officers and directors may
incur while acting in such capacities and providing reimbursement to the
Registrant for sums which it may be permitted or required to pay to its officers
and directors by way of indemnification against such liabilities, subject in
either case to clauses respecting deductibility and participation.

Item 25. Business and Other Connections of the Investment Advisor

None.

Item 26. Principal Underwriters

I. (a) American Century Investment Services, Inc. (ACIS) acts as principal
underwriter for the following investment companies:

American Century Asset Allocation Portfolios, Inc.
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 Quantitative Equity Funds, Inc.
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 and executive officers 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 none

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

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

Donna Byers Senior Vice President none

Brian Jeter Senior Vice President none

Mark Killen Senior Vice President none

Dave Larrabee Senior Vice President none

Barry Mayhew Senior Vice President none

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

Clifford Brandt Chief Compliance Officer none

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

ITEM 27. 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, 4500 Main
Street, Kansas City, Missouri 64111.

ITEM 28. Management Services - Not applicable.

ITEM 29. Undertakings - Not applicable.

SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement amendment pursuant
to Rule 485(b) promulgated under the Securities Act of 1933, as amended, and has
duly caused this Registration Statement amendment to be signed on its behalf by
the undersigned, duly authorized, in the City of Kansas City, State of Missouri
on the 29th day of December, 2004.

American Century California Tax-Free
and Municipal Funds (Registrant)

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

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement amendment has been signed below by the following persons
in the capacities and on the dates indicated.

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

*William M. Lyons President, Chairman December 29, 2004
- ------------------------ of the Board, Trustee
William M. Lyons and Principal Executive
Officer

*Maryanne Roepke Senior Vice President, December 29, 2004
- ------------------------ Treasurer and Chief
Maryanne Roepke Accounting Officer

*Albert A. Eisenstat Trustee December 29, 2004
- ------------------------
Albert A. Eisenstat

*Ronald J. Gilson Trustee December 29, 2004
- ------------------------
Ronald J. Gilson

*Myron S. Scholes Trustee December 29, 2004
- ------------------------
Myron S. Scholes

*Kenneth E. Scott Trustee December 29, 2004
- ------------------------
Kenneth E. Scott

*John B. Shoven Trustee December 29, 2004
- ------------------------
John B. Shoven

*Jeanne D. Wohlers Trustee December 29, 2004
- ------------------------
Jeanne D. Wohlers

*Kathryn A. Hall Trustee December 29, 2004
- ------------------------
Kathryn A. Hall

*By /s/ Brian L. Brogan
--------------------------------------------
Brian L. Brogan
Attorney-in-Fact (pursuant to Power of
Attorney dated December 9, 2004).

EX-99 3 ex-exhibitindex.htm EXHIBIT INDEX EXHIBIT INDEX

                                                                     EXHIBIT 99
                                  Exhibit Index

EXHIBIT     DESCRIPTION

EX-99.a     Amended and Restated Agreement and Declaration of Trust, dated
March 26, 2004 (filed as Exhibit a to Post-Effective Amendment No. 37 to the
Registration Statement on Form N-1A of the Registrant, File No. 2-82734, on
October 24, 2004 and incorporated herein by reference).

EX-99.b     Amended and Restated Bylaws, dated August 26, 2004.

EX-99.c     Registrant hereby incorporates by reference, as though set forth
fully herein, Article III, Article IV, Article V, Article VI and Article VIII of
Registrant's Amended and Restated Agreement and Declaration of Trust, included
as Exhibit (a) herein, and Article II, Article VII, Article VIII and Article IX
of Registrant's Amended and Restated Bylaws, incorporated by reference as
Exhibit (b) herein.

EX-99.d     Amended and Restated Management Agreement between American
Century California Tax-Free and Municipal Funds and American Century Investment
Management, Inc., dated August 1, 2004 (filed as Exhibit d to Post-Effective
Amendment No. 37 to the Registration Statement on Form N-1A of the Registrant,
File No. 2-82734, on October 24, 2004 and incorporated herein by reference).

EX-99.e1    Amended and Restated Distribution Agreement with American Century
Investment Services, Inc., dated November 17, 2004 (filed as Exhibit e to
Post-Effective Amendment No. 106 to the Registration Statement on Form N-1A of
American Century Mutual Funds, Inc., File No. 2-14213, on November 29, 2004, and
incorporated herein by reference).

EX-99.g1    Master Agreement with Commerce Bank N.A., dated January 22, 1997
(filed as Exhibit b8e to Post-Effective Amendment No. 76 to the Registration
Statement on Form N-1A of American Century Mutual Funds, Inc., File No. 2-14213,
on February 28, 1997, and incorporated herein by reference).

EX-99.g2    Global Custody Agreement with The Chase Manhattan Bank, dated
August 9, 1996 (filed as Exhibit b8 to Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A of American Century Government Income Trust,
File No. 2-99222, on February 7, 1997, and incorporated herein by reference).

EX-99.g3    Amendment to Global Custody Agreement with 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, on January 9, 2001, and incorporated
herein by reference).

EX-99.g4    Amendment No. 2 to the Global Custody Agreement between American
Century Investments and the JPMorgan Chase Bank, dated as of May 1, 2004 (filed
as Exhibit g4 to Post-Effective Amendment No. 35 to the Registration Statement
on Form N-1A of American Century Quantitative Equity Funds, Inc., File No.
33-19589, on April 29, 2004, and incorporated herein by reference).

EX-99.g5    Chase Manhattan Bank Custody Fee Schedule, dated October 19, 2000
(filed as Exhibit g5 to Post-Effective Amendment No. 35 to the Registration
Statement on Form N-1A of American Century Quantitative Equity Funds, Inc., File
No. 33-19589, on April 29, 2004, and incorporated herein by reference).

EX-99.h1    Transfer Agency Agreement with 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, on July 31, 1997, and incorporated
herein by reference).

EX-99.h2    Amendment No. 1 to the Transfer Agency Agreement with American
Century Services Corporation, dated June 29, 1998 (filed as Exhibit b9b to
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A of
American Century Quantitative Equity Funds, File No. 33-19589, on June 29, 1998,
and incorporated herein by reference).

EX-99.h3    Amendment No. 2 to the Transfer Agency Agreement with American
Century Services Corporation, dated November 20, 2000 (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, on December 29, 2000, and incorporated herein
by reference).

EX-99.h4    Amendment No. 3 to the Transfer Agency Agreement with American
Century Services Corporation, dated August 1, 2001 (filed as Exhibit h5 to
Post-Effective Amendment No. 44 to the Registration Statement on Form N-1A of
American Century Government Income Trust, File No. 2-99222, on July 31, 2001,
and incorporated herein by reference).

EX-99.h5    Amendment No. 4 to the Transfer Agency Agreement with American
Century Services Corporation, dated December 3, 2001 (filed as Exhibit h6 to
Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A of
American Century Investment Trust, File No. 33-65170, on November 30, 2001, and
incorporated herein by reference).

EX-99.h6    Amendment No. 5 to the Transfer Agency Agreement with American
Century Services Corporation, dated July 1, 2002 (filed as Exhibit h6 to
Post-Effective Amendment No. 17 to the Registration Statement on Form N-1A of
American Century Investment Trust, File No. 33-65170, on June 28, 2002, and
incorporated herein by reference).

EX-99.h7    Amendment No. 6 to the Transfer Agency Agreement with American
Century Services Corporation, dated September 3, 2002 (filed as Exhibit h9 to
Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of
American Century Municipal Trust, File No. 2-91229, on September 30, 2002, and
incorporated herein by reference).

EX-99.h8    Amendment No. 7 to the Transfer Agency Agreement with American
Century Services Corporation, dated December 31, 2002 (filed as Exhibit h7 to
Post-Effective Amendment No. 4 to the Registration Statement on Form N-1A of
American Century Variable Portfolios II, Inc., File No. 333-46922, on December
23, 2002, and incorporated herein by reference).

EX-99.h9    Credit Agreement with JPMorgan Chase Bank, as Administrative
Agent, dated December 17, 2003 (filed as Exhibit h9 to Post-Effective Amendment
No. 39 to the Registration Statement on Form N-1A of American Century Target
Maturities Trust, File No. 2-94608, on January 30, 2004, and incorporated herein
by reference).

EX-99.h10   Termination, Replacement and Restatement Agreement with JPMorgan
Chase Bank N.A., as Administrative Agent, dated December 15, 2004.

EX-99.h11   Customer Identification Program Reliance Agreement, dated August
26, 2004 (filed as Exhibit h2 to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of American Century Asset Allocation
Portfolios, Inc., File No. 333-116351, on September 1, 2004, and incorporated
herein by reference).

EX-99.i     Opinion and Consent of Counsel, dated December 29, 2004.

EX-99.j1    Consent of PricewaterhouseCoopers LLP, independent registered
public accounting firm, dated December 23, 2004.

EX-99.j2    Power of Attorney, dated December 9, 2004.

EX-99.j3    Secretary's Certificate, dated December 10, 2004.

EX-99.m1    Master Distribution and Individual Shareholder Services Plan (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, on April 17, 2001, and incorporated
herein by reference).

EX-99.m2    Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated August 1, 2001 (filed as Exhibit m5
to Post-Effective Amendment No. 44 to the Registration Statement on Form N-1A of
American Century Government Income Trust, on July 31, 2001, File No. 2-99222,
and incorporated herein by reference).

EX-99.m3    Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated December 3, 2001 (filed as Exhibit m7
to Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A of
American Century Investment Trust on November 30, 2001, File No. 33-65170, and
incorporated herein by reference).

EX-99.m4    Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated July 1, 2002 (filed as Exhibit m9 to
Post-Effective Amendment No. 17 to the Registration Statement on Form N-1A of
American Century Investment Trust on June 28, 2002, File No. 33-65170, and
incorporated herein by reference).

EX-99.m5    Amendment No. 4 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated September 3, 2002 (filed as Exhibit
m5 to Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A
of American Century Municipal Trust, File No. 2-91229, on September 30, 2002,
and incorporated herein by reference).

EX-99.m6    Amendment No. 5 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated January 2, 2004 (filed as Exhibit m6
to Post-Effective Amendment No. 42 to the Registration Statement on Form N-1A of
the Registrant, File No. 2-91229, on February 26, 2004, and incorporated herein
by reference).

EX-99.m7    Amendment No. 6 to the Master Distribution and Individual
Shareholder Services Plan (C Class), dated May 1, 2004 (filed as Exhibit m13 to
Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A of
American Century Quantitative Equity Funds, Inc., File No. 33-19589, on April
29, 2004, and incorporated herein by reference).

EX-99.m8    Master Distribution and Individual Shareholder Services Plan (A
Class), dated September 3, 2002 (filed as Exhibit m6 to Post-Effective Amendment
No. 34 to the Registration Statement on Form N-1A of American Century California
Tax-Free and Municipal Funds, File No. 2-82734, on October 1, 2002, and
incorporated herein by reference).

EX-99.m9    Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated February 27, 2004 (filed as Exhibit
m18 to Post-Effective Amendment No. 104 to the Registration Statement on Form
N-1A of American Century Mutual Funds, Inc., File No. 2-14213, on February 26,
2004, and incorporated herein by reference).

EX-99.m10   Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated September 30, 2004 (filed as Exhibit
m22 to Post-Effective Amendment No. 106 to the Registration Statement on Form
N-1A of American Century Mutual Funds, Inc., File No. 2-14213, on November 29,
2004, and incorporated herein by reference).

EX-99.m11   Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (A Class), dated November 17, 2004 (filed as Exhibit
m23 to Post-Effective Amendment No. 106 to the Registration Statement on Form
N-1A of American Century Mutual Funds, Inc., File No. 2-14213, on November 29,
2004, and incorporated herein by reference).

EX-99.m12   Master Distribution and Individual Shareholder Services Plan (B
Class), dated September 3, 2004 (filed as Exhibit m7 to Post-Effective Amendment
No. 34 to the Registration Statement on Form N-1A of American Century California
Tax-Free and Municipal Funds, File No. 2-82734, on October 1, 2002, and
incorporated herein by reference).

EX-99.m13   Amendment No. 1 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated February 27, 2004 (filed as Exhibit
m20 to Post-Effective Amendment No. 104 to the Registration Statement on Form
N-1A of American Century Mutual Funds, Inc., File No. 2-14213, on February 26,
2004, and incorporated herein by reference).

EX-99.m14   Amendment No. 2 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated September 30, 2004 (filed as Exhibit
m26 to Post-Effective No. 106 to the Registration Statement on Form N-1A of
American Century Mutual Funds, Inc., File No. 2-14213, on November 29, 2004, and
incorporated herein by reference).

EX-99.m15   Amendment No. 3 to the Master Distribution and Individual
Shareholder Services Plan (B Class), dated November 17, 2004 (filed as Exhibit
m27 to Post-Effective Amendment No. 106 to the Registration Statement on Form
N-1A of American Century Mutual Funds, Inc., File No. 2-14213, on November 29,
2004, and incorporated herein by reference).

EX-99.n1    Amended and Restated Multiple Class Plan, dated September 3, 2002
(filed as Exhibit n1 to Post-Effective Amendment No. 35 to the Registration
Statement on Form N-1A of the Registrant, File No. 2-82734, on December 17,
2002, and incorporated herein by reference).

EX-99.n2    Amendment No. 1 to the Amended and Restated Multiple Class Plan,
dated December 31, 2002 (filed as Exhibit n2 to Post-Effective Amendment No. 39
to the Registration Statement on Form N-1A of American Century Municipal Trust,
File No. 2-91229, on December 23, 2002, and incorporated herein by reference).

EX-99.n3    Amendment No. 2 to the Amended and Restated Multiple Class Plan,
dated August 29, 2003 (filed as Exhibit n3 to Post-Effective Amendment No. 17 to
the Registration Statement on Form N-1A of American Century Strategic Asset
Allocations, Inc., File No. 33-79482, on August 28, 2003, and incorporated
herein by reference).

EX-99.n4    Amendment No. 3 to the Amended and Restated Multiple Class Plan,
dated February 27, 2004 (filed as Exhibit n4 to Post-Effective Amendment No. 104
to the Registration Statement on Form N-1A of American Century Mutual Funds,
Inc., File No. 2-14213, on February 26, 2004, and incorporated herein by
reference).

EX-99.n5    Amendment No. 4 to the Amended and Restated Multiple Class Plan,
dated May 1, 2004 (filed as Exhibit n5 to Post-Effective Amendment No. 35 to the
Registration Statement on Form N-1A of American Century Quantitative Equity
Funds, Inc., File No. 33-19589, on April 29, 2004, and incorporated herein by
reference).

EX-99.n6    Amendment No. 5 to the Amended and Restated Multiple Class Plan,
dated August 1, 2004 (filed as Exhibit n6 to Post-Effective Amendment No. 24 to
the Registration Statement on Form N-1A of American Century Investment Trust,
File No. 33-65170, on August 1, 2004, and incorporated herein by reference).

EX-99.n7    Amendment No. 6 to the Amended and Restated Multiple Class Plan,
dated as of September 30, 2004 (filed as Exhibit n7 to Post-Effective Amendment
No. 20 to the Registration Statement on Form N-1A of American Century Strategic
Asset Allocations, Inc., File No. 33-79482, on September 29, 2004, and
incorporated herein by reference).

EX-99.n8    Amendment No. 7 to the Amended and Restated Multiple Class Plan,
dated November 17, 2004 (filed as Exhibit n8 to Post-Effective Amendment No. 106
to the Registration Statement on Form N-1A of American Century Mutual Funds,
Inc., File No. 2-14213, on November 29, 2004, and incorporated herein by
reference).

EX-99.p1    American Century Investments Code of Ethics amended January 1,
2005.

EX-99.p2    Independent Directors' Code of Ethics amended March 4, 2000
(filed as Exhibit p2 to Post-Effective Amendment No. 106 to the Registration
Statement on Form N-1A of American Century Mutual Funds, Inc., File No. 2-14213,
on November 29, 2004, and incorporated herein by reference).

EX-99.B 4 ex-bylaws.htm BYLAWS BYLAWS


                                                                   EXHIBIT 99.b

            AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS



                                     BYLAWS

                  AS AMENDED AND RESTATED AS OF AUGUST 26, 2004

                                TABLE OF CONTENTS

ARTICLE I OFFICES.............................................................1
     Section 1.  Principal Office.............................................1
     Section 2.  Other Offices................................................1

ARTICLE II MEETINGS OF SHAREHOLDERS...........................................1
     Section 1.  Place of Meetings............................................1
     Section 2.  Call of Meeting..............................................1
     Section 3.  Notice of Shareholders' Meeting..............................1
     Section 4.  Manner of Giving Notice; Affidavit of Notice.................2
     Section 5.  Adjourned Meeting; Notice....................................2
     Section 6.  Voting.......................................................2
     Section 7.  Waiver of Notice by Consent of Absent Shareholders...........3
     Section 8.  Shareholder Action by Written Consent without a Meeting......3
     Section 9.  Record Date for Shareholder Notice, Voting and
                   Giving Consents............................................3
     Section 10.  Proxies.....................................................4
     Section 11.  Inspectors of Election......................................4

ARTICLE III TRUSTEES..........................................................5
     Section 1.  Powers.......................................................5
     Section 2.  Number and Qualification of Trustees.........................5
     Section 3.  Mandatory Retirement.........................................5
     Section 4.  Vacancies....................................................5
     Section 5.  Place of Meetings and Meetings by Telephone..................6
     Section 6.  Regular Meetings.............................................6
     Section 7.  Special Meetings.............................................6
     Section 8.  Quorum.......................................................6
     Section 9.  Waiver of Notice.............................................7
     Section 10.  Adjournment.................................................7
     Section 11.  Notice of Adjournment.......................................7
     Section 12.  Action without a Meeting....................................7
     Section 13.  Fees and Compensation of Trustees...........................7

ARTICLE IV COMMITTEES.........................................................8
     Section 1.  Committees of Trustees.......................................8
     Section 2.  Meetings and Action of Committees............................8

ARTICLE V OFFICERS............................................................9
     Section 1.  Officers.....................................................9
     Section 2.  Election of Officers.........................................9
     Section 3.  Subordinate Officers.........................................9
     Section 4.  Removal and Resignation of Officers..........................9
     Section 5.  Vacancies In Offices.........................................9
     Section 6.  Chairman of the Board........................................9
     Section 7.  President...................................................10
     Section 8.  Vice Presidents.............................................10
     Section 9.  Secretary...................................................10
     Section 10.  Chief Financial Officer....................................10
     Section 11.  Chief Compliance Officer...................................11



AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS                 BYLAWS
- -------------------------------------------------------------------------------

Table of Contents, continued

ARTICLE VI INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
  OTHER AGENTS...............................................................11
     Section 1. Indemnification..............................................11
     Section 2. "Disabling Conduct"..........................................11
     Section 3. Conditions for Indemnification...............................12
     Section 4. Advance of Expenses..........................................12
     Section 5. Rights Not Exclusive.........................................12
     Section 6. Survival.....................................................12
     Section 7. Definitions..................................................13
     Section 8. Insurance....................................................13
     Section 9. Fiduciaries of Employee Benefit Plan.........................13

ARTICLE VII RECORDS AND REPORTS..............................................13
     Section 1.  Maintenance and Inspection of Share Register................13
     Section 2.  Maintenance and Inspection of Bylaws........................14
     Section 3.  Maintenance and Inspection of Other Records.................14
     Section 4.  Inspection by Trustees......................................14
     Section 5.  Financial Statements........................................14

ARTICLE VIII GENERAL MATTERS.................................................15
     Section 1.  Checks, Drafts, Evidence of Indebtedness....................15
     Section 2.  Contracts and Instruments; How Executed.....................15
     Section 3.  Certificates for Shares.....................................15
     Section 4.  Lost Certificates...........................................15
     Section 5.  Uncertificated Shares.......................................15
     Section 6.  Representation of Shares of Other Entities..................16

ARTICLE IX AMENDMENTS........................................................16
     Section 1.  Amendment by Shareholders...................................16
     Section 2.  Amendment by Trustees.......................................16




            AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS



                                     BYLAWS

                  AS AMENDED AND RESTATED AS OF AUGUST 26, 2004

                                    ARTICLE I
                                     OFFICES

SECTION 1.  PRINCIPAL OFFICE

The Board of Trustees shall fix the location of the principal executive office
of the Trust at any place within or outside The Commonwealth of Massachusetts.

SECTION 2.  OTHER OFFICES

The Board of Trustees may at any time establish branch or subordinate offices at
any place or places where the trust intends to do business.

                                   ARTICLE II
                            MEETINGS OF SHAREHOLDERS

SECTION 1.  PLACE OF MEETINGS

Meetings of shareholders shall be held at any place within or outside The
Commonwealth of Massachusetts designated by the Board of Trustees. In the
absence of any such designation, shareholders' meetings shall be held at the
principal executive office of the Trust.

SECTION 2.  CALL OF MEETING

A meeting of the shareholders shall be held whenever called by the Trustees and
whenever required by the provisions of the 1940 Act. A shareholder meeting may
be called at any time by the Board of Trustees or by the Chairman of the Board
or by the President. If a shareholder meeting is a meeting of the shareholders
of one or more series or classes of shares, but not a meeting of all
shareholders of the Trust, then only special meetings of the shareholders of
such one or more series or classes shall be called and only the shareholders of
such one or more series or classes shall be entitled to notice of and to vote at
such meeting.

SECTION 3.  NOTICE OF SHAREHOLDERS' MEETING

All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 4 of this Article II not less than ten (10) nor more
than seventy-five (75) days before the date of the meeting. The notice shall
specify (i) the place, date and hour of the meeting, and (ii) the general nature
of the business to be transacted. The notice of any meeting at which trustees
are to be elected also shall include the name of any nominee or nominees whom at
the time of the notice are intended to be presented for election.

If action is proposed to be taken at any meeting for approval of (i) a contract
or transaction in which a trustee has a direct or indirect financial interest,
(ii) an amendment of the Declaration of Trust, (iii) a reorganization of the
Trust, or (iv) a voluntary dissolution of the Trust, the notice shall also state
the general nature of that proposal.



AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS                 BYLAWS
- -------------------------------------------------------------------------------


SECTION 4.  MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

Notice of any meeting of shareholders shall be given either personally or by
first-class mail or telegraphic or other written communication, charges prepaid,
addressed to the shareholder at the address of that shareholder appearing on the
books of the Trust or its transfer agent or given by the shareholder to the
Trust for the purpose of notice. If no such address appears on the Trust's books
or is given, notice shall be deemed to have been given if sent to that
shareholder by first-class mail or telegraphic or other written communication to
the Trust's principal executive office, or if published at least once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.

If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the Trust is returned to the Trust by the United
States Postal Service marked to indicate that the Postal Service is unable to
deliver the notice to the shareholder at the address, all future notices or
reports shall be deemed to have been duly given without further mailing if these
shall be available to the shareholder on written demand of the shareholder at
the principal executive office of the Trust for a period of one year from the
date of the giving of the notice.

An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the Secretary, an Assistant Secretary
or any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.

SECTION 5.  ADJOURNED MEETING; NOTICE

Any shareholder's meeting, whether or not a quorum is present, may be adjourned
from time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy.

When any meeting of shareholders is adjourned to another time or place, notice
need not be given of the adjourned meeting at which the adjournment is taken,
unless a new record date of the adjourned meeting is fixed or unless the
adjournment is for more than sixty (60) days from the date set for the original
meeting, in which case the Board of Trustees shall set a new record date. Where
required, notice of any such adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Section 3 and 4 of this Article II. At any adjourned
meeting, the Trust may transact any business which might have been transacted at
the original meeting.

SECTION 6.  VOTING

The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of the Declaration of Trust, as in
effect at such time. The shareholders' vote may be by voice vote or by ballot,
provided, however, that any election for trustees must be by ballot if demanded
by any shareholder before the voting has begun. On any matter other than
elections of trustees, any shareholder may vote part of the shares in favor of
the proposal and refrain from voting the remaining shares or vote them against
the proposal, but if the shareholder fails to specify the number of shares which
the shareholder is voting affirmatively, it will be conclusively presumed that
the shareholder's approving vote is with respect to the total shares that the
shareholder is entitled to vote on such proposal.

                                                                         page 2


AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS                 BYLAWS
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SECTION 7.  WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS

The transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice if a quorum be present either in person or by proxy and
if either before or after the meeting, each person entitled to vote who was not
present in person or by proxy signs a written waiver of notice or a consent to a
holding of the meeting or an approval of the minutes. The waiver of notice or
consent need not specify either the business to be transacted or the purpose of
any meeting of shareholders.

Attendance by a person at a meeting shall also constitute a waiver of notice of
that meeting, except when the person objects at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters not included in the notice of the meeting
if that objection is expressly made at the beginning of the meeting.

SECTION 8.  SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Any action which may be taken at any meeting of shareholders may be taken
without a meeting and without prior notice if a consent in writing setting forth
the action so taken is signed by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take that action at a meeting at which all shares entitled to vote on that
action were present and voted. All such consents shall be filed with the
Secretary of the Trust and shall be maintained in the Trust's records. Any
shareholder giving a written consent or the shareholder's proxy holders or a
transferee of the shares or a personal representative of the shareholder or
their respective proxy holders may revoke the consent by a writing received by
the Secretary of the Trust before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.

If the consents of all shareholders entitled to vote have not been solicited in
writing and if the unanimous written consent of all such shareholders shall not
have been received, the Secretary shall give prompt notice of the action
approved by the shareholders without a meeting. This notice shall be given in
the manner specified in Section 4 of this Article II. In the case of approval of
(i) contracts or transactions in which a trustee has a direct or indirect
financial interest, (ii) indemnification of agents of the Trust, and (iii) a
reorganization of the Trust, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.

SECTION 9.  RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS

For purposes of determining the shareholders entitled to notice of any meeting
or to vote or entitled to give consent to action without a meeting, the Board of
Trustees may fix in advance a record date which shall not be more than
seventy-five (75) days nor less than ten (10) days before the date of any such
meeting as provided in the Declaration of Trust.

If the Board of Trustees does not so fix a record date:


                                                                         page 3


AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS                 BYLAWS
- -------------------------------------------------------------------------------

(a)  The record date for determining shareholders entitled to notice of or to
     vote at a meeting of shareholders shall be at the close of business on the
     business day next preceding the day on which notice is given or if notice
     is waived, at the close of business on the business day next preceding the
     day on which the meeting is held.

(b)  The record date for determining shareholders entitled to give consent to
     action in writing without a meeting, (i) when no prior action by the Board
     of Trustees has been taken, shall be the day on which the first written
     consent is given, or (ii) when prior action of the Board of Trustees has
     been taken, shall be at the close of business on the day on which the Board
     of Trustees adopt the resolution relating to that action or the
     seventy-fifth day before the date of such other action, whichever is later.

SECTION 10.  PROXIES

Every person entitled to vote for trustees or on any other matter shall have the
right to do so either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the Trust. A proxy
shall be deemed signed if the shareholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, or by electronic,
telephonic, computerized or other alternative form of execution authorized by
the Trustees) by the shareholder or the shareholder's attorney-in-fact. A proxy
with respect to Shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives specific written notice to the contrary from any one of them. A proxy
purporting to be exercised by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. A validly executed proxy which does not
state that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it before the vote pursuant to that proxy by a
writing delivered to the Trust stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by the person executing that proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the Trust before the vote
pursuant to that proxy is counted; provided however, that no proxy shall be
valid after the expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of the
General Corporation Law of the Commonwealth of Massachusetts, as if the Trust
were a Massachusetts corporation.

SECTION 11.  INSPECTORS OF ELECTION

Before any meeting of shareholders, the Board of Trustees may appoint any
persons other than nominees for office to act as inspectors of election at the
meeting or its adjournment. If no inspectors of election are so appointed, the
chairman of the meeting may and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more shareholders or proxies,
the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
the chairman of the meeting may and on the request of any shareholder or a
shareholder's proxy, shall appoint a person to fill the vacancy.


                                                                         page 4


AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS                 BYLAWS
- -------------------------------------------------------------------------------

These inspectors shall:

(a)  Determine the number of shares outstanding and the voting power of each,
     the shares represented at the meeting, the existence of a quorum and the
     authenticity, validity and effect of proxies;

(b)  Receive votes, ballots or consents;

(c)  Hear and determine all challenges and questions in any way arising in
     connection with the right to vote;

(d)  Count and tabulate all votes or consents;

(e)  Determine when the polls shall close;

(f)  Determine the result; and

(g)  Do any other acts that may be proper to conduct the election or vote with
     fairness to all shareholders.

                                   ARTICLE III
                                    TRUSTEES

SECTION 1.  POWERS

Subject to the applicable provisions of the Declaration of Trust, these Bylaws,
and applicable laws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the Trust
shall be managed and all powers shall be exercised by or under the direction of
the Board of Trustees.

SECTION 2.  NUMBER AND QUALIFICATION OF TRUSTEES

The authorized number of trustees shall be not less than three (3) nor more than
fifteen (15) until changed by a duly adopted amendment to the Declaration of
Trust and these Bylaws. The selection and nomination of disinterested trustees
is committed solely to the discretion of a Nominating Committee consisting of
all sitting disinterested trustees except where the remaining trustee or
trustees are interested persons.

SECTION 3.  MANDATORY RETIREMENT

Disinterested trustees shall retire when they reach the age of seventy-three
(73) years; provided, however, the remaining disinterested trustees may waive
the mandatory retirement provision expressed herein for a period not to exceed
two years.

SECTION 4.  VACANCIES

Vacancies in the Board of Trustees may be filled by a majority of the remaining
trustees, though less than a quorum, or by a sole remaining trustee, unless the
Board of Trustees calls a meeting of shareholders for the purposes of electing
trustees. In the event that at any time less than a majority of the trustees
holding office at that time were so elected by the holders of the outstanding
voting securities of the Trust, the Board of Trustees shall forthwith cause to
be held as promptly as possible, and in any event within sixty (60) days, a
meeting of such holders for the purpose of electing trustees to fill any
existing vacancies in the Board of Trustees, unless such period is extended by
order of the United States Securities and Exchange Commission.


                                                                         page 5


AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS                 BYLAWS
- -------------------------------------------------------------------------------


SECTION 5.  PLACE OF MEETINGS AND MEETINGS BY TELEPHONE

All meetings of the Board of Trustees may be held at any place within or outside
The Commonwealth of Massachusetts that has been designated from time to time by
resolution of the Board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the Trust. Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all trustees participating in the meeting can hear one
another and all such trustees shall be deemed to be present in person at the
meeting; PROVIDED THAT, in accordance with the provisions of the Investment
Company Act of 1940, the Board may not transact by such a meeting any business
which involves the entering into, or the approval, performance, or renewal of
any contract or agreement, whereby a person undertakes regularly to serve or act
as the Trust's investment advisor or principal underwriter.

SECTION 6.  REGULAR MEETINGS

Regular meetings of the Board of Trustees shall be held without call at such
time as shall from time to time be fixed by the Board of Trustees. Such regular
meetings may be held without notice.

SECTION 7.  SPECIAL MEETINGS

Special meetings of the Board of Trustees for any purpose or purposes may be
called at any time by the Chairman of the Board or the President or any Vice
President or the Secretary or any two (2) trustees.

Notice of the time and place of special meetings shall be delivered personally
or by telephone to each trustee or sent by first-class mail, by facsimile, or
electronic mail, charges prepaid, addressed to each trustee at that trustee's
address as it is shown on the records of the Trust. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. In case the notice is delivered
personally, by telephone, by facsimile delivery, or by electronic mail, it shall
be given at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the trustee or to a person at the office of the trustee who the person
giving the notice has reason to believe will promptly communicate it to the
trustee. The notice need not specify the purpose of the meeting or the place if
the meeting is to be held at the principal executive office of the Trust.

SECTION 8.  QUORUM

A majority of the number of trustees (as fixed in accordance with the provisions
of the Declaration of Trust) shall constitute a quorum for the transaction of
business, except to adjourn as provided in Section 10 of this Article III. Every
act or decision done or made by a majority of the trustees present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Trustees, subject to the provisions of the Declaration of Trust. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of trustees if any action taken is approved by at
least a majority of the required quorum for that meeting.


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SECTION 9.  WAIVER OF NOTICE

Notice of any meeting need not be given to any trustee who either before or
after the meeting signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes. The waiver of notice of consent need not
specify the purpose of the meeting. All such waivers, consents and approvals
shall be filed with the records of the Trust or made a part of the minutes of
the meeting. Notice of a meeting shall also be deemed given to any trustee who
attends the meeting without protesting before or at its commencement the lack of
notice to that trustee.

SECTION 10.  ADJOURNMENT

A majority of the trustees present, whether or not constituting a quorum, may
adjourn any meeting to another time and place.

SECTION 11.  NOTICE OF ADJOURNMENT

Notice of the time and place of holding an adjourned meeting need not be given
unless the meeting is adjourned for more than forty-eight (48) hours, in which
case notice of the time and place shall be given before the time of the
adjourned meeting in the manner specified in Section 6 of this Article III to
the trustees who were present at the time of the adjournment.

SECTION 12.  ACTION WITHOUT A MEETING

Any action required or permitted to be taken by the Board of Trustees may be
taken without a meeting if a majority of the members of the Board of Trustees
shall individually or collectively consent in writing to that action; PROVIDED
THAT, in accordance with the Investment Company Act of 1940, such written
consent does not approve the entering into, or the renewal or performance of any
contract or agreement, whereby a person undertakes regularly to serve or act as
the Trust's investment advisor or principal underwriter. Any other action by
written consent shall have the same force and effect as a majority vote of the
Board of Trustees. Written consents shall be filed with the minutes of the
proceedings of the Board of Trustees.

SECTION 13.  FEES AND COMPENSATION OF TRUSTEES

Trustees and members of committees may receive such compensation, if any, for
their services and such reimbursement of expenses as may be fixed or determined
by resolution of the Board of Trustees. This Section 12 shall not be construed
to preclude any trustee from serving the Trust in any other capacity as an
officer, agent, employee or otherwise and receiving compensation for those
services.


                                                                         page 7


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                                   ARTICLE IV
                                   COMMITTEES

SECTION 1.  COMMITTEES OF TRUSTEES

The Board of Trustees may by resolution adopted by a majority of the authorized
number of trustees designate one or more committees, each consisting of two (2)
or more trustees, to serve at the pleasure of the Board. The Board may designate
one or more trustees as alternate members of any committee who may replace any
absent member at any meeting of the committee. Any committee to the extent
provided in the resolution of the Board, shall have the authority of the Board,
except with respect to:

(a)  the approval of any action which under applicable law also requires
     shareholders' approval or approval of the outstanding shares, or requires
     approval by a majority of the entire Board or certain members of said
     Board;

(b)  the filling of vacancies on the Board of Trustees or in any committee;

(c)  the fixing of compensation of the trustees for serving on the Board of
     Trustees or on any committee;

(d)  the amendment or repeal of the Declaration of Trust or of the Bylaws or the
     adoption of new Bylaws;

(e)  the amendment or repeal of any resolution of the Board of Trustees which by
     its express terms is not so amendable or repealable;

(f)  a distribution to the shareholders of the Trust, except at a rate or in a
     periodic amount or within a designated range determined by the Board of
     Trustees; or

(g)  the appointment of any other committees of the Board of Trustees or the
     members of these committees.

SECTION 2.  MEETINGS AND ACTION OF COMMITTEES

Meetings and action of committees shall be governed by and held and taken in
accordance with the provisions of Article III of these Bylaws, with such changes
in the context thereof as are necessary to substitute the committee and its
members for the Board of Trustees and its members, except that the time of
regular meetings of committees may be determined either by resolution of the
Board of Trustees or by resolution of the committee. Special meetings of
committees may also be called by resolution of the Board of Trustees, and notice
of special meetings of committees shall also be given to all alternate members
who shall have the right to attend all meetings of the committee. The Board of
Trustees may adopt rules for the government of any committee not inconsistent
with the provisions of these Bylaws.


                                                                         page 8


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                                    ARTICLE V
                                    OFFICERS

SECTION 1.  OFFICERS

The officers of the Trust shall be a President, a Secretary, a Chief Financial
Officer, a Chief Compliance Officer and a Treasurer. The Trust may also have, at
the discretion of the Board of Trustees, one or more Vice Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article V. Any number of offices may be held by the same person.

SECTION 2.  ELECTION OF OFFICERS

The officers of the Trust, except such officers as may be appointed in
accordance with the provisions of Section 3 or Section 5 of this Article V,
shall be chosen by the Board of Trustees, and each shall serve at the pleasure
of the Board of Trustees, subject to the rights, if any, of an officer under any
contract of employment.

SECTION 3.  SUBORDINATE OFFICERS

The Board of Trustees may appoint and may empower the President to appoint such
other officers as the business of the Trust may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in these Bylaws or as the Board of Trustees may from time to time
determine.

SECTION 4.  REMOVAL AND RESIGNATION OF OFFICERS

Subject to the rights, if any, of an officer under any contract of employment,
any officer may be removed, either with or without cause, by the Board of
Trustees at any regular or special meeting of the Board of Trustees or except in
the case of an officer upon whom such power of removal may be conferred by the
Board of Trustees.

Any officer may resign at any time by giving written notice to the Trust. Any
resignation shall take effect at the date of the receipt of that notice or at
any later time specified in that notice; and unless otherwise specified in that
notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
Trust under any contract to which the officer is a party.

SECTION 5.  VACANCIES IN OFFICES

A vacancy in any office because of death, resignation, removal, disqualification
or other cause shall be filled in the manner prescribed in these Bylaws for
regular appointment to that office.

SECTION 6.  CHAIRMAN OF THE BOARD

The Chairman of the Board shall, if present, preside at meetings of the Board of
Trustees and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
Bylaws.

                                                                         page 9


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SECTION 7.  PRESIDENT

Subject to such supervisory powers, if any, as may be given by the Board of
Trustees to the Chairman of the Board, the President shall be the principal
executive officer and the principal operating officer of the Trust and shall,
subject to control of the Board of Trustees, have general supervision, direction
and control of the business and the officers of the Trust. He shall preside at
all shareholder meetings and, in the absence of the Chairman of the Board or if
there be none, at all meetings of the Board of Trustees. He shall have the
general powers and duties of management usually vested in the office of
President of a corporation and shall have such other powers and duties as may be
prescribed by the Board of Trustees or these Bylaws.

SECTION 8.  VICE PRESIDENTS

In the absence or disability of the President, the Vice Presidents, if any, in
order of their rank as fixed by the Board of Trustees or if not ranked, a Vice
President designated by the Board of Trustees, shall perform all the duties of
the President and when so acting shall have all powers of and be subject to all
the restrictions upon the President. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board of Trustees or by these Bylaws and the president
or the Chairman of the Board.

SECTION 9.  SECRETARY

The Secretary shall keep or cause to be kept at the principal executive office
of the Trust or such other place as the Board of Trustees may direct a book of
minutes of all meetings and actions of trustees, committees of trustees and
shareholders with the time and place of holding, whether regular or special, and
if special, how authorized, the notice given, the names of those present at
trustees' meetings or committee meetings, the number of shares present or
represented at shareholders' meetings and the proceedings.

The Secretary shall keep or cause to be kept at the principal executive office
of the Trust or at the office of the Trust's transfer agent or registrar, as
determined by resolution of the Board of Trustees, a share register or a
duplicate share register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same and the number and date of cancellation of
every certificate surrendered for cancellation.

The Secretary shall give or cause to be given notice of all meetings of the
shareholders and the Board of Trustees required by these Bylaws or by applicable
law to be given and shall have such other powers and perform such other duties
as may be prescribed by the Board of Trustees or by these Bylaws.

SECTION 10.  CHIEF FINANCIAL OFFICER

The Chief Financial Officer shall be the principal financial and accounting
officer of the Trust and shall keep and maintain or cause to be kept and
maintained adequate and correct books and records of accounts of the properties
and business transactions of the Trust, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings
and shares. The books of account shall at all reasonable times be open to
inspection by any trustee.


                                                                        page 10


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The Chief Financial Officer shall deposit all monies and other valuables in the
name and to the credit of the Trust with such depositories as may be designated
by the Board of Trustees. He shall disburse the funds of the Trust as may be
ordered by the Board of Trustees, shall render to the president and trustees,
whenever they request it, an account of all of his transactions as Chief
Financial Officer and of the financial condition of the Trust and shall have
other powers and perform such other duties as may be prescribed by the Board of
Trustees or these Bylaws.

SECTION 11.  CHIEF COMPLIANCE OFFICER

The Chief Compliance Officer shall be the principal officer of the Trust
responsible for administering its compliance policies and procedures. The Chief
Compliance Officer shall have the power to develop and enforce policies and
procedures reasonably designed to prevent the Trust from violating the
securities laws applicable to its operations. The Chief Compliance Officer shall
serve at the pleasure of the Trustees and reports directly to the Trust. The
Chief Compliance Officer shall have such other powers and perform such other
duties as may be prescribed by the Trustees, these Bylaws, or the federal
securities laws.

                                   ARTICLE VI
        INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND OTHER AGENTS

SECTION 1. INDEMNIFICATION

The Trust shall indemnify any individual ("Indemnitee") who is a present or
former trustee, officer, employee, or agent of the Trust, or who, while a
trustee, officer, employee, or agent of the Trust, is or was serving at the
request of the Trust as a trustee, officer, partner, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan who, by reason of his position was,
is, or is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter collectively referred to as a "Proceeding") against
any judgments, penalties, fines, amounts paid in settlement, and expenses
(including attorneys' fees) actually and reasonably incurred by such Indemnitee
in connection with any Proceeding, to the fullest extent that such
indemnification may be lawful under Massachusetts law. The Trust shall pay any
reasonable expenses so incurred by such Indemnitee in defending a Proceeding in
advance of the final disposition thereof to the fullest extent that such advance
payment may be lawful under Massachusetts law. Subject to any applicable
limitations and requirements set forth in the Trust's Declaration of Trust and
in these By-laws, any payment of indemnification or advance of expenses shall be
made in accordance with the procedures set forth in Massachusetts law.

SECTION 2. "DISABLING CONDUCT"

Anything in this Article to the contrary notwithstanding, nothing in this
Article shall protect or purport to protect any Indemnitee against any liability
to the Trust or its stockholders, whether or not there has been an adjudication
of liability, to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office ("Disabling Conduct").


                                                                        page 11


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SECTION 3. CONDITIONS FOR INDEMNIFICATION

Anything in this Article to the contrary notwithstanding, no indemnification
shall be made by the Trust to any Indemnitee unless:

(a)  there is a final decision on the merits by a court or other body before
     whom the Proceeding was brought that the Indemnitee was not liable by
     reason of Disabling Conduct; or

(b)  in the absence of such decision, the Trustees, based upon a review of the
     facts, forms a reasonable belief that the Indemnitee was not liable by
     reason of Disabling Conduct, which reasonable belief may be formed:

     (i)  by the vote of a majority of a quorum of trustees who are neither
          "interested persons" of the Trust as defined in Article 2(a)(19) of
          the Investment Company Act, nor parties to the Proceeding; or

     (ii) based on a written opinion of independent legal counsel.

SECTION 4. ADVANCE OF EXPENSES

Anything in this Article to the contrary notwithstanding, any advance of
expenses by the Trust to any Indemnitee shall be made only upon the undertaking
by such Indemnitee to repay the advance unless it is ultimately determined that
such Indemnitee is entitled to indemnification as above provided, and only if
the Trustees:

(a)  obtains assurances that the advance will be repaid by (A) the Trust
     receiving collateral from the Indemnitee for his undertaking or (B) the
     Trust obtaining insurance against losses arising by reason of any lawful
     advances; or

(b)  has a reasonable belief that the Indemnitee has not engaged in Disabling
     Conduct and will ultimately be found entitled to indemnification, which
     reasonable belief may be formed:

     (i)  by a majority of a quorum of trustees who are neither "interested
          persons" of the Trust as defined in Article 2(a)(19) of the Investment
          Company Act, nor parties to the Proceeding; or

     (ii) based upon a written opinion of an independent legal counsel that in
          turn is based on counsel's review of readily available facts (which
          review shall not require a full trial-type inquiry).

SECTION 5. RIGHTS NOT EXCLUSIVE

The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any law, bylaw, agreement, vote of stockholders or disinterested trustees or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office.

SECTION 6. SURVIVAL

The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article shall, unless otherwise provided when authorized or ratified,
continue as to an Indemnitee who has ceased to be a trustee, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such an Indemnitee.


                                                                        page 12


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SECTION 7. DEFINITIONS

For purposes of this Article, references to (i) the "Trust" shall include, in
addition to the resulting trust, any constituent trust (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its trustees, officers, and employees or agents so that any person who
is or was a trustee, officer, employee or agent of such constituent trust, or is
or was serving at the request of such constituent trust as a trustee, officer,
employee or agent of another trust, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving trust as such person would
have with respect to such constituent trust if its separate existence had
continued; (ii) "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and (iii) "serving at the request of the
"Trust" shall include any service as a trustee, officer, employee or agent of
the Trust which imposes duties on, or involves service by, such trustee,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries.

SECTION 8. INSURANCE

To the fullest extent permitted by applicable Massachusetts law and by Sections
17(h) and 17(i) of the Investment Company Act, or any successor provisions
thereto or interpretations thereunder, the Trust may purchase and maintain
insurance on behalf of any person who is or was a trustee, officer, employee, or
agent of the Trust, or who is or was serving at the request of the Trust as a
trustee, officer, partner, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan, against any liability asserted against him and incurred by him in
any such capacity or arising out of his position, whether or not the Trust would
have the power to indemnify him against such liability.

SECTION 9. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN

This Article does not apply to any proceeding against any trustee, investment
manager or other fiduciary of an employee benefit plan in that person's capacity
as such, even though that person may also be an agent of this Trust as defined
in Section 1 of this Article. Nothing contained in this Article shall limit any
right to indemnification to which such a trustee, investment manager or other
fiduciary may be entitled by contract or otherwise which shall be enforceable to
the extent permitted by applicable law other than this Article.

                                   ARTICLE VII
                               RECORDS AND REPORTS

SECTION 1.  MAINTENANCE AND INSPECTION OF SHARE REGISTER

This Trust shall keep at its principal executive office or at the office of its
transfer agent or registrar, if either be appointed and as determined by
resolution of the Board of Trustees, a record of its shareholders, giving the
names and addresses of all shareholders and the number and series of shares held
by each shareholder.

                                                                        page 13


AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS                 BYLAWS
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SECTION 2.  MAINTENANCE AND INSPECTION OF BYLAWS

The Trust shall keep at is principal executive office the original or a copy of
these Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours.

SECTION 3.  MAINTENANCE AND INSPECTION OF OTHER RECORDS

The accounting books and records and minutes of proceedings of the shareholders
and the Board of Trustees and any committee or committees of the Board of
Trustees shall be kept at such place or places designated by the Board of
Trustees or in the absence of such designation, at the principal executive
office of the Trust. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form. The minutes and
accounting books and records shall be open to inspection upon the written demand
of any shareholder or holder of a voting trust certificate at any reasonable
time during usual business hours for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate. The inspection may be made in person or by an agent or attorney and
shall include the right to copy and make extracts.

SECTION 4.  INSPECTION BY TRUSTEES

Every trustee shall have the absolute right at any reasonable time to inspect
all books, records, and documents of every kind and the physical properties of
the Trust. This inspection by a trustee may be made in person or by an agent or
attorney and the right of inspection includes the right to copy and make
extracts of documents.

SECTION 5.  FINANCIAL STATEMENTS

A copy of any financial statements and any income statement of the Trust for
each quarterly period of each fiscal year and accompanying balance sheet of the
Trust as of the end of each such period that has been prepared by the Trust
shall be kept on file in the principal executive office of the Trust for at
least twelve (12) months and each such statement shall be exhibited at all
reasonable times to any shareholder demanding an examination of any such
statement or a copy shall be mailed to any such shareholder.

The quarterly income statements and balance sheets referred to in this section
shall be accompanied by the report, if any, of any independent accountants
engaged by the Trust or the certificate of an authorized officer of the Trust
that the financial statements were prepared without audit from the books and
records of the Trust.

                                                                        page 14


AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS                 BYLAWS
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                                  ARTICLE VIII
                                 GENERAL MATTERS

SECTION 1.  CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS

All checks, drafts, or other orders for payment of money, notes or other
evidences of indebtedness issued in the name of or payable to the Trust shall be
signed or endorsed by such person or persons and in such manner as from time to
time shall be determined by resolution of the Board of Trustees.

SECTION 2.  CONTRACTS AND INSTRUMENTS; HOW EXECUTED

The Board of Trustees, except as otherwise provided in these Bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the Trust and this
authority may be general or confined to specific instances; and unless so
authorized or ratified by the Board of Trustees or within the agency power of an
officer, no officer, agent, or employee shall have any power or authority to
bind the Trust by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.

SECTION 3.  CERTIFICATES FOR SHARES

At the discretion of the Trustees, a certificate or certificates for shares of
beneficial interest in any series of the trust may be issued to each shareholder
when any of these shares are fully paid. All certificates shall be signed in the
name of the Trust by the chairman of the board or the president or vice
president and by the chief financial officer or an assistant treasurer or the
secretary or any assistant secretary, certifying the number of shares and the
series of shares owned by the shareholders. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been place on a certificate
shall have ceased to be that officer, transfer agent, or registrar before that
certificate is issued, it may be issued by the Trust with the same effect as if
that person were an officer, transfer agent or registrar at the date of issue.
Notwithstanding the foregoing, the Trust may adopt and use a system of issuance,
recordation and transfer of its shares by electronic or other means.

SECTION 4.  LOST CERTIFICATES

Except as provided in this Section 4, no new certificates for shares shall be
issued to replace an old certificate unless the latter is surrendered to the
Trust and cancelled at the same time. The Board of Trustees may in case any
share certificate or certificate for any other security is lost, stolen, or
destroyed, authorize the issuance of a replacement certificate on such terms and
conditions as the Board of Trustees may require, including a provision for
indemnification of the Trust secured by a bond or other adequate security
sufficient to protest the Trust against any claim that may be made against it,
including any expense or liability on account of the alleged loss, theft, or
destruction of the certificate or the issuance of the replacement certificate.

SECTION 5.  UNCERTIFICATED SHARES

Unless determined otherwise by the Trustees, the Trust shall issue shares of any
or all series in uncertificated form; provided, however, the Trust may issue
certificates to the holders of shares of a series which was originally issued in
uncertificated form, and if it has issued shares of any series in certificated
form, they may at any time discontinue the issuance of share certificates for
such series and may, by written notice to such shareholders of such series
require the surrender of their shares certificates to the Trust for
cancellation, which surrender and cancellation shall not affect the ownership of
shares for such series.


                                                                        page 15


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For any series of shares for which the trustees issue shares without
certificates, the Trust, or any transfer agent selected by the Trust, may either
issue receipts therefore or may keep accounts upon the books of the Trust for
the record holders of such shares, who shall in either case be deemed, for all
purposes hereunder to be the holders of such shares as if they had received
certificates therefore and shall be held to have expressly assented and agreed
to the terms hereof and of the Declaration of Trust.

SECTION 6.  REPRESENTATION OF SHARES OF OTHER ENTITIES

The Chairman of the Board, the President or any Vice President or any other
person authorized by resolution of the Board of Trustees or by any of the
foregoing designated officers, is authorized to vote on behalf of the Trust any
and all shares of any corporation or corporations, partnerships, trusts, or
other entities, foreign or domestic, standing in the name of the Trust. The
authority granted to these officers to vote or represent on behalf of the Trust
any and all shares held by the Trust in any form of entity may be exercised by
any of these officers in person or by any person authorized to do so by a proxy
duly executed by these officers.

                                   ARTICLE IX
                                   AMENDMENTS

SECTION 1.  AMENDMENT BY SHAREHOLDERS

These Bylaws may be amended or repealed, in whole or in part, at any time by the
affirmative vote or written consent of a majority of the outstanding shares
issued and entitled to vote, except as otherwise provided by applicable law or
by the Declaration of Trust or these Bylaws.

SECTION 2.  AMENDMENT BY TRUSTEES

Subject to the right of shareholders as provided in Section 1 of this Article to
adopt, amend or repeal Bylaws, and except as otherwise provided by applicable
law or by the Declaration of Trust, these Bylaws may be adopted, amended, or
repealed, in whole or in part, at any time by the Board of Trustees.


                                                                        page 16

EX-99.H10 5 ex-creditagmt.htm CREDIT AGREEMENT CREDIT AGREEMENT

                                                                 EXHIBIT 99.h10

                                                             EXECUTION VERSION
 ------------------------------------------------------------------------------

                             AMERICAN CENTURY FUNDS

                          TERMINATION, REPLACEMENT AND
                        RESTATEMENT AGREEMENT RELATING TO

                                  $575,000,000
                                CREDIT AGREEMENT

                          DATED AS OF DECEMBER 15, 2004

                           JPMORGAN CHASE BANK, N.A.,
                             AS ADMINISTRATIVE AGENT

                             THE SEVERAL BANKS FROM
                           TIME TO TIME PARTIES HERETO

                          J. P. MORGAN SECURITIES INC.,
                    AS ADVISOR, LEAD ARRANGER AND BOOKRUNNER

                              BANK OF AMERICA, N.A.
                              AS SYNDICATION AGENT

                             CALYON NEW YORK BRANCH
                           ROYAL BANK OF SCOTLAND PLC
                         NATIONAL AUSTRALIA BANK LIMITED
                             AS DOCUMENTATION AGENTS

 ------------------------------------------------------------------------------



          TERMINATION, REPLACEMENT AND RESTATEMENT AGREEMENT (this "TRR
AGREEMENT") dated as of December 15, 2004, among (i) each fund signatory hereto
(each a "Fund" and collectively, the "Funds") on behalf of each entity listed on
SCHEDULE I beneath such fund's name, which entity is a series or portfolio of
such Fund (each such series or portfolio, a "BORROWER" and, collectively, the
"BORROWERS"), (ii) the several banks from time to time parties to this TRR
Agreement (the "BANKS") and (iii) JPMORGAN CHASE BANK, N.A. (formerly known as
JPMorgan Chase Bank), as administrative agent for the Banks hereunder (in such
capacity, the "ADMINISTRATIVE AGENT");

          WHEREAS, certain of the Borrowers, the Banks and the Administrative
Agent are parties to an Amended And Restated Credit Agreement, dated as of
December 17, 2003 (the "ORIGINAL CREDIT AGREEMENT");

          WHEREAS, the Original Credit Agreement is to be terminated as provided
herein; and

          WHEREAS, the Banks and the Administrative Agent are willing, subject
to the terms and conditions of this TRR Agreement, to replace the Original
Credit Agreement with a new credit agreement as provided herein.

          NOW, THEREFORE, in consideration of the mutual agreements contained in
this TRR Agreement and other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:

          SECTION 1. TERMINATION, REPLACEMENT AND RESTATEMENT. Subject to the
conditions set forth in SECTION 3 hereof:

          (a) The Original Credit Agreement, including all schedules and
exhibits thereto, is hereby terminated, subject to applicable provisions set
forth therein as to the survival of certain rights and obligations, and
simultaneously replaced by a new credit agreement (the "NEW CREDIT AGREEMENT")
identical in form and substance to the Original Credit Agreement, including all
schedules and exhibits thereto, except as expressly set forth below. All
References in the Original Credit Agreement to "this Credit Agreement", "this
Agreement", or "the Credit Agreement" shall be deemed to mean the New Credit
Agreement.

          (b) The heading of the New Credit Agreement shall read as follows:

          "AMENDED AND RESTATED CREDIT AGREEMENT, DATED AS OF DECEMBER 15, 2004
(THIS "AGREEMENT") AMONG (I) EACH FUND SIGNATORY HERETO (EACH A "FUND" AND
COLLECTIVELY, THE "FUNDS") ON BEHALF OF ITSELF OR ON BEHALF OF EACH ENTITY
LISTED ON SCHEDULE I BENEATH SUCH FUND'S NAME, WHICH ENTITY IS A SERIES OR
PORTFOLIO OF SUCH FUND (EACH SUCH SERIES OR PORTFOLIO, A "BORROWER" AND,
COLLECTIVELY, THE "BORROWERS"), (II) THE SEVERAL BANKS FROM TIME TO TIME PARTIES
TO THIS AGREEMENT, WHICH BANKS ARE LISTED ON SCHEDULE II (THE "BANKS"), AND
(III) JPMORGAN CHASE BANK, N.A. (FORMERLY KNOWN AS JPMORGAN CHASE BANK), AS
ADMINISTRATIVE AGENT FOR THE BANKS HEREUNDER (IN SUCH CAPACITY, THE
"ADMINISTRATIVE AGENT");"

          (c) SECTION 1.1 of the Original Credit Agreement is hereby modified in
the New Credit Agreement so that the following definitions read in their
entirety as stated below:

          "CLOSING DATE" DECEMBER 15, 2004.

          "COMMITMENT TERMINATION DATE" SHALL MEAN DECEMBER 14, 2005, OR SUCH
EARLIER DATE ON WHICH THE COMMITMENTS SHALL TERMINATE AS PROVIDED HEREIN,
SUBJECT TO EXTENSION AS PROVIDED IN SECTION 2.10 HEREOF.

          "MAJORITY BANKS" SHALL MEAN BANKS HAVING MORE THAN 50% OF THE
AGGREGATE AMOUNT OF THE COMMITMENTS OR, IF THE COMMITMENTS SHALL HAVE
TERMINATED, BANKS HOLDING MORE THAN 50% OF THE AGGREGATE UNPAID PRINCIPAL AMOUNT
OF THE LOANS.

          (d) SECTION 2.4 of the Original Credit Agreement is hereby modified in
the New Credit Agreement by deleting the percentage "0.10%" contained therein
and inserting in lieu thereof: "0.09%".

          (e) SECTION 8.9 of the Original Credit Agreement is hereby modified in
the New Credit Agreement so that it reads in its entirety as follows:

               SECTION 8.9 INDEBTEDNESS. A FUND WILL NOT, NOR WILL IT PERMIT ANY
          BORROWER TO, CREATE, INCUR OR SUFFER TO EXIST ANY INDEBTEDNESS EXCEPT
          (A) INDEBTEDNESS TO THE BANKS HEREUNDER, (B) OBLIGATIONS UNDER
          FINANCIAL CONTRACTS AND (C) INDEBTEDNESS TO THE CUSTODIAN UNDER ITS
          CUSTODY AGREEMENT(S) FOR OVERDRAFT CHARGES INCURRED IN THE ORDINARY
          COURSE OF BUSINESS.

          (f) SCHEDULES I, II, III, IV and V of the New Credit Agreement shall
be in the form of SCHEDULES I, II, III, IV and V to this TRR Agreement.

          (g) Each definition of "Credit Agreement" in the Schedules and
Exhibits to the New Credit Agreement shall be amended to read: "THE AMENDED AND
RESTATED CREDIT AGREEMENT, DATED AS OF DECEMBER 15, 2004 (AS AMENDED,
SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME), AMONG THE BORROWERS NAMED
THEREIN, THE BANKS AND THE ADMINISTRATIVE AGENT."

          SECTION 2. REPRESENTATIONS AND WARRANTIES. To induce the
Administrative Agent and the Banks to enter into this TRR Agreement and to make
the Loans, each Fund on behalf of itself and each Borrower hereby represents and
warrants to the Administrative Agent and each Bank that (it being agreed that
each Fund represents and warrants only to matters with respect to itself and
each Borrower that is a part of such Fund, and each Borrower represents and
warrants only to matters with respect to itself):

          (a) This TRR Agreement and the New Credit Agreement have been duly
authorized and, in the case of this TRR Agreement, executed and delivered by it,
and this TRR Agreement and the New Credit Agreement constitute its legal, valid
and binding obligations enforceable in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

          (b) The representations and warranties set forth in SECTION 7 of the
New Credit Agreement are true and correct in all material respects on the date
hereof with the same effect as if made on the date hereof, except to the extent
such representations and warranties expressly relate to an earlier date.

          (c) Before and after giving effect to this TRR Agreement, no Default
has occurred and is continuing.

          SECTION 3. CONDITIONS TO EFFECTIVENESS. This TRR Agreement and the New
Credit Agreement, including the agreement of each Bank to make Loans thereunder,
shall become effective as of December 15, 2004 (the "EFFECTIVE DATE") upon the
occurrence of the following conditions precedent (which shall be deemed to
satisfy Section 6.1 of the New Credit Agreement):

          (a) The Administrative Agent shall have received counterparts of this
TRR Agreement which, when taken together, bear the signatures of all the parties
hereto.

          (b) The Administrative Agent shall have received, on behalf of itself
and the Banks, a favorable written opinion of internal counsel for the Borrowers
referring to this TRR Agreement and the New Credit Agreement, (i) dated the date
hereof, (ii) addressed to the Administrative Agent and the Banks, and (iii)
covering such other matters relating to this TRR Agreement and the transactions
hereunder and under the New Credit Agreement as the Administrative Agent or its
counsel shall reasonably request, and the Borrowers hereby instruct their
counsel to deliver such opinion.

          (c) The Administrative Agent shall have received on the date hereof
(i) a certificate as to the good standing, or as to the subsistence, of the
relevant Fund for each Borrower, as of a recent date, from the Secretary of
State of its state of incorporation; (ii) a certificate of the Secretary or
Assistant Secretary of each such Fund dated the date hereof and certifying (A)
that attached thereto is a true and complete copy of the by-laws of each such
Fund, if any, as in effect on the date hereof and at all times since a date
prior to the date of the resolutions described in clause (B) below, or to the
extent not attached, that such by-laws have not been amended since December 17,
2003, (B) that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Trustees or Directors, as the case may be, of each such
Fund on its own behalf and on behalf of its respective Borrowers authorizing
this TRR Agreement and the execution, delivery and performance of this TRR
Agreement and the borrowings under the New Credit Agreement, and that such
resolutions have not been modified, rescinded or amended and are in full force
and effect, (C) that attached thereto is a true and complete copy of the
certificate of incorporation or declaration of trust of each such Fund in effect
on the date hereof or to the extent not attached, that such certificate of
incorporation or declaration of trust has not been amended since December 17,
2003, and (D) as to the incumbency and specimen signature of each officer
executing this TRR Agreement or any other document delivered in connection
herewith on behalf of such Fund; (iii) a certificate of another officer as to
the incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above; and (iv) such other documents
as the Banks or counsel for the Administrative Agent may reasonably request.

          (d) The Administrative Agent shall have received, with a copy for each
Bank, true and correct copies, certified as to authenticity by the Fund, of the
most recent Prospectus for each Borrower, the Investment Management Agreement
for each such Borrower, the Distribution Agreement for each such Borrower, the
Custody Agreement for each such Borrower, the Shareholder Services Agreement of
each Fund with respect to each such Borrower, the current registration statement
for each such Borrower, the most recent annual and semi-annual financial reports
for each such Borrower and such other documents or instruments as may be
reasonably requested by the Administrative Agent, including, without limitation,
a copy of any debt instrument, security agreement or other material contract to
which any Borrower may be a party.

          (e) All legal matters incident to this TRR Agreement, the New Credit
Agreement and the borrowings and extensions of credit hereunder shall be
satisfactory to the Banks and to Pryor Cashman Sherman & Flynn LLP, counsel for
the Administrative Agent.

          (f) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the date hereof, including all commitment
fees (if any) due and owing under the Original Credit Agreement and, to the
extent invoiced, reimbursement or payment of all out-of pocket expenses required
to be reimbursed or paid by the Borrowers or Funds hereunder.

          SECTION 4. APPLICABLE LAW. THIS TRR AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.

          SECTION 5. ORIGINAL CREDIT AGREEMENT. Until the occurrence of the
earlier of the Effective Date as provided in Section 3 hereof or the Commitment
Termination Date (as defined in the Original Credit Agreement), the Original
Credit Agreement shall continue in full force and effect in accordance with the
provisions thereof and the rights and obligations of the parties thereto shall
not be affected hereby, and all fees and interest accruing under the Original
Credit Agreement shall continue to accrue at the rates provided for therein.

          SECTION 6. COUNTERPARTS. This TRR Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract.

          SECTION 7. EXPENSES. Each of the Borrowers agrees, severally and
neither jointly nor jointly and severally, to reimburse the Administrative Agent
for its Allocation (as defined in the New Credit Agreement) of the
Administrative Agent's out-of-pocket expenses in connection with this TRR
Agreement, including the reasonable fees, charges and disbursements of counsel
for the Administrative Agent.

                          [SIGNATURE PAGES TO FOLLOW.]


          IN WITNESS WHEREOF, the parties hereto have caused this TRR Agreement
to be duly executed by their respective authorized officers as of the day and
year first written above.

                                      JPMORGAN CHASE BANK, N.A.,
                                      as Administrative Agent


                                      By:  /s/ Marybeth Mullen
                                           ----------------------------------
                                           Name: Marybeth Mullen
                                           Title: Vice President




                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004

                                      AMERICAN CENTURY MUTUAL FUNDS, INC., on
                                      behalf of
                                      Balanced Fund
                                      Capital Growth Fund
                                      Capital Value Fund
                                      Fundamental Equity Fund
                                      Giftrust Fund
                                      Growth Fund
                                      Heritage Fund
                                      New Opportunities Fund
                                      New Opportunities Fund II
                                      Select Fund
                                      Ultra Fund
                                      Veedot Fund
                                      Vista Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY WORLD MUTUAL FUNDS,
                                      INC., on behalf of
                                      Emerging Markets Fund
                                      Global Growth Fund
                                      International Growth Fund
                                      International Discovery Fund
                                      International Opportunities Fund
                                      Life Sciences Fund
                                      Technology Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY CAPITAL PORTFOLIOS,
                                      INC. on behalf of
                                      Equity Income Fund
                                      Equity Index Fund
                                      Large Company Value Fund
                                      Mid Cap Value Fund
                                      Real Estate Fund
                                      Small Cap Value Fund
                                      Value Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY STRATEGIC ASSET
                                      ALLOCATIONS, INC. on behalf of
                                      Newton Fund
                                      Strategic Allocation: Aggressive
                                      Strategic Allocation: Conservative
                                            Strategic Allocation: Moderate


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY VARIABLE PORTFOLIOS,
                                      INC. on behalf of
                                      VP Balanced
                                      VP Capital Appreciation
                                      VP Income & Growth
                                      VP International
                                      VP Large Company Value
                                      VP Mid Cap Value
                                      VP Ultra
                                      VP Value
                                      VP Vista


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY CALIFORNIA TAX-FREE
                                      AND MUNICIPAL FUNDS, on behalf of
                                      California High-Yield Municipal Fund
                                      California Intermediate-Term Tax-Free Fund
                                      California Limited-Term Tax-Free Fund
                                      California Long-Term Tax-Free Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY MUNICIPAL TRUST on
                                      behalf of
                                      Arizona Municipal Bond Fund
                                      Florida Municipal Bond Fund
                                      High-Yield Municipal Fund
                                      Tax-Free Bond Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY TARGET MATURITIES
                                      TRUST on behalf of
                                      Target Maturities Trust: 2005
                                      Target Maturities Trust: 2010
                                      Target Maturities Trust: 2015
                                      Target Maturities Trust: 2020
                                      Target Maturities Trust: 2025
                                      Target Maturities Trust: 2030


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY GOVERNMENT INCOME
                                      TRUST, on behalf of
                                      Ginnie Mae Fund
                                      Government Bond Fund
                                      Inflation-Adjusted Bond Fund
                                      Short-Term Government Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY QUANTITATIVE EQUITY
                                      FUNDS, INC., on behalf of
                                      Equity Growth Fund
                                      Global Gold Fund
                                      Income & Growth Fund
                                      Small Company Fund
                                      Utilities Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY INVESTMENT TRUST on
                                      behalf of
                                      Diversified Bond Fund
                                      High-Yield Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY INTERNATIONAL BOND
                                      FUNDS on behalf of
                                      International Bond Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                                      AMERICAN CENTURY VARIABLE PORTFOLIOS
                                      II, INC., on behalf of
                                      VP Inflation Protection Fund


                                      By: /s/ Maryanne Roepke
                                          ------------------------------------
                                          Maryanne Roepke
                                          Treasurer


                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004




                                      NATIONAL AUSTRALIA BANK LIMITED
                                      (ABN 12-004-044-937)

                                      By:  /s/ Richard G. Reilly
                                           -----------------------------------
                                           Name:  Richard G. Reilly
                                           Title: Senior Vice President




                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004




                                      BANK OF AMERICA, N.A.


                                      By: /s/ George Kinne
                                          ------------------------------------
                                          Name: George Kinne
                                          Title: Assistant Vice President



                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004




                                      CALYON NEW YORK BRANCH
                                      (successor by operation of law to Credit
                                      Lyonnais New York Branch)

                                      By: /s/ William Denton
                                          ------------------------------------
                                          Name: William Denton
                                          Title: Managing Director



                                      By: /s/ Sebastian Rocco
                                          ------------------------------------
                                          Name: Sebastian Rocco
                                          Title: Managing Director



                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004




                                      Deutsche Bank AG New York
                                      Branch


                                      By: /s/ Gayma Z. Shivnarain
                                          ------------------------------------
                                          Name:
                                          Title:


                                      By:  /s/ Kathleen Bowers
                                           -----------------------------------
                                           Name: Kathleen Bowers
                                           Title: Director




                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004




                                      UMB BANK, N.A.

                                      By:  /s/ David A. Proffitt
                                           ------------------------------------
                                           Name: David A. Proffitt
                                           Title: Senior Vice President



                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004





                                      STATE STREET BANK AND TRUST
                                      COMPANY


                                      By: /s/ Christopher Ducar
                                          ------------------------------------
                                          Name:  Christopher Ducar
                                          Title: Assistant Vice President




                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004





                                      ROYAL BANK OF SCOTLAND Plc


                                      By:  /s/ Evan Tomaskovic
                                           -----------------------------------
                                           Name: Evan Tomaskovic
                                           Title: Vice President






                             AMERICAN CENTURY FUNDS
                          TERMINATION, REPLACEMENT AND
                      RESTATEMENT AGREEMENT SIGNATURE PAGE
                                  DECEMBER 2004





                                      THE BANK OF NEW YORK


                                      By:  /s/ Gary R. Overton
                                           -----------------------------------
                                           Name:  Gary R. Overton
                                           Title: Vice President






                                   SCHEDULE I

                             BORROWERS & ALLOCATIONS
                            ------------------------

   FUND/BORROWER                                            PRO RATA ALLOCATION
   ----------------------------------------------------------------------------
   AMERICAN CENTURY MUTUAL FUNDS, INC.

   BALANCED                                                         0.48%
   GIFTRUST                                                         1.13%
   CAPITAL GROWTH                                                   0.00%
   CAPTIAL VALUE                                                    0.42%
   FUNDAMENTAL EQUITY                                               0.00%
   GROWTH                                                           6.36%
   HERITAGE                                                         1.58%
   NEW OPPORTUNITIES                                                0.35%
   NEW OPPORTUNITIES II                                             0.09%
   SELECT                                                           5.04%
   ULTRA                                                            29.46%
   VEEDOT                                                           0.30%
   VISTA                                                            2.07%
   AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
   EMERGING MARKETS                                                 0.46%
   GLOBAL GROWTH                                                    0.62%
   INTERNATIONAL DISCOVERY                                          2.55%
   INTERNATIONAL GROWTH                                             6.03%
   INTERNATIONAL OPPORTUNITIES                                      0.38%
   LIFE SCIENCES                                                    0.20%
   TECHNOLOGY                                                       0.22%
   AMERICAN CENTURY CAPITAL PORTFOLIOS, INC.
   EQUITY INCOME                                                    4.74%
   EQUITY INDEX                                                     1.32%
   LARGE COMPANY VALUE                                              1.47%
   REAL ESTATE                                                      0.99%
   MID CAP VALUE                                                    0.04%
   SMALL CAP VALUE                                                  2.67%
   VALUE                                                            3.48%
   AMERICAN CENTURY STRATEGIC ASSET ALLOCATIONS, INC.
   STRAT ALLOCATION - AGGRESSIVE                                    1.20%
   STRAT ALLOCATION - CONSERVATIVE                                  0.50%
   STRAT ALLOCATION - MODERATE                                      1.26%
   NEWTON FUND                                                      0.01%
   AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
   VP BALANCED                                                      0.16%
   VP CAPITAL APPRECIATION                                          0.32%
   VP INCOME & GROWTH                                               1.01%
   VP INTERNATIONAL                                                 1.42%
   VP ULTRA                                                         0.20%
   VP LARGE COMPANY VALUE                                           0.00%
   VP MID CAP VALUE                                                 0.00%
   VP VALUE                                                         3.24%
   VP VISTA                                                         0.01%
   AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
   CALIFORNIA HIGH-YIELD MUNICIPAL                                  0.27%
   CALIFORNIA INTERMEDIATE-TERM TAX-FREE                            0.32%
   CALIFORNIA LIMITED-TERM TAX-FREE                                 0.16%
   CALIFORNIA LONG-TERM TAX-FREE                                    0.35%
   AMERICAN CENTURY MUNICIPAL TRUST
   ARIZONA MUNICIPAL BOND                                           0.04%
   FLORIDA MUNICIPAL BOND                                           0.05%
   HIGH-YIELD MUNICIPAL                                             0.10%
   TAX-FREE BOND                                                    0.45%
   AMERICAN CENTURY TARGET MATURITIES TRUST
   TARGET 2005                                                      0.16%
   TARGET 2010                                                      0.11%
   TARGET 2015                                                      0.08%
   TARGET 2020                                                      0.09%
   TARGET 2025                                                      0.11%
   TARGET 2030                                                      0.02%
   AMERICAN CENTURY GOVERNMENT INCOME TRUST
   GINNIE MAE                                                       0.81%
   GOVERNMENT BOND                                                  0.24%
   INFLATION-ADJUSTED BOND                                          0.42%
   SHORT-TERM GOVERNMENT                                            0.49%
   AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS, INC.
   EQUITY GROWTH                                                    2.20%
   GLOBAL GOLD                                                      1.43%
   INCOME & GROWTH                                                  6.45%
   SMALL COMPANY                                                    1.85%
   UTILITIES                                                        0.23%
   AMERICAN CENTURY INVESTMENT TRUST
   DIVERSIFIED BOND                                                 0.38%
   HIGH-YIELD                                                       0.05%
   AMERICAN CENTURY INTERNATIONAL BOND FUNDS
   INTERNATIONAL BOND                                               1.18%
   AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.
   VP INFLATION PROTECTION                                          0.15%
   TOTAL                                                           100.00%




                                   SCHEDULE II

                          COMMITMENTS, ADDRESSES, ETC.
                          -----------------------------

NAME AND ADDRESS OF BANK                                      COMMITMENT
- ------------------------                                      ----------

JPMORGAN CHASE BANK, N.A.                                     $0
270 Park Avenue
New York, New York 10017
Attention:  Marybeth Mullen
Telephone:  (212) 270-5049
Fax: (212) 270-0670
MARYBETH.MULLEN@JPMORGAN.COM
- ----------------------------

CALYON NEW YORK BRANCH                                        $95,000,000.00
(successor by operation of law to Credit
Lyonnais New York Branch)
1301 Avenue of the Americas
New York, New York 10019
Attention: Sebastian Rocco
Telephone: (212) 261-7360
Fax: (212) 261-3438
ROCCO@CLAMERICAS.COM
- --------------------

Deutsche Bank AG New York Branch                              $75,000,000.00
60 Wall Street
New York, NY 10005
Attention: Ms. Kathleen Bowers
Tel: 212-250-2216
kathleen.bowers@db.com
- ----------------------

UMB BANK, N.A.                                                $20,000,000.00
1010 Grand Blvd.
Kansas City, MO 64106
Attention: David A. Proffitt
Telephone: (816) 860-7935
Fax: (816) 860-7143
DAVID.PROFFITT@UMB.COM
- ----------------------

STATE STREET BANK AND TRUST COMPANY                           $75,000,000.00
2 Avenue de Lafayette
Boston, MA 02211
Attention: Charles Garrity
Telephone: (617) 662-1282
Fax: (617) 662-2325
CAGARRITY@STATESTREET.COM
- -------------------------

Bank of America, N.A.                                         $95,000,000.00
335 Madison Avenue, 5th Floor
New York, NY 10017
Attention: George Kinne
Telephone: 212-503-7253
Fax: 704-602-5885
E-mail: GEORGE.W.KINNE@BANKOFAMERICA.COM
        --------------------------------

ROYAL BANK OF SCOTLAND Plc                                    $95,000,000.00
101 Park Avenue
10th Floor
New York, New York 10178
Attention:  Angela Reilly
Telephone: (212) 401-3493
Fax: (212) 401-3456
E-mail:  ANGELA.REILLY@RBOS.COM
         ----------------------


NATIONAL AUSTRALIA BANK LIMITED                               $95,000,000.00
245 Park Avenue, 28th Floor
New York, New York 10167
Attention: Richard G. Reilly
Tel.:  (212) 916-9620
Fax:   (212) 986-5252
E-mail: RREILLY@NABNY.COM
        -----------------

THE BANK OF NEW YORK                                          $25,000,000.00
1 Wall Street
New York, New York 10285
Attention: Gary Overton
Telephone: (212) 635-4529
Facsimile: (212) 809-9520
E-mail: GOVERTON@BANKOFNY.COM
        ---------------------

                                                              ---------------
TOTAL                                                         $575,000,000.00




                                  SCHEDULE III

                               CUSTODY AGREEMENTS
                               ------------------

1.   Global Custody Agreement between the Funds and The Chase Manhattan Bank,
     dated August 9, 1996.

     a.   Amendment to Global Custody Agreement with The Chase Manhattan Bank,
          Dated December 9, 2000.

     b.   Amendment No. 2 to Global Custody Agreement with JPMorgan Chase Bank
          (formerly known as The Chase Manhattan Bank), dated May 1, 2004.

2.   Supplemental Agreement by and between American Century International
     Discovery Fund, American Century Emerging Markets Fund and American Century
     Global Growth Fund and The Chase Manhattan Bank, dated July 30, 1999.

3.   Supplemental Agreement by and between American Century Strategic Allocation
     Aggressive Fund, American Century Strategic Allocation Moderate Fund,
     American Century Global Growth Fund and American Century International
     Growth Fund and The Chase Manhattan Bank, dated February 1, 2000.




                                   SCHEDULE IV

                             DISTRIBUTION AGREEMENTS
                            -------------------------

1.   Amended and Restated Distribution Agreement between American Century
     Investment Services, Inc. and the Funds dated November 11, 2004. This
     agreement supersedes the agreement dated September 3, 2002.

               MASTER DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
               ---------------------------------------------------

A.  ADVISOR CLASS

     1.  KC plan dated 9-3-96.

          a.   Amendment No. 1 dated 6-13-97 to change fund/issuer names, add
               Real Estate; change Retail Class to Investor Class.
          b.   Amendment No. 2 dated 9-30-97 to add High-Yield.
          c.   Amendment No. 3 dated 6-30-98 to add Small Cap Value.
          d.   Amendment No. 4 dated 11-13-98 to add Global Growth.
          e.   Amendment No. 5 dated 2-16-99 to add Tax-Managed Value.
          f.   Amendment No. 6 dated 7-30-99 to add Large Cap Value.
          g.   Amendment No. 7 dated 11-19-99 to add Veedot and Veedot Large
               Cap.
          h.   Amendment No. 8 dated 6-1-00 to add Life Sciences & Technology.
          i.   Amendment No. 9 dated 4-30-01 to add European Growth.
          j.   Amendment No. 10 dated 12-3-01 to remove Limited-Term Bond and
               Bond due to fund mergers.
          k.   Amendment No. 11 dated 9-3-02 to add Large Company Growth Fund.
          l.   Amendment No. 12 dated 8-1-04 to add Advisor Class for Mid Cap
               Value, remove High-Yield and change Large Cap name, and change
               Tax-Managed Value name.

     2.   MV plan dated 8-1-97.

          a.   Amended 6-29-98 to add Prime Money Market and Small Cap Quant.
          b.   Amendment No. 1 dated 8-1-01 to add Diversified Bond Fund and
               High-Yield Fund for ACIT and change fund names for ACGIT.
          c.   Amendment No. 2 dated 12-3-01 to remove Short-Term Treasury;
               change names for Inflation-Adjusted Treasury and Long-Term
               Treasury. Remove High-Yield for ACIT because merger did not take
               place.
          d.   Amendment No. 3 dated 7-1-02 to add back High-Yield.
          e.   Amendment No. 4 dated 5-1-04 to change Small Cap Quant name,
               remove GNR and Treasury; and add ACQEF, Inc.

B.  C CLASS

     1.   KC plan dated 3-1-01 effective 5-1-01 (original plan included European
          Growth). This plan is in addition to the plan dated 9-3-96.

          a.   Amendment No. 1 dated 4-30-01 effective 5-1-01 to add Large Cap
               Value.
          b.   Amendment No. 2 dated 9-3-02 to add Large Company Growth Fund,
               add C shares for Select and New Ops II with load fund changes and
               reflect name change for Large Cap Value.
          c.   Amendment No. 3 dated 2-27-04 to add Capital Growth Fund.
          d.   Amendment No. 4 dated 9-30-04 to add Strats Conservative.
          e.   Amendment No. 5 dated 11-17-04 to add Fundamental Equity.

     2.   MV plan dated 9-16-00 effective 5-1-01. This plan is in addition to
          the plan dated 8-1-97.

          a.   Amendment No. 1 dated 8-01-01 to add High-Yield Fund and change
               fund names for ACGIT and ACMT.
          b.   Amendment No. 2 dated 12-3-01 to remove ACIT High-Yield because
               merger did not take place.
          c.   Amendment No. 3 dated 7-1-02 to add ACIT High-Yield back.
          d.   Amendment No. 4 dated 9-3-02 to add Diversified Bond.
          e.   Amendment No. 5 dated 1-2-04 to change distribution fee to 75 bps
               for all funds except Prime which is 50 bps (did not add C class
               for AZ Muni Bond and FL Muni Bond because they already existed in
               document).
          f.   Amendment No. 6 dated 5-1-04 to add ACQEF, Inc. (MD corp).

C.  CLASS II (ACVP and ACVPII)

     1.   American Century Variable Portfolios, Inc. and American Century
          Variable Portfolios II, Inc., Class II Plan dated 11-17-04.

D.  Class IV (ACVP)

     1.   American Century Variable Portfolios, Inc., Class IV Plan dated
          5-03-04.

E.  A CLASS

     1.   Plan dated 9-3-02 (includes both MV and KC).

          a.   Amendment No. 1 dated 2-27-04 to AZ Muni Bond, FL Muni Bond and
               Capital Growth.
          b.   Amendment No. 2 dated 9-30-04 to add Strats load classes.
          c.   Amendment No. 3 Dated 11-17-04 to add Fundamental Equity
               --------------------------------------------------------

E.  B CLASS

     1.  Plan dated 9-3-02 (includes both MV and KC).

          a.   Amendment No. 1 dated 2-27-04 to AZ Muni Bond, FL Muni Bond and
               Capital Growth.
          b.   Amendment No. 2 dated 9-30-04 to add Strats load classes.
          c.   Amendment No. 3 dated 11-17-04 to add Fundamental Equity
               --------------------------------------------------------

F.  C CLASS II

     1.   Plan dated 9-3-02 (includes both MV and KC).

G.  R CLASS

     1.   Plan dated 8-29-03 (includes both MV and KC).
          a.   Amendment No. 1 dated 5-01-04 to add ACQEF, Inc. (MD corp.)




                                   SCHEDULE V

                        INVESTMENT MANAGEMENT AGREEMENTS
                        ---------------------------------

     1.  American Century Mutual Funds, Inc.
          a.   Amended and Restated Management Agreement, dated 11-17-2004.

     2.  American Century Capital Portfolios, Inc.
          a.   Amended and Restated Management Agreement, dated 8-1-2004.

     3.  American Century World Mutual Funds, Inc.
          a.   Amended and Restated Management Agreement, dated 8-1-2004.

     4.  American Century Strategic Asset Allocations, Inc.
          a.   Amended and Restated Management Agreement, dated 9-30-2004.

     5.  American Century Variable Portfolios, Inc.
          a.   Amended and Restated Management Agreement, dated 11-17-2004

     6.  American Century Investment Trust
          a.   Amended and Restated Management Agreement, dated 8-01-2004

     7.  American Century California Tax-Free and Municipal Funds
          a.   Amended and Restated Management Agreement, dated 8-01-2004

     8.  American Century Target Maturities Trust
          a.   Amended and Restated Management Agreement, dated 8-01-2004

     9.  American Century Municipal Trust
          a.   Amended and Restated Management Agreement, dated 8-01-2004

     10. American Century Government Income Trust
          a.   Amended and Restated Management Agreement, dated 8-01-2004

     11. American Century International Bond Funds
          a.   Amended and Restated Management Agreement, dated 8-01-2004

     12. American Century Quantitative Equity Funds, Inc.
          a.   Amended and Restated Management Agreement dated, 8-01-2004

     13. American Century Variable Portfolios II, Inc.
          a.   Amended and Restated Management Agreement dated, 8-01-2004

EX-99.I 6 ex-opinionltr.htm OPINION LETTER OPINION LETTER


                                                                   EXHIBIT 99.i

                          AMERICAN CENTURY INVESTMENTS
                                4500 MAIN STREET
                          KANSAS CITY, MISSOURI 64111


December 29, 2004

American Century California Tax-Free and Municipal Funds
4500 Main Street
Kansas City, Missouri  64111

Ladies and Gentlemen:

     I have acted as counsel to American Century California Tax-Free and
Municipal Funds, a business trust formed under the laws of the Commonwealth of
Massachusetts (the "Trust"), in connection with Post-Effective Amendment No. 38
(the "PEA") to the Trust's Registration Statement on Form N-1A (File Nos.
2-82734, 811-3706), registering an indefinite number of shares of beneficial
interest of the Trust under the Securities Act of 1933, as amended (the "1933
Act"), and under the Investment Company Act of 1940, as amended (the "1940
Act"). As used in this letter, the term "Shares" refers to the series, and
classes of such series, of shares of beneficial ownership of the Trust indicated
on Schedule A hereto.

     In connection with rendering the opinions set forth below, I have examined
the PEA; the Trust's Amended and Restated Agreement and Declaration of Trust and
the current Bylaws, as reflected in the corporate records of the Trust;
resolutions of the Board of Trustees of the Trust relating to the authorization
and issuance of the Shares; and such other documents as I deemed relevant. In
conducting my examination, I have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity, accuracy and
completeness of documents purporting to be originals and the conformity to
originals of any copies of documents. I have not independently established any
facts represented in the documents so relied on.

     I am a member of the Bar of the State of Missouri. The opinions expressed
in this letter are based on the facts in existence and the laws in effect on the
date hereof and are limited to the laws (other than the conflict of law rules)
of the Commonwealth of Massachusetts that in my experience are normally
applicable to the issuance of shares by entities such as the Trust and to the
1933 Act, the 1940 Act, and the regulations of the Securities and Exchange
Commission (the "SEC") thereunder. I express no opinion with respect to any
other laws.

     Based upon and subject to the foregoing and the qualifications set forth
below, it is my opinion that:

     1. The issuance of the Shares has been duly authorized by the Trust.

     2. When issued and paid for upon the terms provided in the PEA, subject to
compliance with the 1933 Act, the 1940 Act, and applicable state laws regulating
the offer and sale of securities, and assuming the continued valid existence of
the Trust under the laws



American Century California Tax-Free and Municipal Funds
December 29, 2004
Page 2


of the Commonwealth of Massachusetts, the Shares will be validly issued, fully
paid and non-assessable. However, I note that shareholders of the Trust may,
under certain circumstances, be held personally liable for the obligations of
the Trust.

     For the record, it should be stated that I am an officer and employee of
American Century Services Corporation, an affiliated corporation of American
Century Investment Management, Inc., the Trust's investment advisor.

     I hereby consent to the use of this opinion as an exhibit to the PEA. I
assume no obligation to advise you of any changes in the foregoing subsequent to
the effectiveness of the PEA. In giving my consent I do not thereby admit that I
am in the category of persons whose consent is required under Section 7 of the
1933 Act or the rules and regulations of the SEC thereunder. The opinions
expressed herein are matters of professional judgment and are not a guarantee of
result.

                                             Very truly yours,


                                             /s/ Brian L. Brogan
                                             ---------------------------------
                                             Brian L. Brogan
                                             Vice President and
                                             Assistant General Counsel

BBX/dnh



                                   SCHEDULE A

         SERIES                                               CLASS

         California Tax-Free Money Market Fund                Investor Class

         California Limited-Term Tax-Free Fund                Investor Class

         California Intermediate-Term Tax-Free Fund           Investor Class

         California Long-Term Tax-Free Fund                   Investor Class

         California High-Yield Municipal Fund                 Investor Class
                                                              A Class
                                                              B Class
                                                              C Class

EX-99.J1 7 ex-consent.htm CONSENT CONSENT OF INDEPENDENT AUDITORS

                                                                  EXHIBIT 99.j1


            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            --------------------------------------------------------

We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our reports dated October 14, 2004, relating to the
financial statements and financial highlights which appear in the August 31,
2004 Annual Reports to Shareholders of the California Tax-Free Money Market
Fund, California Limited-Term Tax-Free Fund, California Intermediate-Term
Tax-Free Fund, California Long-Term Tax-Free Fund and California High-Yield
Municipal Fund, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights", "Independent Registered Public Accounting Firm" and Financial
Statements" in such Registration Statement.


/s/PricewaterhouseCoopers LLP
- -------------------------------------
PricewaterhouseCoopers LLP


Kansas City, Missouri
December 23, 2004

EX-99.J2 8 ex-powerofattorney.htm POWER OF ATTORNEY POWER OF ATTORNEY

                                                                  EXHIBIT 99.j2

                                POWER OF ATTORNEY


     We, the undersigned Officers, Directors or Trustees, as the case may be, of
the following investment companies:

            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 Quantitative Equity Funds, Inc.
                    American Century Target Maturities Trust
                  American Century Variable Portfolios II, Inc.
                           (collectively, the "Funds")

hereby constitute and appoint David C. Tucker, Charles A. Etherington, David H.
Reinmiller, Charles C.S. Park, Janet A. Nash, Brian L. Brogan, Otis H. Cowan,
Kathleen Gunja Nelson, and Christine J. Crossley, each of them singly, my true
and lawful attorneys-in-fact, with full power of substitution, and with full
power to each of them, (a) to sign for me and in my name in the appropriate
capacities, all Registration Statements of the Funds on Form N-1A, Form N-8A or
any successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration Statements on Form
N-1A or any successor thereto, any Registration Statements on Form N-14, and any
supplements or other instruments in connection therewith; (b) to make, file,
execute, amend and withdraw documents of every kind, and to take other action of
whatever kind they may elect, for the purpose of complying with all laws
relating to the sale of securities of the Fund; and (c) generally to do all such
things in my name and behalf in connection therewith as said attorneys-in-fact
deem necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and the Investment Company Act of 1940, and all related requirements
of the Securities and Exchange Commission. We hereby ratify and confirm all that
said attorneys-in-fact or their substitutes may do or cause to be done by virtue
hereof. This power of attorney is effective for all documents filed on or after
December 9, 2004.

This power of attorney may be executed in counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same
instrument.

     WITNESS our hands on this 9th day of December, 2004.


                               SIGNATURE AND TITLE

/s/ William M. Lyons                      /s/ Albert Eisenstat
- ------------------------------            ------------------------------------
William M. Lyons                          Albert Eisenstat

/s/ Maryanne Roepke                       /s/ Ronald J. Gilson
- ------------------------------            ------------------------------------
Maryanne Roepke                           Ronald J. Gilson

                                          /s/ Kathryn Hall
- ------------------------------            ------------------------------------
                                          Kathryn Hall

                                          /s/ Myron S. Scholes
- ------------------------------            ------------------------------------
                                          Myron S. Scholes

                                          /s/ Kenneth E. Scott
                                          ------------------------------------
                                          Kenneth E. Scott

                                          /s/ John B. Shoven
                                          ------------------------------------
                                          John B. Shoven

                                          /s/ Jeanne D. Wohlers
                                          ------------------------------------
                                          Jeanne D. Wohlers

EX-99.J3 9 ex-secretarycertificate.htm SECRETARY'S CERTIFICATE SECRETARY'S CERTIFICATE

                                                                  EXHIBIT 99.j3

            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 QUANTITATIVE EQUITY FUNDS
                AMERICAN CENTURY QUANTITATIVE EQUITY FUNDS, INC.
                    AMERICAN CENTURY TARGET MATURITIES TRUST
                  AMERICAN CENTURY VARIABLE PORTFOLIOS II, INC.
                           (collectively, the "Funds")

     I, Charles C. S. Park, Secretary of the above-referenced corporations and
trusts, do hereby certify that the following is a true copy of certain
resolutions adopted by unanimous written consent of the Board of Directors or
Trustees, as appropriate, of the above-referenced corporations and trusts on
December 9, 2004, and that such resolutions have not been rescinded or modified
and are not inconsistent with the Certificate of Incorporation, Declaration of
Trust or Bylaws of the corporations or trusts.

     WHEREAS, Pursuant to a duly-executed Power of Attorney, certain officers of
     the Funds have appointed David C. Tucker, Charles A. Etherington, David H.
     Reinmiller, Charles C.S. Park, Janet A. Nash, Brian L. Brogan, Otis H.
     Cowan, Kathleen Gunja Nelson, and Christine J. Crossley, each of them
     singly, their true and lawful attorneys-in-fact, with full power of
     substitution, and with full power to each, for the purpose of signing on
     their behalf registration statements and other documents of the Funds for
     the purpose of complying with all laws relating to the sale of securities
     of the Funds and to do all such things in their names and behalf in
     connection therewith.

     Such attorneys-in-fact may, from time to time, sign documents, including
     registration statements and amendments thereto, on behalf of officers who
     have appointed them.

          RESOLVED, that the board hereby authorizes such attorneys-in-fact to
     sign the documents of the Funds, including registration statements and
     amendments thereto, pursuant to the Powers of Attorney so executed by the
     officers of the Funds.

     IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of December,
2004.

                                          /s/ Charles C.S. Park
                                          ------------------------------------
                                          Charles C.S. Park
                                          Secretary

EX-99.P1 10 ex-codeofethics.htm CODE OF ETHICS CODE OF ETHICS

                                                                  EXHIBIT 99.p1
[american century logo and text logo]

        American Century Investments
        WORKING WITH INTEGRITY...


CODE OF ETHICS
- -------------------------------------------------------------------------------
Defined terms are in BOLD ITALICS. Frequently used terms are defined in Appendix
1.
- -------------------------------------------------------------------------------

I.   PURPOSE OF CODE.

     The Code of Ethics was developed to guide the personal investment
     activities of American Century employees, officers and directors, including
     MEMBERS OF THEIR IMMEDIATE FAMILY. In doing so, it is intended to aid in
     the elimination and detection of personal securities transactions by
     American Century personnel that might be viewed as fraudulent or might
     conflict with the interests of our client portfolios. Primary among such
     transactions are the misuse for personal benefit of client trading
     information (so-called "front-running"), the misappropriation of investment
     opportunities that may be appropriate for investment by client portfolios,
     and excessive personal trading that may affect our ability to provide
     services to our clients.

     The Directors of American Century's registered investment companies (our
     "Fund Clients"(1)) who are not "interested persons" (the "Independent
     Directors") are covered under a separate Code applicable only to them.

     Violations of this Code must be promptly reported to the Chief Compliance
     Officer.

II.  WHY DO WE HAVE A CODE OF ETHICS?

     A.   INVESTORS HAVE PLACED THEIR TRUST IN AMERICAN CENTURY.

          As an investment adviser, American Century is entrusted with the
          assets of our clients for investment purposes. American Century's
          fiduciary responsibility to place the interests of our clients before
          our own and to avoid even the appearance of a conflict of interest
          extends to all American Century employees. Persons subject to this
          Code must adhere to this general principle as well as comply with the
          Code's specific provisions. This is how we earn and keep our clients'
          trust. To protect this trust, we will hold ourselves to the highest
          ethical standards.

     B.   AMERICAN CENTURY WANTS TO GIVE YOU FLEXIBLE INVESTING OPTIONS.

          Management believes that American Century's own mutual funds and other
          pooled investment vehicles provide a broad range of investment
          alternatives in virtually every segment of the securities market. We
          encourage American Century employees to use these vehicles for their
          personal investments. We do not encourage active trading by our
          employees. We recognize, however, that individual needs differ and
          that there are other attractive investment opportunities. As a result,
          this Code is intended to give you and your family flexibility to
          invest, without jeopardizing relationships with our clients.

- -----------------------------
(1) See Schedule A for a listing of all of our Fund Clients.



AMERICAN CENTURY INVESTMENTS                                 CODE OF ETHICS
- -------------------------------------------------------------------------------


          American Century employees are able to undertake personal transactions
          in stocks and other individual securities subject to the terms of this
          Code of Ethics. This Code of Ethics requires preclearance of all such
          transactions by Access, Investment, and Portfolio Persons, places
          further limitations on personal investments by Investment and
          Portfolio Persons, and requires transaction reporting by all
          employees.

     C.   FEDERAL LAW REQUIRES THAT WE HAVE A CODE OF ETHICS.

          The Investment Company Act of 1940 and the Investment Advisers Act of
          1940 require that we have safeguards in place to prevent personal
          investment activities that might take inappropriate advantage of our
          fiduciary position. These safeguards are embodied in this Code of
          Ethics.(2)

III. DOES THE CODE OF ETHICS APPLY TO YOU?

     YES! All American Century employees and contract personnel must observe the
     principles contained in the Code of Ethics. However, there are different
     requirements for different categories of employees. The category in which
     you have been placed generally depends on your job function, although
     unique circumstances may prompt us to place you in a different category.
     The range of categories is as follows:

     --------------------------------------------------------------------------

     FEWEST RESTRICTIONS------------------------------------> MOST RESTRICTIONS

     --------------------------------------------------------------------------
     NON-ACCESS            ACCESS              INVESTMENT             PORTFOLIO
      PERSON               PERSON                PERSON                PERSON
     --------------------------------------------------------------------------

     The standard profile for each of the categories is described below:

     A.   PORTFOLIO PERSONS.

          Portfolio Persons include portfolio managers (equity or fixed income)
          and any other Investment Persons (as defined below) with authority to
          enter purchase/sale orders on behalf of the funds.

     B.   INVESTMENT PERSONS.

          Investment Persons include

          *    Any SUPERVISED PERSONS that have access to nonpublic information
               regarding any client portfolio's securities trading, securities
               recommendations, or portfolio holdings or is involved in making
               securities recommendations that are nonpublic; and

          *    Any officers and directors of an INVESTMENT ADVISER.

          Such persons include but are not limited to investment analysts,
          equity traders, research and financial analyst personnel.

- -----------------------------
(2)  Rule 17j-1 under the Investment Company Act of 1940 and Rule 204A-1 under
     the Investment Advisers Act of 1940 serve as a basis for much of what is
     contained in American Century's Code of Ethics.


                                                                         Page 2



AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


     C.   ACCESS PERSONS.

          Access Persons are persons who, in connection with their regular
          function and duties, consistently obtain information regarding current
          recommendations with respect to the purchase or sale of securities or
          real-time trading information concerning client portfolios. Examples
          include:

          *    Persons who are directly involved in the execution, clearance,
               and settlement of purchases and sales of securities (e.g. certain
               investment accounting personnel);

          *    Persons whose function requires them to evaluate trading activity
               on a real time basis (e.g. attorneys, accountants, portfolio
               compliance personnel);

          *    Persons who assist in the design, implementation, and maintenance
               of investment management technology systems (e.g. certain I/T
               personnel);

          *    Support staff and supervisors of the above if they are required
               to obtain such information as a part of their regular function
               and duties; and

          *    An officer or "interested" director of our Fund Clients.

          Single, infrequent, or inadvertent instances of access to current
          recommendations or real-time trading information or the opportunity to
          obtain such information through casual observance or bundled data
          security access is not sufficient to qualify you as an Access Person.

     D.   NON-ACCESS PERSONS.

          If you are an officer, director, employee or contractor of American
          Century and you do not fit into any of the above categories, you are a
          Non-Access Person. While your trading is not subject to preclearance
          and other restrictions applicable to Portfolio, Investment, and Access
          Persons, you are still subject to the remaining provisions of the Code
          and are required to report to American Century certain information
          regarding your brokerage accounts and accounts invested in REPORTABLE
          MUTUAL FUNDS.(3)

IV.  RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES.

     A.   PRINCIPLES OF PERSONAL INVESTING.

          In keeping with applicable law and our high ethical standards,
          management of client portfolios should never be subordinated to
          personal gain or advantage. American Century employees, officers and
          directors may not misuse nonpublic information about client security
          holdings or portfolio transactions made or contemplated for a client
          for personal benefit or to cause others to benefit. Likewise, you may
          not cause a client portfolio to take action, or fail to take action,
          for personal benefit rather than the benefit of the client.

          In addition, investment opportunities appropriate for the funds should
          not be retained for personal benefit. Investment opportunities arising
          as a result of American Century

- -----------------------------
(3) See Reporting Requirements for details on required reporting.

                                                                         Page 3



AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


          investment management activities must first be considered for
          inclusion in our client portfolios.

          In undertaking their personal securities transactions, all American
          Century employees, officers, and directors must comply with the
          FEDERAL SECURITIES LAWS and other governmental rules and regulations.

     B.   PRECLEARANCE OF PERSONAL SECURITIES TRANSACTIONS. [ACCESS, INVESTMENT,
          AND PORTFOLIO PERSONS]

          Preclearance of personal securities transactions allows American
          Century to prevent certain trades that may conflict with client
          trading activities. The nature of securities markets makes it
          impossible for us to perfectly predict those conflicts. As a
          consequence, even trades that are precleared can result in potential
          conflicts between your trades and those effected for clients. You are
          responsible for avoiding such conflicts with any client portfolios for
          which you make investment recommendations. You have an obligation to
          American Century and its clients to avoid even a perception of a
          conflict of interest with respect to personal trading activities.

          All Portfolio, Investment, and Access Persons must comply with the
          following preclearance procedures prior to entering into (i) the
          purchase or sale of a SECURITY for your own account or (ii) the
          purchase or sale of a SECURITY for an account for which you are a
          BENEFICIAL OWNER(4):

          1.   Is the SECURITY a "Code-Exempt Security"?

               Check Appendix 3 to see if the SECURITY is listed as a
               CODE-EXEMPT SECURITY. If it is, then you may execute the
               transaction. Otherwise, proceed to the next step.

          2.   Preclear the transaction with the Legal Department's Compliance
               Group.(5)

               There are two ways to do this:

               a.   Use the "PTRA" routine in the CICS system and enter your
                    request at the Personal Trade System screen.

               b.   If you do not have access to "PTRA," e-mail your request to
                    "LG-PERSONAL SECURITY TRADES" (or
                    "LG-PERSONAL_SECURITY_TRADES@AMERICANCENTURY.COM," if
                    sending from outside American Century's Lotus Notes system),
                    and provide the following information:

                    *    Issuer name;

                    *    Ticker symbol or CUSIP number;

                    *    Type of security (stock, bond, note, etc.);

                    *    Number of shares;


- -----------------------------
(4) See Appendix 2 for an explanation of beneficial ownership.

(5)  If you are the Chief Investment Officer of an INVESTMENT ADVISER, you must
     receive your preclearance from the General Counsel or his or her designee.


                                                                         Page 4



AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


                    *    Maximum expected dollar amount of proposed transaction;
                         and

                    *    Nature of transaction (purchase or sale).

          3.   Use the "PTRB" routine in the CICS system to view the status of
               your trade requests.

          4.   If you receive PRECLEARANCE for the transaction,(6) you
               have five (5) business days to execute your transaction. If you
               do not execute your transaction within five (5) business days,
               you must repeat the preclearance procedure prior to undertaking
               the transaction.

               American Century reserves the right to restrict the purchase and
               sale by Portfolio, Investment, and Access Persons of any security
               at any time. Such restrictions are imposed through the use of a
               Restricted List that will cause the Code of Ethics system to deny
               the approval of preclearance to transact in the security.
               Securities may be restricted for a variety of reasons including,
               without limitation, the possession of material nonpublic
               information by American Century or its employees.

     C.   ADDITIONAL TRADING RESTRICTIONS [INVESTMENT AND PORTFOLIO PERSONS]

          The following additional trading restrictions apply if you are an
          Investment or Portfolio Person:

          1.   Initial Public Offerings.

               You may not acquire SECURITIES issued in an INITIAL PUBLIC
               OFFERING.

          2.   Private Placements.

               Before you acquire any SECURITIES in a PRIVATE PLACEMENT, you
               must obtain approval from the Chief Investment Officer. Request
               for preclearance can be submitted by entering your request in
               PTRA and accessing the Private Placement screen (PF9 after your
               initials are entered) or by sending your request to "LG-PERSONAL
               SECURITY TRADES." You may not participate in any consideration of
               an investment in securities of the private placement issuer for
               any client portfolios while your preclearance is pending or
               during any period that you own, or are a BENEFICIAL OWNER of, the
               privately-placed security.

          3.   Short-Term Trading Profits.

               You may not profit from any purchase and sale, or sale and
               purchase, of the same (or equivalent) securities other than
               CODE-EXEMPT SECURITIES within sixty (60) calendar days.

- -----------------------------
(6) See Appendix 4 for a description of the preclearance process.

                                                                         Page 5



AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


     D.   SEVEN-DAY BLACKOUT PERIOD [PORTFOLIO PERSONS]

          If you are a Portfolio Person, you may not purchase or sell a SECURITY
          other than a CODE-EXEMPT SECURITY within seven (7) calendar days
          before and after it has been traded as a part of a client portfolio
          that you manage.

     E.   TRADING ON INSIDE INFORMATION [ALL EMPLOYEES]

          As you are aware, federal law prohibits you from trading based on
          material nonpublic information received from any source or
          communicating this information to others. This includes any
          confidential information that may be obtained by American Century
          employees regarding the advisability of purchasing or selling specific
          SECURITIES on behalf of clients. You are expected to abide by the
          highest ethical and legal standards in conducting your personal
          investment activities. For more information regarding what to do when
          you believe you are in possession of material nonpublic information,
          please consult American Century's INSIDER TRADING POLICY.

     F.   TRADING IN AMERICAN CENTURY MUTUAL FUNDS [ALL EMPLOYEES]

          Excessive, short-term trading of American Century client portfolios
          and other abusive trading practices (such as time zone arbitrage) may
          disrupt portfolio management strategies and harm fund performance.
          These practices can cause funds to maintain higher-than-normal cash
          balances and incur increased trading costs. Short-term and other
          abusive trading strategies can also cause unjust dilution of
          shareholder value if such trading is based on information not
          accurately reflected in the price of the fund.

          You may not engage in short-term trading or other abusive trading
          strategies with respect to any American Century client portfolio. For
          purposes of this Code, American Century client portfolios include any
          mutual fund, variable annuity, institutional, or other account advised
          or subadvised by American Century.(7)

          FIVE-DAY HOLDING PERIOD. You will be deemed to have engaged in
          short-term trading if you have purchased shares or otherwise invested
          in a variable-priced (i.e., non-money market) American Century client
          portfolio (whether directly or through a brokerage, retirement plan,
          or other intermediary) and redeem shares or otherwise withdraw assets
          from that portfolio within five (5) business days. In other words, if
          you make an investment in an American Century fund, you may not redeem
          shares from that fund before the completion of the fifth (5th)
          business day following the purchase date.

          LIMITED TRADING WITHIN 30 DAYS. We realize that abusive trading is not
          limited to a 5-day window. As a result, persons subject to this Code
          of Ethics are also limited to having not more than two (2) instances
          during any 12-month period of purchasing shares or otherwise investing
          in any variable-priced American Century client portfolio (whether
          directly or through a brokerage, retirement plan, or other
          intermediary) and redeeming shares or otherwise withdrawing assets
          from that portfolio within 30 calendar days. In other words, persons
          subject to this Code are limited during any 12-month period to not
          more than two (2) round trips (i.e., a purchase and sale) in all
          American Century funds within 30 calendar days.

- -----------------------------
(7)  See Schedule A for a list of Fund Clients. See Schedule B for a list of
     SUBADVISED FUNDS.


                                                                         Page 6



AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


          One round trip within 30 calendar days will subject that trade to
          scrutiny to determine whether the trade was abusive. Two round trips
          will receive additional scrutiny. Three or more round trips will be
          considered a violation.

          TRANSACTIONS SUBJECT TO LIMITATIONS. These trading restrictions are
          applicable to any account for which you have the authority to direct
          trades or of which you are a BENEFICIAL OWNER. Automatic investments
          such as AMIs, dividend reinvestments, employer plan contributions, and
          payroll deductions are not considered transactions for purposes of
          commencing the 5- and 30-day holding requirements. Check writing
          redemptions in a variable-priced fund will not be considered
          redemptions for purposes of these requirements.

          INFORMATION TO BE PROVIDED. To aid in the monitoring of these
          restrictions, you are required to provide certain information
          regarding mutual fund accounts beneficially owned by you. See the
          Reporting Requirements for your applicable Code of Ethics
          classification.

V.   REPORTING REQUIREMENTS.

     You are required to file complete, accurate, and timely reports of all
     required information under this Code. All such information is subject to
     review for indications of abusive trading, misappropriation of information,
     or failure to adhere to the requirements of the Code of Ethics.

     A.   REPORTING REQUIREMENTS APPLICABLE TO ALL EMPLOYEES

          1.   Code Acknowledgement

               Upon employment, any amendment of the Code, and not less than
               annually thereafter, you will be required to acknowledge that you
               have received, read, and will comply with this Code. Non-Access
               persons will receive an e-mail requesting such information.
               Access, Investment, and Portfolio Persons are required to provide
               this information and acknowledgement as a part of their Initial
               and Annual Holdings Reports and will receive an e-mail requesting
               such information upon any amendment of the Code.

          2.   Reporting of Mutual Fund Accounts

               a.   Direct Accounts/American Century Retirement Plans

                    No transaction reporting is necessary for mutual fund
                    accounts held directly through American Century under your
                    social security number or for American Century retirement
                    plans. Trading in such accounts will be monitored based on
                    information contained on our transfer agency system.
                    Investment and Portfolio Persons must include holdings in
                    these accounts on their Initial and Annual Holdings Reports.


                                                                         Page 7


AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


               b.   Beneficially Owned Direct Accounts

                    You must report the following information for mutual fund
                    accounts in which you have a BENEFICIAL OWNERSHIP interest
                    held directly through American Century under a taxpayer
                    identification or social security number other than your own
                    (so-called "BENEFICIALLY OWNED DIRECT ACCOUNTS"):

                    *    Account number; and

                    *    Name(s) of record owner(s) of the account.

                    Transaction reporting will not be required on such accounts
                    as trading will be monitored based on information contained
                    on our transfer agency system.

               c.   Certain Third-Party Accounts

                    Certain third-party accounts in which you have a BENEFICIAL
                    OWNERSHIP interest in REPORTABLE MUTUAL FUNDS must be
                    reported. These "REPORTABLE THIRD-PARTY ACCOUNTS" include
                    any (i) accounts in which you own or BENEFICIALLY OWN any
                    SUBADVISED FUND (see Schedule B of this Code for a list of
                    SUBADVISED FUNDS); and (ii) non-American Century retirement
                    plan, unit investment trust, variable annuity, or similar
                    accounts in which you own or BENEFICIALLY OWN REPORTABLE
                    MUTUAL FUNDS. The following information must be reported for
                    such accounts:

                    *    Name of the financial institution where held;

                    *    Account number; and

                    *    Name(s) of the record owner(s) of the account.

                    In addition, you must provide either account statements or
                    confirmations of trading activity in such REPORTABLE
                    THIRD-PARTY ACCOUNTS to the Code of Ethics Manager within 30
                    calendar days of the end of each calendar quarter. Such
                    statements or confirmations must include all trading
                    activity in such accounts during the preceding calendar
                    quarter.

          3.   Duplicate Confirmations

               You are required to instruct your broker-dealer to send duplicate
               confirmations of all transactions in reportable brokerage
               accounts to:

               Attention: Compliance
               P.O. Box 410141
               Kansas City, MO 64141-0141

               "REPORTABLE BROKERAGE ACCOUNTS" include both brokerage accounts
               maintained by you and brokerage accounts maintained by a person
               whose trades you must report because you are a BENEFICIAL OWNER.

     B.   ADDITIONAL REPORTING REQUIREMENTS FOR ACCESS, INVESTMENT, AND
          PORTFOLIO PERSONS

          1.   Initial Holdings Report

                                                                         Page 8


AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


               Within ten (10) calendar days of becoming an Access, Investment,
               or Portfolio Person, you must submit an Initial Holdings Report.
               The information submitted must be current as of a date no more
               than 45 calendar days before the report is filed and include the
               following:

               *    A list of all SECURITIES, other than certain CODE-EXEMPT
                    SECURITIES(8), that you own or in which you have a BENEFICIAL
                    OWNERSHIP interest. This listing must include the name,
                    number of shares, and principal amount of each covered
                    security.

               *    Investment and Portfolio Persons must also provide a list of
                    all REPORTABLE MUTUAL FUND holdings owned or in which they
                    have a BENEFICIAL OWNERSHIP interest. This list must include
                    investments held directly through American Century,
                    investments in any SUBADVISED FUND, holdings in a REPORTABLE
                    BROKERAGE ACCOUNT, and holdings in non-American Century
                    retirement plans, unit investment trusts, variable annuity,
                    or similar accounts.

          2.   Quarterly Transactions Report

               Within thirty (30) calendar days of the end of each calendar
               quarter, all Portfolio, Investment and Access persons must submit
               a Quarterly Transactions Report. These persons will be reminded
               by electronic mail of the dates and requirements for filing the
               report. This reminder will contain a link to a database that will
               generate a report of the transactions for which we have received
               duplicate trade confirmations during the quarter. It is your
               responsibility to review the completeness and accuracy of this
               report, provide any necessary changes, and certify its contents
               when submitted.

               a.   The Quarterly Transactions Report must contain the following
                    information about each personal securities transaction
                    undertaken during the quarter other than those in certain
                    CODE-EXEMPT SECURITIES(9):

                    *    The date of the transaction, the security description
                         and number of shares or the principal amount of each
                         SECURITY involved;

                    *    The nature of the transaction, that is, purchase, sale,
                         or any other type of acquisition or disposition;

                    *    The transaction price; and

                    *    The name of the bank, broker, or dealer through whom
                         the transaction was executed.

                    In addition, information regarding your reportable brokerage
                    and other accounts should be verified at this time.

- -----------------------------
(8)  See Appendix 3 for a listing of CODE-EXEMPT SECURITIES that must be
     reported.

(9)  See Appendix 3 for a listing of CODE-EXEMPT SECURITIES that must be
     reported.


                                                                         Page 9

AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


               b.   Investment and Portfolio Persons are also required to report
                    transactions in REPORTABLE MUTUAL FUNDS. The Quarterly
                    Transactions Report for such persons must contain the
                    following information about each transaction during the
                    quarter:

                    *    The date of the transaction, the fund description and
                         number of shares or units of each TRADE involved;

                    *    The nature of the transaction, that is, purchase, sale,
                         or any other type of acquisition or disposition;

                    *    The transaction price; and

                    *    The name of the bank, broker, or dealer, retirement
                         plan or unit investment trust through whom the
                         transaction was executed.

               c.   Investment and Portfolio Persons do not need to include
                    certain REPORTABLE MUTUAL FUND transactions on their
                    Quarterly Transaction Report where the information relating
                    to such transactions is maintained by American Century, has
                    been concurrently provided, or such transactions are
                    pursuant to an AUTOMATIC INVESTMENT PLAN. Transactions that
                    do not need to be reported include:

                    *    Reinvested dividends;

                    *    Transactions in your American Century retirement plan
                         accounts;

                    *    Transactions in mutual fund accounts held directly
                         through American Century under your social security
                         number;

                    *    Transactions in BENEFICIALLY OWNED DIRECT ACCOUNTS if
                         such account has been previously reported under this
                         Code; and

                    *    Transactions in REPORTABLE THIRD-PARTY ACCOUNTS to the
                         extent that account statements or confirmations
                         containing such transactions have been received by the
                         Code of Ethics Manager within 30 days of the end of the
                         calendar quarter in which such transactions took place.

                    Transactions in REPORTABLE BROKERAGE ACCOUNTS must be
                    included on the Quarterly Transaction Report.

          3.   Annual Holdings Report

               Each year all Portfolio, Investment, and Access Persons must
               submit an Annual Holdings Report and verify their brokerage
               accounts and mutual fund account numbers reported under this
               Code. The Annual Holdings Report must be submitted within 45
               calendar days after December 31st of each year and the
               information submitted must be current as of a date no more than
               45 calendar days before the report is filed. These persons will
               be reminded by electronic mail of the dates and requirements for
               filing the report. The information submitted must be current as
               of a date not more than 45 calendar days before the report is
               filed and include the following:


                                                                        Page 10

AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


               *    A list of all SECURITIES, other than certain CODE-EXEMPT
                    SECURITIES(10), that you own or in which you have a
                    BENEFICIAL OWNERSHIP interest. This listing must include the
                    name, number of shares, and principal amount of each covered
                    security.

               *    Investment and Portfolio Persons must also provide a list of
                    all REPORTABLE MUTUAL FUND holdings owned or in which they
                    have a BENEFICIAL OWNERSHIP interest. This list must include
                    investments held directly through American Century,
                    investments in any SUBADVISED FUND, holdings in a REPORTABLE
                    BROKERAGE ACCOUNT, and holdings in non-American Century
                    retirement plans, unit investment trusts, variable annuity,
                    or similar accounts.

VI.  CAN THERE BE ANY EXCEPTIONS TO THE RESTRICTIONS?

     YES. The General Counsel or his or her designee may grant limited
     exemptions to specific provisions of the Code on a case-by-case basis.

     A.   HOW TO REQUEST AN EXEMPTION

          E-mail a written request to "LG-PERSONAL SECURITY TRADES" (or
          "LG-PERSONAL_SECURITY_TRADES@AMERICANCENTURY.COM" if sending from
          outside American Century's Lotus Notes system) detailing your
          situation.

     B.   FACTORS CONSIDERED

          In considering your request, the General Counsel or his or her
          designee will grant your exemption request if he or she is satisfied
          that:

          *    Your request addresses an undue personal hardship imposed on you
               by the Code of Ethics;

          *    Your situation is not contemplated by the Code of Ethics; and

          *    Your exemption, if granted, would be consistent with the
               achievement of the objectives of the Code of Ethics.

     C.   EXEMPTION REPORTING

          All exemptions must be reported to the Boards of Directors of our Fund
          Clients at the next regular meeting following the initial grant of the
          exemption. Subsequent grants of an exemption of a type previously
          reported to the Boards may be effected without reporting. The Boards
          of Directors may choose to delegate the task of receiving and
          reviewing reports to a committee comprised of Independent Directors.

- -----------------------------
(10) See Appendix 3 for a listing of code-exempt securities that must be
     reported.


                                                                        Page 11

AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


     D.   THIRTY-DAY DENIAL EXEMPTION ON SALES

          An exemption may be requested when a request to sell a security has
          been denied once a week over a 30-day timeframe. The covered person
          must be able to verify that they have periodically entered a request
          to sell a security in PTRA at least four times throughout the 30-day
          period. A written request must be e-mailed to "LG-PERSONAL SECURITY
          TRADES" to request the exemption. The General Counsel or his or her
          designee will review the request and determine if the exemption is
          warranted. If approval is granted, compliance will designate a short
          trading window during which the sale can take place.

     E.   NON-VOLITIONAL TRANSACTION EXEMPTION

          Certain non-volitional purchase and sale transactions shall be exempt
          from the preclearance requirements of the Code. These transactions
          shall include stock splits, stock dividends, exchanges and
          conversions, mandatory tenders, pro rata distributions to all holders
          of a class of securities, gifts, inheritances, margin/maintenance
          calls (where the securities to be sold are not directed by the covered
          person), dividend reinvestment plans, and employer sponsored payroll
          deduction plans. These purchase and sale transactions, however, shall
          not be exempt from the Quarterly Transaction Report and Annual
          Holdings Report provisions of the Code.

     F.   BLIND TRUST EXEMPTION

          An exemption from the preclearance and reporting requirements of the
          Code may be requested for SECURITIES that are held in a blind or
          quasi-blind trust arrangement. For the exemption to be available, you
          or a MEMBER OF YOUR IMMEDIATE FAMILY must not have authority to advise
          or direct SECURITIES transactions of the trust. The request will only
          be granted once the covered person and the trust's investment adviser
          certify that the covered person or MEMBERS OF THEIR IMMEDIATE FAMILY
          will not advise or direct transactions. American Century must receive
          statements at least quarterly for transactions within the trust.

VII. CONFIDENTIAL INFORMATION.

     All information about Clients' SECURITIES transactions and portfolio
     holdings is confidential. You must not disclose, except as required by the
     duties of your employment, actual or contemplated SECURITIES transactions,
     portfolio holdings, portfolio characteristics or other nonpublic
     information about Clients, or the contents of any written or oral
     communication, study, report or opinion concerning any SECURITY. This does
     not apply to information which has already been publicly disclosed.

VIII. CONFLICTS OF INTEREST.

     You must receive prior written approval from the General Counsel or his or
     her designee, as appropriate, to do any of the following:

     *    Negotiate or enter into any agreement on a Client's behalf with any
          business concern doing or seeking to do business with the Client if
          you, or a person related to you, has a substantial interest in the
          business concern;

     *    Enter into an agreement, negotiate or otherwise do business on the
          Client's behalf with a personal friend or a person related to you; or

     *    Serve on the board of directors of, or act as consultant to, any
          publicly traded corporation.

                                                                        Page 12


AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


IX.  WHAT HAPPENS IF YOU VIOLATE THE RULES IN THE CODE OF ETHICS?

     If you violate the rules of the Code of Ethics, you may be subject to
     serious penalties. Violations of the Code and proposed sanctions are
     documented by the Code of Ethics Manager and submitted to the Code of
     Ethics Review Committee. The Committee consists of representatives of each
     INVESTMENT ADVISER and the Compliance and Legal Departments of American
     Century. The Committee is responsible for determining the materiality of a
     Code violation and appropriate sanctions.

     A.   MATERIALITY OF VIOLATION

          In determining the materiality of a violation, the Committee
          considers:

          *    Evidence of violation of law;

          *    Indicia of fraud, neglect, or indifference to Code provisions;

          *    Frequency of violations;

          *    Monetary value of the violation in question; and

          *    Level of influence of the violator.

     B.   PENALTY FACTORS

          In assessing the appropriate penalties, the Committee will consider
          the foregoing in addition to any other factors they deem applicable,
          such as:

          *    Extent of harm to client interests;

          *    Extent of unjust enrichment;

          *    Tenure and prior record of the violator;

          *    The degree to which there is a personal benefit from unique
               knowledge obtained through employment with American Century;

          *    The level of accurate, honest and timely cooperation from the
               covered person; and

          *    Any mitigating circumstances that may exist.

     C.   THE PENALTIES WHICH MAY BE IMPOSED INCLUDE:

          1.   First non-material violation

               a.   Warning (notice sent to manager); and

               b.   Attendance at Code of Ethics training session.

          2.   Second non-material violation within 12 months

               a.   Notice sent to manager; and

               b.   Suspension of trading privileges for up to 90 days.

          3.   Penalties for material or more frequent non-material violations
               will be determined based on the circumstances. These penalties
               could include, but are not limited to

               a.   Suspension of trading privileges;

               b.   Fine; and/or


                                                                        Page 13

AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


               c.   Suspension or termination of employment.

          In addition, you may be required to surrender to American Century any
          profit realized from any transaction(s) in violation of this Code of
          Ethics.

X.   AMERICAN CENTURY'S QUARTERLY REPORT TO FUND DIRECTORS.

          American Century will prepare a quarterly report to the Board of
          Directors of each Fund Client of any material violation of this Code
          of Ethics.





AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------

APPENDIX 1:  DEFINITIONS

1.   "AUTOMATIC INVESTMENT PLAN"

     "Automatic investment plan" means a program in which regular periodic
     purchases or withdrawals are made automatically in or from investment
     accounts in accordance with a predetermined schedule and allocation. An
     automatic investment plan includes a dividend reinvestment plan.

2.   "BENEFICIAL OWNERSHIP" OR "BENEFICIALLY OWNED"

     See "Appendix 2: What is Beneficial Ownership?".

3.   "CODE-EXEMPT SECURITY"

     A "code-exempt security" is a security in which you may invest without
     preclearing the transaction with American Century. The list of code-exempt
     securities appears in Appendix 3.

4.   "FEDERAL SECURITIES LAW"

     Federal securities law means the Securities Act of 1933, the Securities Act
     of 1934, the Sarbannes-Oxley Act of 2002, the Investment Company Act of
     1940, the Investment Advisers Act of 1940, Title V of the
     Gramm-Leach-Bliley Act, any rules adopted by the Commission under any of
     these statutes, the Bank Secrecy Act as it applies to funds and investment
     advisers, and any rules adopted thereunder by the Commission or the
     Department of Treasury

5.   "INITIAL PUBLIC OFFERING"

     "Initial public offering" means an offering of securities for which a
     registration statement has not previously been filed with the SEC and for
     which there is no active public market in the shares.

6.   "INVESTMENT ADVISER"

     "Investment adviser" includes each investment adviser listed on Schedule A
     attached hereto.

7.   "MEMBER OF YOUR IMMEDIATE FAMILY"

     A "member of your immediate family" means any of the following

     *    Your spouse or domestic partner;

     *    Your minor children; or

     *    A relative who shares your home


                                                            Appendix 1 - Page 1


AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


     For the purpose of determining whether any of the foregoing relationships
     exist, a legally adopted child of a person is considered a child of such
     person.

8.   "PRIVATE PLACEMENT"

     "Private placement" means an offering of securities in which the issuer
     relies on an exemption from the registration provisions of the federal
     securities laws, and usually involves a limited number of sophisticated
     investors and a restriction on resale of the securities.

9.   "REPORTABLE MUTUAL FUND"

     A "reportable mutual fund" includes any mutual fund issued by a Fund Client
     (as listed on Schedule A) and any SUBADVISED FUNDS (as listed on Schedule
     B).

10.  "SECURITY"

     A "security" includes a great number of different investment vehicles.
     However, for purposes of this Code of Ethics, "security" includes any of
     the following:

     *    Note,

     *    Stock,

     *    Treasury stock,

     *    Bond,

     *    Debenture,

     *    Exchange traded funds (ETFs) or similar securities,

     *    Shares of open-end mutual funds,

     *    Shares of closed-end mutual funds,

     *    Evidence of indebtedness,

     *    Certificate of interest or participation in any profit-sharing
          agreement,

     *    Collateral-trust certificate,

     *    Preorganization certificate or subscription,

     *    Transferable share,

     *    Investment contract,

     *    Voting-trust certificate,

     *    Certificate of deposit for a security,

     *    Fractional undivided interest in oil, gas or other mineral rights,

     *    Any put, call, straddle, option, future, or privilege on any security
          or other financial instrument (including a certificate of deposit) or
          on any group or index of securities (including any interest therein or
          based on the value thereof),

     *    Any put, call, straddle, option, future, or privilege entered into on
          a national securities exchange relating to foreign currency,


                                                            Appendix 1 - Page 2


AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


     *    In general, any interest or instrument commonly known as a "security,"
          or

     *    Any certificate of interest or participation in, temporary or interim
          certificate for, receipt for, guarantee of, future on or warrant or
          right to subscribe to or purchase, any of the foregoing.

11.  "SUBADVISED FUND"

     A "subadvised fund" means any mutual fund or portfolio listed on Schedule
     B.

12.  "SUPERVISED PERSON"

     A "supervised person" means any partner, officer, director (or other person
     occupying a similar status or performing similar functions), or employee of
     an INVESTMENT ADVISER, or other person who provides investment advice on
     behalf of an INVESTMENT ADVISER and is subject to the supervision and
     control of the INVESTMENT ADVISER.


                                                            Appendix 1 - Page 3





AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------

APPENDIX 2:  WHAT IS "BENEFICIAL OWNERSHIP"?

A "beneficial owner" of a security is any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship, or otherwise,
has or shares in the opportunity, directly or indirectly, to profit or share in
any profit derived from a purchase or sale of the security.

1.   ARE SECURITIES HELD BY FAMILY MEMBERS OR DOMESTIC PARTNERS "BENEFICIALLY
     OWNED" BY ME?

     PROBABLY. As a general rule, you are regarded as the beneficial owner of
     SECURITIES held in the name of

     *    A MEMBER OF YOUR IMMEDIATE FAMILY OR

     *    Any other person IF:

          *    You obtain from such SECURITIES benefits substantially similar to
               those of ownership. For example, if you receive or benefit from
               some of the income from the SECURITIES held by your spouse, you
               are the beneficial owner; OR

          *    You can obtain title to the SECURITIES now or in the future.

2.   ARE SECURITIES HELD BY A COMPANY I OWN AN INTEREST IN ALSO "BENEFICIALLY
     OWNED" BY ME?

     PROBABLY NOT. Owning the SECURITIES of a company does not mean you
     "beneficially own" the SECURITIES that the company itself owns. HOWEVER,
     you will be deemed to "beneficially own" the SECURITIES owned by the
     company if:

     *    You directly or beneficially own a controlling interest in or
          otherwise control the company; OR

     *    The company is merely a medium through which you, MEMBERS OF YOUR
          IMMEDIATE FAMILY, or others in a small group invest or trade in
          SECURITIES and the company has no other substantial business.

3.   ARE SECURITIES HELD IN TRUST "BENEFICIALLY OWNED" BY ME?

     MAYBE. You are deemed to "beneficially own" SECURITIES held in trust if any
     of the following is true:

     *    You or a MEMBER OF YOUR IMMEDIATE FAMILY are a trustee or have a
          vested interest in the income or corpus of the trust OR

     *    You or a MEMBER OF YOUR IMMEDIATE FAMILY are a settlor or grantor of
          the trust and have the power to revoke the trust without obtaining the
          consent of all the beneficiaries.

     A blind trust exemption from the preclearance and reporting requirements of
     the Code may be requested if you or MEMBERS OR YOUR IMMEDIATE FAMILY do not
     have authority to advise or direct SECURITIES transactions of the trust.


                                                            Appendix 2 - Page 1



AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------

4.   ARE SECURITIES IN PENSION OR RETIREMENT PLANS "BENEFICIALLY OWNED" BY ME?

     MAYBE. Beneficial ownership does not include indirect interest by any
     person in portfolio SECURITIES held by a pension or retirement plan holding
     SECURITIES of an issuer whose employees generally are the beneficiaries of
     the plan.

     However, your participation in a pension or retirement plan is considered
     beneficial ownership of the portfolio SECURITIES if you can withdraw and
     trade the SECURITIES without withdrawing from the plan or you can direct
     the trading of the SECURITIES within the plan (IRAs, 401ks, etc.).

5.   EXAMPLES OF BENEFICIAL OWNERSHIP

     a.   Securities Held by Family Members or Domestic Partners

     EXAMPLE 1: Tom and Mary are married. Although Mary has an independent
     source of income from a family inheritance and segregates her funds from
     those of her husband, Mary contributes to the maintenance of the family
     home. Tom and Mary have engaged in joint estate planning and have the same
     financial adviser. Since Tom and Mary's resources are clearly significantly
     directed towards their common property, they shall be deemed to be the
     beneficial owners of each other's SECURITIES.

     EXAMPLE 2: Mike's adult son David lives in Mike's home. David is
     self-supporting and contributes to household expenses. Mike is a beneficial
     owner of David's SECURITIES.

     EXAMPLE 3: Joe's mother Margaret lives alone and is financially
     independent. Joe has power of attorney over his mother's estate, pays all
     her bills and manages her investment affairs. Joe borrows freely from
     Margaret without being required to pay back funds with interest, if at all.
     Joe takes out personal loans from Margaret's bank in Margaret's name, the
     interest from such loans being paid from Margaret's account. Joe is a
     significant heir of Margaret's estate. Joe is a beneficial owner of
     Margaret's estate.

     EXAMPLE 4: Bob and Nancy are engaged. The house they share is still in
     Nancy's name only. They have separate checking accounts with an informal
     understanding that both individuals contribute to the mortgage payments and
     other common expenses. Nancy is the beneficial owner of Bob's SECURITIES.

     b.   Securities Held by a Company

     EXAMPLE 5: ABC Company is a holding company with five shareholders owning
     equal shares in the company. Although ABC Company has no business of its
     own, it has several wholly-owned subsidiaries that invest in SECURITIES.
     Stan is a shareholder of ABC Company. Stan has a beneficial interest in the
     SECURITIES owned by ABC Company's subsidiaries.

     EXAMPLE 6: XYZ Company is a large manufacturing company with many
     shareholders. Stan is a shareholder of XYZ Company. As a part of its cash
     management function, XYZ Company invests in SECURITIES. Neither Stan nor
     any MEMBERS OF HIS IMMEDIATE FAMILY are employed by XYZ Company. Stan does
     not beneficially own the SECURITIES held by XYZ Company.


                                                            Appendix 2 - Page 2



AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


     c.   Securities Held in Trust

     EXAMPLE 7: John is trustee of a trust created for his two minor children.
     When both of John's children reach 21, each shall receive an equal share of
     the corpus of the trust. John is a beneficial owner of any SECURITIES owned
     by the trust.

     EXAMPLE 8: Jane placed SECURITIES held by her in a trust for the benefit of
     her church. Jane can revoke the trust during her lifetime. Jane is a
     beneficial owner of any SECURITIES owned by the trust.

     EXAMPLE 9: Jim is trustee of an irrevocable trust for his 21 year-old
     daughter (who does not share his home). The daughter is entitled to the
     income of the trust until she is 25 years old, and is then entitled to the
     corpus. If the daughter dies before reaching 25, Jim is entitled to the
     corpus. Jim is a beneficial owner of any SECURITIES owned by the trust.

     EXAMPLE 10: Joan's father (who does not share her home) placed SECURITIES
     in an irrevocable trust for Joan's minor children. Neither Joan nor any
     MEMBER OF HER IMMEDIATE FAMILY is the trustee of the trust. Joan is a
     beneficial owner of the SECURITIES owned by the trust. She may, however, be
     eligible for the blind trust exemption to the preclearance and reporting of
     the trust SECURITIES.


                                                            Appendix 2 - Page 3






AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------

APPENDIX 3:  CODE-EXEMPT SECURITIES

Because they do not pose a likelihood for abuse, some securities, defined as
code-exempt securities, are exempt from the Code's preclearance requirements.
However, confirmations from your service providers are required in all cases
(except non- REPORTABLE MUTUAL FUNDS) and some code-exempt securities must be
disclosed on your Quarterly Transactions, Initial and Annual Holdings Reports.

1.   CODE-EXEMPT SECURITIES NOT SUBJECT TO DISCLOSURE ON YOUR QUARTERLY
     TRANSACTIONS, INITIAL AND ANNUAL HOLDINGS REPORTS:

     *    Open-end mutual funds that are not considered REPORTABLE MUTUAL FUND;,

     *    REPORTABLE MUTUAL FUNDS (Access Persons only);

     *    REPORTABLE MUTUAL FUND shares purchased through an AUTOMATIC
          INVESTMENT PLAN (including reinvested dividends);

     *    Money market mutual funds;

     *    Bank Certificates of Deposit;

     *    U.S. government securities (Treasury notes, etc.);,

     *    Commercial paper;

     *    Bankers acceptances;

     *    High quality short-term debt instruments, including repurchase
          agreements. A "high quality short-term debt instrument" means any
          instrument that has a maturity at issuance of less than 366 days and
          that is rated in one of the two highest rating categories by a
          nationally recognized rating organization.

2.   CODE-EXEMPT SECURITIES SUBJECT TO DISCLOSURE ON YOUR QUARTERLY
     TRANSACTIONS, INITIAL AND ANNUAL HOLDINGS REPORTS:

     *    REPORTABLE MUTUAL FUND shares purchased other than through an
          AUTOMATIC INVESTMENT PLAN (Investment and Portfolio Persons only)

     *    Securities which are acquired through an employer-sponsored automatic
          payroll deduction plan (only the acquisition of the security is
          exempt, NOT the sale)

     *    Securities (other than open-end mutual funds) purchased through
          dividend reinvestment programs (only the re-investment of dividends in
          the security is exempt, NOT the sale or other purchases)

     *    Commodity futures contracts for tangible goods (corn, soybeans, wheat,
          etc.) Futures contracts for financial instruments are NOT Code-exempt.

     *    Futures contracts on the following:

          *    Standard & Poor's 500 Index; or

          *    Standard & Poor's 100 Index.


                                                            Appendix 3 - Page 1



AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------


We may modify this list of securities at any time, please send an e-mail to
"LG-PERSONAL SECURITY TRADES" to request the most current list.


                                                            Appendix 3 - Page 2




AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------

APPENDIX 4: HOW THE PRECLEARANCE PROCESS WORKS







                                                            Appendix 4 - Page 1





AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------
After your request is entered into our mainframe system, it is then subjected to
the following tests.

STEP 1: RESTRICTED SECURITY LIST

*    Is the security on the Restricted Security list?

IF "YES", the system will send a message to you to DENY the personal trade
request.

IF "NO", then your request is subject to Step 2.

STEP 2: DE MINIMIS TRANSACTION TEST (THIS TEST DOES NOT APPLY TO THE TRADE
     REQUESTS OF PORTFOLIO AND INVESTMENT PERSONS.)

*    Is the security issuer's market capitalization greater than $1 billion?

*    Will your proposed transaction, together with your other transactions in
     the security for the current calendar quarter, be less than $10,000?

*    Does the security trade on a national securities exchange or market, such
     as the New York Stock Exchange (NYSE) or National Association of Securities
     Dealers Automated Quotation System (NASDAQ)?

IF THE ANSWER TO ALL OF THESE QUESTIONS IS "YES", the system will generate a
message and send it to you approving your proposed transaction.

IF THE ANSWER TO ANY OF THESE QUESTIONS IS "NO", then your request is subject to
Step 3.

STEP 3: OPEN ORDER TEST

*    Is there an open order for that security for any Client?

IF "YES", the system will send a message to you to DENY the personal trade
request.

IF "NO", then your request is subject to Step 4.

STEP 4: FOLLOW LIST TEST

*    Does any account or Fund own the security?

*    Does the security appear on the computerized list of stocks American
     Century is considering to purchase for a Client?

IF THE ANSWER TO BOTH OF THESE QUESTIONS IS "NO", the system will send a message
to you to APPROVE your proposed transaction.

IF THE ANSWER TO EITHER OF THESE QUESTIONS IS "YES", then your request is
subject to Step 5.

STEP 5: PRESENT INTENTIONS TEST

The system sends a message to our equity trading desk in Kansas City which
identifies the security described in your preclearance request. A trading desk
representative will review the request for recent activity in the security. The
trading desk representative may deny the request based on recent trading
activity. If not denied, the trading desk will contact a representative from
each of the portfolio management teams that have the security on their follow
list or own the security. The portfolio teams will be asked if they intend to
buy or sell the security within the next five (5) business days.


                                                            Appendix 4 - Page 2


AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------
IF ALL OF THE PORTFOLIO MANAGEMENT TEAMS RESPOND "NO", your request will be
APPROVED.

If ANY OF THE PORTFOLIO MANAGEMENT TEAMS RESPOND "YES", your request will be
DENIED.

STEP 6: CHIEF INVESTMENT OFFICER REQUESTS

The General Counsel or his/her designee must approve any preclearance request by
ACIM's Chief Investment Officer before an APPROVAL message is generated.

THE PRECLEARANCE PROCESS CAN BE CHANGED AT ANY TIME TO ENSURE THAT THE GOALS OF
AMERICAN CENTURY'S CODE OF ETHICS ARE ADVANCED.


                                                            Appendix 4 - Page 3





AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------

                                   SCHEDULE A

The Code of Ethics to which this Schedule is attached was most recently approved
by the Board of Directors/Trustees of the following Companies as of the dates
indicated:

- -------------------------------------------------------------------------------
                                                                Most Recent
       Investment Advisers                                     Approval Date
- -------------------------------------------------------------------------------
       American Century Investment Management, Inc.           January 1, 2005
       American Century Global Investment Management, Inc.    January 1, 2005
- -------------------------------------------------------------------------------


- -------------------------------------------------------------------------------
                                                                Most Recent
       Principal Underwriter                                   Approval Date
- -------------------------------------------------------------------------------
       American Century Investment Services, Inc.             January 1, 2005
- -------------------------------------------------------------------------------


- -------------------------------------------------------------------------------
                                                                Most Recent
       Fund Clients                                            Approval Date
- -------------------------------------------------------------------------------
       American Century Asset Allocation Portfolios, Inc.     November 16, 2004
       American Century California Tax-Free and Municipal
         Funds                                                December 9, 2004
       American Century Capital Portfolios, Inc.              November 16, 2004
       American Century Government Income Trust               December 9, 2004
       American Century International Bond Funds              December 9, 2004
       American Century Investment Trust                      December 9, 2004
       American Century Municipal Trust                       December 9, 2004
       American Century Mutual Funds, Inc.                    November 16, 2004
       American Century Quantitative Equity Funds, Inc.       December 9, 2004
       American Century Strategic Asset Allocations, Inc.     November 16, 2004
       American Century Target Maturities Trust               December 9, 2004
       American Century Variable Portfolios, Inc.             November 16, 2004
       American Century Variable Portfolios II, Inc.          December 9, 2004
       American Century World Mutual Funds, Inc.              November 16, 2004
- -------------------------------------------------------------------------------




AMERICAN CENTURY INVESTMENTS                                     CODE OF ETHICS
- -------------------------------------------------------------------------------

                                   SCHEDULE B

The Code of Ethics to which this Schedule is attached applies to the following
funds which are subadvised by an INVESTMENT ADVISER. This list of affiliated
funds will be updated on a regular basis:

        AEGON/Transamerica American Century International
        AEGON/Transamerica American Century Large Company Value
        AST American Century Income & Growth Portfolio
        AST American Century Strategic Balanced Portfolio
        AXP Discovery Fund
        AXP Partners Aggressive Growth Fund
        AXP Partners International Aggressive Growth Fund
        AXP Partners Small Cap Core Fund
        GVIT (Gartmore Variable Insurance Trust) Small Company Fund
        ING American Century Select Portfolio
        ING American Century Small Cap Value Portfolio
        Mainstay VP American Century Income & Growth Portfolio
        Manufactures Investment Trust Small Company Trust
        MassMutual Overseas Fund
        Principal Investors Partners LargeCap Growth Fund II
        Principal Partners LargeCap Value Fund II
        Principal Variable Contracts Equity Value Account
        Schwab Capital Trust Laudus International MarketMasters Fund
        Season Series Trust Focus Value Portfolio
        Strategic Partners Balanced Fund
        SunAmerica Focused Large-Cap Growth Portfolio
        Sun-America Focused Multi-Cap Value Portfolio
        TransAmerica IDEX American Century International
        TransAmerica IDEX American Century Large Company Value
        VALIC Company Income & Growth Fund
        VALIC Company International Growth I Fund
        VALIC Company Small Cap Fund
        JPMorgan Fleming Investment Funds - Global ex-US Small Cap Fund
        SEI Trust Company International Growth Commingled Fund A
        Learning Quest 529 Education Savings Program

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