Document 2

485BPOS 1 doc2-pea31.htm COVER PAGE, BOOKS, PART C AND SIG PAGE Document 2

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

File No. 2-91229

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 31 [X]

and/or

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

File No. 811-4025

Amendment No. 32 [X]

(Check appropriate box or boxes.)

AMERICAN CENTURY MUNICIPAL TRUST
_________________________________________________________________
(Exact Name of Registrant as Specified in Charter)

4500 Main Street, Kansas City, MO 64111
_________________________________________________________________
(Address of Principal Executive Offices) (Zip Code)

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

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

Approximate Date of Proposed Public Offering: May 1, 2001

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

[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2001 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

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

Your

AMERICAN CENTURY
prospectus
High-Yield Municipal Fund

MAY 1, 2001
C CLASS

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE WHO
TELLS YOU OTHERWISE IS COMMITTING A CRIME.

American Century Investment Services, Inc.

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

Dear Investor,

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

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

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

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

Sincerely,

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

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

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

TABLE OF CONTENTS

An Overview of the Fund ................................................... 2
Fund Performance History .................................................. 3
Fees and Expenses ......................................................... 4
Objectives, Strategies and Risks .......................................... 5
Basics of Fixed-Income Investing .......................................... 7
Management ................................................................ 9
Investing with American Century ........................................... 11
Share Price and Distributions ............................................. 14
Taxes ..................................................................... 15
Multiple Class Informaton ................................................. 17
Performance Information of Other Class .................................... 18

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

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This symbol highlights special information and helpful tips.

American Century Investments

AN OVERVIEW OF THE FUND

WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?

The fund seeks high current income and investment returns that are exempt from
federal income tax.

The fund also seeks capital appreciation as a secondary objective.

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

The fund managers invest most of the fund's assets in long- and
intermediate-term DEBT SECURITIES, including junk and private activity bonds,
issued by cities, counties and other municipalities, and U.S. territories. A
more detailed description about the fund's investment strategies and risks
begins on page 5.

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

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

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

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

WHO may WANT TO INVEST IN THE FUND?

The fund may be a good investment if you are

* seeking current tax-free income

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

* comfortable with the fund's other investment risks

WHO may not WANT TO INVEST IN THE FUND?

The fund may not be a good investment if you are

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

* investing for long-term growth

* looking for the added security of FDIC insurance

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

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

2 American Century Investments 1-800-345-3533

FUND PERFORMANCE HISTORY

HIGH-YIELD MUNICIPAL FUND

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

* Annual Total Returns

* Highest and Lowest Quarterly Returns

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

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

[data from bar chart]

High-Yield
Municipal Fund

2000 7.29%
1999 -20.3%

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

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The performance information on this page is designed to help you see how fund
returns can vary. Keep in mind that past performance does not predict how the
fund will perform in the future.

www.americancentury.com American Century Investments 3

FEES AND EXPENSES

There are no sales loads, fees or other charges

* to buy fund shares directly from American Century

* to reinvest dividends in additional shares

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

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

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

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(load)(as a percentage of net asset value) 0.75%(1)

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

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

Management Distribution and Other Total Annual Fund
Fee(1) Service (12b-1) Fees(2) Expenses(3) Operating Expenses
-------------------------------------------------------------------------------------------------
High-Yield Municipal 0.63% 0.75% 0.01% 1.39%

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

(2) The 12b-1 fee is designed to permit investors to purchase C Class shares
through broker-dealers, banks, insurance companies and other financial
intermediaries. A portion of the fee is used to compensate them for ongoing
individual shareholder and administrative services, and a portion is used to
compensate them for distribution services. For more information, see Service
and Distribution Fees, page 17.

(3) Based on expenses incurred by all classes of the fund during the most
recent fiscal year. Other expenses include the fees and expenses of the
fund's independent trustees and their legal counsel, as well as interest.

EXAMPLES

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

* invest $10,000 in the fund

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

* earn a 5% return each year

* incur the same operating expenses as shown above

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

1 year 3 years 5 years 10 years
------------------------------------------------------------------------
High-Yield Municipal $219 $438 $757 $1,658

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

1 year 3 years 5 years 10 years
------------------------------------------------------------------------
High-Yield Municipal $141 $438 $757 $1,658

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

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

4 American Century Investments 1-800-345-3533

OBJECTIVES, STRATEGIES AND RISKS

HIGH-YIELD MUNICIPAL FUND

WHAT ARE THE FUND'S INVESTMENT OBJECTIVES?

High-Yield Municipal seeks high current income that is exempt from federal
income tax. Capital appreciation is a secondary objective.

HOW DOES THE FUND PURSUE ITS INVESTMENT OBJECTIVES?

The fund managers buy long- and intermediate-term debt securities with interest
payments exempt from federal income tax. Cities, counties and other
municipalities in the 50 states and U.S. territories usually issue these
securities for public projects, such as schools and roads.

The fund managers also may buy long- and intermediate-term debt securities with
interest 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 hospitals and athletic stadiums.

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

The fund managers also may buy unrated securities if they determine such
securities meet the investment objective of the fund.

Although High-Yield Municipal invests primarily for income, it also employs
techniques designed to realize capital appreciation. For example, the fund
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.

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

The fund managers attempt to keep the WEIGHTED AVERAGE MATURITY of the fund at
10 years or longer.

Additional information about the fund's investments is available in its annual
and semiannual reports. In these reports you will find a discussion of the
market conditions and investment strategies that significantly affected the
fund's performance during the most recent fiscal period. You may get these
reports at no cost by calling us.

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Income from the fund may be subject to the alternative minimum tax. For more
information, see Taxes in this Prospectus.

WEIGHTED AVERAGE MATURITY is a tool that the fund managers use to approximate a
fund's interest rate sensitivity. For more information, see Weighted Average
Maturity in this Prospectus.

www.americancentury.com American Century Investments 5

WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?

When interest rates change, the fund's share value will be affected. Generally,
when interest rates rise, the fund's share value will decline. The opposite is
true when interest rates decline. This interest rate risk is higher for
High-Yield Municipal than for funds that have shorter weighted average
maturities, such as short-term and intermediate-term funds.

The fund's investments often have high credit risk, which helps it 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. Adverse economic,
political and other developments may be more likely to cause an issuer of
low-quality bonds to default on its obligation to pay interest and principal due
under its securities.

The fund may invest part of its assets 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.

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

Because the fund invests primarily in municipal securities, it will be sensitive
to events that affect municipal markets. High-Yield Municipal may have a higher
level of risk than funds that invest in a larger universe of securities.

As with all funds, at any given time the value of your shares of High-Yield
Municipal may be worth more or less than the price you paid. As a result, it is
possible to lose money by investing in the fund.

6 American Century Investments 1-800-345-3533

BASICS OF FIXED-INCOME INVESTING

DEBT SECURITIES

When a fund buys a debt security, which is also called a fixed-income security,
it is essentially lending money to the issuer of the security. Notes, bonds,
commercial paper and debentures are examples of debt securities. After the debt
security is first sold by the issuer, it may be bought and sold by other
investors. The price of the security may rise or fall based on many factors,
including changes in interest rates, liquidity and credit quality.

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

* determining which securities help a fund meet its maturity requirements

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

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

* evaluating special features of the securities that may make them more or less
attractive

WEIGHTED AVERAGE MATURITY

Like most loans, debt securities eventually must be repaid (or refinanced) at
some date. This date is called the maturity date. The number of days left to a
debt security's maturity date is called the remaining maturity. The longer a
debt security's remaining maturity, generally the more sensitive its price is to
changes in interest rates.

Because a bond fund will own many debt securities, the fund managers calculate
the average of the remaining maturities of all the debt securities the fund owns
to evaluate the interest rate sensitivity of the entire portfolio. This average
is weighted according to the size of the fund's individual holdings and is
called WEIGHTED AVERAGE MATURITY. The following chart shows how fund managers
would calculate the weighted average maturity for a fund that owned only two
debt securities.

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

TYPES OF RISK

The basic types of risk that the fund faces are described below.

Interest Rate Risk

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

The degree to which interest rate changes affect the fund's performance varies
and is related to the weighted average maturity of a particular fund. For
example, when interest rates rise, you can expect the share value of a long-term
bond fund to fall more than that of a short-term bond fund. When rates fall, the
opposite is true.

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

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

www.americancentury.com American Century Investments 7

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 be able to make interest and principal
payments on time. Generally, a lower credit rating indicates a greater risk of
non-payment. A lower rating also may indicate that the issuer has a more senior
series of debt securities, which means that if the issuer has difficulties
making its payments, the more senior series of debt is first in line for
payment.

The fund managers do not invest solely on the basis of a 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 securities that aren't the highest rated to increase return. If a fund
purchases lower-rated securities, it has assumed additional credit risk.

Securities rated in one of the highest four categories by a nationally
recognized securities rating organization (e.g., Moody's or Standard & Poor's)
are considered investment grade. Although they are considered investment grade,
an investment in these securities still involves some credit risk because a AAA
rating is not a guarantee of payment. For a complete description of the ratings
system, see Explanation of Fixed-Income Securities Ratings in the Statement of
Additional Information. The funds' credit quality restrictions apply at the time
of purchase; the fund will not necessarily sell securities if they are
downgraded by a rating agency.

Liquidity Risk

Debt securities can become difficult to sell, or less liquid, for a variety of
reasons, such as lack of an active trading market. The chance that a fund will
have liquidity issues is called liquidity risk.

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Credit quality may be lower when the issuer has

* a high debt level

* a short operating history

* a senior level of debt

* a difficult, competitive environment

* a less stable cash flow

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The Statement of Additional Information provides a detailed description of these
securities ratings.

8 American Century Investments 1-800-345-3533

MANAGEMENT

WHO MANAGES THE FUND?

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

THE BOARD OF TRUSTEES

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

THE INVESTMENT ADVISOR

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

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

For the services it provides to the fund, the advisor receives a unified
management fee based on a percentage of the average net assets of the C Class
shares of the fund. The rate of the management fee for a fund is determined
monthly on a class-by-class basis using a two-step formula that takes into
account the fund's strategy (money market, bond or equity) and the total amount
of mutual fund assets the advisor manages. The management fee is paid monthly in
arrears.

The Statement of Additional Information contains detailed information about the
calculation of the management fee. Out of that fee, the advisor pays all
expenses of managing and operating the fund except brokerage expenses, taxes,
interest, fees and expenses of the independent 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.

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

Investment Category Fee Schedule Complex Fee Schedule (C Class)
--------------------------------------------------------------------------------
Category Assets Fee Rate Complex Assets Fee Rate
-------------------------------------------------------------------------------

First $1 billion 0.4100% First $2.5 billion 0.3100%
Next $1 billion 0.3580% Next $7.5 billion 0.3000%
Next $3 billion 0.3280% Next $15 billion 0.2985%
Next $5 billion 0.3080% Next $25 billion 0.2970%
Next $15 billion 0.2950% Next $50 billion 0.2960%
Next $25 billion 0.2930% Next $100 billion 0.2950%
Thereafter 0.2925% Next $100 billion 0.2940%
Next $200 billion 0.2930%
Next $250 billion 0.2920%
Next $500 billion 0.2910%
Thereafter 0.2900%

www.americancentury.com American Century Investments 9

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 to discuss purchase and sale activity. Team members buy and sell
securities for a fund as they see fit, guided by the fund's investment objective
and strategy.

The portfolio manager who leads the team is identified below.

STEVEN M. PERMUT

Mr. Permut, Vice President, Director of Municipal Research and Senior Portfolio
Manager, has been a member of the High-Yield Municipal team since its inception
in March 1998. He joined American Century in June 1987. He has bachelor's
degrees in business and geography from State University of New York - Oneonta
and an MBA in finance from Golden Gate University - San Francisco.

FUNDAMENTAL INVESTMENT POLICIES

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

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Code of Ethics

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

10 American Century Investments 1-800-345-3533

INVESTING WITH AMERICAN CENTURY

ELIGIBILITY FOR C CLASS SHARES

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

MINIMUM INITIAL INVESTMENT AMOUNTS

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

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

INVESTING THROUGH FINANCIAL INTERMEDIARIES

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

* minimum investment requirements

* exchange policies

* fund choices

* cutoff time for investments

Please contact your financial 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.

Certain financial intermediaries perform recordkeeping and administrative
services for their clients that would otherwise be performed by American
Century's transfer agent. In some circumstances, American Century will pay the
service provider a fee for performing those services.

Although fund share transactions may be made directly with American Century at
no charge, you also may purchase, redeem and exchange fund shares through
financial intermediaries that charge a transaction-based or other fee for their
services. Those charges are retained by the intermediary and are not shared with
American Century or the fund.

The fund has authorized certain financial intermediaries to accept orders on the
fund's behalf. American Century has contracts with these intermediaries
requiring them to track the time investment orders are received and to comply
with procedures relating to the transmission of orders. Orders must be received
by the intermediary on a fund's behalf before the time the net asset value is
determined in order to receive that day's share price. If those orders are
transmitted to American Century and paid for in accordance with the contract,
they will be priced at the net asset value next determined after your request is
received in the form required by the intermediary.

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

www.americancentury.com American Century Investments 11

MODIFYING OR CANCELING AN INVESTMENT

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

ABUSIVE TRADING PRACTICES

We do not permit market timing or other abusive trading practices in our funds.

Excessive, short-term (market timing) or other abusive trading practices may
disrupt portfolio management strategies and harm fund performance. To minimize
harm to the fund and its shareholders, we reserve the right to reject any
purchase order (including exchanges) from any investor who we believe has a
history of abusive trading or whose trading, in our judgment, has been or may be
disruptive to a fund. In making this judgment, we may consider trading done in
multiple accounts under common ownership or control.

YOUR RESPONSIBILITY FOR UNAUTHORIZED TRANSACTIONS

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

REDEMPTIONS

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

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

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

12 American Century Investments 1-800-345-3533

SPECIAL REQUIREMENTS FOR LARGE REDEMPTIONS

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

We will value these securities in the same manner as we do in computing the
fund's net asset value. We may provide these securities in lieu of cash without
prior notice. Also, if payment is made in securities, a shareholder may have to
pay brokerage or other transaction costs to convert the securities to cash.

If your redemption would exceed this limit and you would like to avoid being
paid in securities, please provide us with an unconditional instruction to
redeem at least 15 days prior to the date on which the redemption transaction is
to occur. The instruction must specify the dollar amount or number of shares to
be redeemed and the date of the transaction. This minimizes the effect of the
redemption on the fund and its remaining investors.

REDEMPTION OF SHARES IN LOW-BALANCE ACCOUNTS

If your account balance falls below the minimum initial investment amount, we
will notify you and give you 90 days to meet the minimum. If you do not meet the
deadline, American Century will redeem the shares in the account and send the
proceeds to your address of record.

EXCHANGES BETWEEN FUNDS

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

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

www.americancentury.com American Century Investments 13

SHARE PRICE AND DISTRIBUTIONS

SHARE PRICE

American Century determines the NAV of the fund as of the close of regular
trading on the New York Stock Exchange (usually 4 p.m. Eastern time) on each day
the Exchange is open. On days when the Exchange is closed (including certain
U.S. holidays), we do not calculate the NAV. A fund share's NAV is the current
value of the fund's assets, minus any liabilities, divided by the number of fund
shares outstanding.

If current market prices of securities owned by a fund are not readily available
from an independent pricing service, the advisor may determine their fair value
in accordance with procedures adopted by the fund's Board.

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

DISTRIBUTIONS

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

You will participate in fund distributions when they are declared, starting the
next business day after your purchase is effective. For example, if you purchase
shares on a day a distribution is declared, you will not receive that
distribution. If you redeem shares, you will receive any distribution declared
on the day you redeem. If you redeem all shares, we will include any
distributions received with your redemption proceeds.

Participants in employer-sponsored retirement or savings plans must reinvest all
distributions. For investors investing through taxable accounts, we will
reinvest distributions unless you elect to receive them in cash.

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

14 American Century Investments 1-800-345-3533

TAXES

Tax-Exempt Income

Most of the income that the fund receives from municipal securities is exempt
from regular federal income taxes. However, corporate shareholders should be
aware that distributions may be subject to state 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, then 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 a fund sells a security, even a tax-exempt municipal
security, it can generate a capital gain or loss, which you must report on
your tax return.

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

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

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

The tax status of any distribution of capital gains is determined by how long a
fund held the underlying security that was sold, not by how long you have been
invested in the fund or whether you reinvest your distribution in additional
shares or take them in cash. For taxable accounts, American Century will inform
you of the tax status of fund distributions for each calendar year in an annual
tax mailing (Form 1099-DIV).

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

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Buying a Dividend

Purchasing fund shares in a taxable account shortly before a distribution is
sometimes known as buying a dividend. In taxable accounts, you must pay income
taxes on the distribution whether you reinvest the distribution or take it in
cash. In addition, you will have to pay taxes on the distribution whether the
value of your investment decreased, increased or remained the same after you
bought the fund shares.

The risk in buying a dividend is that a fund's portfolio may build up taxable
gains throughout the period covered by a distribution, as securities are sold at
a profit. We distribute those gains to you, after subtracting any losses, even
if you did not own the shares when the gains occurred.

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

www.americancentury.com American Century Investments 15

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 to you with respect to those shares. Also, any loss realized upon the sale
or exchange of shares held for six months or less will be disallowed to the
extent of any distribution of tax-exempt income to you with respect to such
shares. If a loss is realized on the redemption of fund shares, the
reinvestment in additional fund shares within 30 days before or after the
redemption may be subject to the wash sale rules of the Internal Revenue Code.
This may result in a postponement of the recognition of such loss for federal
income tax purposes.

If you have not certified to us that your Social Security number or tax
identification number is correct and that you are not subject to 31%
withholding, we are required to withhold and pay 31% of dividends distributions,
capital gains distributions and redemptions to the IRS.

16 American Century Investments 1-800-345-3533

MULTIPLE CLASS INFORMATION

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

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

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

Except as described below, all classes of shares of the 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 that class; and (d) each class
may have different exchange privileges.

Contingent Deferred Sales Charge

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

After 13 months 0.625%

After 14 months 0.500%

After 15 months 0.375%

After 16 months 0.250%

After 17 months 0.125%

After 18 months 0.000%

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

Service and Distribution Fees

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

www.americancentury.com American Century Investments 17

PERFORMANCE INFORMATION OF OTHER CLASS

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

The table on the next page itemizes what contributed to the changes in the
Investor Class share price during the most recently ended fiscal year. It also
shows the changes in share price for this period in comparison to changes over
the last five fiscal years, or less, if the share class is not five years old.

On a per-share basis, the table includes as appropriate

* share price at the beginning of the period

* investment income and capital gains or losses

* distributions of income and capital gains paid to investors

* share price at the end of the period

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

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

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

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

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

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

18 American Century Investments 1-800-345-3533

HIGH-YIELD MUNICIPAL FUND

Investor Class

For a Share Outstanding Throughout the Years Ended May 31 (except as noted)

Per-Share Data

2000 1999 1998(1)
----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $10.12 $10.08 $9.99
-------- -------- --------
Income From Investment Operations
Net Investment Income 0.51 0.54 0.09
Net Realized and Unrealized Gain (Loss) on Investment Transactions (0.79) 0.07 0.09
-------- -------- --------
Total From Investment Operations (0.28) 0.61 0.18
-------- -------- --------
Distributions
From Net Investment Income (0.51) (0.54) (0.09)
From Net Realized Gain on Investment Transactions -- (0.03) --
In Excess of Net Realized Gains on Investment Transactions (0.01) -- --
-------- -------- --------
Total Distributions (0.52) (0.57) (0.09)
-------- -------- --------
Net Asset Value, End of Period $9.32 $10.12 $10.08
======== ======== ========
Total Return(2) (2.81)% 6.18% 1.81%

Ratios/Supplemental Data
2000 1999 1998(1)
----------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses to Average Net Assets(3) 0.52% 0.01% --
Ratio of Net Investment Income to Average Net Assets(3) 5.31% 5.28% 5.38%(4)
Portfolio Turnover Rate 60% 92% 44%
Net Assets, End of Period (in thousands) $28,189 $42,068 $18,788

(1) March 31, 1998 (inception) through May 31, 1998.

(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.

(3) The fund's advisor voluntarily agreed to pay all expenses of the fund from
March 31, 1998 (inception) through April 30, 1999. In May 1999, the advisor
began adding expenses at a rate of 0.10% of average daily closing net assets
per month until October 31, 1999. In absence of the waiver, the annualized
ratio of operating expenses to average net assets would have been 0.64% for
all three periods and the annualized ratio of net investment income to
average net assets would have been 5.19%, 4.66% and 4.74%, for the years
ended May 31, 2000, and May 31, 1999, and the period March 31, 1998, through
May 31, 1998, respectively.

(4) Annualized.

www.americancentury.com American Century Investments 19

NOTES

20 American Century Investments 1-800-345-3533

www.americancentury.com American Century Investments 21

MORE INFORMATION ABOUT THE FUND IS CONTAINED IN THESE DOCUMENTS.

Annual and Semiannual Reports

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

Statement of Additional Information (SAI)

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

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

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

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

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

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

Investment Company Act File No. 811-4025

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

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

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

0105
SH-PRS-24821

[front cover]

AMERICAN CENTURY
statement of
additional information

Florida Municipal Money Market Fund

Florida Intermediate-Term Municipal Fund

Arizona Intermediate-Term Municipal Fund

Tax-Free Money Market Fund

Limited-Term Tax-Free Fund

Intermediate-Term Tax-Free Fund

Long-Term Tax-Free Fund

High-Yield Municipal Fund

MAY 1, 2001

American Century Municipal Trust

THIS STATEMENT OF ADDITIONAL INFORMATION ADDS TO THE DISCUSSION IN THE FUNDS'
INVESTOR CLASS PROSPECTUSES, DATED OCTOBER 1, 2000, AND C CLASS PROSPECTUS
DATED MAY 1, 2001, BUT IS NOT A PROSPECTUS. THE STATEMENT OF ADDITIONAL
INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE FUNDS' CURRENT PROSPECTUSES.
IF YOU WOULD LIKE A COPY OF A PROSPECTUS, PLEASE CONTACT US AT THE ADDRESS OR
TELEPHONE NUMBERS LISTED ON THE BACK COVER OR VISIT AMERICAN CENTURY'S WEB SITE
AT WWW.AMERICANCENTURY.COM.

THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE CERTAIN
INFORMATION THAT APPEARS IN THE FUNDS' ANNUAL AND SEMIANNUAL REPORTS, WHICH ARE
DELIVERED TO ALL SHAREHOLDERS. YOU MAY OBTAIN A FREE COPY OF THE FUNDS' ANNUAL
OR SEMIANNUAL REPORT BY CALLING 1-800-345-2021.

American Century Investment Services, Inc.

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TABLE OF CONTENTS
The Funds' History ........................................................ 2
Fund Investment Guidelines ................................................ 2
Florida Municipal Money Market Fund and
Florida Intermediate-Term Municipal Fund .......................... 3
Arizona Intermediate-Term Municipal Fund .............................. 3
Tax-Free Money Market Fund, Limited-Term
Tax-Free Fund, Intermediate-Term Tax-Free Fund
and Long-Term Tax Free Fund .......................................... 4
High-Yield Municipal Fund ............................................ 4
Credit Quality and Maturity Guidelines ............................... 5
Fund Investments and Risks ................................................ 6
Investment Strategies and Risks ...................................... 6
Investment Policies .................................................. 19
Temporary Defensive Measures ......................................... 21
Portfolio Turnover ................................................... 21
Management ................................................................ 21
The Board of Trustees ................................................ 21
Officers ............................................................. 24
Code of Ethics ....................................................... 26
The Funds' Principal Shareholders ......................................... 26
Service Providers ......................................................... 27
Investment Advisor ................................................... 27
Transfer Agent and Administrator ..................................... 30
Distributor .......................................................... 31
Other Service Providers ................................................... 31
Custodian Banks ...................................................... 31
Independent Accountants .............................................. 31
Brokerage Allocation ...................................................... 31
Information About Fund Shares ............................................. 32
Multiple Class Structure ............................................. 32
Buying and Selling Fund Shares ....................................... 34
Valuation of a Fund's Securities ..................................... 35
Money Market Funds ................................................... 35
Non-Money Market Funds ............................................... 35
Taxes ..................................................................... 36
Federal Income Tax ................................................... 36
How Fund Performance Information is Calculated ............................ 38
Financial Statements ...................................................... 41
Explanation of Fixed-Income Securities Ratings ............................ 42

www.americancentury.com American Century Investments 1

THE FUNDS' HISTORY

American Century Municipal Trust is a registered open-end management investment
company that was organized as a Massachusetts business trust on May 1, 1984.
From then until January 1997, it was known as Benham Municipal Income Trust.
Throughout this Statement of Additional Information we refer to American Century
Municipal Trust as the Trust.

Each fund described in this Statement of Additional Information is a separate
series of the Trust and operates for many purposes as if it were an independent
company. Each fund has its own investment objective, strategy, management team,
assets, and tax identification and stock registration number.

Fund Ticker Symbol Inception Date
--------------------------------------------------------------------------------
Florida Municipal Money Market BEFXX 04/11/94
Florida Intermediate-Term Municipal ACBFX 04/11/94
Arizona Intermediate-Term Municipal BEAMX 04/11/94
Tax-Free Money Market BNTXX 07/31/84
Limited-Term Tax-Free TWTSX 03/01/93
Intermediate-Term Tax-Free TWT1X 03/02/87
Long-Term Tax-Free TWTLX 03/02/87
High-Yield Municipal ABHYX 03/31/98
--------------------------------------------------------------------------------

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 6. In the case of the funds' principal investment
strategies, these descriptions elaborate upon discussions contained in the
Prospectuses.

Each fund (except High-Yield Municipal, Florida Municipal Money Market, Florida
Intermediate-Term Municipal and Arizona Intermediate-Term Municipal) is
diversified as defined in the Investment Company Act of 1940 (the Investment
Company Act). Diversified means that, with respect to 75% of its total assets,
each fund will not invest more than 5% of its total assets in the securities of
a single issuer or own more than 10% of the outstanding voting securities of a
single issuer.

Tax-Free Money Market and Florida Municipal Money Market each operate pursuant
to Rule 2a-7 under the Investment Company Act. That rule permits the valuation
of portfolio securities on the basis of amortized cost. To rely on the rule,
each of these funds must be diversified with regard to 100% of its assets other
than U.S. government securities. This operating policy is more restrictive than
the Investment Company Act, which requires a diversified investment company to
be diversified with regard to only 75% of its assets.

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

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

(2) with respect to at least 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer (other than
the U.S government or a regulated investment company) or it does not own
more than 10% of the outstanding voting securities of a single issuer.

In general, within the restrictions outlined here and in the funds'
Prospectuses, the fund managers have broad powers to decide how to invest fund
assets, including the power to hold them uninvested.

2 American Century Investments 1-800-345-2021

So long as a sufficient number of acceptable securities are available, the fund
managers intend to keep the funds fully invested. However, under exceptional
conditions, the funds may assume a defensive position, temporarily investing all
or a substantial portion of their assets in cash or short-term securities.

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 41.

FLORIDA MUNICIPAL MONEY MARKET FUND
FLORIDA INTERMEDIATE-TERM MUNICIPAL FUND

The Florida Municipal Money Market Fund and Florida Intermediate-Term Municipal
Fund seek to obtain as high a level of current income exempt from regular
federal income tax as is consistent with prudent investment management and
conservation of shareholders' capital. In addition, fund shares are intended to
be exempt from the Florida Intangibles Tax.

The funds are designed for individuals in upper tax brackets seeking income free
from regular federal income tax, although the funds may generate some taxable
income. The funds also provide an investment that is intended to be exempt from
the Florida Intangibles Tax. Because of this emphasis on tax-exempt income, the
funds by themselves do not constitute a balanced investment plan.

Each fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state, its political subdivisions, agencies, and
instrumentalities). As a fundamental policy, each fund will invest at least 80%
of its net assets in obligations with interest exempt from federal income tax
and Florida Intangibles Tax. The funds are not limited, however, in their
investments in securities that are subject to the federal Alternative Minimum
Tax (AMT).

In addition, each fund will invest at least 65% of its net assets in Florida
municipal obligations (obligations issued by or on behalf of Florida, its
political subdivisions, agencies and instrumentalities). The funds sometime
invest in obligations of the Commonwealth of Puerto Rico and its public
corporations (as well as the U.S. territories of Guam and the Virgin Islands)
that are exempt from federal income tax and Florida Intangibles Tax. The
remaining 35% of each fund's net assets may be invested in (1) obligations
issued by other states and their political subdivisions and (2) U.S. government
securities.

Each fund is authorized under normal conditions to invest as much as 100% of its
net assets in municipal obligations for which the interest is a tax preference
item for purposes of the AMT. If you are or become subject to the AMT, a portion
of your income distributions that are exempt from the regular federal income tax
may not be exempt from the AMT. Interest from AMT bonds is considered to be
exempt from federal income tax for purposes of the 80% policy noted above.

A fund may need to sell certain investments near the end of each calendar year
so that on January 1 of each year, its portfolio consists only of investments
that are exempt from the Florida Intangibles Tax. As a result, a fund could
incur additional costs or taxable income or gains.

ARIZONA INTERMEDIATE-TERM MUNICIPAL FUND

Arizona Intermediate-Term Municipal seeks to obtain as high a level of current
income exempt from Arizona and regular federal income tax as is consistent with
prudent investment management and conservation of shareholders' capital.

Arizona Intermediate-Term Municipal is designed for individuals in upper tax
brackets seeking income free from Arizona state and regular federal income
taxes, although the

www.americancentury.com American Century Investments 3

fund may generate some taxable income. Because of this emphasis on tax-exempt
income, the fund by itself (see above) does not constitute a balanced
investment.

The fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state, its political subdivisions, agencies, and
instrumentalities). As a fundamental policy, the fund will invest at least 80%
of its net assets in obligations with interest exempt from federal or Arizona
state income tax. The fund is not limited, however, in its investments in
securities that are subject to the AMT.

In addition, Arizona Intermediate-Term Municipal will invest at least 65% of its
net assets in Arizona municipal obligations (obligations issued by or on behalf
of Arizona or its political subdivisions, agencies and instrumentalities). The
fund sometimes invests in obligations of the Commonwealth of Puerto Rico and its
public corporations (as well as the U.S. territories of Guam and the Virgin
Islands) that are exempt from federal and Arizona state income taxes. The
remaining 35% of its net assets may be invested in (1) obligations issued by
other states and their political subdivisions and (2) U.S. government
securities.

The fund is authorized under normal conditions to invest as much as 100% of its
net assets in municipal obligations for which the interest is a tax preference
item for purposes of the AMT. If you are or become subject to the AMT, a portion
of your income distributions that are exempt from the regular federal income tax
may not be exempt from the AMT. Interest from AMT bonds is considered to be
exempt from federal income tax for purposes of the 80% policy noted above.

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

Tax-Free Money Market Fund, Limited-Term Tax-Free Fund, Intermediate-Term
Tax-Free Fund and Long-Term Tax-Free Fund seek as high a level of current income
exempt from regular federal income tax as is consistent with prudent investment
management and conservation of shareholders' capital.

Each fund intends to remain fully invested in municipal obligations, although
for temporary defensive purposes, each may invest a portion of its assets in
U.S. government securities, the interest income on which is subject to federal
income tax. The municipal obligations in which the funds may invest include
securities issued by U.S. territories or possessions, such as Puerto Rico,
provided that the interest on these securities is exempt from regular federal
income tax.

The funds may invest up to 20% of their total assets in municipal obligations
for which the interest is a tax preference item for purposes of the AMT.

HIGH-YIELD MUNICIPAL FUND

High-Yield Municipal Fund seeks to provide as high a level of current income
exempt from federal income tax as is consistent with its investment policies,
which permit investment in lower-rated and unrated securities. As a secondary
objective, the fund seeks capital appreciation.

The fund intends to remain fully invested in municipal obligations (obligations
issued by or on behalf of a state or its political subdivisions, agencies and
instrumentalities). The fund also may invest in securities issued by U.S.
territories or possessions, such as Puerto Rico, provided that the interest on
these securities is exempt from regular federal income tax. As a fundamental
policy, the fund will invest at least 80% of its net assets in obligations with
interest exempt from regular federal income tax. The fund is not limited,
however, in its investments in securities that are subject to the AMT.

4 American Century Investments 1-800-345-2021

The fund is authorized, under normal conditions, to invest as much as 100% of
its net assets in municipal obligations for which the interest is a tax
preference item for purposes of the AMT. If you are or become subject to the
AMT, a portion of your income distributions that are exempt from regular federal
income tax may not be exempt from the AMT.

The fund intends to remain fully invested in municipal obligations, although for
temporary defensive purposes, it may invest a portion of its assets in U.S.
government securities, the interest income on which is subject to federal income
tax.

CREDIT QUALITY AND MATURITY GUIDELINES

The Money Market Funds

Tax-Free Money Market Fund and Florida Municipal Money Market Fund seek to
maintain a $1.00 share price, although there is no guarantee they will be able
to do so. Shares of the funds are neither insured nor guaranteed by the U.S.
government.

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

The money market funds may be appropriate for investors seeking share price
stability who can accept the lower yields that short-term obligations typically
provide.

In selecting investments for the money market funds, the advisor adheres to
regulatory guidelines concerning the quality and maturity of money market fund
investments as well as to internal guidelines designed to minimize credit risk.
In particular, each fund:

* buys only U.S. dollar-denominated obligations with remaining maturities of 13
months or less (and variable- and floating-rate obligations with demand
features that effectively shorten their maturities to 13 months or less);

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

* restricts its investments to high-quality obligations determined by the
advisor pursuant to guidelines 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 short-term
obligations), within the two highest rating categories for short-term debt
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 quality comparable to the
securities listed above.

The fund managers intend to buy only obligations that are designated as
first-tier securities as defined by the SEC; that is, securities rated, when
acquired, within the highest category designated by a rating agency.

Non-Money Market Funds (except High-Yield Municipal)

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

www.americancentury.com American Century Investments 5

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 rated, when acquired, within the two highest categories
designated by a rating agency

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

High-Yield Municipal

Like the other non-money market funds, High-Yield Municipal invests primarily in
long- and intermediate-term municipal obligations. Although 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 High-Yield's portfolio may consist of
obligations that, when acquired, were not rated. There is no limit to the
percentage of assets that the fund may invest in unrated securities. The fund
also may invest in securities that are in technical or monetary default.

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.

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. Under normal circumstances, it is possible
that a substantial portion of the fund's total assets will be invested in
private activity securities. Therefore, the fund is better suited for investors
who do not expect alternative minimum tax liability. See Taxes, page 33.

FUND INVESTMENTS AND RISKS

INVESTMENT STRATEGIES AND RISKS

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

Concentration in Types of Municipal Activities

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

6 American Century Investments 1-800-345-2021

pending court decisions relating to the validity or means of financing municipal
projects, material or manpower shortages and declining demand for projects or
facilities financed by the municipal bonds.

About the Risks Affecting Arizona Municipal Securities

As noted in the Prospectus, the Arizona Intermediate-Term Municipal Fund is
susceptible to events that affect issuers of Arizona municipal obligations.
These include possible adverse affects of Arizona constitutional amendments,
legislative measures, voter initiatives and other matters described below.

The following information about risk factors is provided in view of the fund's
policy of concentrating its assets in Arizona municipal securities. This
information is based on certain official statements of the state of Arizona
published in connection with the issuance of specific Arizona municipal
securities as well as from other publicly available sources. It does not
constitute a complete description of the 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.

Located in the country's sunbelt, Arizona's population has been, and is
projected to continue to be, one of the fastest growing in the United States.
Over the last several decades, the state has outpaced most other regions of the
country in population and personal income growth, gross state product and job
creation.

Geographically, Arizona is the nation's sixth largest state in terms of area. It
is divided into three distinct topographic regions: the northern third, which is
high plateau country traversed by deep canyons, such as Grand Canyon National
Park; central Arizona, which is rugged, mountainous and heavily forested; and
the southern third, which encompasses desert areas and flat, fertile
agricultural lands in valleys between mountains rich in mineral deposits. These
topographic areas all have different climates, which have distinctively
influenced development in each region.

The Phoenix metropolitan area is the state's primary economic center as it
represents approximately two-thirds of the state's population. The Tucson area,
while of secondary importance, also is a major economic area in the state.

The Arizona economy continues to diversify away from its historical reliance on
the mining and agricultural employment sectors. Significant job growth has
occurred in the areas of aerospace and high technology, construction, finance,
insurance and real estate. Arizona's economy has continued to grow in recent
years, as it is among the fastest growing economies in the nation.

Under its constitution, the state of Arizona is not permitted to issue general
obligation bonds secured by the full faith and credit of the state. However,
certain agencies and instrumentalities of the state are authorized to issue
bonds secured by revenues from specific projects and activities, and the state
and local governmental units may enter into lease transactions. The particular
source of payments and security for an Arizona municipal obligation is detailed
in the instruments themselves and in related offering materials.

The state and local governmental units are subject to limitations imposed by
Arizona law with respect to ad valorem taxation, bonded indebtedness, the amount
of annual increases in taxes, and other matters. These limitations may affect
the ability of the issuers to generate revenues to satisfy their debt
obligations. There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that may be levied without voter approval. If such a proposal were enacted,
there might be an adverse impact on state or local government financing.

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Arizona is required by law to maintain a balanced budget. In the past, the state
has used a combination of spending reductions and tax increases to avoid
potential budgetary shortfalls and may be required to do so again in the future

On July 8, 1998, the Arizona state legislature passed and its governor signed,
legislation that shifts the funding of public education from local governments
to the state. This was done in response to a state supreme court decision
requiring the state to deliver and implement a more equitable funding of public
education. The impact of this on the state's finances in the long term is
uncertain.

A potential long-term credit concern for all states is the impact of eCommerce
on tax collections. The use of the internet to make retail purchases (eCommerce
spending) is projected to increase rapidly over the next few years. According
to Forrester Research, eCommerce spending amounted to approximately $7.8 billion
in 1998 and is projected to reach $184 billion in 2004. The proliferation of
eCommerce spending could potentially impact municipal credit quality because
eCommerce spending is exempt from sales taxes. The most vulnerable bonds would
be credits secured solely by sales tax revenues.

About the Risks Affecting Florida Municipal Securities

As noted in the Prospectus, the Florida Municipal Money Market and Florida
Intermediate-Term Municipal funds are susceptible to events that affect issuers
of Florida municipal obligations. These include possible adverse affects of
Florida constitutional amendments, legislative measures, voter initiatives and
other matters described below.

The following information about risk factors is provided in view of the funds'
policies of concentrating their assets in Florida municipal securities. This
information is based on independent municipal credit reports relating to
securities offerings of Florida issuers and other publicly available sources. It
does not constitute a complete description of the risks associated with
investing in securities of these issuers. While the advisor has not
independently verified this information, it has no reason to believe the
information is inaccurate.

Because the funds invest primarily in Florida municipal securities, they will be
affected by political and economic conditions and developments within the state
of Florida. In general, the credit quality and credit risk of any issuer's debt
depend on the state and local economy, the health of the issuer's finances, the
amount of the issuer's debt, the quality of management and the strength of legal
provisions in debt documents that protect debt holders. Credit risk is usually
lower whenever the economy is strong, growing and diversified, financial
operations are sound, and the debt burden is reasonable.

The state of Florida's economy is characterized by a large service sector, a
dependence on the tourism and construction industries and a large retirement
population. The management of rapid growth has been the major challenge facing
state and local governments. Florida's population has grown rapidly and it is
now the fourth largest state; this growth is expected to continue, but at
reduced rates. The retiree component is expected to continue to be a major
factor. As this growth continues, the demand for both public and private
services will increase, which may strain the service sector's capacity and
impede the state's budget balancing efforts. For example, school districts have
experienced difficulty in funding school construction as the districts have been
unable to obtain voter approval to issue debt to finance the necessary school
construction.

One of the fastest growing states, Florida's economy has centered on the growing
trade and services industry, further influenced by tourism and agriculture. The
state is outperforming the nation in employment and income growth. Florida ranks
twentieth among all states in personal per capita income, with a 1998 per capita
income that is about 98% of the U.S figure.

Florida continues to experience steady job growth. Non-farm payroll employment
growth of about 4% for 1997 through 1999 exceeds national rates for those years,
and approximates the record growth rates of earlier periods in 1993 and 1994.
Preliminary employment

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figures for 2000 indicate continued growth at higher than national rates.
Tourism, one of the main drivers of the state's economy, is predicted to
continue to grow in fiscal 2000. The state projects total tourist arrivals for
2000 at about 51 million, a 5% increase over 1999.

Debt levels in the state of Florida are moderate to high, reflecting the
tremendous capital demands associated with rapid population growth. Florida is
unusual among states in that all general obligation full faith and credit debt
issues of municipalities must be approved by public referendum and are,
therefore, relatively rare. Most debt instruments issued by local municipalities
and authorities have a narrower pledge of security, such as a sales tax stream,
special assessment revenue, user fees, utility taxes or fuel taxes. Credit
quality of such debt instruments tends to be somewhat lower than that of general
obligation debt. The state of Florida issues general obligation debt for a
variety of purposes; however, the state constitution requires a specific revenue
stream to be pledged to state general obligation bonds as well.

The state of Florida is heavily dependent upon sales tax, which makes the
state's general fund vulnerable to recession. This dependence upon sales tax,
combined with economic recession, has resulted in budgetary shortfalls in the
past. Florida has reacted to preserve an adequate financial position primarily
through expenditure reductions. State officials, however, still face tremendous
capital and operating pressures due to the growth that will continue to strain
the state's narrow revenue base. As a counterbalance to the dependence on the
historically volatile sales tax, the state enacted a constitutional amendment
establishing a Budget Stabilization Fund and has since made yearly deposits to
that Fund. At the end of fiscal 1999, the Fund reached $787 million, meeting the
required minimum fund level of 5% of General Fund revenues by 1999. The state
plans on an additional deposit of $60 million in 2000, bringing the fiscal 2000
balance to $847 million.

The state also has established a constitutional state revenue limitation to
restrain the growth of spending. To date, this cap has not yet posed a
constraint. The cap, which became effective in fiscal 1996, limits the amount of
taxes and other revenues that could be raised by the state in any fiscal year.
It allows annual revenue to grow by the average annual growth in personal income
over the previous five years. Exempted from the cap are revenues that are
directly pledged to bonds, including any new debt issuances. The cap does not
appear to have become a major impediment to the state raising sufficient annual
revenue to fund state expenditure growth. The legislature may increase the
revenue cap by a two-thirds vote of each house.

A potential long-term credit concern for all states is the impact of eCommerce
on tax collections. The use of the internet to make retail purchases (eCommerce
spending) is projected to increase rapidly over the next few years. According
to Forrester Research, eCommerce spending amounted to approximately $7.8 billion
in 1998 and is projected to reach $184 billion in 2004. The proliferation of
eCommerce spending could potentially impact municipal credit quality since
eCommerce spending is exempt from sales taxes. The most vulnerable bonds would
be credits secured solely by sales tax revenues.

About the Risks Affecting Puerto Rico Municipal Securities

From time to time, the funds invest in obligations of the Commonwealth of Puerto
Rico and its public corporations, which are exempt from federal, state and city
or local income taxes. The majority of the Commonwealth's debt is issued by the
major public agencies that are responsible for many of the island's public
functions, such as water, wastewater, highways, telecommunications, education
and public construction. As of December 31, 1999, public sector debt issued by
the Commonwealth and its public corporations totaled $22.8 billion.

Since the 1980s, Puerto Rico's economy and financial operations have paralleled
the economic cycles of the United States. The island's economy, particularly the
manufacturing sector, has experienced substantial gains in employment. Much of
these economic gains have been attributable in part to favorable treatment under
Section 936 of the

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federal Internal Revenue Code for U.S. corporations doing business in Puerto
Rico (see discussion below). The number of persons employed in Puerto Rico
during fiscal 1999 averaged more than 1.1 million. Unemployment, however, still
remains high at 11.9% as of January 2000.

Debt ratios for the Commonwealth are high as it assumes much of the
responsibility for local infrastructure. Sizable infrastructure programs are
ongoing to upgrade the island's water, sewer and road systems. The
Commonwealth's general obligation debt is secured by a first lien on all
available revenues. The Commonwealth seeks to correlate the growth in public
sector debt to the growth of the economic base available to service that debt.
However, due to the financing of certain key infrastructure projects, between
fiscal years 1996 and 1999, debt increased 28.7% while gross product rose 25.9%

The maximum annual debt service requirement on Commonwealth general obligation
debt totaled 9.5% of governmental revenues for fiscal 1999. This is well below
the 15% limit imposed by the Constitution of Puerto Rico.

The current ratio of tax-supported debt to aggregate personal income is almost
48%, about twenty times the average level of the fifty states, and more than
four times as high as the most heavily indebted of the states. The ratio is
affected by the low levels of income in Puerto Rico (per capita income is about
one-third the U.S. average) and by the large absolute amount of debt.

Puerto Rico's financial position has been adequate. Strong tax growth was offset
by spending increases for health, public education and debt service. After
drawing down cash for several years, fiscal year 1998 ended with a sizable
surplus resulting in an increase in cash from 2.4% of revenues in fiscal year
1997 to 5.6% of revenues in fiscal year 1998. This was primarily attributable to
several non-recurring revenue items. Preliminary fiscal year 1999 results
indicate that cash will be drawn down to 3.5% of revenues with an additional
drawdown expected in fiscal year 2000.

As a result of 1995 federal legislation, tax credits provided by Section 936 of
the Internal Revenue Code are being phased out over a ten-year period ending in
tax year 2005. Section 936 has offered an important economic development
incentive for Puerto Rico, providing a particular impetus for the manufacturing
sector. For U.S. corporations doing business in Puerto Rico, Section 936
generally eliminated the U.S. tax on income related to their island operations.
It granted these corporations tax credits to offset federal tax liability on
earnings from Puerto Rico operations (active income) and permitted them to
invest such earnings in qualified investments in Puerto Rico (passive income)
with interest earned free from U.S. tax. As a result of the 1996 legislation,
the active income credit has been reduced and is no longer available to new or
expanded operations in Puerto Rico. It will also be phased out entirely after
tax year 2005. The passive income credit has already been eliminated entirely.

To offset the loss of the 936 tax credit, in 1998, the Commonwealth passed the
Tax Incentives Law that provided for various tax reduction/incentives. While
this law may promote development, it must be balanced by the costs of the
development in terms of lost tax dollars. The danger Puerto Rico faces is being
too generous with tax incentives, whereby, government revenues are negatively
impacted by development incentives.

Another long-term issue, with broad implications for the Commonwealth, is the
question of political status - specifically, the potential for a transition to
statehood, as contemplated by proposed federal legislation in 1999 and the
subject of a non-binding plebiscite in Puerto Rico in December 1998. The
statehood option in the 1998 plebiscite received the support of 45.6% of the
voters, about the same percentage of support in the previous plebiscite in 1993.

A final risk factor with the Commonwealth is the large amount of unfunded
pension liabilities. The two main public pension systems are largely
underfunded. The combined funded ratio of the two plans is 35% with a total
unfunded liability of $7 billion. A

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measure enacted by the legislature in 1990 is designed to address the solvency
of the plans over a 50-year period.

A potential long-term credit concern for all states is the impact of eCommerce
on tax collections. The use of the internet to make retail purchases (eCommerce
spending) is projected to increase rapidly over the next few years. According to
Forrester Research, eCommerce spending amounted to approximately $7.8 billion in
1998 and is projected to reach $184 billion in 2004. The proliferation of
eCommerce spending could potentially impact municipal credit quality since
eCommerce spending is exempt from sales taxes. The most vulnerable bonds would
be credits secured solely by sales tax revenues.

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.

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

Municipal Bonds

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

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

Revenue bonds are not backed by an issuer's taxing authority; rather, interest
and principal are secured by the net revenues from a project or facility.
Revenue bonds are issued to finance a variety of capital projects, including
construction or refurbishment of utility and waste disposal systems, highways,
bridges, tunnels, air and sea port facilities, schools and hospitals. Many
revenue bond issuers provide additional security in the form of a debt-service
reserve fund that may be used to make payments of interest and repayments of
principal on the issuer's obligations. Some revenue bond financings are further

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protected by a state's assurance (without obligation) that it will make up
deficiencies in the debt-service reserve fund.

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

Variable- and Floating-Rate Obligations

Variable- and floating-rate demand obligations (VRDOs and FRDOs) carry rights
that permit holders to demand payment of the unpaid principal plus accrued
interest, from the issuers or from financial intermediaries. Floating-rate
securities, or floaters, have interest rates that change whenever there is a
change in a designated base rate. Variable-rate instruments provide for a
specified, periodic adjustment in the interest rate, which typically is based on
an index. These rate formulas are designed to result in a market value for the
VRDO or FRDO that approximates par value.

Obligations with Term Puts Attached

The funds may invest in fixed-rate bonds subject to third-party puts and
participation interests in such bonds that are held by a bank in trust or
otherwise, which have tender options or demand features. The tender options or
demand features permit the funds to tender (or put) their bonds to an
institution at periodic intervals and to receive the principal amount thereof.
The fund managers expect 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
advisor may buy securities with puts attached to keep a fund fully invested in
municipal securities while maintaining sufficient portfolio liquidity to meet
redemption requests or to facilitate management of the fund's investments. To
ensure that the interest on municipal securities subject to puts is tax-exempt
to the funds, the advisor limits the funds' use of puts in accordance with
applicable interpretations and rulings of the Internal Revenue Service (IRS).

Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put, puts normally will be determined to have a value of zero,
regardless of whether any direct or indirect consideration is paid. Accordingly,
puts as separate securities are not expected to affect the funds' weighted
average maturities. When a fund has paid for a put, the cost will be reflected
as unrealized depreciation on the underlying security for the period the put is
held. Any gain on the sale of the underlying security will be reduced by the
cost of the put.

There is a risk that the seller of a put will not be able to repurchase the
underlying obligation when (or if) a fund attempts to exercise the put. To
minimize such risks, the funds will purchase obligations with puts attached only
from sellers deemed creditworthy by the advisor under the direction of the Board
of Trustees.

Tender Option Bonds

Tender option bonds (TOBs) were created to increase the supply of high-quality,
short-term tax-exempt obligations, and thus they are of particular interest to
the money market funds. However, any of the funds may purchase these
instruments.

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TOBs are created by municipal bond dealers who purchase long-term, tax-exempt
bonds in the secondary market, place the certificates in trusts, and sell
interests in the trusts with puts or other liquidity guarantees attached. The
credit quality of the resulting synthetic short-term instrument is based on the
guarantor's short-term rating and the underlying bond's long-term rating.

There is some risk that a remarketing agent will renege on a tender option
agreement if the underlying bond is downgraded or defaults. Because of this, the
advisor monitors the credit quality of bonds underlying the funds' TOB holdings
and intends to sell or put back any TOB if the rating on its underlying bond
falls below the second-highest rating category designated by a rating agency.

The advisor also takes steps to minimize the risk that a fund may realize
taxable income as a result of holding TOBs. These steps may include
consideration of (1) legal opinions relating to the tax-exempt status of the
underlying municipal bonds, (2) legal opinions relating to the tax ownership of
the underlying bonds, and (3)other elements of the structure that could result
in taxable income or other adverse tax consequences. After purchase, the advisor
monitors factors related to the tax-exempt status of the fund's TOB holdings in
order to minimize the risk of generating taxable income.

When-Issued and Forward Commitment Agreements

The funds may engage in municipal securities transactions on a when-issued or
forward commitment basis in which the transaction price and yield are each fixed
at the time the commitment is made, but payment and delivery occur at a future
date (typically 15 to 45 days, but not more than 120 days, later).

For example, a fund may sell a security and at the same time make a commitment
to purchase the same or a comparable security at a future date and specified
price. Conversely, a fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as dollar-rolls, cash and carry, or financing transactions. For
example, a broker-dealer may seek to purchase a particular security that a fund
owns. The fund will sell that security to the broker-dealer and simultaneously
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. Market rates of interest on debt securities may be higher or
lower than those contracted for on the when-issued security. Accordingly, the
value of that 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.

In purchasing securities on a when-issued or forward commitment basis, a fund
will establish and maintain until the settlement date a segregated account
consisting of cash, cash equivalents or other appropriate liquid securities in
an amount sufficient to meet the purchase price. When the time comes to pay for
the when-issued securities, the fund will meet its obligations with available
cash, through the sale of securities, or, although it would not normally expect
to do so, by selling the when-issued securities themselves (which may have a
market value greater or less than the fund's payment obligation). Selling
securities to meet when-issued or forward commitment obligations may generate
taxable capital gains or losses.

As an operating policy, no fund will commit more than 50% of its total assets to
when-issued or forward commitment agreements. If fluctuations in the value of
securities held

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cause more than 50% of a fund's total assets to be committed under when-issued
or forward commitment agreements, the fund managers need not sell such
agreements, but they will be restricted from entering into further agreements on
behalf of the fund until the percentage of assets committed to such agreements
is below 50% of total assets.

Municipal Lease Obligations

Each fund may invest in municipal lease obligations. These obligations, which
may take the form of a lease, an installment purchase, or a conditional sale
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities. Generally, the funds will
not hold such obligations directly as a lessor of the property but will purchase
a participation interest in a municipal lease obligation from a bank or other
third party.

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

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

Inverse Floaters

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

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

14 American Century Investments 1-800-345-2021

Procedures for determining the interest payment on floaters and inverse floaters
brought to market directly by the issuer are comparable, although the interest
paid on the inverse floaters is based on a presumed coupon rate that would have
been required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.

Where inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.

Floater holders subject to a Dutch Auction procedure generally do not have the
right to "put back" their interests to the issuer or to a third party. If a
Dutch Auction fails, the floater holder may be required to hold its position
until the underlying bond matures, during which time interest on the floater is
capped at a predetermined rate.

The secondary market for floaters and inverse floaters may be limited. The
market value of inverse floaters tends to be significantly more volatile than
fixed-rate bonds.

Lower-Quality Bonds

As indicated in the Prospectus, an investment in High-Yield Municipal carries
greater risk than an investment in the other funds because the fund may invest
without limitation in lower-rated bonds and unrated bonds judged by the advisor
to be of comparable quality (collectively, lower-quality bonds).

While the market values of higher-quality bonds tend to correspond to market
interest rate changes, the market values of lower-quality bonds tend to reflect
the financial condition of their issuers.

Projects financed through the issuance of lower-quality bonds are often highly
leveraged. The issuer's ability to service its debt obligations may be adversely
affected by an economic downturn, a period of rising interest rates, the
issuer's inability to meet projected revenue forecasts, or a lack of needed
additional financing.

Lower-quality bonds generally are unsecured and often are subordinated to other
obligations of the issuer. These bonds frequently have call or buy-back features
that permit the issuer to call or repurchase the bond from the holder. Premature
disposition of a lower-quality bond due to a call or buy-back feature,
deterioration of the issuer's creditworthiness, or a default may make it
difficult for the advisor to manage the flow of income to the fund, which may
have negative tax implications for shareholders.

The market for lower-quality bonds tends to be concentrated among a smaller
number of dealers than the market for higher-quality bonds. This market is
dominated by dealers and institutions (including mutual funds), rather than by
individuals. To the extent that a secondary trading market for lower-quality
bonds exists, it may not be as liquid as the secondary market for higher-quality
bonds. Limited liquidity in the secondary market may adversely affect market
prices and hinder the advisor's ability to dispose of particular bonds when it
determines that it is in the best interest of the fund to do so. Reduced
liquidity also may hinder the advisor's ability to obtain market quotations for
purposes of valuing the fund's portfolio and determining its net asset value.

The advisor continually monitors securities to determine their relative
liquidity.

A fund may incur expenses in excess of its ordinary operating expenses if it
becomes necessary to seek recovery on a defaulted bond, particularly a
lower-quality bond.

www.americancentury.com American Century Investments 15

Repurchase Agreements

Each fund may invest in repurchase agreements when they present an attractive
short-term return on cash that is not otherwise committed to the purchase of
securities pursuant to the investment policies of that fund.

A repurchase agreement occurs when, at the time the fund purchases an
interest-bearing obligation, the seller (a bank or a broker-dealer registered
under the Securities Exchange Act of 1934) agrees to purchase it on a specified
date in the future at an agreed-upon price. The repurchase price reflects an
agreed-upon interest rate during the time the fund's money is invested in the
security.

Because the security purchased constitutes collateral for the repurchase
obligation, a repurchase agreement can be considered a loan collateralized by
the security purchased. The fund's risk is the seller's ability to pay the
agreed-upon repurchase price on the repurchase date. If the seller defaults, the
fund may incur costs in disposing of the collateral, which would reduce the
amount realized thereon. If the seller seeks relief under the bankruptcy laws,
the disposition of the collateral may be delayed or limited. To the extent the
value of the security decreases, the fund could experience a loss.

The funds will limit repurchase agreement transactions to securities issued by
the U.S. government and its agencies and instrumentalities, and will enter into
such transactions with those banks and securities dealers who are deemed
creditworthy by the funds' advisor.

Repurchase agreements maturing in more than seven days would count toward a
fund's 15% limit on illiquid securities.

Short-Term Securities

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

Examples of those securities include:

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

* Commercial Paper

* Certificates of Deposit and Euro Dollar Certificates of Deposit

* Bankers' Acceptances

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

* Repurchase agreements

Under the Investment Company Act, a fund's investment in other investment
companies (including money market funds) currently is limited to (a) 3% of the
total voting stock of any one investment company; (b) 5% of the fund's total
assets with respect to any one investment company; and (c) 10% of a fund's total
assets in the aggregate. For the non-money market funds, these investments may
include investments in money market funds managed by the advisor.

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 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.

16 American Century Investments 1-800-345-2021

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 indexes such as
the Bond Buyer Index of Municipal Bonds that are consistent with the fund's
investment objectives. The fund also may engage in futures and options
transactions based on specific securities such as U.S. Treasury bonds or notes.

Bond Buyer Municipal Bond Index futures contracts differ from traditional
futures contracts in that when delivery takes place, no bonds change hands.
Instead, these contracts settle in cash at the spot market value of the Bond
Buyer Municipal Bond Index.

Index futures contracts differ from traditional futures contracts in that when
delivery takes place, no stocks or bonds change hands. Instead, these contracts
settle in cash at the spot market value of the 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. Cash held in the margin accounts generally is not
income-producing. However, coupon-bearing securities, such as Treasury bills and
bonds, held in margin accounts generally will earn income.

Once a futures contract position is opened, the value of the contract is marked
to market daily. If the futures contract price changes to the extent that the
margin on deposit does not satisfy margin requirements, the contract holder is
required to pay additional variation margin. Conversely, changes in the contract
value may reduce the required margin, resulting in a repayment of excess margin
to the contract holder. Variation margin payments are made to or from the
futures broker for as long as the contract remains open and do not constitute
margin transactions for purposes of the funds' investment restrictions.

RISKS RELATED TO FUTURES AND OPTIONS TRANSACTIONS

Futures and options prices can be volatile, and trading in these markets
involves certain risks. If the advisor applies a hedge at an inappropriate time
or judges interest rate trends incorrectly, futures and options strategies may
lower a fund's return.

A fund could suffer losses if it were unable to close out its position because
of an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures position when the advisor considers it appropriate or desirable to do
so. In the event of adverse price movements, a fund would be required to
continue making daily cash payments to maintain its required margin. If the fund
had insufficient cash, it might have to sell portfolio securities to meet daily
margin requirements at a time when the advisor would not otherwise elect to do
so. In addition, a fund may be required to deliver or take delivery of
instruments underlying futures contracts it holds. The advisor will seek to
minimize these risks by limiting the contracts entered into

www.americancentury.com American Century Investments 17

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 them to sell (or deliver) the option's underlying
instrument upon exercise of the option. While the receipt of option premiums
would mitigate the effects of price declines, the funds would give up some
ability to participate in a price increase on the underlying security. If a fund
were to engage in options transactions, it would own the futures contract at the
time a call were written and would keep the contract open until the obligation
to deliver it pursuant to the call expired.

RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS

Each non-money market fund may enter into futures contracts, options or options
on futures contracts.

Under the Commodity Exchange Act, a fund may enter into futures and options
transactions (a) for hedging purposes without regard to the percentage of assets
committed to initial margin and option premiums or (b) for other than hedging
purposes, provided that assets committed to initial margin and option premiums
do not exceed 5% of the fund's total assets. To the extent required by law, each
fund will set aside cash and appropriate liquid assets in a segregated account
to cover its obligations related to futures contracts and options.

Restricted and Illiquid Securities

The funds may, from time to time, purchase restricted or illiquid securities,
including Rule 144A securities, when they present attractive investment
opportunities that otherwise meet the funds' criteria for selection. Rule 144A
securities are securities that are privately placed with and traded among
qualified institutional investors rather than the general public. Although Rule
144A securities are considered restricted securities, they are not necessarily
illiquid.

With respect to securities eligible for resale under Rule 144A, the staff of the
SEC has taken the position that the liquidity of such securities in the
portfolio of a fund offering

18 American Century Investments 1-800-345-2021

redeemable securities is a question of fact for the Board of Trustees to
determine, such determination to be based upon a consideration of the readily
available trading markets and the review of any contractual restrictions.
Accordingly, the Board of Trustees is responsible for developing and
establishing the guidelines and procedures for determining the liquidity of Rule
144A securities. As allowed by Rule 144A, the Board of Trustees of the funds has
delegated the day-to-day function of determining the liquidity of Rule 144A
securities to the advisor. The board retains the responsibility to monitor the
implementation of the guidelines and procedures it has adopted.

Because the secondary market for such securities is limited to certain qualified
institutional investors, the liquidity of such securities may be limited
accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the advisor will consider
appropriate remedies to minimize the effect on such fund's liquidity.

INVESTMENT POLICIES

Unless otherwise indicated, with the exception of the percentage limitations on
borrowing, the policies 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 policies.

Fundamental Investment Policies

The funds' fundamental investment policies are set forth below. These investment
policies may not be changed without approval of a majority of the outstanding
votes of shareholders of a fund, as determined in accordance with the Investment
Company Act.

Subject Policy
--------------------------------------------------------------------------------
Senior Securities A fund may not issue senior securities, except as
permitted under the Investment Company Act.
--------------------------------------------------------------------------------
Borrowing A fund may not borrow money, except for temporary or
emergency purposes (not for leveraging or investment) in
an amount not exceeding 33 1/3% of the fund's total assets.
--------------------------------------------------------------------------------
Lending A fund may not lend any security or make any other loan
if, as a result, more than 331/3% of the fund's total
assets would be lent to other parties, except (i) through
the purchase of debt securities in accordance with its
investment objective, policies and limitations or (ii) by
engaging in repurchase agreements with respect to
portfolio securities.
--------------------------------------------------------------------------------
Real Estate A fund may not purchase or sell real estate unless
acquired as a result of ownership of securities or other
instruments. This policy shall not prevent the fund from
investment in securities or other instruments backed by
real estate or securities of companies that deal in real
estate or are engaged in the real estate business.
--------------------------------------------------------------------------------
Concentration A fund may not concentrate its investments in securities
of issuers in a particular industry (other than securities
issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities).
--------------------------------------------------------------------------------
Underwriting A fund may not act as an underwriter of securities issued
by others, except to the extent that the fund may be
considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted
securities.
--------------------------------------------------------------------------------
Commodities A fund may not purchase or sell physical commodities
unless acquired as a result of ownership of securities or
other instruments, provided that this limitation shall
not prohibit the fund from purchasing or selling options
and futures contracts or from investing in securities or
other instruments backed by physical commodities.
--------------------------------------------------------------------------------
Control A fund may not invest for purposes of exercising control
over management.
--------------------------------------------------------------------------------

www.americancentury.com American Century Investments 19

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

(a) there is no limitation with respect to obligations issued or guaranteed by
the U.S. government, any state, territory or possession of the United
States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and repurchase agreements
secured by such 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) personal credit and business 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 options The money market funds may not purchase or sell futures
[money market contracts or call options. This limitation does not apply
funds only] to options attached to, or acquired or traded together
with, their underlying securities, and does not apply to
securities that incorporate features similar to options
or futures contracts.
--------------------------------------------------------------------------------
Liquidity A fund may not purchase any security or enter into a
repurchase agreement if, as a result, more than 15% of its
net assets (10% for the money market funds) would be
invested in illiquid securities. Illiquid securities
include repurchase agreements not entitling the holder to
payment of principal and interest within seven days and
in securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a
readily available market.
--------------------------------------------------------------------------------
Short Sales A fund may not sell securities short, unless it owns or
has the right to obtain securities equivalent in kind and
amount to the securities sold short, and provided that
transactions in futures contracts and options are not
deemed to constitute selling securities short.
--------------------------------------------------------------------------------
Margin A fund may not purchase securities on margin, except to
obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin
payments in connection with futures contracts and options
on futures contracts shall not constitute purchasing
securities on margin.
--------------------------------------------------------------------------------

20 American Century Investments 1-800-345-2021

TEMPORARY DEFENSIVE MEASURES

For temporary defensive purposes, a fund may invest in securities that may not
fit its investment objective or its stated market. During a temporary defensive
period, a fund may direct its assets to the following investment vehicles:

(1) interest-bearing bank accounts or Certificates of Deposit;

(2) U.S. government securities and repurchase agreements collateralized by U.S.
government securities; and

(3) other money market funds.

PORTFOLIO TURNOVER

Under normal conditions, the funds' annual portfolio turnover rates are not
expected to exceed 100%. Because a higher turnover rate increases transaction
costs and may increase taxable capital gains, the funds' managers carefully
weigh the potential benefits of short-term investing against these
considerations.

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

MANAGEMENT

THE BOARD OF TRUSTEES

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

The individuals listed in the table below whose names are marked by an asterisk
(*) are interested persons of the funds (as defined in the Investment Company
Act) by virtue of, among other considerations, their affiliation with the funds;
their advisor, American Century Investment Management, Inc. (ACIM); the funds'
agent for transfer and administrative services, American Century Services
Corporation (ACSC); the parent corporation, American Century Companies, Inc.
(ACC) or ACC's subsidiaries (including ACIM and ACSC); the funds' distribution
agent, American Century Investment Services, Inc. (ACIS); or other funds advised
by the advisor. Each trustee (except James E. Stowers III) listed below serves
as a trustee or director of eight registered investment companies in the
American Century family of funds, which are also advised by the advisor. James
E. Stowers III serves as a trustee or director of 15 registered investment
companies in the American Century family of funds.

www.americancentury.com American Century Investments 21

Name (Age) Position(s) Principal Occupation(s)
Address Held With During Past Five Years
Funds
--------------------------------------------------------------------------------
Albert A. Eisenstat (70) Trustee Independent Director, Commercial
1665 Charleston Road Metals Co. (1982 to 2000)
Mountain View, CA 94043 Independent Director, Sungard Data
Systems (1991 to present)
General Partner, Discovery Ventures
(venture capital firm, 1996 to 1998)
Independent Director, Business Objects
S/A (software & programming, 1994 to
present)
--------------------------------------------------------------------------------
Ronald J. Gilson (54) Trustee Charles J. Meyers Professor of Law and
1665 Charleston Road Business, Stanford Law School
Mountain View, CA 94043 (1979 to present)
Mark and Eva Stern Professor of Law and
Business, Columbia University School
of Law (1992 to present)
Counsel, Marron, Reid & Sheehy
(a San Francisco law firm, 1984 to
present)
--------------------------------------------------------------------------------
William M. Lyons* (45) Trustee Chief Executive Officer, ACC
4500 Main Street (September 2000-present)
Kansas City, MO 64111 President, ACC (June 1997 to present)
Director, ACC (February 1998 to present)
Chief Operating Officer and
Assistant Secretary, ACC (June 1996 to
present)
Executive Vice President, Chief
Operating Officer,
ACIM, ACSC and 11 other ACC subsidiaries
Director, ACIM, ACSC and 15 other
ACC subsidiaries
Secretary , ACIM, ACSC and six other
ACC subsidiaries
--------------------------------------------------------------------------------
Myron S. Scholes (59) Trustee Partner, Oak Hill Capital Management,
1665 Charleston Road (1999 to present)
Mountain View, CA 94043 Principal, Long-Term Capital Management,
(investment advisor 1993 to January
1999)
Frank E. Buck Professor of Finance,
Stanford Graduate School of Business
(1981 to present)
Director, Dimensional Fund Advisors,
(investment advisor 1982 to present)
Director, Smith Breeden Family of Funds
(1992 to present)
--------------------------------------------------------------------------------
Kenneth E. Scott (72) Trustee Ralph M. Parsons Professor of Law and
1665 Charleston Road Business, Stanford Law School
Mountain View, CA 94043 (1972 to present)
Director, RCM Capital Funds, Inc.
(1994 to present)
--------------------------------------------------------------------------------
James E. Stowers III* Trustee, Co-Chairman, ACC (September 2000 to
(42) Chairman of present)
4500 Main Street the Board Chief Executive Officer, ACC (June 1996
Kansas City, MO 64111 to September 2000)
Chief Executive Officer, ACIM, ACSC
and seven other ACC subsidiaries
Director, ACC, ACIM, ACSC and 12 other
ACC subsidiaries
President, ACC (January 1995 to June
1997)
President, ACIM and ACSC (April 1993 to
August 1997)
--------------------------------------------------------------------------------
Jeanne D. Wohlers (56) Trustee Director, Indus International
1665 Charleston Road (software solutions, January 1999 to
Mountain View, CA 94043 present)
Director and Partner, Windy Hill
Productions, LP
(educational software, 1994 to 1998)
Director, Quintus Corporation
(automation solutions, 1995 to present)
--------------------------------------------------------------------------------

22 American Century Investments 1-800-345-2021

Committees

The Board has four standing committees to oversee specific functions of the
funds' operations. Information about these committees appears in the table
below. The trustee first named acts as chairman of the committee:

Committee Members Function of Committee
--------------------------------------------------------------------------------
Audit Kenneth E. Scott The Audit Committee recommends the
Albert A. Eisenstat engagement of the funds' independent
Jeanne D. Wohlers auditor and oversees its activities.
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
Trust.
--------------------------------------------------------------------------------
Nominating Kenneth E. Scott The Nominating Committee primarily
Myron S. Scholes considers and recommends individuals for
Albert A. Eisenstat nomination as trustees. The names of
Ronald J. Gilson potential trustee candidates are drawn
Jeanne D. Wohlers from a number of sources, including
recommendations from members of the board,
management and shareholders. This
committee also reviews and makes
recommendations to the board with respect
to the composition of board committees
and other board-related matters, including
its organization, size, composition,
responsibilities, functions and
compensation.
--------------------------------------------------------------------------------
Portfolio Myron S. Scholes The Portfolio Committee reviews quarterly
Ronald J. Gilson the investment activities 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 reviews
William Lyons the level of Service and quality of
Myron S. Scholes transfer agent and administrative
services provided to the funds and their
shareholders. It receives and reviews
reports comparing those services to fund
competitors' services and seeks to
improve such services where feasible and
appropriate.
--------------------------------------------------------------------------------

COMPENSATION OF TRUSTEES

The trustees serve as trustees for eight American Century investment companies.
Each trustee who is not an interested person as defined in the Investment
Company Act receives compensation for service as a member of the board of all
eight such companies based on a schedule that takes into account the number of
meetings attended and the assets of the funds for which the meetings are held.
These fees and expenses are divided among the eight investment companies based,
in part, upon their relative net assets. Under the terms of the management
agreement with the advisor, the funds are responsible for paying such fees and
expenses.

The following table shows the aggregate compensation paid by the Trust for the
periods indicated and by the eight investment companies served by this board to
each trustee who is not an interested person as defined in the Investment
Company Act.

www.americancentury.com American Century Investments 23

AGGREGATE TRUSTEE COMPENSATION FOR FISCAL YEAR ENDED MAY 31, 2000
--------------------------------------------------------------------------------
Total Compensation Total Compensation from the
Name of Trustee from the Funds(1) American Century Family of
Funds(2)
--------------------------------------------------------------------------------
Albert A. Eisenstat $6,489 $77,500
Ronald J. Gilson 6,683 83,500
Myron S. Scholes 6,404 74,750
Kenneth E. Scott 6,672 83,250
Isaac Stein(3) 6,490 77,500
Jeanne D. Wohlers 6,562 79,750
--------------------------------------------------------------------------------

(1) Includes compensation paid to the trustees during the fiscal year ended
May 31, 2000, and also includes amounts deferred at the election of the
trustees under the Amended and Restated American Century Mutual Funds
Deferred Compensation Plan for Non-Interested Directors. The total amount
of deferred compensation included in the preceding table is as follows:
Mr. Eisenstat, $6,489; Mr. Gilson, $6,683; Mr. Scholes, $6,404; and
Mr. Scott, $3,336.

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

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

The funds have adopted the Amended and Restated American Century Mutual Funds
Deferred Compensation Plan for Non-Interested Directors. 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 are 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.

No deferred fees were paid to any trustee under the plan during the fiscal year
ended May 31, 2000.

OFFICERS

Background information about the officers of the funds is provided below. All
persons named as officers of the funds serve in similar capacities for the 15
investment companies advised by ACIM. Not all officers of the funds are listed;
only those officers with policy-making functions for the funds are listed. No
officer is compensated for his or her service as an officer of the funds. The
individuals listed in the table are interested persons of the funds (as defined
in the Investment Company Act) by virtue of, among other considerations, their
affiliation with the funds; ACC or ACC's subsidiaries including ACIM, ACSC and
ACIS.

24 American Century Investments 1-800-345-2021

Name (Age) Positions Held Principal Occupation(s)
Address with the Funds During Past Five Years
-------------------------------------------------------------------------------------
William M. Lyons (45) President Chief Executive Officer, ACC and
4500 Main St. six ACC subsidiaries (September 2000
Kansas City, MO 64111 to present)
President, ACC (June 1997 to present)
Chief Operating Officer, ACC
(June 1996 to September 2000)
General Counsel, ACC, ACIM, ACIS,
ACSC and other ACC subsidiaries
(June 1989 to June 1998)
Executive Vice President, ACC,
(January 1995 to June 1997)
Also serves as: Executive Vice
President and Chief Operating Officer,
ACIM, ACIS, ACSC and other ACC
subsidiaries, and Executive Vice
President of other ACC subsidiaries
-------------------------------------------------------------------------------------
Robert T. Jackson (55) Executive Vice Chief Administrative Officer, ACC
4500 Main St. President and (August 1997 to present)
Kansas City, MO 64111 Chief Financial Chief Financial Officer, ACC
Officer (May 1995 to present)
President, ACSC (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 of ACC
and other ACC subsidiaries
-------------------------------------------------------------------------------------
Maryanne Roepke, CPA (45) Senior Vice Senior Vice President and Assistant
4500 Main St. President, Treasurer, ACSC
Kansas City, MO 64111 Treasurer and
Chief Accounting
Officer
-------------------------------------------------------------------------------------
David C. Tucker (42) Senior Vice Senior Vice President, ACIM, ACIS,
4500 Main St. President and ACSC and other ACC subsidiaries
Kansas City, MO 64111 General Counsel (June 1998 to present)
General Counsel, ACC, ACIM, ACIS,
ACSC and other ACC subsidiaries
(June 1998 to present)
Consultant to mutual fund industry
(May 1997 to April 1998)
Vice President and General Counsel,
Janus Companies (1990 to 1997)
-------------------------------------------------------------------------------------
Charles A. Etherington (43) Vice President Vice President, ACSC (October 1996
4500 Main St. to present)
Kansas City, MO 64111 Associate General Counsel, ACSC
(December 1998 to present)
Counsel to ACSC (February 1994 to
December 1998)
-------------------------------------------------------------------------------------
Charles C. S. Park (33) Vice President Vice President, ACSC (February 2000
1665 Charleston Road to present)
Mountain View, CA 94043 Assistant General Counsel, ACSC
(January 1998 to present)
Counsel to ACSC (October 1995 to
January 1998)
-------------------------------------------------------------------------------------
David H. Reinmiller (37) Vice President Vice President, ACSC (February 2000
4500 Main St. to present)
Kansas City, MO 64111 Assistant General Counsel, ACSC
(August 1996 to present)
Counsel to ACSC (January 1994 to
August 1996)
-------------------------------------------------------------------------------------
Paul Carrigan Jr. (51) Secretary Secretary, ACC (February 1998 to
4500 Main St. present)
Kansas City, MO 64111 Director of Legal Operations, ACSC
(February 1996 to February 2001)
-------------------------------------------------------------------------------------

www.americancentury.com American Century Investments 25

Name (Age) Positions Held Principal Occupation(s)
Address with the Funds During Past Five Years
-------------------------------------------------------------------------------------

Robert Leach (34) Controller Vice President, ACSC (February 2000
4500 Main St. to present)
Kansas City, MO 64111 Controller-Fund Accounting, ACSC
-------------------------------------------------------------------------------------
C. Jean Wade (37) Controller Vice President, ACSC (February 2000
4500 Main St. to present)
Kansas City, MO 64111 Controller-Fund Accounting, ACSC
-------------------------------------------------------------------------------------
Jon Zindel (33) Tax Officer Vice President, Corporate Tax, ACSC
4500 Main St. (April 1998 to present)
Kansas City, MO 64111 Vice President, ACIM, ACIS and other
ACC subsidiaries (April 1999 to
present)
President, American Century Employee
Benefit Services, Inc. (January 2000
to December 2000)
Treasurer, American Century Employee
Benefit Services, Inc. (December 2000
to present)
Treasurer, American Century Ventures,
Inc. (December 1999 to present)
-------------------------------------------------------------------------------------

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.

THE FUNDS' PRINCIPAL SHAREHOLDERS

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

Fund Shareholder and Percentage of Outstanding
Shares Owned
--------------------------------------------------------------------------------
Florida Intermediate-Term Municipal Charles Schwab & Co. Inc.
San Francisco, California --24%
Morgan Guaranty Trust of New York
Newark, Delaware -- 19%
American Century Investment Management, Inc.
Kansas City, Missouri -- 9%
--------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal Charles Schwab & Co. Inc.
San Francisco, California -- 28%
American Century Investment Management, Inc.
Kansas City, MO -- 7%
National Financial Services Corp.
New York, New York - 7%
--------------------------------------------------------------------------------
Tax-Free Money Market Pershing Div of DLJ Secs Corp. FBO
American Century Customers Accounts
Jersey City, New Jersey - 6%

Limited Term Tax-Free Bobbie B. Duff
Columbia, Mississippi - 6%
--------------------------------------------------------------------------------

26 American Century Investments 1-800-345-2021

Fund Shareholder and Percentage of Outstanding
Shares Owned
--------------------------------------------------------------------------------
Intermediate-Term Tax-Free Charles Schwab & Co. Inc.
San Francisco, California -- 14%
American Century Investment Management, Inc.
Kansas City, Missouri -- 11%
National Financial Services Corp.
New York, New York - 6%
--------------------------------------------------------------------------------
High-Yield Municipal American Century Investment Management, Inc.
Kansas City, Missouri - 18%
Todd W. Morgan Trustee UA
Cave Creek, Arizona - 6%
--------------------------------------------------------------------------------

The funds are unaware of any other shareholders, beneficial or of record, who
own more than 5% of any class of a fund's outstanding shares. As of April 2,
2001, the officers and trustees of the funds, as a group, owned less than 1% of
any class of a fund's outstanding shares.

SERVICE PROVIDERS

The funds have no employees. To conduct the funds' day-to-day activities, the
funds have hired a number of service providers. Each service provider has a
specific function to fill on behalf of the funds that is described below.

ACIM, ACSC and ACIS are wholly owned by ACC. James E. Stowers, Jr., Chairman of
ACC, controls ACC by virtue of his ownership of a majority of its voting stock.

INVESTMENT ADVISOR

A description of the responsibilities of the advisor appears in the Prospectus
under the heading Management.

For the services provided to the funds, the advisor receives a monthly fee based
on a percentage of the average net assets of a fund. The annual rate at which
this fee is assessed is determined monthly in a two-step process. First, a fee
rate schedule is applied to the assets of all the funds of its investment
category managed by the advisor (the Investment Category Fee). The three
investment categories are money market funds, bond funds and equity funds. When
calculating the fee for a money market fund, for example, all the assets of the
money market funds managed by the advisor are aggregated and the fee rate is
applied to the total. Second, a separate fee rate schedule is applied to the
assets of all the funds managed by the advisor (the Complex Fee). The amounts
calculated using the Investment Category Fee and the Complex Fee are then added
to determine the unified management fee payable by a fund to the advisor.

The schedules by which the unified management fee is determined are shown below.
The Investment Category Fees are determined according to the schedule below.

INVESTMENT CATEGORY FEE SCHEDULE FOR
TAX-FREE MONEY MARKET AND FLORIDA
MUNICIPAL MONEY MARKET
-----------------------------------------------
Category Assets Fee Rate
-----------------------------------------------
First $1 billion 0.2700%
Next $1 billion 0.2270%
Next $3 billion 0.1860%
Next $5 billion 0.1690%
Next $15 billion 0.1580%
Next $25 billion 0.1575%
Thereafter 0.1570%
-----------------------------------------------

www.americancentury.com American Century Investments 27

INVESTMENT CATEGORY FEE SCHEDULE FOR LIMITED-TERM TAX-FREE, INTERMEDIATE-TERM
TAX-FREE, LONG-TERM TAX-FREE, ARIZONA INTERMEDIATE-TERM MUNICIPAL, AND FLORIDA
INTERMEDIATE-TERM MUNICIPAL
-----------------------------------------------
Category Assets Fee Rate
-----------------------------------------------
First $1 billion 0.2800%
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
HIGH-YIELD MUNICIPAL
-----------------------------------------------
Category Assets Fee Rate
-----------------------------------------------
First $1 billion 0.4100%
Next $1 billion 0.3580%
Next $3 billion 0.3280%
Next $5 billion 0.3080%
Next $15 billion 0.2950%
Next $25 billion 0.2930%
Thereafter 0.2925%
-----------------------------------------------

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

COMPLEX FEE SCHEDULE
-----------------------------------------------
Category 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 $50 billion 0.2960%
Next $100 billion 0.2950%
Next $100 billion 0.2940%
Next $200 billion 0.2930%
Next $250 billion 0.2920%
Next $500 billion 0.2910%
Thereafter 0.2900%
-----------------------------------------------

On the first business day of each month, the funds pay a management fee to the
advisor for the previous month at the specified rate. The fee for the previous
month is calculated by multiplying the applicable fee for the fund by the
aggregate average daily closing value of a fund's net assets during the previous
month. This number is then multiplied by a fraction, the numerator of which is
the number of days in the previous month and the denominator of which is 365
(366 in leap years).

The management agreement 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 fund shareholders following such
execution and for as long thereafter as its continuance is specifically approved
at least annually, by

(1) the funds' Board of Trustees, or a majority of outstanding shareholder votes
(as defined in the Investment Company Act) and

(2) by the vote of a majority of the trustees of the funds who are not parties
to the agreement or interested persons of the advisor, cast in person at a
meeting called for the purpose of voting on such approval.

28 American Century Investments 1-800-345-2021

The management agreement states that the funds' Board of Trustees or a majority
of outstanding shareholder votes may terminate 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 states that the advisor shall not be liable to the
funds or their shareholders for anything other than willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and duties.

The management agreement also provides that the advisor and its officers,
trustees and employees may engage in other business, render services to others,
and devote time and attention to any other business whether of a similar or
dissimilar nature.

Certain investments may be appropriate for the funds and also for other clients
advised by the advisor. Investment decisions for the funds and other clients are
made with a view to achieving their respective investment objectives after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investment generally. A particular security
may be bought or sold for only one client or fund, or in different amounts and
at different times for more than one but less than all clients or funds. In
addition, purchases or sales of the same security may be made for two or more
clients or funds on the same date. Such transactions will be allocated among
clients in a manner believed by the advisor to be equitable to each. In some
cases this procedure could have an adverse effect on the price or amount of the
securities purchased or sold by a fund.

The advisor may aggregate purchase and sale orders of the funds with purchase
and sale orders of its other clients when the advisor believes that such
aggregation provides the best execution for the funds. The Board of Trustees has
approved the policy of the advisor with respect to the aggregation of portfolio
transactions. Where portfolio transactions have been aggregated, the funds
participate at the average share price for all transactions in that security on
a given day and allocate transaction costs on a pro rata basis. The advisor will
not aggregate portfolio transactions of the funds unless it believes that such
aggregation is consistent with its duty to seek best execution on behalf of the
funds and the terms of the management agreement. The advisor receives no
additional compensation or remuneration as a result of such aggregation.

Prior to August 1, 1997, Benham Management Corporation served as the investment
advisor to the funds. Benham Management Corporation was merged into the advisor
in late 1997.

Unified management fees paid by each fund for the fiscal periods ended May 31,
2000, 1999, and 1998, are indicated in the following tables.

UNIFIED MANAGEMENT FEES(1)
-----------------------------------------------------------------------------------
Fund 2000 1999 1998
-----------------------------------------------------------------------------------
Florida Municipal Money Market $428,202 $505,045 $491,139(2)
-----------------------------------------------------------------------------------
Florida Intermediate-Term Municipal $242,677 $177,067 $102,790(2)
-----------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal $208,939 $217,624 $156,790(2)
-----------------------------------------------------------------------------------
Tax-Free Money Market $1,238,054 $1,222,903 $0(2)
-----------------------------------------------------------------------------------
Limited-Term Tax-Free $190,118 $203,614 $110,921(3)
-----------------------------------------------------------------------------------
Intermediate-Term Tax-Free $804,338 $734,571 $400,377(3)
-----------------------------------------------------------------------------------
Long-Term Tax-Free $540,335 $603,742 $330,083(3)
-----------------------------------------------------------------------------------
High-Yield Municipal $175,438 $3,588 $0(4)
-----------------------------------------------------------------------------------

www.americancentury.com American Century Investments 29

INVESTMENT ADVISORY FEES(5)
-------------------------------------------------------------------------------
Fund 1998(6)
-------------------------------------------------------------------------------
Florida Municipal Money Market $55,569
-------------------------------------------------------------------------------
Florida Intermediate-Term Municipal $7,574
-------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal $1,556
-------------------------------------------------------------------------------
Tax-Free Money Market $37,379
-------------------------------------------------------------------------------
Limited-Term Tax-Free N/A
-------------------------------------------------------------------------------
Intermediate-Term Tax-Free N/A
-------------------------------------------------------------------------------
Long-Term Tax-Free N/A
-------------------------------------------------------------------------------
High-Yield Municipal N/A
-------------------------------------------------------------------------------

(1) Net of reimbursements or waivers.

(2) For the period August 1, 1997, to May 31, 1998. Fees paid during this
period were paid under the Management Agreement with American Century Investment
Management, Inc.

(3) For the period November 1, 1997, to May 31, 1998. Limited-Term Tax-Free,
Intermediate-Term Tax-Free and Long-Term Tax-Free's fiscal year was changed from
October 31 to May 31 resulting in a seven-month annual reporting period.

(4) For the period March 31, 1998 (inception) through May 31, 1998.

(5) Fee amounts are net of amounts reimbursed or recouped under the funds'
previous investment advisory agreement with Benham Management Corporation.

(6) For the period June 1, 1997, to July 31, 1997. Fees paid during this period
were paid under the Investment Advisory Agreement with Benham Management
Corporation.

TRANSFER AGENT AND ADMINISTRATOR

American Century Services Corporation, 4500 Main Street, Kansas City, Missouri
64111, serves as transfer agent and dividend-paying agent for the funds. It
provides physical facilities, computer hardware and software, and personnel for
the day-to-day administration of the funds and the advisor. The advisor pays
ACSC for those services.

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

Prior to August 1, 1997, the funds paid American Century Services Corporation
directly for its services as transfer agent and administrative services agent.

Administrative service and transfer agent fees paid by each fund for the fiscal
period ended May 31, 1998, are indicated in the table below. Fee amounts are net
of expense limitations.

ADMINISTRATIVE FEES
-------------------------------------------------------------------------------
Fund 1998(1)
-------------------------------------------------------------------------------
Florida Municipal Money Market $15,789
-------------------------------------------------------------------------------
Florida Intermediate-Term Municipal $3,851
-------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal $4,889
-------------------------------------------------------------------------------
Tax-Free Money Market $13,717
-------------------------------------------------------------------------------
Limited-Term Tax-Free N/A
-------------------------------------------------------------------------------
Intermediate-Term Tax-Free N/A
-------------------------------------------------------------------------------
Long-Term Tax-Free N/A
-------------------------------------------------------------------------------
High-Yield Municipal N/A
-------------------------------------------------------------------------------

30 American Century Investments 1-800-345-2021

TRANSFER AGENT FEES
-------------------------------------------------------------------------------
Fund 1998(1)
-------------------------------------------------------------------------------
Florida Municipal Money Market $6,746
-------------------------------------------------------------------------------
Florida Intermediate-Term Municipal $1,484
-------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal $3,255
-------------------------------------------------------------------------------
Tax-Free Money Market $9,971
-------------------------------------------------------------------------------
Limited-Term Tax-Free N/A
-------------------------------------------------------------------------------
Intermediate-Term Tax-Free N/A
-------------------------------------------------------------------------------
Long-Term Tax-Free N/A
-------------------------------------------------------------------------------
High-Yield Municipal N/A
-------------------------------------------------------------------------------

(1) For the period June 1, 1997, to July 31, 1997.

(2) The inception date for High-Yield Municipal is March 31, 1998.

DISTRIBUTOR

The funds' shares are distributed by ACIS, a registered broker-dealer. The
distributor 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 that the distributor has no liability for unsold shares.

OTHER SERVICE PROVIDERS

CUSTODIAN BANKS

J.P. Morgan Chase and Co., 770 Broadway, 10th floor, New York, New York
10003-9598, and Commerce Bank, N.A., 1000 Walnut, Kansas City, Missouri 64105,
each serve as custodian of the assets of the funds. The custodians take no part
in determining the investment policies of the funds or deciding which securities
are purchased or sold by the funds. The funds, however, may invest in certain
obligations of the custodians and may purchase or sell certain securities from
or to the custodians.

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP are the independent accountants of the funds. The
address of PricewaterhouseCoopers LLP is 1055 Broadway, 10th floor, Kansas City,
Missouri 64105. As the independent accountants of the funds,
PricewaterhouseCoopers provides services including

(1) auditing of 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.

BROKERAGE ALLOCATION

The funds generally purchases and sells 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 from underwriters or secu-

www.americancentury.com American Century Investments 31

rities 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 mark-up (i.e., a spread between the bid and asked prices).
During the fiscal years ended May 31, 2000, 1999 and 1998, the funds did not pay
any brokerage commissions.

INFORMATION ABOUT FUND SHARES

Each of the funds named on the front of this Statement of Additional Information
is a series of shares issued by the Trust, and shares of each fund have equal
voting rights. 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 (all funds') outstanding shares may be able to elect a Board of
Trustees. The Trust undertakes dollar-based voting, meaning that the number of
votes a shareholder is entitled to is based upon the dollar amount of the
shareholder's investment. The election of trustees is determined by the votes
received from all Trust shareholders without regard to whether a majority of
shares of any one fund voted in favor of a particular nominee or all nominees as
a group.

Each shareholder has rights to dividends and distributions declared by the fund
he or she owns and to the net assets of such fund upon its liquidation or
dissolution proportionate to his or her share ownership interest in the fund.

Shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for its obligations. However, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of the Trust. The Declaration of Trust also provides for
indemnification and reimbursement of expenses of any shareholder held personally
liable for obligations of the Trust. The Declaration of Trust provides that the
Trust will, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity, bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, trustees,
officers, employees and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss as a result of
shareholder liability is limited to circumstances in which both inadequate
insurance exists and the Trust is unable to meet its obligations.

MULTIPLE CLASS STRUCTURE

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

The Investor Class is made available to investors directly without any load or
commission, for a single unified management fee. The C Class is made available
through financial intermediaries, for purchase by individual investors using
"wrap account" style advisory and personal services from the intermediary. The
total management fee is the same as for Investor Class, but the C Class shares
also are subject to a Master Distribution and Individual Shareholder Services
Plan (the Plan)(described below). The Plan has been adopted by the funds' Board
of Trustees and initial shareholder in accordance with Rule 12b-1 adopted by the
SEC under the Investment Company Act.

Rule 12b-1

Rule 12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by its Board of
Trustees and approved by its

32 American Century Investments 1-800-345-2021

shareholders. Pursuant to such rule, the Board of Trustees and initial
shareholder of the funds' C Class have approved and entered into the Plan. The
Plan is described below.

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

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

Master Distribution and Individual Shareholder Services Plan (the Plan)

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

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

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

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.

www.americancentury.com American Century Investments 33

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

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

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

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

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

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

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

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

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

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

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

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

(l) profit on the foregoing;

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

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

Dealer Concessions

The fund's distributor expects to pay sales commissions to the financial
intermediaries who sell C Class shares of the fund at the time of such sales.
Payments will equal .75% of the purchase price of the C Class shares sold by the
intermediary. The distributor will retain the distribution fee paid by the fund
for the first 13 months after the shares are purchased. This fee is intended in
part to permit the distributor to recoup a portion of on-going sales commissions
to dealers plus financing costs, if any. After the first 13 months, the
distributor will make the distribution and individual shareholder services fee
payments described above to the financial intermediaries involved on a monthly
basis.

BUYING AND SELLING FUND SHARES

Information about buying, selling and exchanging fund shares is contained in the
funds' prospectuses and in Your Guide to American Century Services. The
prospectuses and guide are available to investors without charge and may be
obtained by calling us.

34 American Century Investments 1-800-345-2021

VALUATION OF A FUND'S SECURITIES

Each fund's net asset value per share (NAV) is calculated as of the close of
business of the New York Stock Exchange (the Exchange) each day the Exchange is
open for business. The Exchange usually closes at 4 p.m. Eastern time. The
Exchange typically observes the following holidays: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. Although the funds expect
the same holidays to be observed in the future, the Exchange may modify its
holiday schedule at any time.

Each fund's NAV is calculated by adding the value of all portfolio securities
and other assets, deducting liabilities and dividing the result by the number of
shares outstanding. Expenses and interest earned on portfolio securities are
accrued daily.

Money Market Funds

Securities held by the money market funds are valued at amortized cost. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium paid at the time of
purchase. Although this method provides certainty in valuation, it generally
disregards the effect of fluctuating interest rates on an instrument's market
value. Consequently, the instrument's amortized cost value may be higher or
lower than its market value, and this discrepancy may be reflected in the funds'
yields. During periods of declining interest rates, for example, the daily yield
on fund shares computed as described above may be higher than that of a fund
with identical investments priced at market value. The converse would apply in a
period of rising interest rates.

The money market funds operate pursuant to Investment Company Act Rule 2a-7,
which permits valuation of portfolio securities on the basis of amortized cost.
As required by the rule, the Board of Trustees has adopted procedures designed
to stabilize, to the extent reasonably possible, a money market fund's price per
share as computed for the purposes of sales and redemptions at $1.00. While the
day-to-day operation of the money market funds has been delegated to the fund
managers, the quality requirements established by the procedures limit
investments to certain instruments that the Board of Trustees has determined
present minimal credit risks and that have been rated in one of the two highest
rating categories as determined by a rating agency or, in the case of unrated
securities, of comparable quality. The procedures require review of the money
market funds' portfolio holdings at such intervals as are reasonable in light of
current market conditions to determine whether the money market funds' net asset
values calculated by using available market quotations deviate from the
per-share value based on amortized cost. The procedures also prescribe the
action to be taken by the advisor if such deviation should exceed .025%.

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.

Non-Money Market Funds

Securities held by the non-money market funds normally are priced by an
independent pricing service, provided that such prices are believed by the
advisor to reflect the fair market value of portfolio securities.

Because there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services are
generally determined without regard to bid or last sale prices. In valuing
securities, the pricing services generally take into account institutional
trading activity, trading in similar groups

www.americancentury.com American Century Investments 35

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 ask prices provided by broker-dealers. The
municipal bond market is typically a "dealer market"; that is, dealers buy and
sell bonds for their own accounts rather than for customers. As a result, the
spread, or difference, between bid and asked prices for certain municipal bonds
may differ substantially among dealers.

Debt securities maturing within 60 days of the valuation date may be valued at
cost, plus or minus any amortized discount or premium, unless the trustees
determine that this would not result in fair valuation of a given security.
Other assets and securities for which quotations are not readily available are
valued in good faith at their fair value using methods approved by the Board of
Trustees.

TAXES

FEDERAL INCOME TAX

Each fund intends to qualify annually as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). By so
qualifying, a fund will be exempt from federal and state income taxes to the
extent that it distributes substantially all of its net investment income and
net realized capital gains (if any) to investors. If a fund fails to qualify as
a regulated investment company, it will be liable for taxes, significantly
reducing its distributions to investors and eliminating investors' ability to
treat distributions received from the funds in the manner in which they were
realized by the funds.

Certain bonds purchased by the funds may be treated as bonds that were
originally issued at a discount. Original issue discount represents interest for
federal income tax purposes and can generally be defined as the difference
between the price at which a security was issued and its stated redemption price
at maturity. Original issue discount, although no cash is actually received by a
fund until the maturity of the bond, is treated for federal income tax purposes
as income earned by a fund over the term of the bond, and therefore is subject
to the distribution requirements of the Code. The annual amount of income earned
on such a bond by a fund generally is determined on the basis of a constant
yield to maturity that takes into account the semiannual compounding of accrued
interest. Original issue discount on an obligation with interest exempt from
federal income tax will constitute tax-exempt interest income to the fund.

In addition, some of the bonds may be purchased by a fund at a discount that
exceeds the original issue discount on such bonds, if any. This additional
discount represents market discount for federal income tax purposes. The gain
realized on the disposition of any bond having market discount generally will be
treated as taxable ordinary income to the extent it does not exceed the accrued
market discount on such bond (unless a fund elects to include market discount in
income in tax years to which it is attributable). Generally, market discount
accrues on a daily basis for each day the bond is held by a fund on a straight
line basis over the time remaining to the bond's maturity. In the case of any
debt security having a fixed maturity date of not more than one year from date
of issue, the gain realized on disposition generally will be treated as
short-term capital gain.

36 American Century Investments 1-800-345-2021

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

Fund Capital Loss Carryover
--------------------------------------------------------------------------------
Florida Municipal Money Market $24,496 (expiring 2003-2008)
--------------------------------------------------------------------------------
Florida Intermediate-Term Municipal $367,647 (expiring in 2008)
--------------------------------------------------------------------------------
Arizona Intermediate-Term Municipal $466,489 (expiring in 2008)
--------------------------------------------------------------------------------
Tax-Free Money Market $12,653 (expiring in 2008)
--------------------------------------------------------------------------------
Limited-Term Tax-Free $86,077 (expiring in 2008)
--------------------------------------------------------------------------------
Intermediate-Term Tax-Free $1,309,972 (expiring in 2008)
--------------------------------------------------------------------------------
Long-Term Tax Free $1,257,475 (expiring in 2008)
--------------------------------------------------------------------------------
High-Yield Municipal $784,042 (expiring in 2008)
--------------------------------------------------------------------------------

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

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

Alternative Minimum Tax

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

The funds may each invest in private activity bonds. The interest on private
activity bonds could subject a shareholder to, or increase liability under, the
federal alternative minimum tax, depending on the shareholder's tax situation.

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

The Trust will inform fund shareholders annually of the amount of distributions
derived from interest payments on private activity bonds.

www.americancentury.com American Century Investments 37

HOW FUND PERFORMANCE INFORMATION IS CALCULATED

The funds may quote performance in various ways. Historical performance
information will be used in advertising and sales literature.

For the money market funds, seven-day current yield quotations are based on the
change in the value of a hypothetical investment (excluding realized gains and
losses from the sale of securities and unrealized appreciation and depreciation
of securities) over a seven-day period (base period) and stated as a percentage
of the investment at the start of the base period (base-period return). The
base-period return is then annualized by multiplying by 365/7 with the resulting
yield figure carried to at least the nearest hundredth of one percent.

Calculations of seven-day effective yield begin with the same base-period return
used to calculate yield, but the return is then annualized to reflect weekly
compounding according to the following formula:

Effective Yield = [(Base-Period Return + 1)(365/7)] - 1

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

Yield = (2 [(a - b + 1)(6) - 1])
-------
cd

where a = dividends and interest earned during the period, b = expenses accrued
for the period (net of reimbursements), c = the average daily number of shares
outstanding during the period that were entitled to receive dividends, and d =
the maximum offering price per share on the last day of the period.

The funds also may quote tax-equivalent yields. Tax-equivalent yields for
Tax-Free Money Market, Limited-Term Tax-Free, Intermediate-Term Tax-Free,
Long-Term Tax-Free and High-Yield Municipal are calculated using the following
equation:

Fund's Tax-Free Yield
------------------------- = Your Tax-Equivalent Yield
100% - Federal Tax Rate

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

Fund's Double Tax-Free Yield
--------------------------------------------------- = Your Tax-Equivalent Yield
(100% - Federal Tax Rate) (100% - Arizona Tax Rate)

Florida Municipal Money Market and Florida Intermediate-Term Municipal's
tax-equivalent yield is based on each fund's tax-free yield, your federal income
tax bracket, and the Florida Intangibles Tax applicable to a taxable investment.
The formula is:

Fund's Tax-Free Yield + Florida Intangibles = Your Tax-Equivalent
------------------------ Tax Rate Yield
100% - Federal Tax Rate

Total returns quoted in advertising and sales literature reflect all aspects of
a fund's return, including the effect of reinvesting dividends and capital gains
distributions (if any), and any change in the fund's NAV during the period.

Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in a fund during a stated
period and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant throughout the period. For example, a cumulative total return of 100%
over 10 years would produce an average annual return of 7.18%, which is the
steady annual rate that would equal 100% growth on a compounded basis in 10
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the funds' performance

38 American Century Investments 1-800-345-2021

is not constant over time, but changes from year to year, and that average
annual total returns represent averaged figures as opposed to actual
year-to-year performance.

In addition to average annual total returns, each fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period, including periods other than one, five and 10 years.
Average annual and cumulative total returns may be quoted as percentages or as
dollar amounts and may be calculated for a single investment, a series of
investments, or a series of redemptions over any time period. Total returns may
be broken down into their components of income and capital (including capital
gains and changes in share price) to illustrate the relationship of these
factors and their contributions to total return. As a new fund, performance
information for High-Yield Municipal's C Class is not available as of the date
of this Statement of Additional Information.

MONEY MARKET FUND TAX-EQUIVALENT YIELDS (seven-day period ended May 31, 2000)
-----------------------------------------------------------------------------------------------
Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
7-Day Yield Yield Yield Yield
Current 28% Tax 31% Tax 36% Tax 39.6% Tax
Fund Yield Bracket Bracket Bracket Bracket
-----------------------------------------------------------------------------------------------
Florida Municipal
Money Market 3.65% 5.07% 5.29% 5.70% 6.04%

Tax-Free
Money Market 3.64% 5.06% 5.28% 5.69% 6.03%
-----------------------------------------------------------------------------------------------

Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
7-Day Yield Yield Yield Yield
Effective 28% Tax 31% Tax 36% Tax 39.6% Tax
Fund Yield Bracket Bracket Bracket Bracket
-----------------------------------------------------------------------------------------------
Florida Municipal
Money Market 3.72% 5.17% 5.39% 5.81% 6.16%

Tax-Free
Money Market 3.71% 5.15% 5.38% 5.80% 6.14%
-----------------------------------------------------------------------------------------------

NON-MONEY MARKET FUND TAX-EQUIVALENT YIELDS (30-day period ended May 31, 2000)
-----------------------------------------------------------------------------------------------
Tax-Equivalent Tax-Equivalent Tax-Equivalent Tax-Equivalent
Yield Yield Yield Yield
30-Day 28% Tax 31% Tax 36% Tax 39.6% Tax
Fund SEC Yield Bracket Bracket Bracket Bracket
-----------------------------------------------------------------------------------------------
Florida
Intermediate-Term
Municipal 4.93% 6.85% 7.14% 7.70% 8.16%
-----------------------------------------------------------------------------------------------
Arizona
Intermediate-Term
Municipal 4.97% 6.90%(1) 7.20%(1) 7.77%(1) 8.23%(1)
-----------------------------------------------------------------------------------------------
Limited-Term
Tax-Free 4.69% 6.51% 6.80% 7.33% 7.76%
-----------------------------------------------------------------------------------------------
Intermediate-Term
Tax-Free 5.03% 6.99% 7.29% 7.86% 8.33%
-----------------------------------------------------------------------------------------------
Long-Term
Tax-Free 5.46% 7.58% 7.91% 8.53% 9.04%
-----------------------------------------------------------------------------------------------
High-Yield
Municipal 5.81% 8.07% 8.42% 9.08% 9.62%
-----------------------------------------------------------------------------------------------

(1) Tax-equivalent yields based on federal and Arizona income tax
rates are: 31.02% Tax Bracket, 7.20%; 33.90% Tax Bracket, 7.52%; 34.59% Tax
Bracket, 7.60%; and 39.33% Tax Bracket, 8.19%.

www.americancentury.com American Century Investments 39

AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED MAY 31, 2000
-------------------------------------------------------------------------------------------------
Fund 1 year 5 years 10 years Life of Fund Inception Date
-------------------------------------------------------------------------------------------------
Florida Municipal Money Market 3.30% 3.39% N/A 3.43% 04/11/94
Florida Intermediate-Term Municipal 0.49% 4.84% N/A 5.43% 04/11/94
Arizona Intermediate-Term Municipal 0.20% 4.44% N/A 5.17% 04/11/94
Tax-Free Money Market 3.30% 3.25% 3.18% 3.89% 07/31/84
Limited-Term Tax-Free 1.16% 3.97% N/A 3.98% 03/01/93
Intermediate-Term Tax-Free .47% 4.48% 5.80% 5.45% 03/02/87
Long-Term Tax-Free -2.32% 4.57% 6.36% 6.21% 03/02/87
High-Yield Municipal -2.74% N/A N/A 2.30% 03/31/98
-------------------------------------------------------------------------------------------------

Performance Comparisons

The funds' performance may be compared with the performance of other mutual
funds tracked by mutual fund rating services or with other indices of market
performance. This may include comparisons with funds that are sold with a sales
charge or deferred sales charge. Sources of economic data that may be used for
such comparisons may include, but are not limited to: U.S. Treasury bill, note
and bond yields, money market fund yields, U.S. government debt and percentage
held by foreigners, the U.S. money supply, net free reserves, and yields on
current-coupon GNMAs (source: Board of Governors of the Federal Reserve System);
the federal funds and discount rates (source: Federal Reserve Bank of New York);
yield curves for U.S. Treasury securities and AA/AAA-rated corporate securities
(source: Bloomberg Financial Markets); yield curves for AAA-rated, tax-free
municipal securities (source: Telerate); yield curves for foreign government
securities (sources: Bloomberg Financial Markets and Data Resources, Inc.);
total returns on foreign bonds (source: J.P. Morgan Securities Inc.); various
U.S. and foreign government reports; the junk bond market (source: Data
Resources, Inc.); the CRB Futures Index (source: Commodity Index Report); the
price of gold (sources: London a.m./p.m. fixing and New York Comex Spot Price);
rankings of any mutual fund or mutual fund category tracked by Lipper, Inc. or
Morningstar, Inc.; mutual fund rankings published in major, nationally
distributed periodicals; data provided by the Investment Company Institute;
Ibbotson Associates, Stocks, Bonds, Bills, and Inflation; major indices of stock
market performance; and indices and historical data supplied by major securities
brokerage or investment advisory firms. The funds also may utilize reprints from
newspapers and magazines furnished by third parties to illustrate historical
performance or to provide general information about the funds.

Permissible Advertising Information

From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders:

(1) discussions of general economic or financial principles (such as the
effects of compounding and the benefits of dollar-cost averaging);

(2) discussions of general economic trends;

(3) presentations of statistical data to supplement such discussions;

(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds;

(5) descriptions of investment strategies for one or more of the funds;

(6) descriptions or comparisons of various savings and investment products
(including, but not limited to, qualified retirement plans and individual
stocks and bonds), which may or may not include the funds;

(7) comparisons of investment products (including the funds) with relevant
market or industry indices or other appropriate benchmarks;

(8) discussions of fund rankings or ratings by recognized rating
organizations; and

40 American Century Investments 1-800-345-2021

(9) testimonials describing the experience of persons that have invested in
one or more of the funds.

The funds also may include calculations, such as hypothetical compounding
examples, which describe hypothetical investment results. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the funds.

MULTIPLE CLASS PERFORMANCE ADVERTISING

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

FINANCIAL STATEMENTS

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

www.americancentury.com American Century Investments 41

EXPLANATION OF FIXED-INCOME SECURITIES RATINGS

As described in the Prospectus, the funds may invest in fixed-income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the Prospectus. The following is a summary of the rating categories
referenced in the prospectus disclosure.

BOND RATINGS
--------------------------------------------------------------------------------
S&P Moody's Description
--------------------------------------------------------------------------------
AAA Aaa These are the highest ratings assigned by S&P and Moody's to
a debt obligation. They indicate an extremely strong
capacity to pay interest and repay principal.
--------------------------------------------------------------------------------
AA Aa Debt rated in this category is considered to have a very
strong capacity to pay interest and repay principal and
differs from AAA/Aaa issues only in a small degree.
--------------------------------------------------------------------------------
A A Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
--------------------------------------------------------------------------------
BBB Baa Debt rated BBB/Baa is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in
higher-rated categories. Debt rated below BBB/Baa is
regarded as having significant speculative characteristics.
--------------------------------------------------------------------------------
BB Ba Debt rated BB/Ba has less near-term vulnerability to default
than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial or economic conditions that could lead to
inadequate capacity to meet timely interest and principal
payments. The BB/Ba rating category also is used for debt
subordinated to senior debt that is assigned an actual or
implied BBB- rating.
--------------------------------------------------------------------------------
B B Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or
economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB/Ba or BB-/Ba3
rating.
--------------------------------------------------------------------------------
CCC Caa Debt rated CCC/Caa has a currently identifiable
vulnerability to default and is dependent upon favorable
business, financial and economic conditions to meet timely
payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay
principal. The CCC/Caa rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied B or B-/B3 rating.
--------------------------------------------------------------------------------
CC Ca The rating CC/Ca typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC/Caa
rating.
--------------------------------------------------------------------------------
C C The rating C typically is applied to debt subordinated to
senior debt, which is assigned an actual or implied
CCC-/Caa3 debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but
debt service payments are continued.
--------------------------------------------------------------------------------
CI -- The rating CI is reserved for income bonds on which no
interest is being paid.
--------------------------------------------------------------------------------
D D Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not
made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
--------------------------------------------------------------------------------

42 American Century Investments 1-800-345-2021

To provide more detailed indications of credit quality, the Standard & Poor's
ratings from AA to CCC may be modified by the addition of a plus or minus sign
to show relative standing within these major rating categories. Similarly,
Moody's adds numerical modifiers (1,2,3) to designate relative standing within
its major bond rating categories. Fitch Investors Service, Inc. also rates bonds
and uses a ratings system that is substantially similar to that used by Standard
& Poor's.

COMMERCIAL PAPER RATINGS
--------------------------------------------------------------------------------
S&P Moody's Description
--------------------------------------------------------------------------------
A-1 Prime-1 (P-1) This indicates that the degree of safety regarding
timely payment is strong. Standard & Poor's rates
those issues determined to possess extremely strong
safety characteristics as A-1+.
--------------------------------------------------------------------------------
A-2 Prime-2 (P-2) Capacity for timely payment on commercial paper 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 (P-3) Satisfactory capacity for timely repayment. Issues
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.
--------------------------------------------------------------------------------

www.americancentury.com American Century Investments 43

MORE INFORMATION ABOUT THE FUNDS IS CONTAINED IN THESE DOCUMENTS

Annual and Semiannual Reports

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

You can receive a free copy of the annual and semiannual reports, and ask any
questions about the funds, by contacting us at the address or one of the
telephone numbers listed below.

If you own or are considering purchasing fund shares through

* an employer-sponsored retirement plan

* a bank

* a broker-dealer

* an insurance company

* another financial intermediary

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

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

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

On the Internet * EDGAR database at www.sec.gov

* By email request at publicinfo@sec.gov

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

Investment Company Act File No. 811-4025

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

AMERICAN CENTURY INVESTMENTS
P.O. Box 419200
Kansas City, Missouri 64141-6200

INVESTOR RELATIONS
1-800-345-2021 or 816-531-5575

AUTOMATED INFORMATION LINE
1-800-345-8765

WWW.AMERICANCENTURY.COM

FAX
816-340-7962

TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 or 816-444-3485

BUSINESS; NOT-FOR-PROFIT AND
EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533

SH-SAI-24873 0105

AMERICAN CENTURY MUNICIPAL TRUST

PART C OTHER INFORMATION

Item 23 EXHIBITS (all exhibits not filed herewith are being incorporated
herein by reference).

(a) (1) Amended Declaration of Trust, dated March 9, 1998 and amended
March 1, 1999 (filed electronically as Exhibit a to Post-Effective
Amendment No. 27 to the Registration Statement of the Registrant on
September 2, 1999, File No. 2-91229).

(2) Amendment to the Declaration of Trust, dated March 6, 2001 is
included herein.

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

(c) Registrant hereby incorporates by reference, as though set forth fully
herein, Article III, Article IV, Article V, Article VI and Article
VIII of Registrant's Amended Declaration of Trust, appearing as
Exhibit (a) to this Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A of the Registrant; and Article II,
Article III, Article IV and Article V of Registrant's Amended and
Restated Bylaws appearing as Exhibit 2 to Post-Effective Amendment No.
23 on Form N-1A of the Registrant.

(d) (1) Investor Class Management Agreement between American Century
Municipal Trust and American Century Investment Management, Inc.,
dated August 1, 1997 (filed electronically as Exhibit 5 to
Post-Effective Amendment No. 33 to the Registration Statement of
American Century Government Income Trust on July 31, 1997, File No.
2-99222).

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

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

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

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

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

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

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

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

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

(f) Not applicable.

(g) (1) Master Agreement by and between Twentieth Century Services, Inc.
and Commerce Bank, N.A., dated January 22, 1997 (filed electronically
as Exhibit g2 to Post-Effective Amendment No. 76 to the Registration
Statement of American Century Mutual Funds, Inc. on February 28, 1997,
File No. 2-14213).

(2) Global Custody Agreement between American Century Investments and
The Chase Manhattan Bank, dated August 9, 1996 (filed electronically
as Exhibit 8 to Post-Effective Amendment No. 31 to the Registration
Statement of American Century Government Income Trust on February 7,
1997, File No. 2-99222).

(3) Amendment to the Global Custody Agreement between American Century
Investments and 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).

(h) (1) Transfer Agency Agreement between American Century Municipal Trust
and American Century Services Corporation, dated August 1, 1997 (filed
electronically as Exhibit 9 to Post-Effective Amendment No. 33 to the
Registration Statement of American Century Government Income Trust on
July 31, 1997, File No. 2-99222).

(2) Amendment to the Transfer Agency Agreement between American
Century Municipal Trust and American Century Services Corporation,
dated March 9, 1998 (filed electronically as Exhibit B9b to
Post-Effective Amendment No. 23 to the Registration Statement of the
Registrant on March 26, 1998, File No. 2-91229).

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

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

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

(i) Opinion and Consent of Counsel (filed electronically as Exhibit i to
Post-Effective Amendment No. 27 to the Registration Statement of the
Registrant on September 2, 1999, File No. 2-91229).

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

(2) Consent of KPMG Peat Marwick, LLP, independent auditors (filed
electronically as Exhibit 11 to Post-Effective Amendment No. 33 to the
Registration Statement of American Century Government Income Trust on
July 31, 1997, File No. 2-99222).

(3) Power of Attorney, dated September 16, 2000 (filed electroncially
as Exhibit j3 to Post-Effective Amendment No. 29 to the Registration
Statement of the Registrant, on September 28, 2000, File No. 2-91229).

(k) Not applicable.

(l) Not applicable.

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

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

(o) Not applicable.

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

Item 24. Persons Controlled by or Under Control with Registrant - None.

Item 25. Indemnification.

As stated in Article VII, Section 3 of the Amended Declaration of Trust,
incorporated herein by reference to Exhibit a to the Registration Statement,
"The Trustees shall be entitled and empowered to the fullest extent permitted by
law to purchase insurance for and to provide by resolution or in the Bylaws for
indemnification out of Trust assets for liability and for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit, or proceeding in which he or she
becomes involved by virtue of his or her capacity or former capacity with the
Trust. The provisions, including any exceptions and limitations concerning
indemnification, may be set forth in detail in the Bylaws or in a resolution
adopted by the Board of Trustees."

Registrant hereby incorporates by reference, as though set forth fully herein,
Article VI of the Registrant's Bylaws, amended and restated on March 9, 1998,
incorporated herein by reference to Exhibit b to Post-Effective Amendment No. 23
to the Registration Statement on March 26, 1998, File No. 2-91229.

The Registrant has purchased an insurance policy insuring its officers and
directors against certain liabilities which such officers and trustees may incur
while acting in such capacities and providing reimbursement to the Registrant
for sums which it may be permitted or required to pay to its officers and
trustees by way of indemnification against such liabilities, subject in either
case to clauses respecting deductibility and participation.

Item 26. Business and Other Connections of Investment Advisor.

None.

Item 27. Principal Underwriter.

I. (a) American Century Investment Services, Inc. (ACIS) acts as principal
underwriter for the following investment companies:

American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century Variable Portfolios II, Inc.
American Century World Mutual Funds, Inc.

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

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

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

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

W. Gordon Snyder President none

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

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

Kevin Cuccias Senior Vice President none

Joseph Greene Senior Vice President none

Brian Jeter Senior Vice President none

Mark Killen Senior Vice President none

Tom Kmak Senior Vice President none

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

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

Item 28. Location of Accounts and Records.

All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act, and the rules promulgated thereunder, are in the
possession of Registrant, American Century Services Corporation and American
Century Investment Management, Inc., all located at 4500 Main Street, Kansas
City, Missouri 64111.

Item 29. Management Services - Not applicable.

Item 30. Undertakings - Not applicable.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of this Post-Effective Amendment No. 31 and 1940 Act Amendment
No. 32 to its Registration Statement pursuant to Rule 485(b) promulgated under
the Securities Act of 1933, as amended, and has duly caused this Post-Effective
Amendment No. 31/Amendment No. 32 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Kansas
City, State of Missouri, on the 20th day of April, 2001.

AMERICAN CENTURY MUNICIPAL TRUST (Registrant)

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

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 31/Amendment No. 32 has been signed below by the following persons
in the capacities and on the dates indicated.

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

*William M. Lyons President, Trustee April 20, 2001
--------------------------------- and Principal Executive
William M. Lyons Officer

*Maryanne Roepke Senior Vice President, April 20, 2001
--------------------------------- Treasurer and
Maryanne Roepke Chief Accounting Officer

*James E. Stowers III Trustee, April 20, 2001
--------------------------------- Chairman of the Board
James E. Stowers III

*Albert A. Eisenstat Trustee April 20, 2001
---------------------------------
Albert A. Eisenstat

*Ronald J. Gilson Trustee April 20, 2001
---------------------------------
Ronald J. Gilson

*Myron S. Scholes Trustee April 20, 2001
---------------------------------
Myron S. Scholes

*Kenneth E. Scott Trustee April 20, 2001
---------------------------------
Kenneth E. Scott

*Jeanne D. Wohlers Trustee April 20, 2001
---------------------------------
Jeanne D. Wohlers

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