ck0000717316-20230831
January
1, 2024
American
Century Investments
Statement
of Additional Information
American
Century California Tax-Free and Municipal Funds
California
High-Yield Municipal Fund
Investor
Class (BCHYX)
I
Class (BCHIX)
Y
Class (ACYHX)
A
Class (CAYAX)
C
Class (CAYCX)
California
Intermediate-Term Tax-Free Bond Fund
Investor
Class (BCITX)
I
Class (BCTIX)
Y
Class (ACYTX)
A
Class (BCIAX)
C
Class (BCIYX)
California
Tax-Free Money Market Fund
Investor
Class (BCTXX)
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This
statement of additional information adds to the discussion in the funds’
prospectuses dated January 1, 2024, but is not a prospectus. The statement
of additional information should be read in conjunction with the funds’
current prospectuses. If you would like a copy of a prospectus, please
contact us at one of the addresses or telephone numbers listed on the back
cover or visit American Century Investments’ website at
americancentury.com. |
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This
statement of additional information incorporates by reference certain
information that appears in the funds’ annual reports, which are delivered
to all investors. You may obtain a free copy of the funds’ annual reports
by calling 1-800-345-2021. |
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©2024
American Century Proprietary Holdings, Inc. All rights reserved.
American
Century California Tax-Free and Municipal Funds is a registered open-end
management investment company that was organized as a Massachusetts business
trust on February 18, 1983. From then until January 1997, it was known as Benham
California Tax-Free and Municipal Funds. Throughout this statement of additional
information, we refer to American Century California Tax-Free and Municipal
Funds as the trust.
Each
fund is a separate series of the trust and operates for many purposes as if it
were an independent company. Each fund has its own investment objective,
strategy, management team, assets, and tax identification and stock registration
number.
Effective
January 1, 2006, the California Intermediate-Term Tax-Free Fund was renamed the
California Tax-Free Bond Fund. Effective November 1, 2010, the California
Tax-Free Bond Fund was renamed the California Intermediate-Term Tax-Free Bond
Fund.
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| Fund/Class |
Ticker
Symbol |
Inception
Date |
| California
High-Yield Municipal Fund |
| Investor
Class |
BCHYX |
12/30/1986 |
| I
Class |
BCHIX |
03/01/2010 |
| Y
Class |
ACYHX |
04/10/2017 |
| A
Class |
CAYAX |
01/31/2003 |
| C
Class |
CAYCX |
01/31/2003 |
| California
Intermediate-Term Tax-Free Bond Fund |
| Investor
Class |
BCITX |
11/09/1983 |
| I
Class |
BCTIX |
03/01/2010 |
| Y
Class |
ACYTX |
04/10/2017 |
| A
Class |
BCIAX |
03/01/2010 |
| C
Class |
BCIYX |
03/01/2010 |
| California
Tax-Free Money Market Fund |
| Investor
Class |
BCTXX |
11/09/1983 |
This
section explains the extent to which the funds’ advisor, American Century
Investment Management, Inc. (ACIM), can use various investment vehicles and
strategies in managing a fund’s assets. Descriptions of the investment
techniques and risks associated with each appear in the section, Investment
Strategies and Risks,
which begins on page 4. In the case of the funds’ principal investment
strategies, these descriptions elaborate upon the discussion contained in the
prospectuses.
California
High-Yield Municipal Fund and California Intermediate-Term Tax-Free Bond Fund
are 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, a
fund will not invest more than 5% of its total assets in the securities of a
single issuer or own more than 10% of the outstanding voting securities of a
single issuer (other than U.S. government securities and securities of other
investment companies). California Tax-Free Money Market operates pursuant to
Rule 2a-7 under the Investment Company Act, which permits the valuation of
portfolio securities on the basis of amortized cost. To rely on Rule 2a-7, the
fund must comply with the definition of diversified under the rule.
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) and it does not own more than 10% of the outstanding voting securities
of a single issuer.
Each
fund intends to remain fully invested in municipal obligations. Each fund will
invest at least 80% of its net assets in California municipal obligations. A
municipal obligation is a “California” municipal obligation if its income is
exempt from California state income taxes. This includes obligations issued by
U.S. territories or possessions that are exempt from federal and California
state income taxes.
The
remaining 20% of net assets may be invested in:
(1)municipal
obligations issued in other states, and
(2)U.S.
government obligations.
For
temporary defensive purposes, each fund may invest more than 20% of its net
assets in U.S. government obligations. For liquidity purposes, each fund may
invest up to 5% of its total assets in shares of money market funds; the
non-money market funds may invest in money market funds managed by the
advisor.
Each
fund will invest at least 80% of its net assets in obligations with interest
exempt from regular federal income tax. California High-Yield Municipal, unlike
the other funds, may invest substantially all of its assets in securities that
are subject to the alternative minimum tax (AMT). See Alternative
Minimum Tax,
page 42.
For
an explanation of the securities ratings referred to in the prospectuses and
this statement of additional information, see Explanation
of Fixed-Income Securities Ratings
in Appendix
D.
Investments
are varied according to what is judged advantageous under changing economic
conditions. It is the advisor’s policy to retain maximum flexibility in
management without restrictive provisions as to the proportion of one or another
class of securities that may be held, subject to the investment restrictions
described below. Subject to the specific limitations applicable to a fund, the
fund management teams may invest the assets of each fund in varying amounts in
other instruments when such a course is deemed appropriate in order to pursue a
fund’s investment objective. Unless otherwise noted, all investment restrictions
described below and in each fund’s prospectus are measured at the time of the
transaction in the security. If market action affecting fund securities
(including, but not limited to, appreciation, depreciation or a credit rating
event) causes a fund to exceed an investment restriction, the advisor is not
required to take immediate action. Under normal market conditions, however,
the advisor’s policies and procedures indicate that the advisor will not make
any purchases that will make the fund further outside the investment
restriction.
Under
normal market conditions, California High-Yield Municipal invests at least 80%
of its net assets in municipal securities with income payments exempt from
federal and California income taxes. Although California High-Yield Municipal
typically invests a significant portion of its assets in investment-grade bonds,
the advisor does not adhere to specific rating criteria in selecting investments
for this fund. The fund invests in securities rated or judged by the advisor to
be below investment-grade quality (e.g., bonds rated BB/Ba or lower, which are
sometimes referred to as junk bonds) or unrated bonds.
Many
issuers of medium- and lower-quality bonds choose not to have their obligations
rated and a large portion of California High-Yield Municipal’s portfolio may
consist of obligations that, when acquired, were not rated. Unrated securities
may be less liquid than comparable rated securities and may involve the risk
that the portfolio managers may not accurately evaluate the security’s
comparative credit rating. Analyzing the creditworthiness of issuers of
lower-quality, unrated bonds may be more complex than analyzing the
creditworthiness of issuers of higher-quality bonds. There is no limit to the
percentage of assets the fund may invest in unrated securities. The fund may
invest up to 10% of its total assets in securities that are in monetary
default.
California
High-Yield Municipal may invest in investment-grade municipal obligations if the
advisor considers it appropriate to do so. Investments of this nature may be
made due to market considerations (e.g., a limited supply of medium- and
lower-grade municipal obligations) or to increase liquidity of the fund.
Investing in high-grade obligations may lower the fund’s
return.
California
High-Yield Municipal may purchase private activity municipal securities. The
interest from these securities is treated as a tax-preference item in
calculating federal AMT liability. The fund is not limited in its investments in
securities that are subject to the AMT. Therefore, the fund is better suited for
investors who do not expect AMT liability. See Taxes,
page 40.
Under
normal market conditions, California Intermediate-Term Tax-Free Bond invests at
least 80% of the value of its respective net assets in a portfolio of investment
grade municipal obligations with interest payments exempt from federal and
California income taxes. At least 80% of the fund will be invested
in:
•municipal
bonds rated, when acquired, within the four highest categories designated by a
rating agency;
•municipal
notes (including variable-rate demand obligations) and tax-exempt commercial
paper that is rated, when acquired, within the two highest categories designated
by a rating agency; or
•unrated
obligations judged by the advisor to be of a quality comparable to the
securities listed above.
Up
to 20% of the fund’s net assets may be invested in securities rated below
investment-grade quality. Many issuers of medium- and lower-quality bonds choose
not to have their obligations rated and a portion of the fund’s portfolio may
consist of obligations that, when acquired, were not rated. Unrated securities
may be less liquid than comparable rated securities and may involve the risk
that the portfolio managers may not accurately evaluate the security’s
comparative credit quality. Analyzing the creditworthiness of issuers of
lower-quality, unrated bonds may be more complex than analyzing the
creditworthiness of issuers of higher-quality bonds. The fund also may invest in
securities that are in technical or monetary default.
California
Tax-Free Money Market seeks to maintain a $1 share price, although there is no
guarantee it will be able to do so. Shares of the fund are neither insured nor
guaranteed by the U.S. government. The money market fund may be appropriate for
investors seeking share price stability who can accept the lower yields that
short-term obligations typically provide.
In
selecting investments for the money market fund, the advisor adheres to
regulatory guidelines concerning the quality and maturity of money market fund
investments as well as to internal guidelines designed to minimize credit risk.
In particular, the fund:
•buys
only U.S. dollar-denominated obligations with remaining maturities of 397 days
or less (and variable- and floating-rate obligations with demand features that
effectively shorten their maturities to 397 days or less);
•maintains
a dollar-weighted average maturity of 60 days or less and a weighted average
life of 120 days or less; and
•restricts
its investments to eligible securities.
To
be considered an eligible security, a security must be:
•a
U.S. government security;
•issued
by a registered investment company that is a money market fund; or
•a
security with a remaining maturity of 397 calendar days or less that the Board
of Trustees, or its designee, has determined presents minimal credit
risks.
This
section describes the investment vehicles and techniques the portfolio 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.
Focus
in Types of Municipal Activities
From
time to time, a significant portion of a fund’s assets may be invested in
municipal obligations that are related to the extent that economic, business or
political developments affecting one of these obligations could affect the other
obligations in a similar manner.
For
example, if a fund invested a significant portion of its assets in utility bonds
and a state or federal government agency or legislative body promulgated or
enacted new environmental protection requirements for utility providers,
projects financed by utility bonds could suffer as a group. Additional financing
might be required to comply with the new environmental requirements, and
outstanding debt might be downgraded in the interim. Among other factors that
could negatively affect bonds issued to finance similar types of projects are
state and federal legislation regarding financing for municipal projects,
pending court decisions relating to the validity or means of financing municipal
projects, material or manpower shortages, and declining demand for projects or
facilities financed by the municipal bonds.
About
the Risks Affecting California Municipal Securities
As
noted in the prospectuses, the funds are susceptible to political, economic and
regulatory events that affect issuers of California municipal obligations. These
include possible adverse effects of California constitutional amendments,
legislative measures, voter initiatives and other matters described
below.
The
following information about risk factors is provided in view of the funds’
policies of focusing their assets in California municipal securities. This
information is based on recent official statements relating to securities
offerings of California issuers and public information from other sources
(California Department of Finance, California Legislative Analyst Office, the
Governor’s website, and the California Employment Development Department),
although it does not constitute a complete description of the risks associated
with investing in securities of these issuers. While neither the advisor nor the
funds have independently verified the information contained in the official
statements, they have no reason to believe the information is
inaccurate.
Recent
Developments
On
February 28, 2023, Governor Gavin Newsom ended the State's Covid-19 state of
emergency which began on March 4, 2020. The state's SMARTER Plan will maintain
California's operational preparedness to address the next phase of the COVID-19
pandemic and will continue to guide the State's work to support communities
across the State. The State will continue to make accessible COVID-19 vaccines,
testing, and treatment within local communities across the State. California’s
unemployment rose to 4.6% in June 2023 and July 2023, as compared to 4.4% in
February 2023 and March 2023. Prior to the COVID-19 pandemic, California’s
unemployment rate was 3.9% from August 2019 through February 2020, while the
U.S. unemployment rate during these months ranged from 3.5% to 3.7%. More jobs
were lost in March and April 2020 than had been created in the previous nine
years. Given the higher presence of service sector jobs in California, the
COVID-19 pandemic has been particularly impactful to California’s labor market
as reflected by the State’s unemployment rate which remains elevated compared to
the national average. The ongoing drag of the pandemic on the State economy,
particularly in the tourist-reliant areas of the State, is a significant risk
factor.
Franchise
Tax Board Filing and Payment Deadline Extensions
The
Franchise Tax Board (“FTB”) extended various filing and payment deadlines for
individuals and businesses in California residing in countries impacted by
winter storms to October 16, 2023, in line with tax relief announced by the
Internal Revenue Service (“IRS”). The extension applied to 55 counties
comprising over 99 percent of Californians and was expected to significantly
alter the timing of state revenue collections as various payments and returns
originally due between January and September 2023 were shifted to October 16,
2023. A total of $42 billion was projected to shift from earlier months to
October 2023, including $28.4 billion in personal income
tax
and $13.3 billion in corporation tax revenues (including $8.3 billion related to
the PTE Elective Tax). While projections were modeled closely after past events,
there was significant uncertainty around the actual percentage of individuals
and businesses taking advantage of these extended deadlines.
On
October 16, the IRS announced that taxpayers in the 55 counties affected by
winter natural disasters qualify for an additional extension from October 16,
2023, to November 16, 2023, to file and pay federal taxes. The FTB generally
conforms to IRS postponement periods for presidentially-declared disasters and
also moved the due date for California state tax returns and payments that were
due on October 16, 2023, to November 16, 2023.
The
Department of Finance’s monthly cashflow reflects the expected impact of delayed
payment and filing deadlines to October 16, 2023, and does not incorporate this
latest extension to November 16, 2023. The state has significant borrowable
resources so despite this additional delay it does not expect the extension to
substantially impact the state’s ability to meet its expenditure obligations as
reflected in the 2023 Budget Act. As of October 25, 2023, a total of nearly $18
billion was collected in October 2023, consisting of $11.8 billion in
non-withholding personal income taxes (withholding receipts are not affected by
the delayed tax deadlines) and $6.2 billion in corporation tax revenues
(including $3.6 billion related to the PTE Elective Tax). Although this latest
extension has resulted in continuing uncertainty concerning fiscal year 2022-23
revenues, the cash receipts through October 25, 2023, indicate an increasing
likelihood that actual cash receipts attributable to fiscal year 2022-23 will be
significantly below the 2023 Budget Act forecast. See “ECONOMIC AND BUDGET
RISKS-Delayed Tax Deadlines.”
Population
and Economy of the State
California
is the most populous state in the nation, approximately 30% larger than the
second-ranked state. The estimate of California's population was 39 million
residents as of July 2022, which was about 12% of the total United States
population. While the state’s population decreased slightly in 2022, it is
projected to grow marginally over the long term. California's economy, the
largest among the 50 states and one of the largest and most diverse in the
world, has major components in high technology, trade, entertainment,
manufacturing, government, tourism, construction and services. The relative
proportion of the various components of the California economy closely resembles
the make-up of the national economy. California’s economy accounted for nearly
15% of the U.S. Gross Domestic Product (“GDP”) in 2022.
State
Finances
Fiscal
Year 2023-24
The
Governor signed the fiscal year 2023-24 budget on June 30, 2023 (the “2023
Budget”). The 2023 Budget projects the fiscal year starting with a balance of
$37.8 billion in budgetary reserves and includes a balanced package of solutions
to bridge an approximately $31.7 billion shortfall that avoids deep program
cuts. The 2023 Budget estimates $208.6 billion in General Fund revenues and
transfers in fiscal year 2023-24, which is a decrease of approximately $11.1
billion from the prior fiscal year, and total expenditures of $225.9 billion for
fiscal year 2023-24, which is a decrease of approximately $8.4 billion from the
prior fiscal year.
As
part of the balanced package of solutions to bridge the approximately $31.7
billion shortfall, the Budget (1) will shift $9.3 billion of spending
commitments from the General Fund to other funds, (2) reduce or pullback
previously approved spending of the General Fund by $8.1 billion, (3) generate
$6.1 billion in revenue primarily from the Managed Care Organization tax, and
internal borrowing from special fund balances not projected from programmatic
purposes, and (4) trigger $340 million in reductions that will be restored in
the January 2023 Governor's Budget if there are sufficient resources to do so at
that time.
Fiscal
Year 2022-23
On
June 27, 2022, California enacted the 2022-23 Budget Act (the “2022 Budget”).
The 2022 Budget prioritizes continued building of reserves, elimination of
budgetary debt, and reduction of liabilities. The Budget advances specific
measures to provide immediate economic relief for families and small businesses,
address the impacts of climate change, improve K-12 and higher education
programs and facilities, expand access to health care, strengthen California’s
infrastructure, modernize the state’s transportation system, increase broadband
internet access, confront homelessness and behavioral health challenges, and
build and restore safer communities. By the end of fiscal year 2022-23, the 2022
Budget estimates an increase in total reserves to $37.2 billion-$23.3 billion in
BSA, $9.5 billion in the Public School System Stabilization Account, $3.5
billion in the Special Fund for Economic Uncertainties, and $900 million in the
Safety Net Reserve.
The
2022 Budget projects General Fund revenue of $219.7 billion ($242.2 billion
after transfers) and expenditures of $234.4 billion. The 2022 Budget anticipates
increased revenue from personal income taxes and sales and use taxes, and
decreased revenue from corporation taxes. As usual, personal income taxes
contribute the majority of General Fund revenue at 61.8% ($137.5 billion), while
corporation taxes contribute 17.3% ($38.5 billion), and sales and use taxes
contribute 15.3% ($34.0 billion).
Budget
risks to the state’s general fund include ongoing challenges related to the
pandemic, inflation, the impact of weaker financial markets on the state’s tax
revenues, and significant unfunded liabilities of two main retirement systems
manage by state entities, the California public employees retirement system
(CalPERS) and the California state teachers retirement system (CalSTRS). There
can be no assurances that the continuing impacts or unforeseen impacts of the
COVID-19 pandemic or any other changes in the state or national economies or in
state or federal policies will not materially affect the financial condition of
the state’s general fund.
Constitutional
Limitations
Many
California issuers rely on ad valorem property taxes as a source of revenue. The
taxing powers of California local governments and districts are limited by
Article XIIIA of the California Constitution, enacted by voters in 1978 and
commonly known as Proposition 13. Proposition 13 limits to 1% of full cash value
the rate of ad valorem taxes on real property and restricts the reassessment of
property to 2% per year, except where new construction or changes of ownership
have occurred (subject to a number of exemptions). Taxing entities may, however,
raise ad valorem taxes above the 1% limit to pay debt service on voter-approved
bonded indebtedness. The U.S. Supreme Court has upheld Proposition 13 against
claims that it has unlawfully resulted in widely varying tax liability on
similarly-situated properties. Proposition 13 also requires voters of any
governmental unit to give two-thirds approval to levy any special tax.
Subsequent court decisions, however, have allowed non-voter approved general
taxes so long as they are not dedicated to a specific use. In response to these
decisions, voters adopted an initiative in 1986 that imposed new limits on the
ability of local government entities to raise or levy general taxes without
voter approval. Based upon a 1991 intermediate appellate court decision, it was
believed that significant parts of this initiative, known as Proposition 62,
were unconstitutional. On September 28, 1995, the California Supreme Court
rendered a decision in the case of Santa Clara County Local Transportation
Authority vs. Guardino that rejected the prior decision and upheld Proposition
62, while striking down a 1/2-cent sales tax for transportation purposes that
was approved by a majority, but less than two-thirds, vote. Proposition 62 does
not apply to charter cities, but other local governments may be constrained in
raising any taxes without voter approval.
On
November 5, 1996, California voters approved Proposition 218. This proposition
added Articles XIIIC and XIIID to the state constitution, affecting the ability
of local governments, including charter cities, to levy and collect both
existing and future taxes, assessments, fees and charges. Proposition 218 became
effective November 6, 1996, although application of some of its provisions was
deferred until July 1, 1997. This proposition could negatively impact a local
government’s ability to make its debt service payments, and thus could result in
lower credit ratings.
On
November 2, 2010, voters approved the following initiative measures which have
an impact on state budget finances; all three of these measures were effective
immediately:
Proposition
22 restricts the ability of the state to use or borrow money from local
governments and moneys dedicated to transportation financing. It also prohibits
actions taken in current and prior budgets to use excise taxes on motor vehicle
fuels to offset General Fund costs of debt service on certain transportation
bonds and to borrow money from certain transportation funds.
Proposition
25 reduces the required vote in each house of the legislature to adopt the
annual budget act “trailer bills,” which accompany the budget act, and other
appropriations measures to a majority from two-thirds.
Proposition
26 expands the definition of “taxes” under existing Constitutional provisions
that require a two-thirds vote of the legislature to approve.
On
November 6, 2012, voters approved Proposition 30 which provided temporary
increases in personal income tax rates for high-income taxpayers and a temporary
increase in the state sales tax rate, and specified that the additional revenues
will support K-14 public schools and community colleges as part of the
Proposition 98 guarantee. Proposition 30 also placed into the state constitution
the current statutory provisions transferring 1.0625% of the state sales tax to
local governments to fund the “realignment” program for many services including
housing criminal offenders.
Also
on November 6, 2012, voters approved Proposition 39, thereby amending state
statutes governing corporation taxes by reversing a provision adopted in 2009
giving corporations an option on how to calculate the portion of worldwide
income attributable to California. By requiring corporations to base their state
tax liability on sales in California, it is estimated that state revenues would
be increased by about $1 billion per year. The measure also, for five years,
dedicates up to an estimated $550 million per year from this increased income to
funding of projects that create energy efficiency and clean energy jobs in
California.
In
November 2014, the state’s voters approved Proposition 2, which revised the
state’s method of funding a Budget Stabilization Account (BSA) or “rainy day
fund”. 1.5% of annual general fund revenues, plus excess capital gains receipts
above a certain level, not necessary to fund Proposition 98, are applied equally
to the BSA and paying down state liabilities (budgetary borrowings, and
specified payments over and above base payments for state pensions and retiree
health care costs). After fiscal year 2030-31, the revenues that otherwise would
have been deposited into the BSA may be used for either supplemental debt
payments or savings.
California
withdrew a portion of the balance in the BSA during fiscal year 2020-21 before
largely replenishing the fund by the end of fiscal year 2021-22. Proposition 2
requires that 1.5% of annual General Fund revenues be deposited each year into
the BSA until the BSA balance reaches an amount equal to 10%of General Fund
revenues.
The
2023 Budget Act reflects a $930 million one-time supplemental payment for
Proposition 28, which was passed by voters in the November 2022 election.
Proposition 28 establishes funding for K-12 arts and music education in public
schools. Pursuant to Proposition 28, beginning in fiscal year 2024-25, the
Proposition 98 minimum guarantee Test 1 percentage will be re-benched to
permanently include Proposition 28.
Obligations
of the State of California
As
of July 1, 2023,
the state had approximately $78.5
billion
of outstanding general obligation bonds and lease revenue bonds payable
principally from the state’s general fund or from lease payments paid from the
operating budget from the state’s General Fund. As
of
July
1, 2023, there were approximately $25.8 billion of authorized and unissued
long-term voter-approved general obligation bonds which, when issued, will be
payable principally from the General Fund and approximately $6.9 billion of
authorized and unissued lease revenue bonds.
State
Pension Funds and Retiree Health Benefits
The
two main state pension funds (CalPERS and CalSTRS) each continue to face
unfunded future liabilities in the tens of billions of dollars. It is unknown
how significantly the market volatility may ultimately impact unfunded pension
liabilities and the state’s annually determined General Fund pension
contributions. For fiscal year 2022-23 the actuary determined General Fund
pension contributions to CalPERS and CalSTRS were approximately $4.6 billion and
$3.7 billion, respectively. For Fiscal Year 2023-24, the actuary determined
General Fund pension contributions to CalPERS and CalSTRS are approximately $4.7
billion and $3.9 billion, respectively.
The
state budget for fiscal year 2019-20 included discretionary pension payments
from the General Fund to be made to CalPERS and CalSTRS over a multi-year
period. The entire $7.4 billion ($7.3 billion General Fund) in discretionary
pension payments has been paid as of June 30, 2023. The 2023 Budget Act uses
Proposition 2 debt repayment funding in fiscal year 2023-24 to reduce the
state’s unfunded liabilities for CalPERS and CalSTRS in the amount of $1.7
billion. These payments are in addition to the statutorily required state
pension contributions.
Climate
Change
Historically,
California has been susceptible to wildfires and hydrologic variability. As
greenhouse gas emissions continue to accumulate, climate change will intensify
and increase the frequency of extreme weather events, such as coastal storm
surges, drought, wildfires, floods and heat waves, and raise sea levels along
the coast. Over the past several years, the state has already experienced the
impacts of climate change through a multi-year drought and unprecedented
wildfires. The previous drought was a five-year event from 2012 to 2016, and six
years later in 2022, California is once again facing drought conditions. On
October 19, 2021, the Governor extended the drought state of emergency to all 58
of the state's counties, which is up from 50 counties as of July 31, 2021. In
May 2022, emergency regulations were put in place to require local water
agencies to reduce water use by up to 20% and prohibit any watering of
ornamental lawns at businesses and other commercial properties. The dry weather
also increases wildfire risks. In 2020, over 4 million acres burned in
California, more than twice the previous record of approximately 2 million acres
in 2018. Destruction of housing increases the demand for construction resources
from rebuilding, and worsens the state's housing imbalances. The future fiscal
impact of climate change on the state budget is difficult to predict, but it
could be significant. However, the state is in the process of implementing
various resilience measures to reduce the impacts of climate change, including
significant investments in wildfire prevention and water infrastructure
projects. The ability of the state to take actions to mitigate any future fiscal
impact of climate change on the state budget is limited and there can be no
assurances that the current or any future resilience measures will be effective
in materially mitigating the impact of climate change on the state.
During
the 2022-23 winter, the state experienced significant storms leading to severe
flooding in various locations throughout the state, and by April 2023 the
flooding had caused the state to declare emergencies in 51 of the state’s 58
counties. The winter storms brought historic levels of snow and the associated
snow melt as temperatures increased through the spring resulting in significant
flooding in various regions of the state. The state continues to support a
comprehensive approach to water management intended to be responsive to drastic
shifts in precipitation levels caused by climate change.
Counterparty
Risk
A
fund will be exposed to the credit risk of the counterparties with which, or the
brokers, dealers and exchanges through which, it deals, whether it engaged in
exchange traded or off-exchange transactions. If a fund’s futures commission
merchant, (FCM) becomes bankrupt or insolvent, or otherwise defaults on its
obligations to the fund, the fund may not receive all amounts owed to it in
respect of its trading, despite the clearinghouse fully discharging all of its
obligations. The Commodity Exchange Act requires an FCM to segregate all
funds received from its customers with respect to regulated futures transactions
from such FCM’s proprietary funds. If an FCM were not to do so to the full
extent required by law, the assets of an account might not be fully protected in
the event of the bankruptcy of an FCM. Furthermore, in the event of an
FCM’s bankruptcy, a fund would be limited to recovering only a pro rata share of
all available funds segregated on behalf of an FCM’s combined customer accounts,
even though certain property specifically traceable to the fund (for example,
U.S. Treasury bills deposited by the fund) was held by an FCM. FCM
bankruptcies have occurred in which customers were unable to recover from the
FCM’s estate the full amount of their funds on deposit with such FCM and owing
to them. Such situations could arise due to various factors, or a
combination of factors, including inadequate FCM capitalization, inadequate
controls on customer trading and inadequate customer capital. In addition,
in the event of the bankruptcy or insolvency of a clearinghouse, the fund might
experience a loss of funds deposited through its FCM as margin with the
clearinghouse, a loss of unrealized profits on its open positions, and the loss
of funds owed to it as realized profits on closed positions. Such a
bankruptcy or insolvency might also cause a substantial delay before the fund
could obtain the return of funds owed to it by an FCM who was a member of such
clearinghouse.
Because
bi-lateral derivative transactions are traded between counterparties based on
contractual relationships, a fund is subject to the risk that a counterparty
will not perform its obligations under the related contracts. Although each
fund intends to enter into transactions only with counterparties which the
advisor believes to be creditworthy, there can be no assurance that a
counterparty will
not
default and that the funds will not sustain a loss on a transaction as a result.
In situations where a fund is required to post margin or other collateral with a
counterparty, the counterparty may fail to segregate the collateral or may
commingle the collateral with the counterparty’s own assets. As a result,
in the event of the counterparty’s bankruptcy or insolvency, a fund’s collateral
may be subject to the conflicting claims of the counterparty’s creditors, and a
fund may be exposed to the risk of a court treating a fund as a general
unsecured creditor of the counterparty, rather than as the owner of the
collateral.
A
fund is subject to the risk that issuers of the instruments in which it invests
and trades may default on their obligations under those instruments, and that
certain events may occur that have an immediate and significant adverse effect
on the value of those instruments. There can be no assurance that an issuer
of an instrument in which a fund invests will not default, or that an event that
has an immediate and significant adverse effect on the value of an instrument
will not occur, and that a fund will not sustain a loss on a transaction as a
result.
Transactions
entered into by a fund may be executed on various U.S. and non-U.S. exchanges,
and may be cleared and settled through various clearinghouses, custodians,
depositories and prime brokers throughout the world. Although a fund
attempts to execute, clear and settle the transactions through entities the
advisor believes to be sound, there can be no assurance that a failure by any
such entity will not lead to a loss to a fund.
Cyber
Security Risk
As
the funds increasingly rely on technology and information systems to operate,
they become susceptible to operational risks linked to security breaches in
those information systems. Both calculated attacks and unintentional events can
cause failures in the funds’ information systems. Cyber attacks can include
acquiring unauthorized access to information systems, usually through hacking or
the use of malicious software, for purposes of stealing assets or confidential
information, corrupting data, or disrupting fund operations. Cyber attacks can
also occur without direct access to information systems, for example by making
network services unavailable to intended users. Cyber security failures by, or
breaches of the information systems of, the advisor, distributors,
broker-dealers, other service providers (including, but not limited to, index
providers, fund accountants, custodians, transfer agents and administrators), or
the issuers of securities the fund invests in may also cause disruptions and
impact the funds’ business operations. Breaches in information security may
result in financial losses, interference with the funds’ ability to calculate
NAV, impediments to trading, inability of fund shareholders to transact
business, violations of applicable privacy and other laws, regulatory fines,
penalties, reputational damage, reimbursement or other compensation costs, or
additional compliance costs. Additionally, the funds may incur substantial costs
to prevent future cyber incidents. The funds have business continuity plans in
the event of, and risk management systems to help prevent, such cyber attacks,
but these plans and systems have limitations including the possibility that
certain risks have not been identified. Moreover, the funds do not control the
cyber security plans and systems of our service providers and other third party
business partners. The funds and their shareholders could be negatively impacted
as a result.
Derivative
Instruments
To
the extent permitted by its investment objectives and policies, each fund may
invest in derivative instruments. Generally, a derivative instrument is a
financial arrangement, the value of which is based on, or derived from, a
traditional security, asset, or market index. A
fund may not invest in a derivative instrument if its credit, interest rate,
liquidity, counterparty or other associated risks are outside acceptable limits
set forth in its prospectus. The advisor has a derivatives risk management
program that includes policies and procedures reasonably designed to manage each
fund’s respective derivatives risk. The derivatives risk management program
complies with Rule 18f-4 of the Investment Company Act. Unless a fund qualifies
as a limited derivatives user, the fund will be required to participate in the
derivatives risk management program, which includes compliance with
value-at-risk based leverage limits, oversight by a derivatives risk manager,
and additional reporting and disclosure regarding its derivatives positions. A
fund designated as a limited derivatives user has policies and procedures to
manage its aggregate derivatives risk. The advisor will report on the
derivatives risk management program to the Board of Trustees on a quarterly
basis.
Examples
of common derivative instruments include futures contracts, warrants, structured
notes, credit default swaps, options contracts, swap transactions and forward
currency contracts.
A
structured investment is a security whose value or performance is linked to an
underlying index or other security or asset class. Structured investments
include ABS, commercial and residential mortgage-backed securities (CMBS and
MBS), and collateralized mortgage obligations (CMO), which are described more
fully below. Structured investments also include securities backed by other
types of collateral. Structured investments involve the transfer of specified
financial assets to a special purpose entity, generally a corporation or trust,
or the deposit of financial assets with a custodian; and the issuance of
securities or depositary receipts backed by, or representing interests in, those
assets.
Some
structured investments are individually negotiated agreements or are traded over
the counter. Structured investments may be organized and operated to restructure
the investment characteristics of the underlying security. The cash flow on the
underlying instruments may be apportioned among the newly issued structured
investments to create securities with different investment characteristics, such
as varying maturities, payment priorities and interest rate provisions, and the
extent of such payments made with respect to structured investments is dependent
on the extent of the cash flow on the underlying instruments. Because structured
investments typically involve no credit enhancement, their credit risk generally
will be equivalent to that of the underlying
instruments.
Structured investments are subject to the risks that the issuers of the
underlying securities may be unable or unwilling to repay principal and interest
(credit risk) and may request to reschedule or restructure outstanding debt and
to extend additional loan amounts (prepayment risk).
Mortgage-related
and other ABS, are in many respects like any other investment, although they may
be more volatile or less liquid than more traditional debt
securities.
The
risks associated with investments in derivatives differ from, and may be greater
than, the risks associated with investing directly in traditional investments.
Leverage
Risk
– Relatively small market movements may cause large changes in an investment’s
value. Leverage is associated with
certain types of derivatives or trading strategies. Certain transactions in
derivatives (such as futures transactions or sales of put options) involve
substantial leverage and may expose a fund to potential losses that exceed the
amount of initial investment.
Hedging
Risk
– When used to hedge against a position in a fund, losses on a derivative
instrument are typically offset by gains on the hedged position, and vice versa.
Thus, though hedging can minimize or cancel out losses, it can also have the
same effect on gains. Occasionally, there may be imperfect matching between the
derivative and the underlying security, such a match may prevent the fund from
achieving the intended hedge or expose it to a risk of loss. There is no
guarantee that a fund’s hedging strategy will be effective. Portfolio managers
may decide not to hedge against any given risk either because they deem such
risk improbable or they do not foresee the occurrence of the risk. Additionally,
certain risks may be impossible to hedge against.
Correlation
Risk –
The value of the underlying security, interest rate, market index or other
financial asset may not move in the direction the portfolio managers anticipate.
Additionally, the value of the derivative may not move or react to changes in
the underlying security, interest rate, market index or other financial asset as
anticipated.
Illiquidity
Risk
– There may be no liquid secondary market, which may make it difficult or
impossible to close out a position when desired. For exchange-traded derivatives
contracts, daily limits on price fluctuations and speculative position limits
set by the exchanges on which the fund transacts in derivative instruments may
prevent profitable liquidation of positions, subjecting a fund to the potential
of greater losses.
Settlement
Risk
– A fund may have an obligation to deliver securities or currency pursuant to a
derivatives transaction that such fund does not own at the inception of the
derivatives trade.
Counterparty
Risk
– A counterparty may
fail to perform its obligations.
Because bi-lateral derivative transactions are traded between counterparties
based on contractual relationships, a fund is subject to the risk that a
counterparty will not perform its obligations under the related contracts.
Although each fund intends to enter into transactions only with counterparties
which the advisor believes to be creditworthy, there can be no assurance that a
counterparty will not default and that the funds will not sustain a loss on a
transaction as a result. In situations where a fund is required to post margin
or other collateral with a counterparty, the counterparty may fail to segregate
the collateral or may commingle the collateral with the counterparty’s own
assets. As a result, in the event of the counterparty’s bankruptcy or
insolvency, a fund’s collateral may be subject to the conflicting claims of the
counterparty’s creditors, and a fund may be exposed to the risk of a court
treating a fund as a general unsecured creditor of the counterparty, rather than
as the owner of the collateral.
Volatility
Risk
– A
fund could face
higher volatility because some derivative instruments create
leverage.
A
fund may not invest in a derivative instrument if its credit, interest rate,
liquidity, counterparty and other risks associated with ownership of the
security are outside acceptable limits set forth in the fund’s prospectus.
Futures
and Options
The
funds, other than the money market funds, may enter into futures contracts,
options or options on futures contracts. Futures and options are commonly used
for traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices or currency exchange rates, and for
cash management purposes as a low-cost method of gaining exposure to a
particular securities market without investing directly in those securities.
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.
Futures
Each
non-money market fund may enter into futures contracts, options or options on
futures contracts. Futures contracts provide for the sale by one party and
purchase by another party of a specific security at a specified future time and
price. Some futures and options strategies, such as selling futures, buying puts
and writing calls, hedge a fund’s investments against price fluctuations. Other
strategies, such as buying futures, writing puts and buying calls, tend to
increase market exposure. The funds do not use futures and options transactions
for speculative purposes.
Although
other techniques may be used to control a fund’s exposure to market
fluctuations, the use of futures contracts may be a more effective means of
hedging this exposure. While a fund pays brokerage commissions in connection
with opening and closing out futures positions, these costs are lower than the
transaction costs incurred in the purchase and sale of the underlying
securities.
Futures
contracts are traded on national futures exchanges. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC), a U.S. government agency. The funds may engage in
futures and options transactions, provided that the transactions are consistent
with the funds’ investment objectives. The funds also may engage in futures and
options transactions based on specific securities such as U.S. Treasury bonds or
notes.
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 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).
Unlike
when a fund purchases or sells a bond, no price is paid or received by the fund
upon the purchase or sale of the future. Initially, the fund will be required to
deposit an amount of cash or securities equal to a varying specified percentage
of the contract amount. This amount is known as initial margin. The margin
deposit is intended to ensure completion of the contract (delivery or acceptance
of the underlying security) if it is not terminated prior to the specified
delivery date. A margin deposit does not constitute a margin transaction for
purposes of the fund’s investment restrictions. 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.
Subsequent
payments to and from the broker, called variation margin, will be made on a
daily basis as the price of the underlying debt securities or index fluctuates,
making the future more or less valuable, a process known as marking the contract
to market. Changes in variation margin are recorded by the fund as unrealized
gains or losses. At any time prior to expiration of the future, the fund may
elect to close the position by taking an opposite position. A final
determination of variation margin is then made; additional cash is required to
be paid by or released to the fund and the fund realizes a loss or
gain.
Options
By
buying a put option, a fund obtains the right (but not the obligation) to sell
the instrument underlying the option at a fixed strike price and in return a
fund pays the current market price for the option (known as the option premium).
A fund may terminate its position in a put option it has purchased by allowing
it to expire, by exercising the option or by entering into an offsetting
transaction, if a liquid market exists. If the option is allowed to expire, a
fund will lose the entire premium it paid. If a fund exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
The buyer of a typical put option can expect to realize a gain if the value of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss limited to the
amount of the premium paid, plus related transaction costs.
The
features of call options are essentially the same as those of put options,
except that the buyer of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option’s strike price.
The buyer of a typical call option can expect to realize a gain if the value of
the underlying instrument increases substantially and can expect to suffer a
loss if security prices do not rise sufficiently to offset the cost of the
option.
When
a fund writes a put option, it takes the opposite side of the transaction from
the option’s buyer. In return for the receipt of the premium, a fund assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. A fund may seek to
terminate its position in a put option it writes before exercise by purchasing
an offsetting option in the market at its current price. Otherwise, a fund must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to post margin as discussed
below. If the price of the underlying instrument rises, a put writer would
generally realize as profit the premium it received. If the price of the
underlying instrument remains the same over time, it is likely that the writer
will also profit, because it should be able to close out the option at a lower
price. If the price of the underlying instrument falls, the put writer would
expect to suffer a loss.
A
fund writing a call option is obligated to sell or deliver the option’s
underlying instrument in return for the strike price upon exercise of the
option. Writing calls generally is a profitable strategy if the price of the
underlying instrument remains the same or falls. A call writer offsets part of
the effect of a price decline by receipt of the option premium, but gives up
some ability to participate in security price increases. The writer of an
exchange traded put or call option on a security, an index of securities or a
futures contract is required to deposit cash or securities or a letter of credit
as margin and to make mark to market payments of variation margin as the
position becomes unprofitable.
Risks
Related to Futures and Options Transactions
Futures
and options prices can be volatile, and trading in these markets involves
certain risks. If the advisor applies a hedge at an inappropriate time or judges
interest rate trends incorrectly, futures and options strategies may lower a
fund’s return.
A
fund could suffer losses if it were unable to close out its position because of
an illiquid secondary market. Futures contracts may be closed out only on an
exchange that provides a secondary market for these contracts, and there is no
assurance that a liquid secondary market will exist for any particular futures
contract at any particular time. Consequently, it may not be possible to close a
futures
position
when the portfolio managers consider it 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 portfolio managers will
seek to minimize these risks by limiting the contracts entered into on behalf of
the funds to those traded on national futures exchanges and for which there
appears to be a liquid secondary market.
A
fund could suffer losses if the prices of its futures and options positions were
poorly correlated with its other investments, or if securities underlying
futures contracts purchased by a fund had different maturities than those of the
portfolio securities being hedged. Such imperfect correlation may give rise to
circumstances in which a fund loses money on a futures contract at the same time
that it experiences a decline in the value of its “hedged” portfolio securities.
A fund also could lose margin payments it has deposited with a margin broker,
if, for example, the broker became bankrupt.
Most
futures exchanges limit the amount of fluctuation permitted in futures contract
prices during a single trading day. The daily limit establishes the maximum
amount that the price of a futures contract may vary either up or down from the
previous day’s settlement price at the end of the trading session. Once the
daily limit has been reached in a particular type of contract, no trades may be
made on that day at a price beyond the limit. However, the daily limit governs
only price movement during a particular trading day and, therefore, does not
limit potential losses. In addition, the daily limit may prevent liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Options
on Futures
By
purchasing an option on a futures contract, a fund obtains the right, but not
the obligation, to sell the futures contract (a put option) or to buy the
contract (a call option) at a fixed strike price. A fund can terminate its
position in a put option by allowing it to expire or by exercising the option.
If the option is exercised, the fund completes the sale of the underlying
security at the strike price. Purchasing an option on a futures contract does
not require a fund to make margin payments unless the option is
exercised.
Although
they do not currently intend to do so, the funds may write (or sell) call
options that obligate 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 was written and would keep the contract open until the obligation to
deliver it pursuant to the call expired.
Restrictions
on the Use of Futures Contracts and Options
Each
non-money market fund may enter into futures contracts, options, options on
futures contracts, or swap agreements as permitted by its investment policies
and the CFTC rules. The advisor to each fund has claimed an exclusion from the
definition of the term “commodity pool operator” under the Commodity Exchange
Act and, therefore, the advisor is not subject to registration or regulation as
a commodity pool operator under that Act with respect to its provision of
services to each fund.
Certain
rules adopted by the CFTC may impose additional limits on the ability of a fund
to invest in futures contracts, options on futures, swaps, and certain other
commodity interests if its investment advisor does not register with the CFTC as
a “commodity pool operator” with respect to such fund. It is expected that the
funds will be able to execute their investment strategies within the limits
adopted by the CFTC’s rules. As a result, the advisor does not intend to
register with the CFTC as a commodity pool operator on behalf of any of the
funds. In the event that one of the funds engages in transactions that
necessitate future registration with the CFTC, the advisor will register as a
commodity pool operator and comply with applicable regulations with respect to
that fund.
To
the extent required by law, each fund will segregate cash, cash equivalents or
other appropriate liquid securities on its records in an amount sufficient to
cover its obligations under the futures contracts, options and swap
agreements.
Swap
Agreements
Each
fund, other than money market funds, may invest in swap agreements, consistent
with its investment objective and strategies. A fund may enter into a swap
agreement, for example, to attempt to obtain or preserve a particular return or
spread at a lower cost than obtaining a return or spread through purchases
and/or sales of instruments in other markets; protect against currency
fluctuations; attempt to manage duration to protect against any increase in the
price of securities the fund anticipates purchasing at a later date; or gain
exposure to certain markets in the most economical way
possible.
Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard “swap” transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or “swapped” between the parties are generally
calculated with respect to a “notional amount,” i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate,
in a particular foreign currency, or in a “basket” of securities representing a
particular index. Forms of swap agreements include, for example, interest rate
swaps, under which fixed- or floating-rate interest payments on a specific
principal amount are exchanged and total return swaps, under which one party
agrees to pay the other the total return of a defined underlying asset (usually
an index, including inflation indexes, stock, bond or
defined
portfolio of loans and mortgages) in exchange for fee payments, often a variable
stream of cash flows based on a reference rate. The funds may enter into credit
default swap agreements to hedge an existing position by purchasing or selling
credit protection. Credit default swaps enable an investor to buy/sell
protection against a credit event of a specific issuer. The seller of credit
protection against a security or basket of securities receives an up-front or
periodic payment to compensate against potential default event(s). The fund may
enhance returns by selling protection or attempt to mitigate credit risk by
buying protection. Market supply and demand factors may cause distortions
between the cash securities market and the credit default swap
market.
Whether
a fund’s use of swap agreements will be successful depends on the advisor’s
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Interest rate swaps could result
in losses if interest rate changes are not correctly anticipated by the fund.
Total return swaps could result in losses if the reference index, security, or
investments do not perform as anticipated by the fund. Credit default swaps
could result in losses if the fund does not correctly evaluate the
creditworthiness of the issuer on which the credit default swap is based.
Because they are two-party contracts and because they may have terms of greater
than seven days, swap agreements may be considered to be illiquid. Moreover, a
fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. The funds will enter into swap agreements only with counterparties
that meet certain standards of creditworthiness or that are cleared through a
Derivatives Clearing Organization (“DCO”). Certain restrictions imposed on the
funds by the Internal Revenue Code may limit the funds’ ability to use swap
agreements.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
and related regulatory developments require the clearing and exchange-trading of
certain standardized derivative instruments that the CFTC and SEC have defined
as “swaps.” The CFTC has implemented mandatory exchange-trading and clearing
requirements under the Dodd-Frank Act and the CFTC continues to approve
contracts for central clearing. Although exchange trading is designed to
decrease counterparty risk, it does not do so entirely because the fund will
still be subject to the credit risk of the central clearinghouse. Cleared swaps
are subject to margin requirements imposed by both the central clearinghouse and
the clearing member FCM. Uncleared swaps are now subject to posting and
collecting collateral on a daily basis to secure mark-to-market obligations
(variation margin). Swaps data reporting may subject a fund
to administrative costs, and the safeguards established to
protect trader anonymity may not function as expected.
Exchange trading, central clearing, margin
requirements, and data reporting regulations may increase a fund’s
cost of hedging risk and, as a result, may affect shareholder
returns.
Inflation-Indexed
Securities
The
funds may purchase inflation-indexed securities issued by the U.S. Treasury,
U.S. government agencies and instrumentalities other than the U.S. Treasury, and
entities other than the U.S. Treasury or U.S. government agencies and
instrumentalities including state and local municipalities.
Inflation-indexed
securities are designed to offer a return linked to inflation, thereby
protecting future purchasing power of the money invested in them. However,
inflation-indexed securities provide this protected return only if held to
maturity. In addition, inflation-indexed securities may not trade at par value.
Real interest rates (the market rate of interest less the anticipated rate of
inflation) change over time as a result of many factors, such as what investors
are demanding as a true value for money. When real rates do change,
inflation-indexed securities prices will be more sensitive to these changes than
conventional bonds, because these securities were sold originally based upon a
real interest rate that is no longer prevailing. Should market expectations for
real interest rates rise, the price of inflation-indexed securities and the
share price of a fund holding these securities will fall. Investors in the funds
should be prepared to accept not only this share price volatility but also the
possible adverse tax consequences it may cause.
An
investment in securities featuring inflation-indexed principal and/or interest
involves factors not associated with more traditional fixed-principal
securities. Such factors include the possibility that the inflation index may be
subject to significant changes, that changes in the index may or may not
correlate to changes in interest rates generally or changes in other indices, or
that the resulting interest may be greater or less than that payable on other
securities of similar maturities. In the event of sustained deflation, it is
possible that the amount of semiannual interest payments, the inflation-indexed
principal of the security or the value of the stripped components will decrease.
If any of these possibilities are realized, a fund’s net asset value could be
negatively affected.
Municipal
inflation-linked bonds generally have a fixed principal amount and the inflation
component is reflected in the nominal coupon.
Inflation-Indexed
Treasury Securities
Inflation-indexed
U.S. Treasury securities are U.S. Treasury securities with a final value and
interest payment stream linked to the inflation rate. Inflation-indexed U.S.
Treasury securities may be issued in either note or bond form. Inflation-indexed
U.S. Treasury notes have maturities of at least one year, but not more than 10
years. Inflation-indexed U.S. Treasury bonds have maturities of more than 10
years.
Inflation-indexed
U.S. Treasury securities may be attractive to investors seeking an investment
backed by the full faith and credit of the U.S. government that provides a
return in excess of the rate of inflation. Inflation-indexed U.S. Treasury
securities are auctioned and issued on a quarterly basis.
Structure
and Inflation Index
The
principal value of inflation-indexed U.S. Treasury securities will be adjusted
to reflect changes in the level of inflation. The index for measuring the
inflation rate for inflation-indexed U.S. Treasury securities is the
non-seasonally adjusted U.S. City Average All Items Consumer Price for All Urban
Consumers Index (Consumer Price Index) published monthly by the U.S. Department
of Labor’s Bureau of Labor Statistics.
Semiannual
coupon interest payments are made at a fixed percentage of the inflation-indexed
principal value. The coupon rate for the semiannual interest rate of each
issuance of inflation-indexed U.S. Treasury securities is determined at the time
the securities are sold to the public (i.e., by competitive bids in the
auction). The coupon rate will likely reflect real yields available in the U.S.
Treasury market; real yields are the prevailing yields on U.S. Treasury
securities with similar maturities, less then-prevailing inflation expectations.
While a reduction in inflation will cause a reduction in the interest payment
made on the securities, the repayment of principal at the maturity of the
security is guaranteed by the U.S. Treasury to be no less than the original face
or par amount of the security at the time of issuance.
Indexing
Methodology
The
principal value of inflation-indexed U.S. Treasury securities will be indexed,
or adjusted, to account for changes in the Consumer Price Index. Semiannual
coupon interest payment amounts will be determined by multiplying the
inflation-indexed principal amount by one-half the stated rate of interest on
each interest payment date.
Taxation
The
taxation of inflation-indexed U.S. Treasury securities is similar to the
taxation of conventional bonds. Both interest payments and the difference
between original principal and the inflation-adjusted principal will be treated
as interest income subject to taxation. Interest payments are taxable when
received or accrued. The inflation adjustment to the principal is subject to tax
in the year the adjustment is made, not at maturity of the security when the
cash from the repayment of principal is received. If an upward adjustment has
been made, investors in non-tax-deferred accounts will pay taxes on this amount
currently. Decreases in the indexed principal can be deducted only from current
or previous interest payments reported as income.
Inflation-indexed
U.S. Treasury securities therefore have a potential cash flow mismatch to an
investor, because investors must pay taxes on the inflation-indexed principal
before the repayment of principal is received. It is possible that, particularly
for high income tax bracket investors, inflation-indexed U.S. Treasury
securities would not generate enough cash in a given year to cover the tax
liability they could create. This is similar to the current tax treatment for
zero-coupon bonds and other discount securities. If inflation-indexed U.S.
Treasury securities are sold prior to maturity, capital losses or gains are
realized in the same manner as traditional bonds.
Investors
in a fund will receive dividends that represent both the interest payments and
the principal adjustments of the inflation-indexed securities held in the fund’s
portfolio. An investment in a fund may, therefore, be a means to avoid the cash
flow mismatch associated with a direct investment in inflation-indexed
securities. For more information about taxes and their effect on you as an
investor in the funds, see Taxes,
page 40.
U.S.
Government Agencies
A
number of U.S. government agencies and instrumentalities other than the U.S.
Treasury may issue inflation-indexed securities. Some U.S. government agencies
have issued inflation-indexed securities whose design mirrors that of the
inflation-indexed U.S. Treasury securities described above.
Other
Entities
Entities
other than the U.S. Treasury or U.S. government agencies and instrumentalities
may issue inflation-indexed securities. While some entities have issued
inflation-linked securities whose design mirrors that of the inflation-indexed
U.S. Treasury securities described above, others utilize different structures.
For example, the principal value of these securities may be adjusted with
reference to the Consumer Price Index, but the semiannual coupon interest
payments are made at a fixed percentage of the original issue principal.
Alternatively, the principal value may remain fixed, but the coupon interest
payments may be adjusted with reference to the Consumer Price
Index.
Inverse
Floaters
The
funds (except the money market fund) may hold inverse floaters. An inverse
floater is a type of derivative that bears an interest rate that moves inversely
to market interest rates. As market interest rates rise, the interest rate on
inverse floaters goes down, and vice versa. Generally, this is accomplished by
expressing the interest rate on the inverse floater as an above-market fixed
rate of interest, reduced by an amount determined by reference to a market-based
or bond-specific floating interest rate (as well as by any fees associated with
administering the inverse floater program).
Inverse
floaters may be issued in conjunction with an equal amount of Dutch Auction
floating-rate bonds (floaters), or a market-based index may be used to set the
interest rate on these securities. A Dutch Auction is an auction system in which
the price of the security is gradually lowered until it meets a responsive bid
and is sold. Floaters and inverse floaters may be brought to market
by
(1)a
broker-dealer who purchases fixed-rate bonds and places them in a trust,
or
(2)an
issuer seeking to reduce interest expenses by using a floater/inverse floater
structure in lieu of fixed-rate bonds.
In
the case of a broker-dealer structured offering (where underlying fixed-rate
bonds have been placed in a trust), distributions from the underlying bonds are
allocated to floater and inverse floater holders in the following
manner:
•Floater
holders receive interest based on rates set at a six-month interval or at a
Dutch Auction, which is typically held every 28 to 35 days. Current and
prospective floater holders bid the minimum interest rate that they are willing
to accept on the floaters, and the interest rate is set just high enough to
ensure that all of the floaters are sold.
•Inverse
floater holders receive all of the interest that remains, if any, on the
underlying bonds after floater interest and auction fees are paid. The interest
rates on inverse floaters may be significantly reduced, even to zero, if
interest rates rise.
Procedures
for determining the interest payment on floaters and inverse floaters brought to
market directly by the issuer are comparable, although the interest paid on the
inverse floaters is based on a presumed coupon rate that would have been
required to bring fixed-rate bonds to market at the time the floaters and
inverse floaters were issued.
Where
inverse floaters are issued in conjunction with floaters, inverse floater
holders may be given the right to acquire the underlying security (or to create
a fixed-rate bond) by calling an equal amount of corresponding floaters. The
underlying security may then be held or sold. However, typically, there are time
constraints and other limitations associated with any right to combine interests
and claim the underlying security.
Floater
holders subject to a Dutch Auction procedure generally do not have the right to
“put back” their interests to the issuer or to a third party. If a Dutch Auction
fails, the floater holder may be required to hold its position until the
underlying bond matures, during which time interest on the floater is capped at
a predetermined rate.
The
secondary market for floaters and inverse floaters may be limited. The market
value of inverse floaters tends to be significantly more volatile than
fixed-rate bonds.
Lower-Quality
Bonds
As
indicated in the prospectus, an investment in California High-Yield Municipal
carries greater risk than an investment in the other funds because the fund may
invest, without limitation, in lower-rated bonds and unrated bonds judged by the
advisor to be of comparable quality (collectively, lower-quality
bonds).
While
the market values of higher-quality bonds tend to correspond to market interest
rate changes, the market values of lower-quality bonds tend to reflect the
financial condition of their issuers. The ability of an issuer to make payment
could be affected by litigation, legislation or other political events, or the
bankruptcy of the issuer. Lower-quality municipal bonds are more susceptible to
these risks than higher-quality municipal bonds. In addition, lower-quality
bonds may be unsecured or subordinated to other obligations of the
issuer.
Projects
financed through the issuance of lower-quality bonds often carry higher levels
of risk. The issuer’s ability to service its debt obligations may be adversely
affected by an economic downturn, a period of rising interest rates, the
issuer’s inability to meet projected revenue forecasts, a higher level of debt,
or a lack of needed additional financing.
Lower-quality
bonds generally are unsecured and often are subordinated to other obligations of
the issuer. These bonds may have call or buy-back features that permit the
issuer to call or repurchase the bond from the holder. Premature disposition of
a lower-quality bond due to a call or buy-back feature, deterioration of the
issuer’s creditworthiness, or a default may make it difficult for the advisor to
manage the flow of income to the fund, which may have a negative tax impact on
shareholders.
The
market for lower-quality bonds tends to be concentrated among a smaller number
of dealers than the market for higher-quality bonds. This market may be
dominated by dealers and institutions (including mutual funds), rather than by
individuals. To the extent that a secondary trading market for lower-quality
bonds exists, it may not be as liquid as the secondary market for higher-quality
bonds. Limited liquidity in the secondary market may adversely affect market
prices and hinder the advisor’s ability to dispose of particular bonds when it
determines that it is in the best interest of the fund to do so. Reduced
liquidity also may hinder the advisor’s ability to obtain market quotations for
purposes of valuing the fund’s portfolio and determining its net asset
value.
The
advisor continually monitors securities to determine their relative
liquidity.
A
fund may incur expenses in excess of its ordinary operating expenses if it
becomes necessary to seek recovery on a defaulted bond, particularly a
lower-quality bond.
Municipal
Bonds
Municipal
bonds, which generally have maturities of more than one year when issued, are
typically designed to meet longer-term capital needs. These securities have two
principal classifications: general obligation bonds and revenue
bonds.
General
Obligation (GO) Bonds are issued by states, counties, cities, towns, school
districts and regional districts to fund a variety of public projects, including
construction of and improvements to schools, highways, and water and sewer
systems. 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 seaport facilities and hospitals.
Industrial
Development Bonds (IDBs), a type of revenue bond, are issued by or on behalf of
public authorities to finance privately operated facilities. These bonds are
used to finance business, manufacturing, housing, athletic and pollution control
projects, as well as public facilities such as mass transit systems, air and sea
port facilities and parking garages. Payment of interest and repayment of
principal on an IDB depend solely on the ability of the facility’s 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
AMT.
Some
longer-term municipal bonds allow an investor to “put” or sell the security at a
specified time and price to the issuer or other “put provider.” If a put
provider fails to honor its commitment to purchase the security, the fund may
have to treat the security’s final maturity as its effective maturity,
lengthening the fund’s weighted average maturity and increasing the volatility
of the fund.
The
funds may purchase municipal bonds with credit enhancements such as letters of
credit or municipal bond insurance from time to time. Letters of credit are
issued by a third party, usually a bank, to enhance liquidity and ensure
repayment of principal and any accrued interest if the underlying municipal bond
should default. Municipal bond insurance, which is usually purchased by the bond
issuer from a private, nongovernmental insurance company, provides an
unconditional and irrevocable guarantee that the insured bond’s principal and
interest will be paid when due. Insurance does not guarantee the price of the
bond or the share price of a fund. The credit rating of an insured bond reflects
the credit rating of the insurer, based on its claims-paying ability. But, it
can reflect the rating on the insured credit if the bond insurer rating is
downgraded below that of the insured credit. The obligation of a municipal bond
insurance company to pay a claim extends over the life of each insured bond.
Although defaults on insured municipal bonds have been low to date, there is no
assurance that this will continue. A higher-than-expected default rate could
strain the insurer’s loss reserves and adversely affect its ability to pay
claims to bondholders. A significant portion of insured municipal bonds that
have been issued and are outstanding are insured by a small number of insurance
companies, so an event involving one or more of these insurance companies, such
as a credit rating downgrade, could have a significant adverse effect on the
value of the municipal bonds insured by that insurance company and on the
municipal bond markets as a whole. Before the 2008 financial crisis, municipal
bond insurers insured approximately half of newly issued municipal securities.
Since the crisis, the number of municipal bond insurers has dropped, and the
role of bond insurance in the municipal markets has declined significantly.
Currently there are only a few companies actively writing such policies, and
municipal market penetration is less than 10%.
Municipal
Lease Obligations
Each
fund may invest in municipal lease obligations. These obligations, which may
take the form of a lease, an installment purchase, or a conditional sale
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities. Generally, a fund will not
hold such obligations directly as a lessor of the property but will purchase a
participation interest in a municipal lease obligation from a bank or other
third party.
Municipal
leases frequently carry risks distinct from those associated with general
obligation or revenue bonds. State constitutions and statutes set forth
requirements that states and municipalities must meet to incur debt. These may
include voter referenda, interest rate limits or public sale requirements.
Leases, installment purchases or conditional sale contracts (which normally
provide for title to the leased asset to pass to the government issuer) have
evolved as a way for government issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance of
debt.
Many
leases and contracts include non-appropriation clauses, which provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Municipal lease
obligations also may be subject to abatement risk. For example, construction
delays or destruction of a facility as a result of an uninsurable disaster that
prevents occupancy could result in all or a portion of a lease payment not being
made.
California
and its municipalities are the largest issuers of municipal lease obligations in
the United States.
Municipal
Notes
Each
fund may invest in municipal notes, which 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
(most commonly ranging from two to 270 days) issued to finance seasonal cash
flow needs or to provide short-term financing in anticipation of longer-term
financing.
Revenue
Anticipation Warrants, or reimbursement warrants, are issued to meet the cash
flow needs of the State of California at the end of a fiscal year and in the
early weeks of the following fiscal year. These warrants are payable from
unapplied money in the state’s General Fund, including the proceeds of RANs
issued following enactment of a state budget or the proceeds of refunding
warrants issued by the state.
Municipal
Tobacco Bonds
The
funds (other than California Tax-Free Money Market) may invest in municipal
tobacco bonds whose payment obligations are tied to a master settlement
agreement with several major tobacco companies. The agreement provides that if
certain conditions are met the tobacco companies may reduce or suspend part of
their payments. In such an event, the issuer of the bonds may not make full
payments and the funds, as investors of the bonds, may
suffer.
Other
Investment Companies
Each
of the funds may invest in other investment companies, such as closed-end
investment companies, unit investment trusts, exchange traded funds (ETFs) and
other open-end investment companies, provided that the investment is consistent
with the fund’s investment policies and restrictions. Under the Investment
Company Act, a fund’s investment in such securities, subject to certain
exceptions, currently is limited to:
•3%
of the total voting stock of any one investment company;
•5%
of the fund’s total assets with respect to any one investment company;
and
•10%
of the fund’s total assets in the aggregate.
Such
exceptions may include reliance on Rule 12d1-4 of the Investment Company Act.
Rule 12d1-4, subject to certain requirements, would permit a fund to invest in
affiliated investment companies (other mutual funds and ETFs advised by American
Century) and unaffiliated investment companies in excess of the limitations
described above.
A
fund’s investments in other investment companies may include money market funds
managed by the advisor. Investments in money market funds are not subject to the
percentage limitations set forth above.
As
a shareholder of another investment company, a fund would bear, along with other
shareholders, its pro rata portion of the other investment company’s expenses,
including advisory fees. These expenses would be in addition to the management
fee that each fund bears directly in connection with its own
operations.
ETFs
are a type of fund bought and sold on a securities exchange. An ETF trades like
common stock and may be actively managed or index-based. A fund may purchase an
ETF to temporarily gain exposure to a portion of the U.S. or a foreign market
while awaiting purchase of underlying securities, to gain exposure to specific
asset classes or sectors, or as a substitute for investing directly in
securities. The risks of owning an ETF generally reflect the risks of owning the
underlying securities. Additionally, because the price of ETF shares is based on
market price rather than net asset value (NAV), shares may trade at a price
greater than NAV (a premium) or less than NAV (a discount). A fund may also
incur brokerage commissions, as well as the cost of the bid/ask spread, when
purchasing or selling ETF shares.
Restricted
and Illiquid Securities
The
funds may, from time to time, purchase restricted or illiquid securities when
they present attractive investment opportunities that otherwise meet the funds’
criteria for selection. Restricted Securities include securities that cannot be
sold to the public without registration under the Securities Act of 1933 or the
availability of an exemption from registration (such as Rules 144 or 144A), or
that are “not readily marketable” because they are subject to other legal or
contractual delays in or restrictions on resale. Rule 144A securities are
securities that are privately placed with and traded among qualified
institutional investors rather than the general public. Although Rule 144A
securities are considered restricted securities, they are not necessarily
illiquid.
With
respect to securities eligible for resale under Rule 144A, the advisor will
determine the liquidity of such securities pursuant to the fund’s Liquidity Risk
Management Program, approved by the Board of Trustees in accordance with Rule
22e-4.
Because
the secondary market for restricted securities is generally limited to certain
qualified institutional investors, the liquidity of such securities may be
limited accordingly and a fund may, from time to time, hold a Rule 144A or other
security that is illiquid. In such an event, the advisor will consider
appropriate remedies to minimize the effect on such fund’s liquidity. Each of
the funds may invest no more than 15% of the value of its net assets (5% of the
value of its total assets for California Tax-Free Money Market) in illiquid
securities.
Short-Term
Securities
In
order to meet anticipated redemptions, anticipated purchases of additional
securities for a fund’s portfolio, or, in some cases, for temporary defensive
purposes, each fund may invest a portion of its assets in money market and other
short-term securities.
Examples
of those securities include:
•Securities
issued or guaranteed by the U.S. government and its agencies and
instrumentalities
•Commercial
paper
•Certificates
of deposit and Euro dollar certificates of deposit
•Bankers’
acceptances
•Short-term
notes, bonds, debentures or other debt instruments
•Repurchase
agreements
•Money
market funds
If
a fund invests in U.S. government securities, a portion of dividends paid to
shareholders will be taxable at the federal level, and may be taxable at the
state level, as ordinary income. However, the advisor intends to minimize such
investments and, when suitable short-term municipal securities are unavailable,
may allow the funds to hold cash to avoid generating taxable
dividends.
Structured
Investments
A
structured investment is a security whose value or performance is linked to an
underlying index or other security or asset class. Structured investments
involve the transfer of specified financial assets to a special purpose entity,
generally a corporation or trust, or the deposit of financial assets with a
custodian; and the issuance of securities or depositary receipts backed by, or
representing interests in, those assets. Structured investments may be organized
and operated to restructure the investment characteristics of the underlying
security. The cash flow on the underlying instruments may be apportioned among
the newly issued structured investments to create securities with different
investment characteristics, such as varying maturities, payment priorities and
interest rate provisions, and the extent of such payments made with respect to
structured investments is dependent on the extent of the cash flow on the
underlying instruments.
Structured
investments are generally individually negotiated agreements or traded over the
counter, and as such, there is no active trading market for such investments.
Thus structured investments may be less liquid than other securities. Because
structured investments typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments. In
addition, structured investments are subject to the risks that the issuers of
the underlying securities may be unable or unwilling to repay principal and
interest (credit risk), and that issuers of the underlying securities may
request to reschedule or restructure outstanding debt and to extend additional
loan amounts (prepayment or extension risk).
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 fund. However, any of the funds may purchase these
instruments.
TOBs
are created by municipal bond dealers who purchase long-term tax-exempt bonds,
place the certificates in trusts, and sell interests in the trusts with puts or
other liquidity guarantees attached. The credit quality of the resulting
synthetic short-term instrument is based on the put provider’s short-term rating
and the underlying bond’s long-term rating.
There
is some risk that a remarketing agent will renege on a tender option agreement
if the underlying bond is downgraded or defaults. Because of this, the portfolio
managers monitor the credit quality of bonds underlying the funds’ TOB holdings
to ensure they remain eligible securities under Rule 2a-7 and intend to sell or
put back any TOBs that do not.
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.
Variable-
and Floating-Rate Securities
Variable-
and floating-rate securities, including variable-rate demand obligations (VRDOs)
and floating-rate notes (FRNs), provide for periodic adjustments to the interest
rate. The adjustments are generally based on an index-linked formula, or
determined through a remarketing process.
These
types of securities may be combined with a put or demand feature that permits
the fund to demand payment of principal plus accrued interest from the issuer or
a financial institution. Examples of VRDOs include variable-rate demand notes
(VRDN) and variable-rate demand preferreds (VRDP). VRDNs combine a demand
feature with an interest rate reset mechanism designed to result in a market
value for the security that approximates par. VRDNs are generally designed to
meet the requirements of money market fund Rule 2a-7, and may be permitted
investments for California Tax-Free Money Market Fund. VRDPs are issued by a
closed-end fund that in turn invests primarily in portfolios of bonds. They
feature a floating rate dividend set via a weekly remarketing and have a fixed
term, mandatory redemption, and an unconditional par put option.
When-Issued
and Forward Commitment Agreements
The
funds may engage in securities transactions on a when-issued or forward
commitment basis in which the transaction price and yield are each fixed at the
time the commitment is made, but payment and delivery occur at a future
date.
For
example, a fund may sell a security and at the same time make a commitment to
purchase the same or a comparable security at a future date and specified price.
Conversely, a fund may purchase a security and at the same time make a
commitment to sell the same or a comparable security at a future date and
specified price. These types of transactions are executed simultaneously in what
are known as dollar-rolls (buy/sell back transactions), cash and carry, or
financing transactions. For example, a broker-dealer may seek to purchase a
particular security that a fund owns. The fund will sell that security to the
broker-dealer and simultaneously enter into a forward commitment agreement to
buy it back at a future date. This type of transaction generates income for the
fund if the dealer is willing to execute the transaction at a favorable price in
order to acquire a specific security.
When
purchasing securities on a when-issued or forward commitment basis, a fund
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations. For example, market rates of interest on debt securities at
the time of delivery may be higher or lower than those contracted for on the
when-issued security. Accordingly, the value of the security may decline prior
to delivery, which could result in a loss to the fund. While the fund will make
commitments to purchase or sell securities with the intention of actually
receiving or delivering them, it may sell the securities before the settlement
date if doing so is deemed advisable as a matter of investment
strategy.
To
the extent a fund remains fully invested or almost fully invested at the same
time it has purchased securities on a when-issued basis, there will be greater
fluctuations in its net asset value than if it solely set aside cash to pay for
when-issued securities. When the time comes to pay for the when-issued
securities, the fund will meet its obligations with available cash through the
sale of securities, or, although it would not normally expect to do so, by
selling the when-issued securities themselves (which may have a market value
greater or less than the fund’s payment obligation). Selling securities to meet
when-issued or forward commitment obligations may generate taxable capital gains
or losses.
As
an operating policy, no fund will commit more than 50% of its total assets to
when-issued or forward commitment agreements. If fluctuations in the value of
securities held cause more than 50% of a fund’s total assets to be committed
under when-issued or forward commitment agreements, the portfolio managers need
not sell such agreements, but they will be restricted from entering into further
agreements on behalf of the fund until the percentage of assets committed to
such agreements is below 50% of total assets.
Unless
otherwise indicated, with the exception of the percentage limitations on
borrowing, the restrictions described below apply at the time a fund enters into
a transaction. Accordingly, any later increase or decrease beyond the specified
limitation resulting from a change in a fund’s assets will not be considered in
determining whether it has complied with its investment
policies.
For
purposes of the funds’ investment policies, the party identified as the “issuer”
of a municipal security depends on the form and conditions of the security. When
the assets and revenues of a political subdivision are separate from those of
the government that created the subdivision and the security is backed only by
the assets and revenues of the subdivision, the subdivision is deemed the sole
issuer. Similarly, in the case of an Industrial Development Bond, if the bond
were backed only by the assets and revenues of a non-governmental user, the
non-governmental user would be deemed the sole issuer. If, in either case, the
creating government or some other entity were to guarantee the security, the
guarantee would be considered a separate security and treated as an issue of the
guaranteeing entity.
Fundamental
Investment Policies
The
funds’ fundamental investment policies are set forth below. These investment
policies, a fund’s investment objective set forth in its prospectus, and a
fund’s status as diversified may not be changed without approval of a majority
of the outstanding votes of shareholders of a fund. Under the Investment Company
Act, the vote of a majority of the outstanding votes of shareholders means, the
vote of (A) 67 percent or more of the voting securities present at a shareholder
meeting, if the holders of more than 50 percent of the outstanding voting
securities are present or represented by proxy; or (B) more than 50 percent of
the outstanding voting securities, whichever is less.
|
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| 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 that a fund may borrow for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33⅓% of the fund’s total assets (including the amount borrowed)
less liabilities (other than borrowings). |
| Lending |
A
fund may not lend any security or make any other loan if, as a result,
more than 33⅓% 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. |
|
|
|
|
|
| |
| Subject |
Policy |
| Real
Estate |
A
fund may not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments. This policy shall not
prevent a fund from investing in securities or other instruments backed by
real estate or securities of companies that deal in real estate or are
engaged in the real estate business. |
| Concentration |
A
fund may not concentrate its investments in securities of issuers in a
particular industry (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities). |
| Underwriting |
A
fund may not act as an underwriter of securities issued by others, except
to the extent that the fund may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of restricted
securities. |
| Commodities |
A
fund may not purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments, provided that this
limitation shall not prohibit the fund from purchasing or selling options
and futures contracts or from investing in securities or other instruments
backed by physical commodities. |
| Control |
A
fund may not invest for purposes of exercising control over
management. |
For
purposes of the investment policy relating to senior securities, a fund may
borrow from any bank provided that immediately after any such borrowing there is
asset coverage of at least 300% for all borrowings of such fund. In the event
that such asset coverage falls below 300%, the fund shall, within three days
thereafter (not including Sundays and holidays) or such longer period as the SEC
may prescribe by rules and regulations, reduce the amount of its borrowings to
an extent that the asset coverage of such borrowings is at least
300%.
For
purposes of the investment policies 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 American Century Investments-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 policy relating to concentration, a fund shall not
purchase any securities that would cause 25% or more of the value of the fund’s
net 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
(except that an Industrial Development Bond backed only by the assets and
revenues of a non-governmental user will be deemed to be an investment in the
industry represented by such user),
(b)wholly
owned finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the activities of
their parents,
(c)utilities
will be divided according to their services, for example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a separate
industry, and
(d)business
credit and personal credit businesses will be considered separate
industries.
Nonfundamental
Investment Policies
In
addition, the funds are subject to the following investment policies that are
not fundamental and may be changed by the Board of Trustees.
|
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| 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 fund may not purchase or sell futures contracts or call
options. This limitation does not apply to options attached to, or
acquired or traded together with, their underlying securities, and does
not apply to securities that incorporate features similar to options or
futures contracts. |
| 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 (5% of its total
assets for California Tax-Free Money Market) 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 securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available
market. |
|
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| |
| Subject |
Policy |
| 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, options and
other derivative instruments 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 and other deposits in connection with
transactions involving futures, options (puts, calls, etc.), swaps, short
sales, forward contracts, commitment agreements, and other similar
investment techniques shall not be deemed to constitute purchasing
securities on margin. |
The
Investment Company Act imposes certain additional restrictions upon the funds’
ability to acquire securities issued by insurance companies, broker-dealers,
underwriters or investment advisors, and upon transactions with affiliated
persons as defined by the Act. It also defines and forbids the creation of cross
and circular ownership.
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:
•interest-bearing
bank accounts or certificates of deposit;
•U.S.
government securities and repurchase agreements collateralized by U.S.
government securities; and
•other
money market funds.
To
the extent a fund assumes a defensive position, it may not achieve its
investment objectives and may generate taxable income.
The
portfolio turnover rate of each fund (except the money market fund) for its most
recent fiscal year is included in the Fund
Summary
section of that fund’s prospectus. The portfolio turnover rate for each fund’s
last five fiscal years, is shown in the Financial Highlights tables in the
fund’s prospectus. Because of the short-term nature of the money market fund’s
investments, portfolio turnover rates are not generally used to evaluate their
trading activities.
For
each fund other than the money market fund, the portfolio managers intend to
purchase a given security whenever they believe it will contribute to the stated
objective of a particular fund. In order to achieve each fund’s investment
objective, the managers may sell a given security regardless of the length of
time it has been held in the portfolio, and regardless of the gain or loss
realized on the sale. The managers may sell a portfolio security if they believe
that the security is not fulfilling its purpose because, among other things, it
did not live up to the managers’ expectations, because it may be replaced with
another security holding greater promise, because it has reached its optimum
potential, because of a change in the circumstances of a particular company or
industry or in general economic conditions, or because of some combination of
such reasons.
Because
investment decisions are based on a particular security’s anticipated
contribution to a fund’s investment objective, the managers believe that the
rate of portfolio turnover is irrelevant when they determine that a change is
required to achieve the fund’s investment objective. As a result, a fund’s
annual portfolio turnover rate cannot be anticipated and may be higher than that
of other mutual funds with similar investment objectives. Higher turnover could
result in greater trading costs, which is a cost the funds pay directly.
Portfolio turnover also may affect the character of capital gains realized and
distributed by a fund, if any, because short-term capital gains are
characterized as ordinary income.
Because
the managers do not take portfolio turnover rate into account in making
investment decisions, (1) the managers have no intention of maintaining any
particular rate of portfolio turnover, whether high or low, and (2) the
portfolio turnover rates in the past should not be considered as representative
of the rates that will be attained in the future.
Variations
in a fund’s portfolio turnover rate from year to year may be due to a
fluctuating volume of shareholder purchase and redemption activity, varying
market conditions, and/or changes in the managers’ investment
outlook.
The
advisor (ACIM) has adopted policies and procedures with respect to the
disclosure of fund portfolio holdings and characteristics, which are described
below.
Distribution
to the Public
Month-end
full portfolio holdings for each fund will generally be made available for
distribution 15 days after the end of each calendar quarter for each of the
preceding three months. This disclosure is in addition to the portfolio
disclosure in annual and semiannual shareholder reports and the quarter-end
portfolio disclosures on Form N-PORT. Such disclosures are filed with the
Securities and Exchange Commission within 60 days of each fiscal quarter end and
also posted on americancentury.com at approximately the same time the filings
are made. The distribution of holdings after the above time periods is not
limited.
On
a monthly basis, top 10 holdings (on an absolute basis and relative to the
appropriate benchmark) for each fund (except AC Alternatives Market Neutral
Value Fund, which is limited to the top five pairs by type, as described below)
will generally be made
available
for distribution 7 days after the end of each month, and will be posted on
americancentury.com at approximately the same time.
Portfolio
characteristics that are derived from portfolio holdings will be made available
for distribution 7 days after the end of each month, or as soon thereafter as
possible, which timeframe may vary by fund. Certain characteristics, as
determined by the advisor, will be posted on americancentury.com monthly at
approximately the time they are made available for distribution. Data derived
from portfolio returns and any other characteristics not deemed confidential
will be available for distribution at any time. The advisor may make
determinations of confidentiality on a fund-by-fund basis, and may add or delete
characteristics to or from those considered confidential at any
time.
Any
American Century Investments fund that sells securities short as an investment
strategy will disclose full portfolio holdings in annual and semiannual
shareholder reports and on Form N-PORT. These funds will make long and short
holdings as of the end of a calendar quarter available for distribution 15 days
after the end of each calendar quarter. These funds may also make limited
disclosures as noted in the Single Event Requests section below. The
distribution of holdings after the above time periods is not
limited.
Examples
of securities (both long and short) currently or previously held in a portfolio
may be included in presentations or other marketing documents as soon as
available. The inclusion of such examples is at the relevant portfolio’s team
discretion.
So
long as portfolio holdings are disclosed in accordance with the above
parameters, the advisor makes no distinction among different categories of
recipients, such as individual investors, institutional investors,
intermediaries that distribute the funds’ shares, third-party service providers,
rating and ranking organizations, and fund affiliates. Because this information
is publicly available and widely disseminated, the advisor places no conditions
or restrictions on, and does not monitor, its use. Nor does the advisor require
special authorization for its disclosure.
Accelerated
Disclosure
The
advisor recognizes that certain parties, in addition to the advisor and its
affiliates, may have legitimate needs for information about portfolio holdings
and characteristics prior to the times prescribed above. Such accelerated
disclosure is permitted under the circumstances described
below.
Ongoing
Arrangements
Certain
parties, such as investment consultants who provide regular analysis of fund
portfolios for their clients and intermediaries who pass through information to
fund shareholders, may have legitimate needs for accelerated disclosure. These
needs may include, for example, the preparation of reports for customers who
invest in the funds, the creation of analyses of fund characteristics for
intermediary or consultant clients, the reformatting of data for distribution to
the intermediary’s or consultant’s clients, and the review of fund performance
for ERISA fiduciary purposes.
In
such cases, accelerated disclosure is permitted if the service provider enters
an appropriate non-disclosure agreement with the fund’s distributor in which it
agrees to treat the information confidentially until the public distribution
date and represents that the information will be used only for the legitimate
services provided to its clients (i.e., not for trading). Non-disclosure
agreements require the approval of an attorney in the advisor’s legal
department. The advisor’s compliance department receives quarterly reports
detailing which clients received accelerated disclosure, what they received,
when they received it and the purposes of such disclosure. Compliance personnel
are required to confirm that an appropriate non-disclosure agreement has been
obtained from each recipient identified in the reports.
Those
parties who have entered into non-disclosure agreements as of September
30, 2023
are as follows:
•Aetna
Inc.
•Alight
Solutions LLC
•AllianceBernstein
L.P.
•American
Fidelity Assurance Co.
•Ameritas
Life Insurance Corporation
•AMP
Capital Investors Limited
•Annuity
Investors Life Insurance Company
•Aon
Hewitt Investment Consulting
•Athene
Annuity & Life Assurance Company
•AUL/American
United Life Insurance Company
•Bell
Globemedia Publishing
•Bellwether
Consulting, LLC
•BNY
Mellon Performance & Risk Analytics, LLC
•Brighthouse
Life Insurance Company
•Callan
Associates, Inc.
•Calvert
Asset Management Company, Inc.
•Cambridge
Associates, LLC
•Capital Cities,
LLC
•CBIZ,
Inc.
•Charles
Schwab & Co., Inc.
•Choreo,
LLC
•Clearwater
Analytics, LLC
•Cleary
Gull Inc.
•Commerce
Bank N.A.
•Connecticut
General Life Insurance Company
•Corestone
Investment Managers AG
•Corning
Incorporated
•Curcio
Webb LLC
•Deutsche
AM Distributors, Inc.
•Eckler,
Ltd.
•Electra
Information Systems, Inc.
•Empower
Plan Services, LLC
•Equitable
Investment Management Group, LLC
•EquiTrust
Life Insurance Company
•Farm
Bureau Life Insurance Company
•Fidelity
Workplace Services, LLC
•FIL
Investment Management
•Finance-Doc
Multimanagement AG
•Fund
Evaluation Group, LLC
•Government
Employees Pension Service
•GSAM
Strategist Portfolios, LLC
•The
Guardian Life Insurance Company of America
•Intel
Corporation
•InvesTrust
Consulting, LLC
•Iron
Capital Advisors
•Jefferson
National Life Insurance Company
•JLT
Investment Management Limited
•John
Hancock Distributors
LLC
•Kansas
City Life Insurance Company
•Kiwoom
Asset Management
•Kmotion,
Inc.
•Korea
Investment Management Co. Ltd.
•Korea
Teachers Pension
•Legal
Super Pty Ltd.
•The
Lincoln National Life Insurance Company
•Lipper
Inc.
•Marquette
Associates
•Massachusetts
Mutual Life Insurance Company
•Mercer
Investment Management, Inc.
•Merian
Global Investors Limited
•Merrill
Lynch
•Midland
National Life Insurance Company
•Minnesota
Life Insurance Company
•Modern
Woodmen of America
•Montana
Board of Investments
•Morgan
Stanley Wealth Management
•Morningstar
Investment Management LLC
•Morningstar,
Inc.
•Morningstar
Investment Services, Inc.
•Mutual
of America Life Insurance Company
•National
Life Insurance Company
•Nationwide
Financial
•NEPC
•The
Newport Group
•Nomura
Asset Management U.S.A. Inc.
•Nomura
Securities International, Inc.
•The
Northern Trust Company
•Northwestern
Mutual Life Insurance Co.
•NYLIFE
Distributors, LLC
•Pacific
Life Insurance Company
•Principal
Life Insurance Company
•Prudential
Financial,
Inc.
•RidgeWorth
Capital Management, Inc.
•Rocaton
Investment Advisors, LLC
•RVK,
Inc.
•Säästöpankki
(The Savings Banks)
•Security
Benefit Life Insurance Co.
•Shinhan
Asset Management
•State
Street Global Exchange
•State
Street Global Markets Canada Inc.
•Stellantis
•Symetra
Life Insurance Company
•Tokio
Marine Asset Management Co., Ltd.
•Truist
Bank
•UBS
Financial Services, Inc.
•UBS
Wealth Management
•Univest
Company
•Valic
Financial Advisors Inc.
•VALIC
Retirement Services Company
•Vestek
Systems, Inc.
•Voya
Retirement Insurance and Annuity Company
•Wells
Fargo Bank, N.A
•Wilshire
Advisors
LLC
•WTW
•Zero
Consulting Group, LLC
Once
a party has executed a non-disclosure agreement, it may receive any or all of
the following data for funds in which its clients have investments or are
actively considering investment:
(1)Full
holdings (both long and short) quarterly as soon as reasonably
available;
(2)Full
holdings (long only) monthly as soon as reasonably available;
(3)Top
10 holdings monthly as soon as reasonably available; and
(4)Portfolio
attributes (such as sector or country weights), characteristics and performance
attribution monthly as soon as reasonably available.
The
types, frequency and timing of disclosure to such parties vary.
Single
Event Requests
In
certain circumstances, the advisor may provide fund holding information on an
accelerated basis outside of an ongoing arrangement with manager-level or higher
authorization. For example, from time to time the advisor may receive requests
for proposals (RFPs) from consultants or potential clients that request
information about a fund’s holdings on an accelerated basis. As long as such
requests are on a one-time basis, and do not result in continued receipt of
data, such information may be provided in the RFP. In these circumstances, top
15 long and short holdings may be disclosed 7 days after the end of each month.
Such disclosure may be presented in paired trades, such as by showing a long
holding in one sector or security and a corresponding short holding in another
sector or security together to show a long/short strategy. Such information will
be provided with a confidentiality legend and only in cases where the advisor
has reason to believe that the data will be used only for legitimate purposes
and not for trading.
Service
Providers
Various
service providers to the funds and the funds’ advisor must have access to some
or all of the funds’ portfolio holdings information on an accelerated basis from
time to time in the ordinary course of providing services to the funds. These
service providers include the funds’ custodian (daily, with no lag), auditors
(as needed) and brokers involved in the execution of fund trades (as needed).
Additional information about these service providers and their relationships
with the funds and the advisor are provided elsewhere in this statement of
additional information. In addition, the funds’ investment advisor may use
analytical systems provided by third party data aggregators who have access to
the funds’ portfolio holdings daily, with no lag. These data aggregators enter
into separate non-disclosure agreements after authorization by an appropriate
officer of the advisor. The agreements with service providers and data
aggregators generally require that they treat the funds’ portfolio holdings
information confidentially until the public distribution date and represent that
the information will be used only for the legitimate services it provides (i.e.,
not for trading).
Additional
Safeguards
The
advisor’s policies and procedures include a number of safeguards designed to
control disclosure of portfolio holdings and characteristics so that such
disclosure is consistent with the best interests of fund shareholders, including
procedures to address conflicts between the interests of shareholders and those
of the advisor and its affiliates. First, the frequency with which this
information is disclosed to the public, and the length of time between the date
of the information and the date on which the information is disclosed, are
selected to minimize the possibility of a third party improperly benefiting from
fund investment decisions to the detriment of fund shareholders. In the event
that a request for portfolio holdings or characteristics creates a potential
conflict of interest that is not addressed by the safeguards and procedures
described above, the advisor’s procedures require that such requests may only be
granted with the approval of the advisor’s legal department and the relevant
chief investment officers. In addition, distribution of portfolio holdings
information, including compliance with the advisor’s policies and the resolution
of any potential conflicts that may arise, is monitored quarterly by the
advisor’s compliance department. Finally, the funds’ Board of Trustees exercises
oversight of disclosure of the funds’ portfolio securities. The board has
received and reviewed a summary of the advisor’s policy and is informed on a
quarterly basis of any changes to or violations of such policy detected during
the prior quarter.
Neither
the advisor nor the funds receive any compensation from any party for the
distribution of portfolio holdings information.
The
advisor reserves the right to change its policies and procedures with respect to
the distribution of portfolio holdings information at any time. There is no
guarantee that these policies and procedures will protect the funds from the
potential misuse of holdings information by individuals or firms in possession
of such information.
The
individuals listed below serve as trustees of the funds. Each trustee will
continue to serve in this capacity until death, retirement, resignation or
removal from office. The board has adopted a mandatory retirement age for
trustees who are not “interested persons,” as that term is defined in the
Investment Company Act (independent trustees). Independent trustees shall retire
on December 31 of the year in which they reach their 76th
birthday.
Jonathan
S. Thomas is an “interested person” because he currently serves as President and
Chief Executive Officer of American Century Companies, Inc. (ACC), the parent
company of American Century Investment Management, Inc. (ACIM or the advisor).
The
other
trustees (more than three-fourths of the total number) are independent. They are
not employees, directors or officers of, and have no financial interest in, ACC
or any of its wholly owned, direct or indirect, subsidiaries, including ACIM,
American Century Investment Services, Inc. (ACIS) and American Century Services,
LLC (ACS), and they do not have any other affiliations, positions or
relationships that would cause them to be considered “interested persons” under
the Investment Company Act. The trustees serve in this capacity for eight (in
the case of Jonathan S. Thomas, 16; and Jeremy I. Bulow, 9) registered
investment companies in the American Century Investments family of
funds.
The
following table presents additional information about the trustees. The mailing
address for each trustee other than Jonathan S. Thomas is 3945 Freedom Circle,
Suite #800, Santa Clara, California 95054. The mailing address for Jonathan S.
Thomas is 4500 Main Street, Kansas City, Missouri 64111.
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| Name
(Year of Birth) |
Position(s)
Held with Funds |
Length
of Time Served |
Principal
Occupation(s) During Past 5 Years |
Number
of American Century Portfolios Overseen by Trustee |
Other
Directorships Held During Past 5 Years |
| Independent
Trustees |
|
|
| |
Tanya
S. Beder
(1955) |
Trustee
and Board Chair |
Since
2011 (Board Chair since 2022) |
Chairman
and CEO, SBCC
Group Inc. (independent
advisory services) (2006 to present) |
32 |
Kirby
Corporation; Nabors Industries Ltd. |
Jeremy
I. Bulow
(1954) |
Trustee |
Since
2011 |
Professor
of Economics, Stanford
University, Graduate School of Business (1979
to present) |
87 |
None |
Jennifer
Cabalquinto
(1968) |
Trustee |
Since
2021 |
Chief
Financial Officer, EMPIRE
(digital media distribution) (2023 to present); Chief Financial Officer,
2K
(interactive entertainment) (2021 to present); Special Advisor,
GSW
Sports, LLC (2020
to 2021); Chief Financial Officer, GSW
Sports, LLC (2013
to 2020) |
32 |
Sabio
Holdings Inc. |
Anne
Casscells
(1958) |
Trustee |
Since
2016 |
Co-Chief
Executive Officer and Chief Investment Officer, Aetos
Alternatives Management
(investment advisory firm) (2001 to present) |
32 |
None |
Jonathan
D. Levin
(1972) |
Trustee |
Since
2016 |
Philip
H. Knight Professor and Dean, Graduate School of Business, Stanford
University
(2016 to present); Professor, Stanford
University
(2000 to present) |
32 |
None |
John
M. Loder
(1958) |
Trustee |
Since
2023 |
Retired;
Lawyer, Ropes
& Gray LLP
(1984 to 2023) |
32 |
None |
| Interested
Trustee |
Jonathan
S. Thomas
(1963) |
Trustee |
Since
2007 |
President
and Chief Executive Officer, ACC
(2007 to present). Also serves as Chief Executive Officer, ACS;
Director, ACC
and
other ACC
subsidiaries |
152 |
None |
Qualifications
of Trustees
Generally,
no one factor was decisive in the selection of the trustees to the board.
Qualifications considered by the board to be important to the selection and
retention of trustees include the following: (i) the individual’s business and
professional experience and accomplishments; (ii) the individual’s educational
background and accomplishments; (iii) the individual’s experience and expertise
performing senior policy-making functions in business, government, education,
accounting, law and/or administration; (iv) how the individual’s expertise and
experience would contribute to the mix of relevant skills and experience on the
board; (v) the individual’s ability to work effectively with the other members
of the board; and (vi) the individual’s ability and willingness to make the time
commitment necessary to serve as an effective trustee. In addition, the
individuals’ ability to review and critically evaluate information, their
ability to evaluate fund service providers, their ability to exercise good
business judgment on behalf of fund shareholders, their prior service on the
board, and their familiarity with the funds are considered important
assets.
While
the board has not adopted a specific policy on diversity, it takes overall
diversity into account when considering and evaluating nominees for trustee. The
board generally considers the manner in which each trustee’s professional
experience, background, skills, and other individual attributes will contribute
to the effectiveness of the board. Additional information about each trustee’s
individual educational and professional experience (supplementing the
information provided in the table above) follows.
Tanya
S. Beder:
BA, Yale University; MBA, Harvard University; Fellow in Practice, International
Center for Finance, Yale University, School of Management; formerly Lecturer in
Public Policy, Stanford University; formerly, Chief Executive Officer, Tribeca
Global Management LLC (asset management firm); formerly, Managing Director and
Head of Strategic Quantitative Investment Division, Caxton Associates LLC;
formerly, President and Co-Founder, Capital Market Risk Advisors Inc.; formerly
Founder and Chief Executive Officer, SB Consulting Corp.
Jeremy
I. Bulow: BA,
MA, Yale University; PhD in Economics, Massachusetts Institute of Technology;
formerly, Director, Bureau of Economics, Federal Trade Commission
Jennifer
Cabalquinto: BS
in Accounting, State University of New York; Experienced Financial Leadership
Program Graduate, General Electric Company; formerly, Chief Financial Officer,
Legal Solutions Holdings Inc.; formerly, Chief Financial Officer, NBC Universal,
Universal Studios Hollywood; formerly, Vice President, Finance, NBC Universal,
Los Angeles Television Station Group
Anne
Casscells: BA
in British Studies, Yale University; MBA, Stanford Graduate School of Business;
formerly,
Lecturer in Accounting, Stanford University, Graduate School of
Business;
formerly, Chief Investment Officer and Managing Director of Investment Policy
Research, Stanford Management Company; formerly, Vice President, Fixed
Income Division, Goldman Sachs
Jonathan
D. Levin: BA
in English, BS in Mathematics, Stanford University; MPhil in Economics, Oxford
University; PhD in Economics, Massachusetts Institute of Technology; Senior
Fellow, Stanford Institute for Economic Policy Research; Trustee, Gordon
and Betty Moore Foundation; Member, President’s Council of Advisors on Science
and Technology
John
M. Loder: AB
in
English History and Literature, Harvard University; JD, Harvard Law School; over
35 years serving as counsel to investment companies, their directors, and asset
management firms
Jonathan
S. Thomas: BA
in Economics, University of Massachusetts; MBA, Boston College; formerly, held
senior leadership roles with Fidelity Investments, Boston Financial Services,
Bank of America and Morgan Stanley; serves on the Board of Governors of the
Investment Company Institute
Responsibilities
of the Board
The
board is responsible for overseeing the advisor’s management and operations of
the funds pursuant to the management agreement. Trustees also have significant
responsibilities under the federal securities laws. Among other things,
they:
•oversee
the performance of the funds;
•oversee
the quality of the advisory and shareholder services provided by the
advisor;
•review
annually the fees paid to the advisor for its services;
•monitor
potential conflicts of interest between the funds and their affiliates,
including the advisor;
•oversee
custody of assets and the valuation of securities; and
•oversee
the funds’ compliance program.
In
performing their duties, board members receive detailed information about the
funds and the advisor regularly throughout the year, and they meet in person at
least quarterly with management of the advisor to review reports about fund
operations. Certain board committee members also hold periodic telephone
conferences with management between quarterly board meetings. The trustees’ role
is to provide oversight and not to provide day-to-day management.
The
board has all powers necessary or convenient to carry out its responsibilities.
Consequently, the board may adopt bylaws providing for the regulation and
management of the affairs of the funds and may amend and repeal them to the
extent that such bylaws do not reserve that right to the funds’ shareholders.
They may increase or reduce the number of board members and may, subject to the
Investment Company Act, fill board vacancies. Board members also may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate. They may establish and terminate committees consisting of two or
more trustees who may exercise the powers and authority of the board as
determined by the trustees. They may, in general, delegate such authority as
they consider desirable to any officer of the funds, to any board committee and
to any agent or employee of the funds or to any custodian, transfer agent,
investor servicing agent, principal underwriter or other service provider for a
fund.
To
communicate with the board, or a member of the board, a shareholder should send
a written communication addressed to the board or member of the board to the
attention of the Corporate Secretary at the following address: P.O. Box 418210,
Kansas City, Missouri 64141-9210. Shareholders who prefer to communicate by
email may send their comments to [email protected]. All
shareholder communications received will be forwarded to the board or to the
independent board chair.
Board
Leadership Structure and Standing Board Committees
Tanya
S. Beder currently serves as the independent board chair and has served in such
capacity since 2022. Of the board’s members, Jonathan S. Thomas is the only
member who is an “interested person” as that term is defined in the Investment
Company Act. The remaining members are independent trustees. The independent
trustees meet separately to consider a variety of matters that are scheduled to
come before the board and meet periodically with the funds’ Chief Compliance
Officer and fund auditors. They are advised by independent legal counsel. No
independent trustee may serve as an officer or employee of a fund. The board has
also established several committees, as described below. Each committee is
comprised solely of independent trustees. The board believes that the current
leadership structure, with independent trustees filling all but one position on
the board, with an independent trustee serving as board chair and with the board
committees comprised only of independent trustees, is appropriate and allows for
independent oversight of the funds.
The
board has an Audit and Compliance Committee that approves the funds’ engagement
of the independent registered public accounting firm and recommends approval of
such engagement to the independent trustees. The committee also oversees the
activities of the accounting firm, receives regular reports regarding fund
accounting, oversees securities valuation (approving the funds’ or the trust’s
valuation policy and receiving reports regarding instances of fair valuation
thereunder), and receives regular reports from the advisor’s internal audit
department. The committee also reviews the results of the funds’ compliance
testing program, meets regularly with the funds’ Chief Compliance Officer, and
monitors implementation of the funds’ Code of Ethics. The committee currently
consists of Jennifer Cabalquinto (chair), Tanya S. Beder, Anne Casscells and
John
M. Loder.
It
met four times during the fiscal year ended August 31, 2023.
The
board also has a Portfolio Committee that meets quarterly to review the
investment activities and strategies used to manage the funds’ assets and
monitor investment performance. The committee regularly receives reports from
the advisor’s Chief Investment Officer, portfolio managers, credit analysts and
other investment personnel concerning the funds’ investments. The committee also
receives information regarding fund trading activities and monitors derivative
usage. It currently consists of Anne Casscells (chair), Tanya S. Beder, Jeremy
I. Bulow, Jennifer Cabalquinto, Jonathan D. Levin and John
M. Loder. The
committee met four times during the fiscal year ended August 31, 2023.
The
Client Experience Oversight Committee monitors the quality of services that the
funds offer both to direct customers and to intermediaries who offer fund shares
to their customers. All channels of communication (written, telephone, web and
mobile) are reviewed. The level of performance is compared to peer competitors.
The committee also monitors payments to intermediaries and trading in fund
shares that could harm the interests of other shareholders and reviews future
strategic initiatives of the advisor and their potential effects on fund
shareholders. The committee currently consists of Jeremy I. Bulow (chair),
Jonathan D. Levin and John
M. Loder.
It
met four times during the fiscal year ended August 31, 2023.
The
Technology and Risk Committee coordinates the board’s oversight of the funds’
risk management processes and monitors the systems, practices and procedures the
advisor uses to manage the funds’ risks. In addition, the committee oversees
enterprise technology risk management and the advisor’s processes for oversight
of vendors that provide critical services or technologies to the funds or on
which the advisor relies in providing services to the funds. It also makes
recommendations to the board regarding the allocation of risk oversight
activities among the board’s committees. The committee currently consists of
Tanya S. Beder (chair), Jennifer Cabalquinto and Anne Casscells. It met four
times during the fiscal year ended August 31, 2023.
The
board has a Corporate Governance Committee that is responsible for reviewing
board procedures and committee structures. The committee also considers and
recommends individuals for nomination as trustees. The names of potential
trustee candidates may be drawn from a number of sources, including
recommendations from members of the board, the advisor (in the case of
interested trustees only), shareholders and third party search firms. The
committee seeks to identify and recruit the best available candidates and will
evaluate qualified shareholder nominees on the same basis as those identified
through other sources. Although not written, the funds have a policy of
considering all candidates recommended in writing by shareholders. Shareholders
may submit trustee nominations in writing to the Corporate Secretary, P.O. Box
418210, Kansas City, Missouri 64141-9210, or by email to
[email protected]. The nomination should include the
following information:
•Shareholder’s
name, the fund name, number of fund shares owned and length of period
held;
•Name,
age and address of the candidate;
•A
detailed resume describing, among other things, the candidate’s educational
background, occupation, employment history, financial knowledge and expertise
and material outside commitments (e.g., memberships on other boards and
committees, charitable foundations, etc.);
•Any
other information relating to the candidate that is required to be disclosed in
solicitations of proxies for election of trustees in an election contest
pursuant to Regulation 14A under the Securities Exchange Act of
1934;
•A
supporting statement that (i) describes the candidate’s reasons for seeking
election to the board and(ii) documents his/her qualifications to serve as a
trustee; and
•A
signed statement from the candidate confirming his/her willingness to serve on
the board.
The
Corporate Governance Committee also may consider, and make recommendations to
the board regarding, other matters relating to the corporate governance of the
funds. It currently consists of Jonathan D. Levin (chair),Tanya S. Beder, Jeremy
I. Bulow and John M. Loder. The committee met three times during the fiscal year
ended August 31, 2023.
Risk
Oversight by the Board
As
previously disclosed, the board oversees the advisor’s management of the funds
and meets at least quarterly with management of the advisor to review reports
and receive information regarding fund operations. Risk oversight relating to
the funds is one component of the board’s oversight and is undertaken in
connection with the duties of the board. As described in the previous section,
the board’s committees, including the Technology and Risk Committee, assist the
board in overseeing various types of risks relating to the funds. The board
receives regular reports from each committee regarding the committee’s areas of
oversight responsibility. In addition, the board receives information regarding,
and has discussions with senior management of the advisor about, the advisor’s
enterprise risk management systems and strategies. There can be no assurance
that all elements of risk, or even all elements of material risk, will be
disclosed to or identified by the board, or that the advisor’s risk management
systems and strategies, and the board’s oversight thereof, will mitigate all
elements of risk, or even all elements of material risk, to the
fund.
Board
Compensation
Each
independent trustee receives compensation for service as a member of the board.
Under the terms of each management agreement with the advisor, the funds are
responsible for paying such fees and expenses. None of the interested trustees
or officers of the funds receive compensation from the funds. For the fiscal
year ended August 31, 2023, each independent trustee received the following
compensation for his or her service to the funds and the American Century family
of funds. Because
Mr. Loder was not a trustee on August 31, 2023, he is not included in the
table.
|
|
|
|
|
|
|
|
| |
| Name
of Trustee |
Total
Compensation for Service as
Trustee
of the Funds1 |
Total
Compensation for Service as Directors/Trustees for the
American
Century
Investments Family of Funds2 |
| Tanya
S. Beder |
$34,908 |
$400,000 |
| Jeremy
I. Bulow |
$25,308 |
$431,667 |
| Jennifer
Cabalquinto |
$27,204 |
$311,667 |
| Anne
Casscells |
$27,054 |
$310,000 |
| Jonathan
D. Levin |
$26,617 |
$305,000 |
|
Peter
F. Pervere3 |
$26,025 |
$298,333 |
|
John
B. Shoven3 |
$26,617 |
$305,000 |
1 Includes
compensation paid to the trustees for the fiscal year ended August 31,
2023,
and also includes amounts deferred at the election of the trustees under the
American Century Mutual Funds’ Independent Directors’ Deferred Compensation
Plan.
2 Includes
compensation paid to each trustee for his or her service as director/trustee for
eight (in the case of Mr. Bulow, nine) investment companies in the American
Century Investments family of funds. The total amount of deferred compensation
included in the table is as follows: Mr. Bulow, $116,717;
Ms. Casscells, $310,000;
and Mr. Pervere, $29,833.
3 Mr.
Pervere and Mr. Shoven retired from the board on December 31, 2023.
None
of the funds currently provides any pension or retirement benefits to the
trustees except pursuant to the American Century Mutual Funds’ Independent
Directors’ Deferred Compensation Plan adopted by the trust. 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
accounts established in the names of the trustees. The amounts credited to each
account then increase or decrease, as the case may be, in accordance with the
performance of one or more American Century funds selected by the trustees. The
account balance continues to fluctuate in accordance with the performance of the
selected fund or funds until final payment of all amounts credited to the
account. Trustees are allowed to change their designation of funds from time to
time.
Generally,
deferred fees are not payable to a trustee until the distribution date elected
by the trustee in accordance with the terms of the plan. Such distribution date
may be a date on or after the trustee’s retirement date, but may be an earlier
date if the trustee agrees not to make any additional deferrals after such
distribution date. Distributions may commence prior to the elected payment date
for certain reasons specified in the plan, such as unforeseeable emergencies,
death or disability. 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
met all payment obligations under the plan. 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.
Ownership
of Fund Shares
The
trustees owned shares in the funds as of December 31, 2022, as shown in the
table below. Because
Mr. Loder was not a trustee on December 31, 2022, he is not included in the
table.
|
|
|
|
|
|
|
|
|
|
|
| |
| |
Name
of Trustee |
| |
Tanya
S. Beder |
Jeremy
I. Bulow |
Jennifer
Cabalquinto |
| Dollar
Range of Equity Securities in the Funds: |
|
| |
| California
High-Yield Municipal |
A |
A |
A |
| California
Intermediate-Term Tax-Free Bond |
A |
A |
A |
| California
Tax-Free Money Market |
A |
A |
A |
Aggregate
Dollar Range of Equity
Securities in all Registered
Investment
Companies Overseen by Trustee in
Family of Investment
Companies |
E |
D |
A |
Ranges:
A—none, B—$1-$10,000, C—$10,001-$50,000, D—$50,001-$100,000, E—More than
$100,000
|
|
|
|
|
|
|
|
|
|
|
| |
| |
Name
of Trustee |
| |
Anne
Casscells |
Jonathan
D. Levin |
Jonathan
S. Thomas |
| Dollar
Range of Equity Securities in the Funds: |
|
| |
| California
High-Yield Municipal |
A |
A |
A |
| California
Intermediate-Term Tax-Free Bond |
A |
A |
A |
| California
Tax-Free Money Market |
A |
A |
A |
|
Aggregate
Dollar Range of Equity
Securities
in all Registered Investment
Companies
Overseen by Trustee in
Family
of Investment Companies
|
E |
A |
E |
Ranges:
A—none, B—$1-$10,000, C—$10,001-$50,000, D—$50,001-$100,000, E—More than
$100,000
Beneficial
Ownership of Affiliates by Independent Trustees
No
independent trustee or his or her immediate family members beneficially owned
shares of the advisor, the principal underwriter of the funds or any other
person directly or indirectly controlling, controlled by, or under common
control with the advisor or the funds’ principal underwriter as of December 31,
2022.
The
following table presents certain information about the executive officers of the
funds. Each officer serves as an officer for 16 investment companies in the
American Century family of funds. No officer is compensated for his or her
service as an officer of the funds. The listed officers are interested persons
of the funds and are appointed or re-appointed on an annual basis. The mailing
address for each of the officers listed below is 4500 Main Street, Kansas City,
Missouri 64111.
|
|
|
|
|
|
|
|
| |
| Name
(Year of Birth) |
Offices
with the Funds |
Principal
Occupation(s) During the Past Five Years |
Patrick
Bannigan
(1965) |
President
since
2019 |
Executive
Vice President and Director, ACC
(2012 to present); Chief Financial Officer, Chief Accounting Officer and
Treasurer, ACC (2015
to present). Also serves as President, ACS;
Vice President, ACIM;
Chief Financial Officer, Chief Accounting Officer and/or
Director, ACIM,
ACS and
other ACC subsidiaries |
R.
Wes Campbell
(1974) |
Chief
Financial
Officer and Treasurer
since 2018; Vice President since
2023 |
Vice
President, ACS
(2020
to present); Investment Operations and Investment Accounting, ACS (2000 to
present) |
Amy
D. Shelton
(1964) |
Chief
Compliance Officer and Vice President since 2014 |
Chief
Compliance Officer, American Century funds, (2014 to present); Chief
Compliance Officer, ACIM
(2014 to present); Chief Compliance Officer, ACIS
(2009 to present). Also serves as Vice President, ACIS |
|
|
|
|
|
|
|
|
| |
| Name
(Year of Birth) |
Offices
with the Funds |
Principal
Occupation(s) During the Past Five Years |
John
Pak
(1968) |
General
Counsel and
Senior Vice President since 2021 |
General
Counsel and Senior Vice President, ACC
(2021 to present). Also serves as General Counsel and Senior Vice
President, ACIM,
ACS
and ACIS.
Chief Legal Officer of Investment and Wealth Management, The Bank of New
York Mellon (2014 to 2021) |
| Cihan
Kasikara (1974) |
Vice
President since 2023 |
Senior
Vice President, ACS
(2022 to present); Treasurer, ACS
(2023 to present); Vice President, ACS
(2020 to 2022); Vice President, Franklin
Templeton
(2015 to 2020) |
| Kathleen
Gunja Nelson (1976) |
Vice
President since 2023 |
Vice
President, ACS
(2017 to present) |
Ward
D. Stauffer
(1960) |
Secretary
since 2005 |
Attorney,
ACC
(2003 to present) |
The
funds, their investment advisor and principal underwriter have adopted codes of
ethics under Rule 17j-1 of the Investment Company Act. They permit personnel
subject to the codes 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’ Board of Trustees has adopted a general statement of proxy voting
principles that governs the exercise of voting and consent rights associated
with the securities purchased and/or held by the funds. The funds have delegated
to the advisor the responsibility for exercising such rights, subject to the
board’s oversight. The advisor has adopted proxy voting policies that describe
in detail how the advisor intends to exercise its delegated proxy voting
authority in a manner consistent with the board’s principles.
Copies
of the advisor’s proxy voting policies are attached hereto as Appendix E. Copies
of the board’s proxy voting principles as well as information regarding how the
advisor voted proxies relating to portfolio securities during the most recent
12-month period ended June 30, are available at americancentury.com/proxy. The
advisor’s proxy voting record also is available on the SEC’s website at
sec.gov.
A
list of the funds’ principal shareholders appears in Appendix
A.
The
funds have no employees. To conduct the funds’ day-to-day activities, the trust
has hired a number of service providers. Each service provider has a specific
function to fill on behalf of the funds that is described below.
ACIM,
ACS and ACIS are wholly owned, directly or indirectly, by ACC. The Stowers
Institute for Medical Research (SIMR) controls ACC by virtue of its beneficial
ownership of more than 25% of the voting securities of ACC. SIMR is part of a
not-for-profit biomedical research organization dedicated to finding the keys to
the causes, treatments and prevention of disease.
American
Century Investment Management, Inc. (ACIM) serves as the investment advisor for
each of the funds. A description of the responsibilities of the advisor appears
in each prospectus under the heading Management.
Each
class of each fund is subject to a contractual unified management fee based on a
percentage of the daily net assets of such class. For more information about the
unified management fee, see The
Investment Advisor
under the heading Management
in each fund’s prospectus. The annual rate at which this fee is assessed is
determined daily in a multi-step process. First, each fund is categorized
according to the broad asset class in which it invests (e.g., money market, bond
or equity), and the assets of all funds for which ACIM serves as the investment
advisor and for which American Century Investment Services, Inc. (ACIS) serves
as the distributor are totaled for each category (Fund Category Assets). Second,
the assets are totaled for certain other accounts managed by the advisor (Other
Account Category Assets). To be included, these accounts must have the same
management team and investment objective as a fund in the same category with the
same board of trustees as the trust. Together, the Fund Category Assets and the
Other Account Category Assets comprise the “Investment Category Assets.” The
Investment Category Fee Rate is then calculated by applying a fund’s Investment
Category Fee Schedule to the Investment Category Assets and dividing the result
by the Investment Category Assets. Finally, a separate Complex Fee Schedule
is applied to the assets of all funds for which ACIM serves as the investment
advisor and for which ACIS serves as the distributor (the Complex Assets), and
the Complex Fee Rate is calculated based on the resulting total.The Investment
Category Fee Rate and the Complex Fee Rate are then added to determine the
Management Fee Rate payable by a class of the fund to the
advisor.
For
purposes of determining the assets that comprise the Fund Category Assets, Other
Account Category Assets and Complex Assets, the assets of registered investment
companies managed by the advisor that invest exclusively in the shares of other
registered investment companies shall not be included.
The
schedules by which the unified management fee is determined are shown
below.
|
|
|
|
|
| |
| Investment
Category Fee Schedule for California High-Yield Municipal |
| Category
Assets |
Fee
Rate |
| First
$1 billion |
0.3100% |
| Next
$1 billion |
0.2580% |
| Next
$3 billion |
0.2280% |
| Next
$5 billion |
0.2080% |
| Next
$15 billion |
0.1950% |
| Next
$25 billion |
0.1930% |
| Thereafter |
0.1925% |
|
|
|
|
|
| |
| Investment
Category Fee Schedule for California Intermediate-Term Tax-Free
Bond |
| Category
Assets |
Fee
Rate |
| First
$1 billion |
0.2800% |
| Next
$1 billion |
0.2280% |
| Next
$3 billion |
0.1980% |
| Next
$5 billion |
0.1780% |
| Next
$15 billion |
0.1650% |
| Next
$25 billion |
0.1630% |
| Thereafter |
0.1625% |
|
|
|
|
|
| |
| Investment
Category Fee Schedule for California Tax-Free Money Market |
| Category
Assets |
Fee
Rate |
| First
$1 billion |
0.2700% |
| Next
$1 billion |
0.2270% |
| Next
$3 billion |
0.1860% |
| Next
$5 billion |
0.1690% |
| Next
$15 billion |
0.1580% |
| Next
$25 billion |
0.1575% |
| Thereafter |
0.1570% |
The
Complex Fee is determined according to the schedule below.
|
|
|
|
|
|
|
|
|
|
|
| |
| Complex
Fee Schedule |
|
|
|
| Complex
Assets |
Investor,
A and C
Class Fee Rate |
I
Class
Fee Rate |
Y
Class
Fee Rate |
| First
$2.5 billion |
0.3100% |
0.1100% |
0.0800% |
| Next
$7.5 billion |
0.3000% |
0.1000% |
0.0700% |
| Next
$15 billion |
0.2985% |
0.0985% |
0.0685% |
| Next
$25 billion |
0.2970% |
0.0970% |
0.0670% |
| Next
$25 billion |
0.2870% |
0.0870% |
0.0570% |
| Next
$25 billion |
0.2800% |
0.0800% |
0.0500% |
| Next
$25 billion |
0.2700% |
0.0700% |
0.0400% |
| Next
$25 billion |
0.2650% |
0.0650% |
0.0350% |
| Next
$25 billion |
0.2600% |
0.0600% |
0.0300% |
| Next
$25 billion |
0.2550% |
0.0550% |
0.0250% |
| Thereafter |
0.2500% |
0.0500% |
0.0200% |
On
each calendar day, each class of each fund accrues a management fee that is
equal to the class’s Management Fee Rate times the net assets of the class
divided by 365 (366 in leap years). On the first business day of each month, the
funds pay a management fee to the advisor for the previous month. The fee for
the previous month is the sum of the calculated daily fees for each class of a
fund during the previous month.
The
management agreement between the trust and the advisor shall continue in effect
for a period of two years from its effective date (unless sooner terminated in
accordance with its terms) and shall continue in effect from year to year
thereafter for each fund so long as such continuance is approved at least
annually by:
1) either
the funds’ Board of Trustees, or a majority of the outstanding voting securities
of such fund (as defined in the Investment Company Act); and
2) the
vote of a majority of the trustees of the funds who are not parties to the
agreement or interested persons of the advisor, cast in person at a meeting
called for the purpose of voting on such approval.
The
management agreement states that the funds’ Board of Trustees or a majority of
the outstanding voting securities of each class of such fund may terminate the
management agreement at any time without payment of any penalty on 60 days’
written notice to the advisor. The management agreement shall be automatically
terminated if it is assigned.
The
management agreement provides that the advisor shall not be liable to the funds
or their shareholders for anything other than willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and
duties.
The
management agreement also provides that the advisor and its officers, trustees
and employees may engage in other business, render services to others, and
devote time and attention to any other business whether of a similar or
dissimilar nature.
Certain
investments may be appropriate for the funds and also for other clients advised
by the advisor. Investment decisions for the funds and other clients are made
with a view to achieving their respective investment objectives after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investment generally. A particular security
may be bought or sold for only one client or fund, or in different amounts and
at different times for more than one but less than all clients or funds. A
particular security may be bought for one client or fund on the same day it is
sold for another client or fund, and a client or fund may hold a short position
in a particular security at the same time another client or fund holds a long
position. In addition, purchases or sales of the same security may be made for
two or more clients or funds on the same date. The advisor has adopted
procedures designed to ensure such transactions will be allocated among clients
and funds 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. Fixed-income securities transactions are not executed through a
centralized trading desk. Instead, portfolio teams are responsible for executing
trades with broker/dealers in a predominantly dealer marketplace. Trade
allocation decisions are made by the portfolio manager at the time of trade
execution and orders entered on the fixed-income order management system. The
advisor will not aggregate portfolio transactions of the funds unless it
believes such aggregation is consistent with its duty to seek best execution on
behalf of the funds and the terms of the management agreement. The advisor
receives no additional compensation or remuneration as a result of such
aggregation.
Unified
management fees incurred by each fund for the fiscal periods ended August 31,
2023, 2022 and 2021, are indicated in the following table.
|
|
|
|
|
|
|
|
|
|
|
| |
| Unified
Management Fees |
| Fund |
2023 |
2022 |
2021 |
| California
High-Yield Municipal |
$5,592,365 |
$6,624,707 |
$6,495,642 |
| California
Intermediate-Term Tax-Free Bond |
$6,735,641 |
$6,974,023 |
$7,010,279 |
| California
Tax-Free Money Market |
$606,565 |
$337,0241 |
$133,4952 |
1 Amount
shown reflects waiver by advisor of $281,517 in management fees.
2 Amount
shown reflects waiver by advisor of $491,121 in management fees.
Accounts
Managed
The
portfolio managers are responsible for the day-to-day management of various
accounts, as indicated by the following table. None of these accounts has an
advisory fee based on the performance of the account.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Accounts
Managed (As of August 31, 2023) |
| |
|
Registered
Investment
Companies (e.g.,
American Century Investments
funds
and American
Century Investments-
subadvised
funds) |
Other
Pooled
Investment Vehicles
(e.g., commingled
trusts and
529
education savings plans) |
Other
Accounts
(e.g., separate
accounts and corporate
accounts,
including
incubation strategies
and corporate money) |
| Joseph
Gotelli |
Number
of Accounts |
5 |
0 |
3 |
|
| Assets |
$8.1
billion1 |
N/A |
$44.6
million |
| Alan
Kruss |
Number
of Accounts |
5 |
0 |
3 |
|
| Assets |
$8.1
billion1 |
N/A |
$44.6
million |
1 Includes
$1.4 billion in California High-Yield Municipal Fund and $2.0 billion California
Intermediate-Term Tax-Free Bond Fund.
Potential
Conflicts of Interest
Certain
conflicts of interest may arise in connection with the management of multiple
portfolios. Potential conflicts include, for example, conflicts among investment
strategies, such as one portfolio buying or selling a security while another
portfolio has a differing, potentially opposite position in such security. This
may include one portfolio taking a short position in the security of an issuer
that is held long in another portfolio (or vice versa). Other potential
conflicts may arise with respect to the allocation of investment opportunities,
which are discussed in more detail below. American Century Investments has
adopted policies and procedures that are designed to minimize the effects of
these conflicts.
Responsibility
for managing American Century Investments client portfolios is organized
according to investment discipline. Investment disciplines include, for example,
disciplined equity, global growth equity, global value equity, global fixed
income, multi-asset strategies, ETFs and Avantis Investors funds. Within each
discipline are one or more portfolio teams responsible for managing specific
client portfolios. Generally, client portfolios with similar strategies are
managed by the same team using the same objective, approach, and philosophy.
Accordingly, portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar portfolios, which minimizes the
potential for conflicts of interest. In addition, American Century Investments
maintains an ethical wall that restricts real time access to information
regarding any portfolio’s transaction activities and positions to team members
that have responsibility for a given portfolio or are within the same equity
investment discipline. The ethical wall is intended to aid in preventing the
misuse of portfolio holdings information and trading activity in the other
disciplines.
For
each investment strategy, one portfolio is generally designated as the “policy
portfolio.” Other portfolios with similar investment objectives, guidelines and
restrictions, if any, are referred to as “tracking portfolios.” When managing
policy and tracking portfolios, a portfolio team typically purchases and sells
securities across all portfolios that the team manages. American Century
Investments’ trading systems include various order entry programs that assist in
the management of multiple portfolios, such as the ability to purchase or sell
the same relative amount of one security across several funds. In some cases a
tracking portfolio may have additional restrictions or limitations that cause it
to be managed separately from the policy portfolio. Portfolio managers make
purchase and sale decisions for such portfolios alongside the policy portfolio
to the extent the overlap is appropriate, and separately, if the overlap is
not.
American
Century Investments may aggregate orders to purchase or sell the same security
for multiple portfolios when it believes such aggregation is consistent with its
duty to seek best execution on behalf of its clients. Orders of certain client
portfolios may, by investment restriction or otherwise, be determined not
available for aggregation. American Century Investments has adopted policies and
procedures to minimize the risk that a client portfolio could be systematically
advantaged or disadvantaged in connection with the aggregation of orders. To the
extent equity trades are aggregated, shares purchased or sold are generally
allocated to the participating portfolios pro rata based on order size. Because
initial public offerings (IPOs) are usually available in limited supply and in
amounts too small to permit across-the-board pro rata allocations, American
Century Investments has adopted special procedures designed to promote a fair
and equitable allocation of IPO securities among clients over time. A
centralized trading desk executes all fixed income securities transactions for
Avantis ETFs and mutual funds. For all other funds in the American Century
complex, portfolio teams are responsible for executing fixed income trades with
broker/dealers in a predominantly dealer marketplace. Trade allocation decisions
are made by the portfolio manager at the time of trade execution and orders
entered on the fixed income order management system. There is an ethical wall
between the Avantis trading desk and all other American Century traders. The
Advisor’s Global Head of Trading monitors all trading activity for best
execution and to make sure no set of clients is being systematically
disadvantaged.
Finally,
investment of American Century Investments’ corporate assets in proprietary
accounts may raise additional conflicts of interest. To mitigate these potential
conflicts of interest, American Century Investments has adopted policies and
procedures intended to provide that trading in proprietary accounts is performed
in a manner that does not give improper advantage to American Century
Investments to the detriment of client portfolios.
Compensation
American
Century Investments portfolio manager compensation is structured to align the
interests of portfolio managers with those of the shareholders whose assets they
manage. As of August 31, 2023,
it includes the components described below, each of which is determined with
reference to a number of factors such as overall performance, market
competition, and internal equity.
Base
Salary
Portfolio
managers receive base pay in the form of a fixed annual salary.
Bonus
A
significant portion of portfolio manager compensation takes the form of an
annual incentive bonus, which is determined by a combination of factors. One
factor is investment performance of funds a portfolio manager manages. The
mutual funds’ investment performance is generally measured by a combination of
one-, three- and five-year pre-tax performance relative to various benchmarks
and/or internally-customized peer groups, such as those indicated below. The
performance comparison periods may be adjusted based on a fund’s inception date
or a portfolio manager’s tenure on the fund.
|
|
|
|
|
|
|
|
| |
| Fund |
Benchmarks |
Peer
Group |
| California
High-Yield Municipal |
S&P
Municipal Bond California 50% Investment Grade/50% High Yield |
Morningstar
U.S. Muni CA Long |
California
Intermediate-Term
Tax-Free Bond |
S&P
Intermediate Term California AMT-Free Municipal Bond |
Morningstar
U.S. Muni CA Intermediate |
Portfolio
managers may have responsibility for multiple American Century Investments
mutual funds. In such cases, the performance of each is assigned a percentage
weight appropriate for the portfolio manager’s relative levels of
responsibility. Portfolio managers also may have responsibility for other types
of managed portfolios or ETFs. If the performance of a managed account or ETF is
considered for purposes of compensation, it is generally measured via the same
criteria as an American Century Investments mutual fund (i.e., relative to the
performance of a benchmark and/or peer group).
A
second factor in the bonus calculation relates to the performance of a number of
American Century Investments mutual funds managed according to one of the
following investment disciplines: global growth equity, global value equity,
disciplined equity, global fixed-income, and multi-asset strategies. The
performance of American Century ETFs may also be included for certain investment
disciplines. Performance is measured for each product individually as described
above and then combined to create an overall composite for the product group.
These composites may measure one-year performance (equal weighted) or a
combination of one-, three- and five-year performance (equal or asset weighted)
depending on the portfolio manager’s responsibilities and products managed and
the composite for certain portfolio managers may include multiple disciplines.
This feature is designed to encourage effective teamwork among portfolio
management teams in achieving long-term investment success for similarly styled
portfolios.
A
portion of portfolio managers’ bonuses may be discretionary and may be tied to
factors such as profitability or individual performance goals, such as research
projects and/or the development of new products.
Restricted
Stock Plans
Portfolio
managers are eligible for grants of restricted stock of ACC. These grants are
discretionary, and eligibility and availability can vary from year to year. The
size of an individual’s grant is determined by individual and product
performance as well as other product-specific considerations such as
profitability. Grants can appreciate/depreciate in value based on the
performance of the ACC stock during the restriction period (generally three to
four years).
Deferred
Compensation Plans
Portfolio
managers are eligible for grants of deferred compensation. These grants are used
in very limited situations, primarily for retention purposes. Grants are fixed
and can appreciate/depreciate in value based on the performance of the American
Century Investments mutual funds in which the portfolio manager chooses to
invest them.
Ownership
of Securities
The
following table indicates the dollar range of securities of each fund
beneficially owned by the funds’ portfolio managers as of the fiscal year ended
August 31, 2023. Certain portfolio managers serve on teams that oversee a number
of funds in the same broad investment strategy and are not expected to invest in
each fund.
|
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|
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|
|
|
| |
| Ownership
of Securities |
| |
|
Aggregate Dollar Range
of Securities in Fund |
| California
High-Yield Municipal |
| |
Joseph
Gotelli |
D |
| |
Alan
Kruss |
A |
| California
Intermediate-Term Tax-Free Bond |
| |
Joseph
Gotelli |
C |
| |
Alan
Kruss |
A |
Ranges:
A – none; B – $1-$10,000; C – $10,001-$50,000; D – $50,001-$100,000; E –
$100,001-$500,000; F – $500,001-$1,000,000; G – More than
$1,000,000.
American
Century Services, LLC, 4500 Main Street, Kansas City, Missouri 64111, serves as
transfer agent and dividend-paying agent for the funds. It provides physical
facilities, computer hardware and software, and personnel for the day-to-day
administration of the funds and the advisor. The advisor pays ACS’s costs for
serving as transfer agent and dividend-paying agent for the funds out of the
advisor’s unified management fee. For a description of this fee and the terms of
its payment, see the above discussion under the caption Investment
Advisor
on page 30.
Proceeds
from purchases of fund shares may pass through accounts maintained by the
transfer agent at Commerce Bank, N.A. or UMB Bank, n.a. before being held at the
fund’s custodian. Redemption proceeds also may pass from the custodian to the
shareholder through such bank accounts.
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.
The
advisor has entered into an Administration Agreement with State Street Bank and
Trust Company (SSB) to provide certain fund accounting, fund financial
reporting, tax and treasury/tax compliance services for the funds, including
striking the daily net asset value for each fund. The advisor pays SSB a monthly
fee as compensation for these services that is based on the total net assets of
accounts in the American Century complex serviced by SSB. ACS does pay SSB for
some additional services on a per fund basis. While ACS continues to serve as
the administrator of the funds, SSB provides sub-administrative services that
were previously undertaken by ACS.
The
funds’ shares are distributed by American Century Investment Services, Inc.
(ACIS), a registered broker-dealer. ACIS is a wholly owned subsidiary of ACC and
its principal business address is 4500 Main Street, Kansas City, Missouri
64111.
The
distributor is the principal underwriter of the funds’ shares. The distributor
makes a continuous, best-efforts underwriting of the funds’ shares. This means
the distributor has no liability for unsold shares. The advisor pays ACIS’s
costs for serving as principal underwriter of the funds’ shares out of the
advisor’s unified management fee. For a description of this fee and the terms of
its payment, see the above discussion under the caption Investment
Advisor
on page 30. ACIS does not earn commissions for distributing the funds’
shares.
Certain
financial intermediaries unaffiliated with the distributor or the funds may
perform various administrative and shareholder services for their clients who
are invested in the funds. These services may include assisting with fund
purchases, redemptions and exchanges, distributing information about the funds
and their performance, preparing and distributing client account statements, and
other administrative and shareholder services that would otherwise be provided
by the distributor or its affiliates. The distributor may pay fees out of its
own resources to such financial intermediaries for the provision of these
services.
State
Street Bank and Trust Company (SSB), One Congress
Street, Suite
1,
Boston, Massachusetts 02114-2016
serves as custodian of the funds’ cash and securities under a Master Custodian
Agreement with the trust. Foreign securities, if any, are held by foreign banks
participating in a network coordinated by SSB. The custodian takes no part in
determining the investment policies of the funds or in deciding which securities
are purchased or sold by the funds. The funds, however, may invest in certain
obligations of the custodian and may purchase or sell certain securities from or
to the custodian.
The
funds’ Board appointed Deloitte & Touche LLP to serve as the funds’
independent registered public accounting firm for the fiscal year ended August
31, 2023.
The address of Deloitte & Touche LLP is 1100 Walnut Street, Suite 3300,
Kansas City, Missouri 64106. As the independent registered public accounting
firm of the funds, Deloitte & Touche LLP provides services including
auditing the annual financial statements and financial highlights for each
fund.
The
advisor places orders for equity portfolio transactions with broker-dealers, who
receive commissions for their services. Generally, commissions relating to
securities traded on foreign exchanges will be higher than commissions relating
to securities traded on U.S. exchanges. The advisor purchases and sells
fixed-income securities through principal transactions, meaning the advisor
normally purchases securities on a net basis directly from the issuer or a
primary market-maker acting as principal for the securities. The funds generally
do not pay a stated brokerage commission on these transactions, although the
purchase price for debt securities usually includes an undisclosed compensation.
Purchases of securities from underwriters typically include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
serving as market-makers typically include a dealer’s mark-up (i.e., a spread
between the bid and asked prices).
Under
the management agreement between the funds and the advisor, the advisor has the
responsibility of selecting brokers and dealers to execute portfolio
transactions. The funds’ policy is to secure the most favorable prices and
execution of orders on its portfolio transactions. The advisor selects
broker-dealers on their perceived ability to obtain “best execution” in
effecting transactions in its clients’ portfolios. In selecting broker-dealers
to effect portfolio transactions relating to equity securities, the advisor
considers the full range and quality of a broker-dealer’s research and brokerage
services, including, but not limited to, the following:
•applicable
commission rates and other transaction costs charged by the
broker-dealer
•value
of research provided to the advisor by the broker-dealer (including economic
forecasts, fundamental and technical advice on individual securities, market
analysis, and advice, either directly or through publications or writings, as to
the value of securities, availability of securities or of purchasers/sellers of
securities)
•timeliness
of the broker-dealer’s trade executions
•efficiency
and accuracy of the broker-dealer’s clearance and settlement
processes
•broker-dealer’s
ability to provide data on securities executions
•financial
condition of the broker-dealer
•the
quality of the overall brokerage and customer service provided by the
broker-dealer
In
transactions to buy and sell fixed-income securities, the selection of the
broker-dealer is determined by the availability of the desired security and its
offering price, as well as the broker-dealer’s general execution and operational
and financial capabilities in the type of transaction involved. The advisor will
seek to obtain prompt execution of orders at the most favorable prices or
yields. The advisor does not consider the receipt of products or services other
than brokerage or research services in selecting
broker-dealers.
On
an ongoing basis, the advisor seeks to determine what levels of commission rates
are reasonable in the marketplace. In evaluating the reasonableness of
commission rates, the advisor considers:
•rates
quoted by broker-dealers
•the
size of a particular transaction, in terms of the number of shares, dollar
amount, and number of clients involved
•the
ability of a broker-dealer to execute large trades while minimizing market
impact
•the
complexity of a particular transaction
•the
nature and character of the markets on which a particular trade takes
place
•the
level and type of business done with a particular firm over a period of
time
•the
ability of a broker-dealer to provide anonymity while executing
trades
•historical
commission rates
•rates
that other institutional investors are paying, based on publicly available
information
The
brokerage commissions paid by the funds may exceed those that another
broker-dealer might have charged for effecting the same transactions, because of
the value of the brokerage and research services provided by the broker-dealer.
Research services furnished by broker-dealers through whom the funds effect
securities transactions may be used by the advisor in servicing all of its
accounts, and not all such services may be used by the advisor in managing the
portfolios of the funds.
Pursuant
to its internal allocation procedures, the advisor regularly evaluates the
brokerage and research services provided by each broker-dealer that it uses. On
a periodic basis, members of the advisor’s portfolio management team assess the
quality and value of research and brokerage services provided by each
broker-dealer that provides execution services and research to the advisor for
its
clients’
accounts. The results of the periodic assessments are used to add or remove
brokers from the approved brokers list, if needed, and to set research budgets
for the following period. Execution-only brokers are used where deemed
appropriate.
In
the fiscal years August 31, 2023,
2022 and 2021, the brokerage commissions, including, as applicable, futures
commissions, of each fund are listed in the following table:
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| |
| Fund |
2023 |
2022 |
2021 |
| California
High-Yield Municipal |
$74,638 |
$27,314 |
$0 |
| California
Intermediate-Term Tax-Free Bond |
$58,888 |
$16,144 |
$3,344 |
| California
Tax-Free Money Market |
$0 |
$0 |
$0 |
Brokerage
commissions paid by a fund may vary significantly from year to year as a result
of changing asset levels throughout the year, portfolio turnover, varying market
conditions and other factors. For example, brokerage commissions applicable to
California High-Yield Municipal and California Intermediate-Term Tax-Free Bond
rose in 2022 due to the varying use of exchange-traded products and U.S.
Treasury futures.
As
of fiscal year end August 31, 2023,
none of the funds owned securities of its regular brokers or dealers (as defined
by Rule 10b-1 under the Investment Company Act) or of their parent
companies.
The
Declaration of Trust permits the Board of Trustees to issue an unlimited number
of full and fractional shares of beneficial interest without par value, which
may be issued in a series (or funds). Each of the funds named on the front of
this statement of additional information is a series of shares issued by the
trust. In addition, each series (or fund) may be divided into separate classes.
See Multiple
Class Structure,
which follows. Additional funds and classes may be added without a shareholder
vote.
Each
fund votes separately on matters affecting that fund exclusively. Voting rights
are not cumulative, so that investors holding more than 50% of the trust’s
(i.e., all funds’) outstanding shares may be able to elect a Board of Trustees.
The trust undertakes dollar-based voting, meaning that the number of votes a
shareholder is entitled to is based upon the dollar amount of the shareholder’s
investment. The election of trustees is determined by the votes received from
all trust shareholders without regard to whether a majority of shares of any one
fund voted in favor of a particular nominee or all nominees as a
group.
Each
shareholder has rights to dividends and distributions declared by the fund he or
she owns and to the net assets of such fund upon its liquidation or dissolution
proportionate to his or her share ownership interest in the fund. Shares of each
fund have equal voting rights, although each fund votes separately on matters
affecting that fund exclusively.
The
trust shall continue unless terminated by (1) approval of at least two-thirds of
the shares of each fund entitled to vote or (2) by the trustees by written
notice to shareholders of each fund. Any fund may be terminated by (1) approval
of at least two-thirds of the shares of that fund or (2) by the trustees by
written notice to shareholders of that fund.
Upon
termination of the trust or a fund, as the case may be, the trust shall pay or
otherwise provide for all charges, taxes, expenses and liabilities belonging to
the trust or the fund. Thereafter, the trust shall reduce the remaining assets
belonging to each fund (or the particular fund) to cash, shares of other
securities or any combination thereof, and distribute the proceeds belonging to
each fund (or the particular fund) to the shareholders of that fund ratably
according to the number of shares of that fund held by each shareholder on the
termination date.
Shareholders
of a Massachusetts business trust could, under certain circumstances, be held
personally liable for its obligations. However, the Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the trust. The Declaration of Trust also provides for indemnification and
reimbursement of expenses of any shareholder held personally liable for
obligations of the trust. The Declaration of Trust provides that the trust will,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the trust and satisfy any judgment thereon. The
Declaration of Trust further provides that the trust may maintain appropriate
insurance (for example, fidelity, bonding, and errors and omissions insurance)
for the protection of the trust, its shareholders, trustees, officers, employees
and agents to cover possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss as a result of shareholder liability is
limited to circumstances in which both inadequate insurance exists and the trust
is unable to meet its obligations.
The
assets belonging to each series are held separately by the custodian and the
shares of each series represent a beneficial interest in the principal, earnings
and profit (or losses) of investments and other assets held for each series.
Your rights as a shareholder are the same for all series of securities unless
otherwise stated. Within their respective fund or class, all shares have equal
redemption rights. Each share, when issued, is fully paid and
non-assessable.
The
Board of Trustees has adopted a multiple class plan pursuant to Rule 18f-3 under
the Investment Company Act. The plan is described in the prospectus of any fund
that offers more than one class. Pursuant to such plan, the funds may issue the
following classes of shares: Investor Class, I Class, Y Class, A Class and C
Class. Not all funds offer all classes.
The
Investor Class is made available to investors directly from American Century
Investments and/or through some financial intermediaries. Additional information
regarding eligibility for Investor Class shares may be found in the funds’
prospectuses. The I Class is made available to institutional shareholders or
through financial intermediaries that provide various shareholder and
administrative services. Y Class shares are available through financial
intermediaries that offer fee-based advisory programs. The A and C Classes also
are made available through financial intermediaries, for purchase by individual
investors who receive advisory and personal services from the intermediary. The
classes have different unified management fees as a result of their separate
arrangements for shareholder services. In addition, the A and C Class shares
each are subject to a separate Master Distribution and Individual Shareholder
Services Plan (the A Class Plan and C Class Plan, respectively, and
collectively, the plans) described below. The plans have been adopted by the
funds’ Board of Trustees in accordance with Rule 12b-1 adopted by the SEC under
the Investment Company Act.
Rule
12b-1
Rule
12b-1 permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a plan adopted by its Board of
Trustees and approved by its shareholders. Pursuant to such rule, the Board of
Trustees of the funds’ A and C Classes have approved and entered into the A
Class Plan and C Class Plan, respectively. The plans are described
below.
In
adopting the plans, the Board of Trustees (including a majority of trustees who
are not interested persons of the funds, as defined in the Investment Company
Act, hereafter referred to as the independent trustees) determined that there
was a reasonable likelihood that the plans would benefit the funds and the
shareholders of the affected class. Some of the anticipated benefits include
improved name recognition of the funds generally; and growing assets in existing
funds, which helps retain and attract investment management talent, provides a
better environment for improving fund performance, and can lower the total
expense ratio for funds with stepped-fee schedules. Pursuant to Rule 12b-1,
information about revenues and expenses under the plans is presented to the
Board of Trustees quarterly. Continuance of the plans must be approved by the
Board of Trustees, including a majority of the independent trustees, annually.
The plans may be amended by a vote of the Board of Trustees, including a
majority of the independent trustees, except that the plans may not be amended
to materially increase the amount to be spent for distribution without majority
approval of the shareholders of the affected class. The plans terminate
automatically in the event of an assignment and may be terminated upon a vote of
a majority of the independent trustees or by vote of a majority of the
outstanding voting securities of the affected class.
All
fees paid under the plans will be made in accordance with Section 2830 of the
Conduct Rules of the Financial Industry Regulatory Authority
(FINRA).
The
Share Class Plans
As
described in the prospectuses, the A and C Class shares of the funds are made
available to persons purchasing through broker-dealers, banks, insurance
companies and other financial intermediaries that provide various
administrative, shareholder and distribution services. In addition, the A and C
Classes are made available to participants in employer-sponsored retirement
plans. The funds’ distributor enters into contracts with various banks,
broker-dealers, insurance companies and other financial intermediaries, with
respect to the sale of the funds’ shares and/or the use of the funds’ shares in
various investment products or in connection with various financial
services.
Certain
recordkeeping and administrative services that would otherwise be performed by
the funds’ transfer agent may be performed by a plan sponsor (or its agents) or
by a financial intermediary for A and C Class investors. In addition to such
services, the financial intermediaries provide various individual shareholder
and distribution services.
To
enable the funds’ shares to be made available through such plans and financial
intermediaries, and to compensate them for such services, the funds’ Board of
Trustees has adopted the A and C Class Plans. Pursuant to the plans, the
following fees are paid and described further below.
A
Class
The
A Class pays the funds’ distributor 0.25% annually of the average daily net
asset value of the A Class shares. The distributor may use these fees to pay for
certain ongoing shareholder and administrative services and for distribution
services, including past distribution services. This payment is fixed at 0.25%
and is not based on expenses incurred by the distributor.
C
Class
The
C Class pays the funds’ distributor 1.00% annually of the average daily net
asset value of the funds’ C Class shares, 0.25% of which is paid for certain
ongoing individual shareholder and administrative services and 0.75% of which is
paid for distribution services, including past distribution services. This
payment is fixed at 1.00% and is not based on expenses incurred by the
distributor.
During
the fiscal year ended August 31, 2023,
the aggregate amount of fees paid under each class plan was:
|
|
|
|
|
|
|
|
| |
| |
A
Class |
C
Class |
| California
High-Yield Municipal |
$136,086 |
$161,124 |
| California
Intermediate-Term Tax-Free Bond |
$43,701 |
$42,807 |
The
distributor then makes these payments to the financial intermediaries (including
underwriters and broker-dealers, who may use some of the proceeds to compensate
sales personnel) who offer the A and C Class shares for the services described
below. No portion of these payments is used by the distributor to pay for
advertising, printing costs or interest expenses.
Payments
may be made for a variety of individual shareholder services, including, but not
limited to:
(a)providing
individualized and customized investment advisory services, including the
consideration of shareholder profiles and specific goals;
(b)creating
investment models and asset allocation models for use by shareholders in
selecting appropriate funds;
(c)conducting
proprietary research about investment choices and the market in
general;
(d)periodic
rebalancing of shareholder accounts to ensure compliance with the selected asset
allocation;
(e)consolidating
shareholder accounts in one place;
(f)paying
service fees for providing personal, continuing services to investors, as
contemplated by the Conduct Rules of FINRA; and
(g)other
individual services.
Individual
shareholder services do not include those activities and expenses that are
primarily intended to result in the sale of additional shares of the
funds.
Distribution
services include any activity undertaken or expense incurred that is primarily
intended to result in the sale of A or 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 these shares pursuant to selling
agreements;
(b)compensating
registered representatives or other employees of the distributor who engage in
or support distribution of the funds’ shares;
(c)compensating
and paying expenses (including overhead and telephone expenses) of the
distributor;
(d)printing
prospectuses, statements of additional information and reports for
other-than-existing shareholders;
(e)preparing,
printing and distributing sales literature and advertising materials provided to
the funds’ shareholders and prospective shareholders;
(f)receiving
and answering correspondence from prospective shareholders, including
distributing prospectuses, statements of additional information, and shareholder
reports;
(g)providing
facilities to answer questions from prospective shareholders about fund
shares;
(h)complying
with federal and state securities laws pertaining to the sale of fund
shares;
(i)assisting
shareholders in completing application forms and selecting dividend and other
account options;
(j)providing
other reasonable assistance in connection with the distribution of fund
shares;
(k)organizing
and conducting sales seminars and payments in the form of transactional and
compensation or promotional incentives;
(l)profit
on the foregoing; and
(m)such
other distribution and services activities as the advisor determines may be paid
for by the funds pursuant to the terms of the agreement between the trust and
the funds’ distributor and in accordance with Rule 12b-1 of the Investment
Company Act.
The
net asset value (NAV) for each class of each fund is calculated by adding the
value of all portfolio securities and other assets attributable to the class,
deducting liabilities, and dividing the result by the number of shares of the
class outstanding. Expenses and interest earned on portfolio securities are
accrued daily.
All
classes of the funds except the A Class are offered at their NAV. The A Class of
the funds is offered at its public offering price, which is the NAV plus the
appropriate sales charge. This calculation may be expressed as a
formula:
Offering
Price = NAV/(1 – Sales Charge as a % of Offering Price)
For
example, if the NAV of a fund’s A Class shares is $5.00, the public offering
price would be $5.00/(1 - 4.50%)=$5.24.
Each
fund’s NAV is calculated as of the close of regular trading on the New York
Stock Exchange (NYSE) on each day the NYSE is open. The NYSE usually closes at 4
p.m. Eastern time. The NYSE typically observes the following holidays: New
Year’s Day, Martin Luther King Jr. Day, Presidents’ Day, Good Friday, Memorial
Day, Juneteenth National Independence Day, Independence Day, Labor
Day,
Thanksgiving Day and Christmas Day. Although the funds expect the same holidays
to be observed in the future, the NYSE may modify its holiday schedule at any
time.
Money
Market Fund
California
Tax-Free Money Market Fund is a retail money market fund operating pursuant to
Investment Company Act Rule 2a-7, which permits valuation of portfolio
securities on the basis of amortized cost. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium paid at the time of purchase. Although this
method provides certainty in valuation, it generally disregards the effect of
fluctuating interest rates on an instrument’s market value. Consequently, the
instrument’s amortized cost value may be higher or lower than its market value,
and this discrepancy may be reflected in the fund’s yields. During periods of
declining interest rates, for example, the daily yield on fund shares computed
as described above may be higher than that of a fund with identical investments
priced at market value. The converse would apply in a period of rising interest
rates.
As
required by Rule 2a-7, the Board of Trustees has adopted procedures designed to
stabilize, to the extent reasonably possible, a money market fund’s price per
share as computed for the purposes of sales and redemptions at $1.00. While the
day-to-day operation of the money market fund has been delegated to the
portfolio managers, the quality requirements established by the procedures limit
investments to certain instruments that the Board of Trustees has determined to
be eligible securities as that term is defined in Rule 2a-7 of the Investment
Company Act. The procedures require review of the money market fund’s portfolio
holdings at such intervals as are reasonable in light of current market
conditions to determine whether the money market fund’s NAV calculated by using
available market quotations deviates from the per-share value based on amortized
cost. The procedures also prescribe the action to be taken by the advisor if
such deviation should exceed 0.25%.
Actions
the advisor and the Board of Trustees may consider under these circumstances
include (i) selling portfolio securities prior to maturity, (ii) withholding
dividends or distributions from capital, (iii) authorizing a one-time dividend
adjustment, (iv) discounting share purchases and initiating redemptions in kind,
(v) valuing portfolio securities at market price for purposes of calculating
NAV, or (vi) suspending redemptions in accordance with Rule 22e-3 and
liquidating the fund.
Non-Money
Market Funds
Securities
held by the non-money market funds normally are priced using data provided by an
independent pricing service, provided that such prices are believed by the
advisor to reflect the fair market value of portfolio securities. Information
about how the fair market value of a security is determined is contained in the
funds’ prospectuses.
Because
there are hundreds of thousands of municipal issues outstanding, and the
majority of them do not trade daily, the prices provided by pricing services are
generally determined without regard to bid or last sale prices. In valuing
securities, the pricing services generally take into account institutional
trading activity, trading in similar groups of securities, and any developments
related to specific securities. The methods used by the pricing service and the
valuations so established are reviewed by the advisor under the oversight 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 using methods approved by the Board of Trustees.
Each
fund intends to qualify annually as a regulated investment company (RIC) under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). RICs
generally are not subject to federal and state income taxes. To qualify as a RIC
a fund must, among other requirements, distribute substantially all of its net
investment income and net realized capital gains (if any) to investors each
year. If a fund were not eligible to be treated as a RIC, it would be liable for
taxes at the fund level on all its income, significantly reducing its
distributions to investors and eliminating investors’ ability to treat
distributions received from the fund in the same manner in which they were
realized by the fund. Under certain circumstances, the Code allows funds to cure
deficiencies that would otherwise result in the loss of RIC status, including by
paying a fund-level tax.
To
qualify as a RIC, a fund must meet certain requirements of the Code, among which
are requirements relating to sources of its income and diversification of its
assets. A fund is also required to distribute 90% of its investment company
taxable income and its net tax-exempt income, if any, each year. Additionally, a
fund must declare dividends by December 31 of each year equal to at least 98%
of
ordinary income (as of December 31) and 98.2% of capital gains (as of October
31) to avoid the nondeductible 4% federal excise tax on any undistributed
amounts.
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.
Although no cash is actually received by a fund until the maturity of the bond,
original issue discount is treated for federal income tax purposes as ordinary
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 or if the amount is considered
de minimis). Generally, market discount accrues on a daily basis for each day
the bond is held by a fund on a constant yield to maturity basis. In the case of
any debt security having a fixed maturity date of not more than one year from
date of issue, the gain realized on disposition generally will be treated as a
short-term capital gain. If a fund holds the foregoing kinds of securities, it
may be required to pay out as an income distribution each year an amount that is
greater than the total amount of cash interest the fund actually received, which
distributions may be made from the assets of the fund or, if necessary, by
disposition of portfolio securities, including at a time when such disposition
may not otherwise be advantageous.
Investments
in lower-rated securities may present special tax issues for the Funds to the
extent actual or anticipated defaults may be more likely with respect to these
types of securities. Tax rules are not entirely clear about issues such as
whether and to what extent a Fund should recognize market discount on such a
debt obligation, when a Fund may cease to accrue interest, original issue
discount or market discount, when and to what extent a Fund may take deductions
for bad debts or worthless securities and how a Fund should allocate payments
received on obligations in default between principal and income.
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.
As
of August 31, 2023,
the funds in the table below had the following capital loss carryovers. When a
fund has a capital loss carryover, it generally does not make capital gains
distributions until the loss has been offset. The Regulated Investment Company
Modernization Act of 2010 allows the funds to carry forward capital losses
incurred in future taxable years for an unlimited period.
|
|
|
|
|
| |
| Fund |
Unlimited |
| California
High-Yield Municipal |
$(78,128,422) |
| California Intermediate-Term Tax-Free
Bond |
$(48,235,432) |
| California
Tax-Free Money Market |
— |
If
you have not complied with certain provisions of the Internal Revenue Code and
Regulations, either American Century Investments or your financial intermediary
is required by federal law to withhold and remit to the IRS the applicable
federal withholding rate of reportable payments (which may include taxable
dividends, capital gains distributions and redemption proceeds). Those
regulations require you to certify that the Social Security number or tax
identification number you provide is correct and that you are not subject to
withholding for previous under-reporting to the IRS. You will be asked to make
the appropriate certification on your account application. Payments reported by
us to the IRS that omit your Social Security number or tax identification number
will subject us to a non-refundable penalty of $50, which will be charged
against your account if you fail to provide the certification by the time the
report is filed.
If
fund shares are purchased through taxable accounts, distributions of net
investment income (if not considered exempt from California and federal taxes)
and net short-term capital gains are taxable to you as ordinary
income.
Under
the Code, any distribution of a fund’s net realized long-term capital gains
designated by the fund as a capital gains dividend is taxable to you as
long-term capital gains, regardless of the length of time you have held your
shares in the fund. If you purchase shares in the fund and sell them at a loss
within six months, your loss on the sale of those shares will be treated as a
long-term capital loss to the extent of any long-term capital gains dividend you
received on those shares. Any such loss will be disallowed to the extent of any
tax-exempt
dividend income you received on those shares. In addition, although highly
unlikely, the Internal Revenue Service (IRS) may determine that a bond issued as
tax-exempt should in fact be taxable. If a fund were to hold such a bond, it
might have to distribute taxable income or reclassify as taxable income
previously distributed as tax-exempt.
Each
fund may use the “equalization method” of accounting to allocate a portion of
its earnings and profits to redemption proceeds. Although using this method
generally will not affect a fund’s total returns, it may reduce the amount that
a fund would otherwise distribute to continuing shareholders by reducing the
effect of redemptions of fund shares on fund distributions to
shareholders.
A
redemption of shares of a fund (including a redemption made in an exchange
transaction) will be a taxable transaction for federal income tax purposes and
you generally will recognize gain or loss in an amount equal to the difference
between the basis of the shares and the amount received. If a loss is realized
on the redemption of fund shares, the reinvestment in additional fund shares
within 30 days before or after the redemption may be subject to the “wash sale”
rules of the Code, resulting in a postponement of the recognition of such loss
for federal income tax purposes.
A
3.8% Medicare contribution tax is imposed on net investment income, including
interest, dividends and capital gains, provided you meet specified income
levels. This tax is not imposed on tax-exempt interest.
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 (AMT) liability under the Code and income
tax provisions of several states.
California
High-Yield Municipal may invest in private activity bonds. The interest on
private activity bonds could subject a shareholder to, or increase liability
under, the federal AMT, depending on the shareholder’s tax situation. The
interest on California private activity bonds is not subject to the California
AMT when it is earned (either directly or through investment in a mutual fund)
by a California taxpayer. However, if the fund were to invest in private
activity securities of non-California issuers (due to a limited supply of
appropriate California municipal obligations, for example), the interest on
those securities would be included in California alternative minimum taxable
income.
All
distributions derived from interest exempt from regular federal income tax may
subject corporate shareholders to, or increase their liability under, the AMT
because these distributions are included in the corporation’s adjusted current
earnings.
The
trust will inform California High-Yield Municipal fund shareholders annually of
the amount of distributions derived from interest payments on private activity
bonds.
California
law concerning the payment of exempt-interest dividends is similar to federal
law. Assuming each fund qualifies to pay exempt-interest dividends under federal
and California law, and to the extent that dividends are derived from interest
on tax-exempt bonds of California state or local governments, such dividends
also will be exempt from California personal income tax. The trust will inform
shareholders annually as to the amount of distributions from each fund that
constitutes exempt-interest dividends and dividends exempt from California
personal income tax. The funds’ dividends are not exempt from California state
franchise or corporate income taxes.
The
funds’ dividends may not qualify for exemption under income or other tax laws of
state or local taxing authorities outside California. Shareholders should
consult their tax advisors or state or local tax authorities about the status of
distributions from the funds in this regard.
The
information above is only a summary of some of the tax considerations affecting
the funds and their U.S. shareholders. No attempt has been made to discuss
individual tax consequences. A prospective investor should consult with his or
her tax advisors or state or local tax authorities to determine whether the
funds are suitable investments.
The
funds’ financial statements for the fiscal year ended August 31, 2023,
have been audited by Deloitte & Touche LLP, independent registered public
accounting firm. Their Reports of Independent Registered Public Accounting Firm
and the financial statements included in the funds’ annual
report
for the fiscal year ended
August
31, 2023,
are incorporated herein by reference.
As
of November 30, 2023,
the following shareholders owned more than 5% of the outstanding shares of a
class of the funds. The table shows shares owned of record unless otherwise
noted.
|
|
|
|
|
|
|
|
| |
|
Fund/
Class
|
Shareholder |
Percentage
of
Outstanding
Shares
Owned
of Record
|
| California
High-Yield Municipal |
| Investor
Class |
| |
Charles
Schwab & Co Inc
San Francisco, CA |
30% |
| |
National
Financial Services LLC
Jersey City, NJ |
25% |
|
| MSSB
LLC
New York, NY |
7% |
| |
LPL
Financial
San Diego, CA |
6% |
| I
Class |
| |
Charles
Schwab & Co Inc
San Francisco, CA |
39% |
|
| American
Enterprise Investment Svc
Minneapolis, MN |
14% |
|
| Pershing
LLC
Jersey City, NJ |
11% |
|
| National
Financial Services LLC
Jersey City, NJ |
9% |
|
| MSSB
LLC
New York, NY |
8% |
|
| Wells
Fargo Clearing Services LLC
Saint Louis, MO |
8% |
|
| MLPF&S
Jacksonville,
FL |
7% |
| Y
Class |
|
| JP
Morgan Securities LLC
Brooklyn, NY |
82% |
|
| Charles
Schwab & Co Inc
San Francisco, CA |
15% |
| A
Class |
|
| MSSB
LLC
New York, NY |
24% |
|
| MLPF&S
Jacksonville,
FL |
21% |
|
| Wells
Fargo Clearing Services LLC
Saint Louis, MO |
19% |
|
| American
Enterprise Investment Svc
Minneapolis, MN |
13% |
|
| Charles
Schwab & Co Inc
San Francisco, CA |
6% |
|
|
|
|
|
|
|
|
| |
|
Fund/
Class
|
Shareholder |
Percentage
of
Outstanding
Shares
Owned
of Record
|
| California
High-Yield Municipal |
| C
Class |
|
| MSSB
LLC
New York, NY |
39% |
|
| Wells
Fargo Clearing Services LLC
Saint Louis, MO |
20% |
|
| Spec
Cdy A/C Excl Ben Cust UBSFSI
Weehawken, NJ |
13% |
|
| American
Enterprise Investment Svc
Minneapolis, MN |
10% |
| |
LPL
Financial
San Diego, CA |
7% |
| California
Intermediate-Term Tax-Free Bond |
| Investor
Class |
| |
Charles
Schwab & Co Inc
San Francisco, CA |
29% |
|
| National
Financial Services LLC
Jersey City, NJ |
13% |
|
| LPL
Financial
San Diego, CA |
6% |
| I
Class |
| |
Charles
Schwab & Co Inc
San Francisco, CA |
65% |
|
| National
Financial Services LLC
Jersey City, NJ |
14% |
| Y
Class |
|
| Wells
Fargo Bank NA
Minneapolois, MN |
71% |
| |
JP
Morgan Securities LLC
Brooklyn, NY |
24% |
| A
Class |
| |
Wells
Fargo Clearing Services LLC
Saint Louis, MO |
33% |
|
| Charles
Schwab & Co Inc
San Francisco, CA |
13% |
|
| MSSB
LLC
New York, NY |
12% |
|
| JP
Morgan Securities LLC
Brooklyn, NY |
12% |
|
| MLPF&S
Jacksonville,
FL |
6% |
|
| Pershing
LLC
Jersey City, NJ |
6% |
|
| American
Enterprise Investment Svc
Minneapolis, MN |
5% |
|
|
|
|
|
|
|
|
| |
|
Fund/
Class
|
Shareholder |
Percentage
of
Outstanding
Shares
Owned
of Record
|
| California
Intermediate-Term Tax-Free Bond |
| C
Class |
| |
Wells
Fargo Clearing Services LLC
Saint Louis, MO |
48% |
|
| LPL
Financial
San Diego, CA |
17% |
|
| Spec
Cdy A/C Excl Ben Cust UBSFSI
Weehawken, NJ |
9% |
|
| Charles
Schwab & Co Inc
San Francisco, CA |
9% |
|
| Pershing
LLC
Jersey City, NJ |
6% |
|
| MSSB
LLC
New York, NY |
6% |
| California
Tax-Free Money Market |
| Investor
Class |
|
| Pershing
LLC
Jersey City, NJ |
7% |
|
|
On
Pong Roderick Ho & Margaret T Chan JTWROS
Milpitas,
CA
Shares
owned of record and beneficially |
6% |
A
shareholder owning beneficially more than 25% of the trust’s outstanding shares
may be considered a controlling person. The vote of any such person could have a
more significant effect on matters presented at a shareholders’ meeting than
votes of other shareholders. Although Charles Schwab & Co Inc, San
Francisco, California, is the record owner of more than 25% of the shares of the
trust, it is not a control person because it is not the beneficial owner of such
shares. As of November 30, 2023,
the officers and trustees of the funds, as a group, owned less than 1% of any
class of a fund’s outstanding shares.
Sales
Charges
The
sales charges applicable to the A and C Classes of the funds are described in
the prospectuses for those classes in the section titled Investing
Through a Financial Intermediary.
Shares of the A Class are subject to an initial sales charge, which declines as
the amount of the purchase increases. Additional information regarding
reductions and waivers of the A Class sales charge may be found in the funds’
prospectuses.
Shares
of the A and C Classes are subject to a contingent deferred sales charge (CDSC)
upon redemption of the shares in certain circumstances. The specific charges and
when they apply are described in the relevant prospectuses. The CDSC may be
waived for certain redemptions by some shareholders, as described in the
prospectuses.
An
investor may terminate his relationship with an intermediary at any time. If the
investor does not establish a relationship with a new intermediary and transfer
any accounts to that new intermediary, such accounts may be exchanged to the
Investor Class of the fund, if such class is available. The investor will be the
shareholder of record of such accounts. In this situation, any applicable CDSCs
will be charged when the exchange is made.
The
aggregate CDSCs paid to the distributor for the A and C Class shares in the
fiscal year ended August 31, 2023,
were:
|
|
|
|
|
|
|
|
| |
|
| A
Class |
C
Class |
| California
High-Yield Municipal |
$23,670 |
$1,552 |
Payments
to Dealers
The
funds’ distributor expects to pay dealer commissions to the financial
intermediaries who sell A and/or C Class shares of the funds at the time of such
sales. Payments for A Class shares will be as follows:
|
|
|
|
|
| |
| Purchase
Amount |
Dealer
Commission as a % of Offering Price |
| <
$99,999 |
4.00% |
| $100,000
- $249,999 |
3.00% |
| $250,000
- $499,999 |
2.00% |
| $500,000
- $999,999 |
1.75% |
| $1,000,000
- $3,999,999 |
0.75% |
| $4,000,000
- $9,999,999 |
0.50% |
| >
$10,000,000 |
0.25% |
No
dealer commission will be paid on purchases by employer-sponsored retirement
plans. For this purpose, employer-sponsored retirement plans do not include SEP
IRAs, SIMPLE IRAs or SARSEPs. Payments will equal 1.00% of the purchase price of
the C Class shares sold by the financial intermediary. The distributor will
retain the 12b-1 fee paid by the C Class of funds for the first 12 months after
the shares are purchased. This fee is intended in part to permit the distributor
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. Beginning with the first day of the 13th month, the distributor
will make the C Class distribution and individual shareholder services fee
payments described above to the financial intermediaries involved on a quarterly
basis. In addition, C Class purchases and A Class purchases greater than
$1,000,000 are subject to a CDSC as described in the prospectuses.
From
time to time, the distributor may make additional payments to dealers, including
but not limited to payment assistance for conferences and seminars, provision of
sales or training programs for dealer employees and/or the public (including, in
some cases, payment for travel expenses for registered representatives and other
dealer employees who participate), advertising and sales campaigns about a fund
or funds, and assistance in financing dealer-sponsored events. Other payments
may be offered as well, and all such payments will be consistent with applicable
law, including the then-current rules of the Financial Industry Regulatory
Authority. Such payments will not change the price paid by investors for shares
of the funds.
Information
about buying, selling, exchanging and, if applicable, converting fund shares is
contained in the funds’ prospectuses. The prospectuses are available to
investors without charge and may be obtained by calling us.
Employer-Sponsored
Retirement Plans
Certain
group employer-sponsored retirement plans that hold a single account for all
plan participants with the fund, or that are part of a retirement plan or
platform offered by banks, broker-dealers, financial advisors or insurance
companies, or serviced by retirement recordkeepers are eligible to purchase
Investor, A and C Class shares. Employer-sponsored retirement plans are not
eligible to purchase I or Y Class shares. However, employer-sponsored retirement
plans that were invested in the I Class prior to April 10, 2017 may make
additional purchases. A and C Class purchases are available at net asset value
with no dealer commission paid to the financial professional and do not incur a
CDSC. A and C Class shares purchased in employer-sponsored retirement plans are
subject to applicable distribution and service (12b-1) fees, which the financial
intermediary begins receiving immediately at the time of purchase. American
Century Investments does not impose minimum initial investment amount, plan size
or participant number requirements by class for employer-sponsored retirement
plans; however, financial intermediaries or plan recordkeepers may require plans
to meet different requirements.
If
you hold your fund shares through a tax-deferred investment plan, such as a
401(k) plan or an IRA, any distributions received from the fund may be taxable
as ordinary income upon withdrawal from the tax-deferred plan, regardless of
whether the distributions were tax-exempt when earned.
Examples
of employer-sponsored retirement plans include the following:
•401(a)
plans
•pension
plans
•profit
sharing plans
•401(k)
plans (including plans with a Roth 401(k) feature, SIMPLE 401(k) plans and Solo
401(k) plans)
•money
purchase plans
•target
benefit plans
•Taft-Hartley
multi-employer pension plans
•SERP
and “Top Hat” plans
•ERISA
trusts
•employee
benefit plans and trusts
•employer-sponsored
health plans
•457
plans
•KEOGH
or HR(10) plans
•employer-sponsored
403(b) plans (including plans with a Roth 403(b) feature)
•nonqualified
deferred compensation plans
•nonqualified
excess benefit plans
•nonqualified
retirement plans
Traditional
and Roth IRAs are not considered employer-sponsored retirement plans, and SIMPLE
IRAs, SEP IRAs and SARSEPs are collectively referred to as Business IRAs.
Business IRAs that (i) held shares of an A Class fund prior to March 1, 2009
that received sales charge waivers or (ii) held shares of an Advisor Class fund
that was renamed A Class on March 1, 2010, may permit additional purchases by
new and existing participants in A Class shares without an initial sales
charge.
Waiver
of Minimum Initial Investment Amounts — I Class
A
financial intermediary, upon receiving prior approval from American Century
Investments may waive applicable minimum initial investment amounts per
shareholder for I Class shares in the following situations:
•Broker-dealers,
banks, trust companies, registered investment advisors and other financial
intermediaries may make I Class shares available with no initial investment
minimum in fee based advisory programs or accounts where such program or account
is traded omnibus by the financial intermediary;
•Qualified
Tuition Programs under Section 529 that have entered into an agreement with the
distributor; and
•Certain
other situations deemed appropriate by American Century
Investments.
As
described in the prospectuses, the funds invest in fixed-income securities.
Those investments, however, are subject to certain credit quality restrictions,
as noted in the prospectuses and in this statement of additional information.
The following are examples of the rating categories referenced in the prospectus
disclosure.
|
|
|
|
|
| |
| Ratings
of Corporate and Municipal Debt Securities |
| Standard
& Poor’s Long-Term Issue Credit Ratings* |
| Category |
Definition |
| AAA |
An
obligation rated ‘AAA’ has the highest rating assigned by Standard &
Poor’s. The obligor’s capacity to meet its financial commitment on the
obligation is extremely strong. |
| AA |
An
obligation rated ‘AA’ differs from the highest-rated obligations only to a
small degree. The obligor’s capacity to meet its financial commitment on
the obligation is very strong. |
| A |
An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor’s capacity to meet its
financial commitment on the obligation is still strong. |
| BBB |
An
obligation rated ‘BBB’ exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. |
| BB;B;
CCC; CC; and C |
Obligations
rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant
speculative characteristics. ‘BB’ indicates the least degree of
speculation and ‘C’ the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions. |
| BB |
An
obligation rated ‘BB’ is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor’s inadequate capacity to meet its financial
commitment on the obligation. |
| B |
An
obligation rated ‘B’ is more vulnerable to nonpayment than obligations
rated ‘BB’, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor’s capacity or
willingness to meet its financial commitment on the
obligation. |
| CCC |
An
obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation. |
| CC |
An
obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The
‘CC’ rating is used when a default has not yet occurred, but Standard
& Poor’s expects default to be a virtual certainty, regardless of the
anticipated time to default. |
| C |
An
obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared to obligations that are rated higher. |
| D |
An
obligation rated ‘D’ is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless Standard
& Poor’s believes that such payments will be made within five business
days in the absence of a stated grace period or within the earlier of the
stated grace period or 30 calendar days. The ‘D’ rating also will be used
upon the filing of a bankruptcy petition or the taking of similar action
and where default on an obligation is a virtual certainty, for example due
to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if
it is subject to a distressed exchange offer. |
| NR |
This
indicates that no rating has been requested, or that there is insufficient
information on which to base a rating, or that Standard & Poor’s does
not rate a particular obligation as a matter of
policy. |
*The
ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating
categories.
|
|
|
|
|
| |
| Moody’s
Investors Service, Inc. Global Long-Term Rating Scale |
| Category |
Definition |
| Aaa |
Obligations
rated Aaa are judged to be of the highest quality, subject to the lowest
level of credit risk. |
| Aa |
Obligations
rated Aa are judged to be of high quality and are subject to very low
credit risk. |
| A |
Obligations
rated A are judged to be upper-medium grade and are subject to low credit
risk. |
| Baa |
Obligations
rated Baa are judged to be medium-grade and subject to moderate credit
risk and as such may possess certain speculative
characteristics. |
| Ba |
Obligations
rated Ba are judged to be speculative and are subject to substantial
credit risk. |
| B |
Obligations
rated B are considered speculative and are subject to high credit
risk. |
| Caa |
Obligations
rated Caa are judged to be speculative of poor standing and are subject to
very high credit risk. |
| Ca |
Obligations
rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery of principal and interest. |
| C |
Obligations
rated C are the lowest rated and are typically in default, with little
prospect for recovery of principal or
interest. |
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating
classification from Aa through Caa. The
modifier
1 indicates that the obligation ranks in the higher end of its generic rating
category; the modifier 2 indicates a
mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of that generic
rating category. Additionally, a
“(hyb)”
indicator is appended to all ratings of hybrid securities issued by banks,
insurers, finance companies, and securities
firms.
|
|
|
|
|
| |
| Fitch
Investors Service, Inc. Long-Term Ratings |
| Category |
Definition |
| AAA |
Highest
credit quality. ‘AAA’
ratings denote the lowest expectation of credit risk. They are assigned
only in cases of exceptionally strong capacity for payment of financial
commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events. |
| AA |
Very
high credit quality. ‘AA’
ratings denote expectations of very low credit risk. They indicate very
strong capacity for payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events. |
| A |
High
credit quality. ‘A’
ratings denote expectations of low credit risk. The capacity for payment
of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to adverse business or economic
conditions than is the case for higher ratings. |
| BBB |
Good
credit quality. ‘BBB’
ratings indicate that expectations of credit risk are currently low. The
capacity for payment of financial commitments is considered adequate, but
adverse business or economic conditions are more likely to impair this
capacity. |
| BB |
Speculative.
‘BB’
ratings indicate an elevated vulnerability to credit risk, particularly in
the event of adverse changes in business or economic conditions over time;
however, business or financial alternatives may be available to allow
financial commitments to be met. |
| B |
Highly
speculative. ‘B’
ratings indicate that material credit risk is present. |
| CCC |
Substantial
credit risk. ‘CCC’
ratings indicate that substantial credit risk is
present. |
| CC |
Very
high levels of credit risk. ‘CC’
ratings indicate very high levels of credit risk. |
| C |
Exceptionally
high levels of credit risk. ‘C’
indicates exceptionally high levels of credit
risk. |
Defaulted
obligations typically are not assigned ‘RD’ or ‘D’ ratings, but are instead
rated in the ‘B’ to ‘C’ rating categories, depending upon their recovery
prospects and other relevant characteristics. This approach better aligns
obligations that have comparable overall expected loss but varying vulnerability
to default and loss.
Notes:
The modifiers “+” or “-“ may be appended to a rating to denote relative status
within major rating categories. Such suffixes are not added to the ‘AAA’
obligation rating category, or to corporate finance obligation ratings in the
categories below ‘CCC’.
|
|
|
|
|
| |
| Standard
& Poor’s Corporate Short-Term Note Ratings |
| Category |
Definition |
| A-1 |
A
short-term obligation rated ‘A-1’ is rated in the highest category by
Standard & Poor’s. The obligor’s capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor’s capacity to meet its financial commitment on these obligations
is extremely strong. |
| A-2 |
A
short-term obligation rated ‘A-2’ is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor’s capacity
to meet its financial commitment on the obligation is
satisfactory. |
| A-3 |
A
short-term obligation rated ‘A-3’ exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. |
| B |
A
short-term obligation rated ‘B’ is regarded as vulnerable and has
significant speculative characteristics. The obligor currently has the
capacity to meet its financial commitments; however, it faces major
ongoing uncertainties which could lead to the obligor’s inadequate
capacity to meet its financial commitments. |
| C |
A
short-term obligation rated ‘C’ is currently vulnerable to nonpayment and
is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the
obligation. |
| D |
A
short-term obligation rated ‘D’ is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the ‘D’ rating category is
used when payments on an obligation are not made on the date due, unless
Standard & Poor’s believes that such payments will be made within any
stated grace period. However, any stated grace period longer than five
business days will be treated as five business days. The ‘D’ rating also
will be used upon the filing of a bankruptcy petition or the taking of a
similar action and where default on an obligation is a virtual certainty,
for example due to automatic stay provisions. An obligation’s rating is
lowered to ‘D’ if it is subject to a distressed exchange offer.
|
|
|
|
|
|
| |
| Moody’s
Global Short-Term Rating Scale |
| Category |
Definition |
| P-1 |
Issuers
(or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations. |
| P-2 |
Issuers
(or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations. |
| P-3 |
Issuers
(or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations. |
| NP |
Issuers
(or supporting institutions) rated Not Prime do not fall within any of the
Prime rating categories. |
|
|
|
|
|
| |
| Fitch
Investors Service, Inc. Short-Term Ratings |
| Category |
Definition |
| F1 |
Highest
short-term credit quality. Indicates
the strongest intrinsic capacity for timely payment of financial
commitments; may have an added “+” to denote any exceptionally strong
credit feature. |
| F2 |
Good
short-term credit quality. Good
intrinsic capacity for timely payment of financial
commitments. |
| F3 |
Fair
short-term credit quality. The
intrinsic capacity for timely payment of financial commitments is
adequate. |
| B |
Speculative
short-term credit quality. Minimal
capacity for timely payment of financial commitments, plus heightened
vulnerability to near term adverse changes in financial and economic
conditions. |
| C |
High
short-term default risk. Default
is a real possibility. |
| RD |
Restricted
default. Indicates
an entity that has defaulted on one or more of its financial commitments,
although it continues to meet other financial obligations. Typically
applicable to entity ratings only. |
| D |
Default
Indicates
a broad-based default event for an entity, or the default of a short-term
obligation. |
|
|
|
|
|
| |
| Standard
& Poor’s Municipal Short-Term Note Ratings |
| Category |
Definition |
| SP-1 |
Strong
capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus (+) designation.
|
| SP-2 |
Satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes. |
| SP-3 |
Speculative
capacity to pay principal and interest. |
|
|
|
|
|
| |
| Moody’s
US Municipal Short-Term Debt Ratings |
| Category |
Definition |
| MIG
1 |
This
designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.
|
| MIG
2 |
This
designation denotes strong credit quality. Margins of protection are
ample, although not as large as in the preceding group. |
| MIG
3 |
This
designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to
be less well-established. |
| SG |
This
designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of protection.
|
|
|
|
|
|
| |
| Moody’s
Demand Obligation Ratings |
| Category |
Definition |
| VMIG
1 |
This
designation denotes superior credit quality. Excellent protection is
afforded by the superior short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely
payment of purchase price upon demand. |
| VMIG
2 |
This
designation denotes strong credit quality. Good protection is afforded by
the strong short-term credit strength of the liquidity provider and
structural and legal protections that ensure the timely payment of
purchase price upon demand. |
| VMIG
3 |
This
designation denotes acceptable credit quality. Adequate protection is
afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely
payment of purchase price upon demand. |
| SG |
This
designation denotes speculative-grade credit quality. Demand features
rated in this category may be supported by a liquidity provider that does
not have an investment grade short-term rating or may lack the structural
and/or legal protections necessary to ensure the timely payment of
purchase price upon demand. |
American
Century Investment Management, Inc. (the “Adviser”) is the investment manager
for a variety of advisory clients, including the American Century family of
funds. In such capacity, the Adviser has been delegated the authority to vote
proxies with respect to investments held in the accounts it manages. The
following is a statement of the proxy voting policies that have been adopted by
the Adviser. In the exercise of proxy voting authority which has been delegated
to it by particular clients, the Adviser will apply the following policies in
accordance with, and subject to, any specific policies that have been adopted by
the client and communicated to and accepted by the Adviser in
writing.
I. General
Principles
In
providing the service of voting client proxies, the Adviser is guided by general
fiduciary principles, must act prudently, solely in the interest of its clients,
and must not subordinate client interests to unrelated objectives. Except as
otherwise indicated in these Policies, the Adviser will vote all proxies with
respect to investments held in the client accounts it manages. The Adviser will
attempt to consider all factors of its vote that could affect the value of the
investment. Although in most instances the Adviser will vote proxies
consistently across all client accounts, the votes will be based on the best
interests of each client. As a result, accounts managed by the Adviser may at
times vote differently on the same proposals. Examples of when an account’s vote
might differ from other accounts managed by the Adviser include, but are not
limited to, proxy contests and proposed mergers. In short, the Adviser will vote
proxies in the manner that it believes will do the most to maximize shareholder
value.
II. Specific
Proxy Matters
A. Routine
Matters
1. Election
of Directors
a) Generally.
The
Adviser will generally support the election of directors that result in a board
made up of a majority of independent directors. In general, the Adviser will
vote in favor of management’s director nominees if they are running unopposed.
The Adviser believes that management is in the best possible position to
evaluate the qualifications of directors and the needs and dynamics of a
particular board. The Adviser of course maintains the ability to vote against
any candidate whom it feels is not qualified or if there are specific concerns
about the individual, such as allegations of criminal wrongdoing or breach of
fiduciary responsibilities. Additional information the Adviser may consider
concerning director nominees include, but is not limited to, whether (i) there
is an adequate explanation for repeated absences at board meetings, (ii) the
nominee receives non-board fee compensation, or (iii) there is a family
relationship between the nominee and the company’s chief executive officer or
controlling shareholder, and/or
(iv) the nominee has sufficient time and commitment to serve effectively in
light of the nominee’s service on other public company boards.
When management’s nominees are opposed in a proxy contest, the Adviser will
evaluate which nominees’ publicly-announced management policies and goals are
most likely to maximize shareholder value, as well as the past performance of
the incumbents.
b) Committee
Service. The
Adviser will withhold votes for non-independent directors who serve on the audit
and/or compensation committees of the board.
c) Classification
of Boards. The
Adviser will support proposals that seek to declassify boards. Conversely, the
Adviser will oppose efforts to adopt classified board structures.
d) Majority
Independent Board. The
Adviser will support proposals calling for a majority of independent directors
on a board. The Adviser believes that a majority of independent directors can
help to facilitate objective decision making and enhances accountability to
shareholders.
e) Majority
Vote Standard for Director Elections.
The
Adviser will vote in favor of proposals calling for directors to be elected by
an affirmative majority of the votes cast in a board election, provided that the
proposal allows for a plurality voting standard in the case of contested
elections. The Adviser may consider voting against such shareholder proposals
where a company’s board has adopted an alternative measure, such as a director
resignation policy, that provides a meaningful alternative to the majority
voting standard and appropriately addresses situations where an incumbent
director fails to receive the support of the majority of the votes cast in an
uncontested election.
f) Withholding
Campaigns. The
Adviser will support proposals calling for shareholders to withhold votes for
directors where such actions will advance the principles set forth in paragraphs
(1)
through
(5) above.
2. Ratification
of Selection of Auditors
The
Adviser will generally rely on the judgment of the issuer’s audit committee in
selecting the independent auditors who will provide the best service to the
company. The Adviser believes that independence of the auditors is paramount and
will vote against auditors whose independence appears to be impaired. The
Adviser will vote against proposed auditors in those circumstances where (1) an
auditor has a financial interest in or association with the company, and is
therefore not independent; (2) non-audit fees comprise more than 50% of the
total fees paid by the company to the audit firm; or (3) there is reason to
believe that the independent auditor has previously rendered an opinion to the
issuer that is either inaccurate or not indicative of the company’s financial
position.
B. Compensation
Matters
1. Executive
Compensation
a) Advisory
Vote on Compensation. The
Adviser believes there are more effective ways to convey concerns about
compensation than through an advisory vote on compensation (such as voting
against specific excessive incentive plans or withholding votes from
compensation committee members). The Adviser will consider and vote on a
case-by-case basis on say-on-pay proposals and will generally support management
proposals unless
there are inadequate risk-mitigation features or other specific
concerns exist, including if the Adviser concludes that executive compensation
is (i) misaligned with shareholder interests, (ii) unreasonable in amount, or
(iii) not in the aggregate meaningfully tied to the company’s
performance.
b) Frequency
of Advisory Votes on Compensation. The
Adviser generally supports the triennial option for the frequency of say-on-pay
proposals, but will consider management recommendations for an alternative
approach.
2. Equity
Based Compensation Plans
The
Adviser believes that equity-based incentive plans are economically significant
issues upon which shareholders are entitled to vote. The Adviser recognizes that
equity-based compensation plans can be useful in attracting and maintaining
desirable employees. The cost associated with such plans must be measured if
plans are to be used appropriately to maximize shareholder value. The Adviser
will conduct a case-by-case analysis of each stock option, stock bonus or
similar plan or amendment, and generally approve management’s recommendations
with respect to adoption of or amendments to a company’s equity-based
compensation plans, provided that the total number of shares reserved under all
of a company’s plans is reasonable and not excessively dilutive.
The
Adviser will review equity-based compensation plans or amendments thereto on a
case-by-case basis. Factors that will be considered in the determination include
the company’s overall capitalization, the performance of the company relative to
its peers, and the maturity of the company and its industry; for example,
technology companies often use options broadly throughout its employee base
which may justify somewhat greater dilution.
Amendments
which are proposed in order to bring a company’s plan within applicable legal
requirements will be reviewed by the Adviser’s legal counsel; amendments to
executive bonus plans to comply with IRS Section 162(m) disclosure requirements,
for example, are generally approved.
The
Adviser will generally vote against the adoption of plans or plan amendments
that:
•Provide
for immediate vesting of all stock options in the event of a change of control
of the company without reasonable safeguards against abuse (see “Anti-Takeover
Proposals” below);
•Reset
outstanding stock options at a lower strike price unless accompanied by a
corresponding and proportionate reduction in the number of shares designated.
The Adviser will generally oppose adoption of stock option plans that explicitly
or historically permit repricing of stock options, regardless of the number of
shares reserved for issuance, since their effect is impossible to
evaluate;
•Establish
restriction periods shorter than three years for restricted stock
grants;
•Do
not reasonably associate awards to performance of the company; or
•Are
excessively dilutive to the company.
C. Anti-Takeover
Proposals
In
general, the Adviser will vote against any proposal, whether made by management
or shareholders, which the
Adviser
believes would materially discourage a potential acquisition or takeover. In
most cases an acquisition or takeover of a particular company will increase
share value. The adoption of anti-takeover measures may prevent or frustrate a
bid from being made, may prevent consummation of the acquisition, and may have a
negative effect on share price when no acquisition proposal is pending. The
items below discuss specific anti-takeover proposals.
1. Cumulative
Voting
The
Adviser will vote in favor of any proposal to adopt cumulative voting and will
vote against any proposal to eliminate cumulative voting that is already in
place, except in cases where a company has a staggered board. Cumulative voting
gives minority shareholders a stronger voice in the company and a greater chance
for representation on the board. The Adviser believes that the elimination of
cumulative voting constitutes an anti-takeover measure.
2. Staggered
Board
If
a company has a “staggered board,” its directors are elected for terms of more
than one year and only a segment of the board stands for election in any year.
Therefore, a potential acquiror cannot replace the entire board in one year even
if it controls a majority of the votes. Although staggered boards may provide
some degree of continuity and stability of leadership and direction to the board
of directors, the Adviser believes that staggered boards are primarily an
anti-takeover device and will vote against establishing them and for eliminating
them. However, the Adviser does not necessarily vote against the re-election of
directors serving on staggered boards.
3. “Blank
Check” Preferred Stock
Blank
check preferred stock gives the board of directors the ability to issue
preferred stock, without further shareholder approval, with such rights,
preferences, privileges and restrictions as may be set by the board. In response
to a hostile takeover attempt, the board could issue such stock to a friendly
party or “white knight” or could establish conversion or other rights in the
preferred stock which would dilute the common stock and make an acquisition
impossible or less attractive. The argument in favor of blank check preferred
stock is that it gives the board flexibility in pursuing financing, acquisitions
or other proper corporate purposes without incurring the time or expense of a
shareholder vote. Generally, the Adviser will vote against blank check preferred
stock. However, the Adviser may vote in favor of blank check preferred if the
proxy statement discloses that such stock is limited to use for a specific,
proper corporate objective as a financing instrument.
4. Elimination
of Preemptive Rights
When
a company grants preemptive rights, existing shareholders are given an
opportunity to maintain their proportional ownership when new shares are issued.
A proposal to eliminate preemptive rights is a request from management to revoke
that right.
While
preemptive rights will protect the shareholder from having its equity diluted,
it may also decrease a company’s ability to raise capital through stock
offerings or use stock for acquisitions or other proper corporate purposes.
Preemptive rights may therefore result in a lower market value for the company’s
stock. In the long term, shareholders could be adversely affected by preemptive
rights. The Adviser generally votes against proposals to grant preemptive
rights, and for proposals to eliminate preemptive rights.
5. Non-targeted
Share Repurchase
A
non-targeted share repurchase is generally used by company management to prevent
the value of stock held by existing shareholders from deteriorating. A
non-targeted share repurchase may reflect management’s belief in the favorable
business prospects of the company. The Adviser finds no disadvantageous effects
of a non-targeted share repurchase and will generally vote for the approval of a
non-targeted share repurchase subject to analysis of the company’s financial
condition.
6. Increase
in Authorized Common Stock
The
issuance of new common stock can also be viewed as an anti-takeover measure,
although its effect on shareholder value would appear to be less significant
than the adoption of blank check preferred. The Adviser will evaluate the amount
of the proposed increase and the purpose or purposes for which the increase is
sought. If the increase is not excessive and is sought for proper corporate
purposes, the increase will be approved. Proper corporate purposes might
include, for example, the creation of additional stock to accommodate a stock
split or stock dividend, additional stock required for a proposed acquisition,
or additional stock required to be reserved upon exercise of employee stock
option plans or employee stock purchase plans. Generally, the Adviser will vote
in favor of an increase in authorized common stock of up
to
100%; increases in excess of 100% are evaluated on a case-by-case basis, and
will be voted affirmatively if management has provided sound justification for
the increase.
7. “Supermajority”
Voting Provisions or Super Voting Share Classes
A
“supermajority” voting provision is a provision placed in a company’s charter
documents which would require a “supermajority” (ranging from 66 to 90%) of
shareholders and shareholder votes to approve any type of acquisition of the
company. A super voting share class grants one class of shareholders a greater
per-share vote than those of shareholders of other voting classes. The Adviser
believes that these are standard anti-takeover measures and will generally vote
against them. The supermajority provision makes an acquisition more
time-consuming and expensive for the acquiror. A super voting share class favors
one group of shareholders disproportionately to economic interest. Both are
often proposed in conjunction with other anti-takeover measures.
8. “Fair
Price” Amendments
This
is another type of charter amendment that would require an offeror to pay a
“fair” and uniform price to all shareholders in an acquisition. In general, fair
price amendments are designed to protect shareholders from coercive, two-tier
tender offers in which some shareholders may be merged out on disadvantageous
terms. Fair price amendments also have an anti-takeover impact, although their
adoption is generally believed to have less of a negative effect on stock price
than other anti-takeover measures. The Adviser will carefully examine all fair
price proposals. In general, the Adviser will vote against fair price proposals
unless the Adviser concludes that it is likely that the share price will not be
negatively affected and the proposal will not have the effect of discouraging
acquisition proposals.
9. Limiting
the Right to Call Special Shareholder Meetings.
The
corporation statutes of many states allow minority shareholders at a certain
threshold level of ownership (frequently 10%) to call a special meeting of
shareholders. This right can be eliminated (or the threshold increased) by
amendment to the company’s charter documents. The Adviser believes that the
right to call a special shareholder meeting is significant for minority
shareholders; the elimination of such right will be viewed as an anti-takeover
measure and the Adviser will generally vote against proposals attempting to
eliminate this right and for proposals attempting to restore it.
10. Poison
Pills or Shareholder Rights Plans
Many
companies have now adopted some version of a poison pill plan (also known as a
shareholder rights plan). Poison pill plans generally provide for the issuance
of additional equity securities or rights to purchase equity securities upon the
occurrence of certain hostile events, such as the acquisition of a large block
of stock.
The
basic argument against poison pills is that they depress share value, discourage
offers for the company and serve to “entrench” management. The basic argument in
favor of poison pills is that they give management more time and leverage to
deal with a takeover bid and, as a result, shareholders may receive a better
price. The Adviser believes that the potential benefits of a poison pill plan
are outweighed by the potential detriments. The Adviser will generally vote
against all forms of poison pills.
The
Adviser will, however, consider on a case-by-case basis poison pills that are
very limited in time and preclusive effect. The Adviser will generally vote in
favor of such a poison pill if it is linked to a business strategy that will -
in our view - likely result in greater value for shareholders, if the term is
less than three years, and if shareholder approval is required to reinstate the
expired plan or adopt a new plan at the end of this term.
11. Golden
Parachutes
Golden
parachute arrangements provide substantial compensation to executives who are
terminated as a result of a takeover or change in control of their company. The
existence of such plans in reasonable amounts probably has only a slight
anti-takeover effect. In voting, the Adviser will evaluate the specifics of the
plan presented.
12. Reincorporation
Reincorporation
in a new state is often proposed as one part of a package of anti-takeover
measures. Several states (such as Pennsylvania, Ohio and Indiana) now provide
some type of legislation that greatly discourages takeovers. Management believes
that Delaware in particular is beneficial as a corporate domicile because of the
well-developed body of statutes and case law dealing with corporate
acquisitions.
The
Adviser will examine reincorporation proposals on a case-by-case basis.
Generally, if the Adviser
believes
that the reincorporation will result in greater protection from takeovers, the
reincorporation proposal will be opposed. The Adviser will also oppose
reincorporation proposals involving jurisdictions that specify that directors
can recognize non-shareholder interests over those of shareholders. When
reincorporation is proposed for a legitimate business purpose and without the
negative effects identified above, the Adviser will generally vote
affirmatively.
13. Confidential
Voting
Companies
that have not previously adopted a “confidential voting” policy allow management
to view the results of shareholder votes. This gives management the opportunity
to contact those shareholders voting against management in an effort to change
their votes.
Proponents
of secret ballots argue that confidential voting enables shareholders to vote on
all issues on the basis of merit without pressure from management to influence
their decision. Opponents argue that confidential voting is more expensive and
unnecessary; also, holding shares in a nominee name maintains shareholders’
confidentiality. The Adviser believes that the only way to insure anonymity of
votes is through confidential voting, and that the benefits of confidential
voting outweigh the incremental additional cost of administering a confidential
voting system. Therefore, the Adviser will generally vote in favor of any
proposal to adopt confidential voting.
14. Opting
In or Out of State Takeover Laws
State
takeover laws typically are designed to make it more difficult to acquire a
corporation organized in that state. The Adviser believes that the decision of
whether or not to accept or reject offers of merger or acquisition should be
made by the shareholders, without unreasonably restrictive state laws that may
impose ownership thresholds or waiting periods on potential acquirors.
Therefore, the Adviser will generally vote in favor of opting out of restrictive
state takeover laws.
D. Transaction
Related Proposals
The
Adviser will review transaction related proposals, such as mergers,
acquisitions, and corporate reorganizations, on a case-by-case basis, taking
into consideration the impact of the transaction on each client account. In some
instances, such as the approval of a proposed merger, a transaction may have a
differential impact on client accounts depending on the securities held in each
account. For example, whether a merger is in the best interest of a client
account may be influenced by whether an account holds, and in what proportion,
the stock of both the acquirer and the acquiror. In these circumstances, the
Adviser may determine that it is in the best interests of the accounts to vote
the accounts’ shares differently on proposals related to the same
transaction.
E. Other
Matters
1. Proposals
Involving Environmental, Social, and Governance (ESG”) Matters
The
Adviser believes that certain
ESG issues can potentially impact an issuer's long-term financial performance
and has developed an analytical framework, as well as a proprietary assessment
tool, to integrate risks and opportunities stemming from ESG issues into our
investment process. This ESG integration process extends to our proxy voting
practices in that our Sustainable
Research
Team analyzes on a case-by-case basis the financial materiality and potential
risks or economic impact of the ESG issues underpinning proxy proposals and
makes voting recommendations based thereon for the Adviser's consideration. The
Sustainable
Research
Team evaluates
ESG-related proposals based on
a rational linkage between the
proposal, its potential
economic impact, and its potential to maximize long-term shareholder
value.
Where
the economic effect of such proposals is unclear and there is not a specific
written client-mandate, the Adviser believes it is generally impossible to know
how to vote in a manner that would accurately reflect the views of the Adviser’s
clients, and, therefore, the Adviser will generally rely on management’s
assessment of the economic effect if the Adviser believes the assessment is not
unreasonable.
Shareholders
may also introduce proposals which are the subject of existing law or
regulation. Examples of such proposals would include a proposal to require
disclosure of a company’s contributions to political action committees or a
proposal to require a company to adopt a non-smoking workplace policy. The
Adviser believes that such proposals may be better addressed outside the
corporate arena and, absent a potential economic impact, will generally vote
with management’s recommendation. In addition, the Adviser will generally vote
against any proposal which would require a company to adopt practices or
procedures which go beyond the requirements of existing, directly applicable
law.
2. Anti-Greenmail
Proposals
“Anti-greenmail”
proposals generally limit the right of a corporation, without a shareholder
vote, to pay a premium or buy out a 5% or greater shareholder. Management often
argues that they should not be restricted from negotiating a deal to buy out a
significant shareholder at a premium if they believe it is in the best interest
of the company. Institutional shareholders generally believe that all
shareholders should be able to vote on such a significant use of corporate
assets. The Adviser believes that any repurchase by the company at a premium
price of a large block of stock should be subject to a shareholder vote.
Accordingly, it will generally vote in favor of anti-greenmail
proposals.
3. Indemnification
The
Adviser will generally vote in favor of a corporation’s proposal to indemnify
its officers and directors in accordance with applicable state law.
Indemnification arrangements are often necessary in order to attract and retain
qualified directors. The adoption of such proposals appears to have little
effect on share value.
4. Non-Stock
Incentive Plans
Management
may propose a variety of cash-based incentive or bonus plans to stimulate
employee performance. In general, the cash or other corporate assets required
for most incentive plans is not material, and the Adviser will vote in favor of
such proposals, particularly when the proposal is recommended in order to comply
with IRC Section 162(m) regarding salary disclosure requirements. Case-by-case
determinations will be made of the appropriateness of the amount of shareholder
value transferred by proposed plans.
5. Director
Tenure
These
proposals ask that age and term restrictions be placed on the board of
directors. The Adviser believes that these types of blanket restrictions are not
necessarily in the best interests of shareholders and therefore will vote
against such proposals, unless they have been recommended by
management.
6. Directors’
Stock Options Plans
The
Adviser believes that stock options are an appropriate form of compensation for
directors, and the Adviser will generally vote for director stock option plans
which are reasonable and do not result in excessive shareholder dilution.
Analysis of such proposals will be made on a case-by-case basis, and will take
into account total board compensation and the company’s total exposure to stock
option plan dilution.
7. Director
Share Ownership
The
Adviser will generally vote against shareholder proposals which would require
directors to hold a minimum number of the company’s shares to serve on the Board
of Directors, in the belief that such ownership should be at the discretion of
Board members.
8. Non-U.S.
Proxies
The
Adviser will generally evaluate non-U.S. proxies in the context of the voting
policies expressed herein but will also, where feasible, take into consideration
differing laws, regulations, and practices in the relevant foreign market in
determining if and how to vote. There may also be circumstances when
practicalities and costs involved with non-U.S. investing make it
disadvantageous to vote shares. For instance, the Adviser generally does not
vote proxies in circumstances where share blocking restrictions apply, when
meeting attendance is required in person, or when current share ownership
disclosure is required.
III. Use
of Proxy Advisory Services
The
Adviser may retain proxy advisory firms to provide services in connection with
voting proxies, including, without limitation, to provide information on
shareholder meeting dates and proxy materials, translate proxy materials printed
in a foreign language, provide research on proxy proposals and voting
recommendations in accordance with the voting policies expressed herein, provide
systems to assist with casting the proxy votes, and provide reports and assist
with preparation of filings concerning the proxies voted.
Prior
to the selection of a proxy advisory firm and periodically thereafter, the
Adviser will consider whether the proxy advisory firm has the capacity and
competency to adequately analyze proxy issues and the ability to make
recommendations based on material accurate information in an impartial manner.
Such considerations may include some or all of the following (i) periodic
sampling of votes cast through the firm’s systems to determine that votes are in
accordance with the Adviser’s policies and its clients best interests, (ii)
onsite visits to the proxy advisory firm’s office and/or discussions with the
firm to
determine
whether the firm continues to have the resources (e.g. staffing, personnel,
technology, etc.) capacity and competency to carry out its obligations to the
Adviser, (iii) a review of the firm’s policies and procedures, with a focus on
those relating to identifying and addressing conflicts of interest and
monitoring that current and accurate information is used in creating
recommendations, (iv) requesting that the firm notify the Adviser if there is a
change in the firm’s material policies and procedures, particularly with respect
to conflicts, or material business practices (e.g., entering or exiting new
lines of business), and reviewing any such change, and (v) in case of an error
made by the firm, discussing the error with the firm and determining whether
appropriate corrective and preventative action is being taken. In the event the
Adviser discovers an error in the research or voting recommendations provided by
the firm, it will take reasonable steps to investigate the error and seek to
determine whether the firm is taking reasonable steps to reduce similar errors
in the future.
While
the Adviser takes into account information from many different sources,
including independent proxy advisory services, the decision on how to vote
proxies will be made in accordance with these policies.
IV.
Monitoring Potential Conflicts of Interest
Corporate
management has a strong interest in the outcome of proposals submitted to
shareholders. As a consequence, management often seeks to influence large
shareholders to vote with their recommendations on particularly controversial
matters. In the vast majority of cases, these communications with large
shareholders amount to little more than advocacy for management’s positions and
give the Adviser’s staff the opportunity to ask additional questions about the
matter being presented. Companies with which the Adviser has direct business
relationships could theoretically use these relationships to attempt to unduly
influence the manner in which the Adviser votes on matters for its clients. To
ensure that such a conflict of interest does not affect proxy votes cast for the
Adviser’s clients, our proxy voting personnel regularly catalog companies with
whom the Adviser has significant business relationships; all discretionary
(including case-by-case) voting for these companies will be voted by the client
or an appropriate fiduciary responsible for the client (e.g., a committee of the
independent directors of a fund or the trustee of a retirement
plan).
In
addition, to avoid any potential conflict of interest that may arise when one
American Century fund owns shares of another American Century fund, the Adviser
will “echo vote” such shares, if possible. Echo voting means the Adviser will
vote the shares in the same proportion as the vote of all of the other holders
of the fund’s shares. So, for example, if shareholders of a fund cast 80% of
their votes in favor of a proposal and 20% against the proposal, any American
Century fund that owns shares of such fund will cast 80% of its shares in favor
of the proposal and 20% against. When this is not possible where American
Century funds are the only shareholders, the shares of the underlying fund will
be voted in the same proportion as the vote of the shareholders of a
corresponding American Century policy portfolio for proposals common to both
funds. In the case where
there is no policy portfolio
or the policy portfolio does not have a common proposal, shares will be voted in
consultation with a committee of the independent directors.
************************************************************
The
voting policies expressed above are of course subject to modification in certain
circumstances and will be reexamined from time to time. With respect to matters
that do not fit in the categories stated above, the Adviser will exercise its
best judgment as a fiduciary to vote in the manner which will most enhance
shareholder value.
Case-by-case
determinations will be made by the Adviser’s staff, which is overseen by the
General Counsel of the Adviser, in consultation with equity managers. Electronic
records will be kept of all votes made.
Notes
Notes
Notes
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American
Century Investments
americancentury.com
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Retail
Investors
P.O. Box 419200
Kansas City,
Missouri 64141-6200
1-800-345-2021 or 816-531-5575 |
Financial
Professionals
P.O. Box 419385
Kansas City, Missouri
64141-6385
1-800-345-6488 |
Investment
Company Act File No. 811-03706
CL-SAI-91753
2401
