[BOOK ONE]
ANNUAL
REPORT
[american century logo]
American
Century(reg.sm)
AUGUST 31, 1997
BENHAM
GROUP
California Limited-Term Tax-Free
California Intermediate-Term Tax-Free
California Long-Term Tax-Free
TABLE OF CONTENTS
Report Highlights ........................................................... 1
Our Message to You .......................................................... 2
Market Perspective .......................................................... 3
Municipal Credit Review ..................................................... 4
California Limited-Term Tax-Free
Performance & Portfolio Information .............................. 5
Management Q & A ................................................. 6
Schedule of Investments .......................................... 9
Financial Highlights .............................................36
California Intermediate-Term Tax-Free
Performance & Portfolio Information ..............................12
Management Q & A .................................................13
Schedule of Investments ..........................................16
Financial Highlights .............................................37
California Long-Term Tax-Free
Performance & Portfolio Information ..............................22
Management Q & A .................................................23
Schedule of Investments ..........................................26
Financial Highlights .............................................38
Statements of Assets and Liabilities ........................................30
Statements of Operations ....................................................31
Statements of Changes in Net Assets .........................................32
Notes to Financial Statements ...............................................33
Independent Auditors' Report ................................................39
Proxy Voting Results ........................................................40
Background Information
Investment Philosophy & Policies .................................44
Comparative Indices ..............................................44
Lipper Rankings ..................................................44
Investment Management Team .......................................44
Glossary ....................................................................45
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios.
We've organized our funds into three distinct groups to help you identify those
that best fit your needs. These groups, which appear below, are designed to help
simplify your fund decisions.
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- -------------------------------------------------------------------------------
Benham American Century Twentieth Century(reg. tm)
Group(reg. tm) Group Group
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
- -------------------------------------------------------------------------------
California Limited-Term
California Intermediate-Term
California Long-Term
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and American Century are registered marks of American Century
Services Corporation. Benham Group is a registered mark of Benham Management
Corporation.
AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
MARKET PERSPECTIVE
* Municipal securities produced solid returns during the fiscal year as interest
rates declined overall. Longer-term securities performed best.
* Relatively low municipal issuance and strong demand helped support municipal
bond prices.
* Credit spreads fell to historically low levels because of the increase in
insured securities and stronger California municipal credit quality.
MUNICIPAL CREDIT REVIEW
* California's economy continued to expand during the fiscal year, leading to
further improvements in state and local municipal credit quality.
* Emanating from the Bay Area, growth has been spreading throughout much of
California, especially among the coastal areas of Southern California.
* We believe the favorable growth scenario currently in place will result in yet
another upgrade of California's credit rating in the near future.
LIMITED-TERM TAX-FREE
* The Fund turned in a strong performance for the fiscal year ended August 31,
1997.
* The fund performed well primarily because of our careful security selection.
* Another factor enhancing the fund's returns was our selective addition of
newly issued securities.
* Going forward, we will likely maintain the fund's slightly longer-than-average
maturity compared with its peers.
INTERMEDIATE-TERM TAX-FREE
* The Fund turned in a favorable performance for the fiscal year ended August
31, 1997, reflecting improving economic conditions.
* Careful security selection helped to add to the fund's returns.
* Our outlook for municipal securities is generally positive as inflation still
appears under control.
* Going forward, we will likely maintain the fund's conservative positioning
until market conditions seem to warrant a different stance.
LONG-TERM TAX-FREE
* The fund's returns and yields exceeded those of the average California
long-term municipal fund for the fiscal year ended August 31, 1997.
* To enhance the fund's yield and return, we were underweighted in bonds with
coupons between 5.125% and 5.875% and overweighted in higher-yielding premium
bonds and lower-coupon discount and non-callable bonds.
* Going forward, we'll continue to manage the fund conservatively. We'll likely
adopt a contrarian strategy best suited to a range-bound market.
CALIFORNIA LIMITED-TERM
TOTAL RETURNS: AS OF 8/31/97
6 Months 2.53%*
1 Year 5.42%
NET ASSETS: $126.6 million
(AS OF 8/31/97)
INCEPTION DATE: 6/1/92
TICKER SYMBOL: BCSTX
CALIFORNIA INTERMEDIATE-TERM
TOTAL RETURNS: AS OF 8/31/97
6 Months 3.45%*
1 Year 7.39%
NET ASSETS: $435.4 million
(AS OF 8/31/97)
INCEPTION DATE: 11/9/83
TICKER SYMBOL: BCITX
CALIFORNIA LONG-TERM
TOTAL RETURNS: AS OF 8/31/97
6 Months 4.29%*
1 Year 9.70%
NET ASSETS: $304.7 million
(AS OF 8/31/97)
INCEPTION DATE: 11/9/83
TICKER SYMBOL: BCLTX
* Not annualized.
Many of the investment terms in this report are defined in the Glossary on page
45.
ANNUAL REPORT REPORT HIGHLIGHTS 1
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
For the twelve months ended August 31, 1997, municipal bonds posted strong
returns as bond yields declined overall. Municipal bonds benefited from the fact
that issuance of new securities remained relatively low. In the following pages,
our municipal investment team provides further details about the municipal bond
market and how your fund was managed during the period.
During the summer, American Century held its largest proxy vote ever, asking
shareholders to approve measures to simplify fund management and eliminate
overlapping funds. Most notably, shareholders approved a unified fee for all
funds. In the past, many of our funds had both a management fee and separate
administrative and transfer agency fees. Under the new fee structure, fund
shareholders pay one annual management fee, based on a percentage of fund
assets.
We also made some important corporate changes. In June, Bill Lyons, American
Century's chief operating officer, became president, assuming full
responsibility for the company's day-to-day operations. With this change, Jim
Stowers, Jr. and Jim Stowers III will be able to spend more time developing and
refining new investment technologies and tools that build on and leverage the
proprietary system they pioneered 25 years ago. One of our goals is to ensure
that we continue to evolve and innovate--building the investment tools today
that will lead us and our investors to success in the next century.
In July, American Century agreed to enter into a business partnership with
J.P. Morgan & Co., Inc., one of the strongest and most respected firms in the
financial services industry. J.P. Morgan will become a significant minority
owner of American Century Companies, Inc. Through this partnership, we see many
opportunities to expand the range of investment choices and services we offer
you. A global financial services firm, J.P. Morgan has been in business for more
than 150 years, serving institutions, governments and individuals with complex
financial needs.
Within the framework of this new relationship, American Century will
continue to operate as an independent company. No changes in your fund's
investment managers, policies or fees are anticipated as a result of this
transaction. American Century's corporate management team remains the same, and
the Stowers family will retain voting control of the company.
In closing, we want to reassure you that American Century remains committed
to serving your investment needs first and foremost. Thank you for your trust
and confidence.
Sincerely,
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
Chief Executive Officer Vice Chairman
American Century Companies, Inc. American Century Companies, Inc.
2 OUR MESSAGE TO YOU AMERICAN CENTURY INVESTMENTS
MARKET PERSPECTIVE
[line graph - data below]
Narrowing Credit Spreads: Insured vs. BBB Bond Yields
8/31/96 through 8/31/97
Bond Yields BBB AAA Insured
08/31/00 6.50% 5.87%
09/07/00 6.57% 6.00%
09/14/00 6.50% 5.90%
09/21/00 6.45% 5.85%
09/28/00 6.30% 5.70%
10/05/00 6.20% 5.60%
10/12/00 6.35% 5.80%
10/19/00 6.27% 5.72%
10/26/00 6.37% 5.87%
11/02/00 6.27% 5.70%
11/09/00 6.23% 5.66%
11/16/00 6.18% 5.66%
11/23/00 6.13% 5.61%
11/30/00 6.08% 5.56%
12/07/00 6.05% 5.53%
12/14/00 6.20% 5.72%
12/20/00 6.18% 5.70%
12/28/00 6.16% 5.68%
01/04/01 6.12% 5.64%
01/11/01 6.29% 5.76%
01/18/01 6.33% 5.80%
01/25/01 6.31% 5.80%
02/01/01 6.31% 5.80%
02/08/01 6.26% 5.75%
02/15/01 6.23% 5.72%
02/22/01 6.09% 5.65%
03/01/01 6.14% 5.72%
03/08/01 6.17% 5.75%
03/15/01 6.25% 5.83%
03/22/01 6.29% 5.86%
03/29/01 6.34% 5.90%
04/05/01 6.38% 5.95%
04/12/01 6.38% 5.95%
04/19/01 6.37% 5.88%
04/26/01 6.37% 5.92%
05/03/01 6.27% 5.82%
05/10/01 6.22% 5.77%
05/17/01 6.06% 5.72%
05/24/01 6.05% 5.71%
05/31/01 6.00% 5.66%
06/07/01 5.93% 5.59%
06/14/01 5.88% 5.54%
06/21/01 5.82% 5.48%
06/28/01 5.92% 5.58%
07/05/01 5.85% 5.52%
07/12/01 5.81% 5.48%
07/19/01 5.76% 5.43%
07/26/01 5.60% 5.40%
08/02/01 5.57% 5.37%
08/09/01 5.67% 5.47%
08/16/01 5.73% 5.58%
08/23/01 5.79% 5.64%
08/30/01 5.76% 5.61%
Source: Bear Stearns
Municipal securities produced solid returns during the twelve months ended
August 31, 1997, as interest rates declined. Longer-term securities, which are
most sensitive to changes in interest rates and inflation, performed best. The
Lehman Long-Term Municipal Index returned 11.26% for the period; in contrast,
the Lehman 3-Year Municipal Index returned 5.65%.
Despite lower rates overall, municipal yields fluctuated throughout the
period (see the accompanying graph). Yields rose and prices fell most sharply in
the first quarter of 1997, when it appeared rapid economic growth and wage gains
would spark inflation. To head-off potential inflation, the Federal Reserve (the
Fed) raised short-term interest rates in March, the first increase since
February 1995.
Municipal securities began to rally (and yields fell) in May, when U.S.
economic growth slowed and it was clear that inflation remained tame. Rising
worker productivity also helped bonds because it suggests that wages can rise
without translating into higher prices.
Demand from retail investors for municipal securities was reasonably strong
during the period. Property and casualty insurance companies in particular were
big buyers, especially early in the period.
Municipal debt issuance is up so far in 1997 over 1996 levels, but is still
low by historical standards. Total municipal debt issuance topped $126 billion
through August; in contrast, only $118 billion in muni debt was issued for all
of 1996. The combination of relatively strong demand and low supply compared
with prior years supported municipal prices throughout the period.
Low supply in recent years has caused a fight for market share among bond
insurers. While insurers used to insure municipal bonds down to an A rating,
they have recently begun to insure even BBB-rated bonds. As a result, about 70%
of all municipal debt issued in California now comes to market insured with a
AAA rating.
This has helped boost credit quality generally by dramatically reducing the
amount of securities issued at the lower investment grades. But it has increased
competition for a shrinking supply of lower-rated, higher-yielding paper. The
net effect is that the market is paying less and less attention to credit
quality in an attempt to grab yield.
The scarcity of high-yielding securities caused the difference in yield, or
"spread," between securities rated AAA and BBB paper to fall to historically low
levels (see the accompanying graph). The strong growth of California's economy
and tax revenues have also contributed to this trend as credit quality improves
across the state (see page 4).
ANNUAL REPORT MARKET PERSPECTIVE 3
MUNICIPAL CREDIT REVIEW
[line graph - data below]
California Unemployment
1/31/90 5.0%
2/28/90 5.1%
3/31/90 5.2%
4/30/90 5.4%
5/31/90 5.4%
6/30/90 5.5%
7/31/90 5.6%
8/31/90 5.8%
9/30/90 6.1%
10/31/90 6.4%
11/30/90 6.8%
12/31/90 6.9%
1/31/91 7.0%
2/28/91 7.4%
3/31/91 7.7%
4/30/91 7.8%
5/31/91 7.7%
6/30/91 7.7%
7/31/91 7.8%
8/31/91 7.7%
9/30/91 7.8%
10/31/91 7.9%
11/30/91 8.0%
12/31/91 8.2%
1/31/92 8.4%
2/29/92 9.0%
3/31/92 8.9%
4/30/92 9.0%
5/31/92 9.1%
6/30/92 9.3%
7/31/92 9.4%
8/31/92 9.6%
9/30/92 9.7%
10/31/92 9.7%
11/30/92 9.7%
12/31/92 9.7%
1/31/93 9.7%
2/28/93 9.6%
3/31/93 9.5%
4/30/93 9.3%
5/31/93 9.4%
6/30/93 9.4%
7/31/93 9.3%
8/31/93 9.3%
9/30/93 9.3%
10/31/93 9.3%
11/30/93 9.3%
12/31/93 9.2%
1/31/94 9.2%
2/28/94 9.3%
3/31/94 9.0%
4/30/94 8.8%
5/31/94 8.9%
6/30/94 8.7%
7/31/94 8.6%
8/31/94 8.5%
9/30/94 8.3%
10/31/94 8.1%
11/30/94 7.9%
12/31/94 7.8%
1/31/95 8.1%
2/28/95 7.8%
3/31/95 7.8%
4/30/95 7.9%
5/31/95 7.9%
6/30/95 7.8%
7/31/95 7.8%
8/31/95 7.8%
9/30/95 7.8%
10/31/95 7.8%
11/30/95 7.9%
12/31/95 7.8%
1/31/96 7.6%
2/29/96 7.6%
3/31/96 7.5%
4/30/96 7.4%
5/31/96 7.3%
6/30/96 7.2%
7/31/96 7.1%
8/31/96 7.1%
9/30/96 7.1%
10/31/96 7.0%
11/30/96 6.9%
12/31/96 6.8%
1/31/97 6.9%
2/28/97 6.5%
3/31/97 6.6%
4/30/97 6.5%
5/31/97 6.4%
6/30/97 6.3%
7/31/97 6.2%
8/31/97 6.2%
Source: DRI/McGraw Hill
California's economy continued to improve during the fiscal year ended
August 31, 1997. The state's ability to generate strong job growth in various
sectors, while benefiting from an improving national economy, has been the
cornerstone of California's impressive economic growth. With the state's
workforce burgeoning, the unemployment rate dropped to 6.2% by August 1997 (see
the accompanying graph), down sharply from the 7.1% figure posted in August
1996. Not only has California's employment growth continued to exceed the
national average, but so have its income gains. Perhaps the largest contributor
to this favorable scenario has been strong growth in the high-technology sector,
which has helped eliminate the negative impact of the job losses caused by the
1990 recession.
Another factor working in California's favor is its exports, which are
nearly equal those of the other 49 states combined. Its gross product surpassed
the $1 trillion milestone in 1997--a landmark passed by the U.S. as a whole less
than 30 years ago. The state's finances also continue to improve--its revenue
for the 1996-1997 fiscal year was approximately $300 million over budget.
Anchoring the state's strongest growth has been the San Francisco Bay Area,
led by the hub of the state's thriving high-technology industry, Santa Clara
County. This growth trend has been spreading throughout much of California,
especially among the coastal areas of Southern California. For instance,
year-over-year employment growth in the Los Angeles County area was 4%. Other
improving coastal areas include San Diego, Long Beach and Orange County, which
is benefiting from a thriving biotechnology industry. The central valley areas,
such as Sacramento and Stanislaus Counties, are also experiencing improved
economic conditions.
As a result of the stronger economy, both state and local municipal credit
quality have continued to improve. Securities that benefited the most from this
trend were tax-based securities such as COPs and tax-allocation bonds. On the
other hand, electric utility and hospital issues suffered under increased
competition in their industries.
Despite the currently favorable environment, California will likely face
some difficult choices in the coming years. Foremost among these concerns is the
likelihood that capital needs will increase for education and transportation.
The state's infrastructure, particularly its public school system, will require
additional funds to support its burgeoning population. In addition, California
housing prices have continued to rise along with the cost of living, making
quality of life issues a greater concern for residents.
Nevertheless, our outlook for the state's credit rating remains very
positive. We believe the favorable growth scenario currently in place will
result in yet another upgrade of California's credit rating in the near future.
To help insure that the municipals chosen for the California funds match our
strict criteria, the five members of our municipal credit research team continue
to keep a close watch on these issues and other economic and legislative trends
within the state.
4 MUNICIPAL CREDIT REVIEW AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
CALIFORNIA LIMITED-TERM TAX-FREE
30-DAY 30-DAY TAX-EQUIVALENT YIELDS
SEC 34.70% 37.42% 41.95% 45.22%
YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- ---------------------------------------------------------------------------------------------------------------
YIELDS AS OF AUGUST 31, 1997
<S> <C> <C> <C> <C> <C>
California Limited-Term Tax-Free 3.67% 5.62% 5.86% 6.32% 6.70%
Yields are defined in the Glossary on page 45.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS LIFE OF
FUND(1)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1997
California Limited-Term Tax-Free .......... 2.53% 5.42% 4.87% 4.52% 4.74%
Lehman 3-Year Municipal Bond Index ........ 2.32% 5.65% 5.41% 5.02% 5.31%(2)
Average California Short-Intermediate
Municipal Debt Fund(3) .................... 2.29% 5.12% 4.98% 4.82% 4.97%(2)
Fund's Ranking Among California
Short-Intermediate Municipal
Debt Funds(3) ............................. -- 4 out of 10 4 out of 6 2 out of 2 2 out of 2
(1) Inception date was June 1, 1992.
(2) Since 6/30/92, the date nearest the fund's inception for which data are
available.
(3) According to Lipper Analytical Services.
</TABLE>
See pages 44-45 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
Growth of $10,000 Over Life of Fund
$10,000 investment made 6/30/92
Value on 8/31/97
Limited-Term Lehman 3-Year
Tax-Free Municipal Index
Jun-92 $10,000 $10,000
Jun-92 $10,074 $10,122
Sep-92 $10,277 $10,357
Dec-92 $10,413 $10,451
Mar-93 $10,616 $10,662
Jun-93 $10,754 $10,822
Sep-93 $10,913 $10,976
Dec-93 $11,029 $11,100
Mar-94 $10,881 $10,951
Jun-94 $10,942 $11,070
Sep-94 $11,037 $11,175
Dec-94 $10,962 $11,176
Mar-95 $11,290 $11,489
Jun-95 $11,518 $11,732
Sep-95 $11,683 $11,982
Dec-95 $11,874 $12,167
Mar-96 $11,904 $12,235
Jun-96 $11,995 $12,334
Sep-96 $12,163 $12,497
Dec-96 $12,341 $12,708
Mar-97 $12,385 $12,759
Jun-97 $12,628 $12,995
Aug-97 $12,752 $13,123
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost. This graph begins on 6/30/92, the date nearest the fund's
inception for which data are available.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the index's
total return line does not.
PORTFOLIO AT A GLANCE
8/31/97 8/31/96
Number of Securities 75 55
Weighted Average Maturity 3.5 years 3.0 years
Average Duration 2.9 years 2.6 years
Expense Ratio 0.49% 0.49%
ANNUAL REPORT CALIFORNIA LIMITED-TERM TAX-FREE 5
CALIFORNIA LIMITED-TERM TAX-FREE
MANAGEMENT Q & A
An interview with Joel Silva, a portfolio manager on the California Tax-Free
and Municipal funds investment team.
HOW DID THE FUND PERFORM?
The fund turned in a strong performance for the fiscal year ended August 31,
1997. For the period, the fund's 5.42% return was higher than the 5.12% average
return of the 10 "California Short-Intermediate Municipal Debt Funds" tracked by
Lipper Analytical Services. (See the Total Returns table on the previous page
for other fund performance comparisons.)
WHY DID THE FUND PERFORM WELL AGAINST ITS PEERS?
One reason was our careful security selection. In early spring, we invested
nearly 6% of the fund's assets in Puerto Rico municipal securities. These
securities have the unique distinction of providing double tax-free income for
investors in all 50 states and provide a viable alternative to California
municipals when conditions warrant. Since we felt many of the available
California municipals were overpriced, we chose more attractively valued Puerto
Rico securities. That choice paid off handsomely--these securities performed
better than we expected, boosting the fund's returns.
[bar chart - data below]
California Limited-Term Tax-Free's One-Year Returns
Since Inception (Periods ended August 31)
Limited-Term Lehman 3-Year
Tax-Free Municipal Index
1992 1.47% 2.73%
1993 6.15% 6.38%
1994 1.90% 2.51%
1995 5.33% 6.68%
1996 3.87% 3.95%
1997 5.42% 5.65%
This graph illustrates the fund's returns since its inception and compares them
with the index's returns. The fund's total returns include operating expenses,
while the index's do not. See page 44 for a definition of the index.
* Return from the fund's 6/1/92 inception date to 8/31/92.
6 CALIFORNIA LIMITED-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
Another factor enhancing the fund's returns was our ability to buy a
larger-than-usual amount of newly issued securities rather than ones already
available in the marketplace. A large influx of investment capital into the fund
caused its assets to grow nearly 8% over the last six months. Using these funds,
we selectively added new issues we felt were attractively valued.
THE FUND IS NOW HOLDING SOME BONDS RATED BBB. DID YOU USE SOME OF THE INCOMING
CASH TO PURCHASE THESE SECURITIES?
Yes. Rather than use the money to purchase municipals rated AA, which were
hard to find at attractive prices, we invested the cash inflows in lower-rated
municipals.
The most attractively priced municipals we found were primarily rated BBB.
The introduction of these securities, many of which were new issues, into the
fund's portfolio shifted its credit structure. The net result was that the
percentage of municipals rated AAA remained unchanged, while the percentage of
AA municipals decreased and the percentage of BBB securities increased. We
believe that this slight "credit barbell," where securities are held at the ends
of the fund's credit spectrum, will continue to perform well in the current
market environment.
WAS THE MUNICIPAL CREDIT RESEARCH TEAM INSTRUMENTAL IN FINDING THESE SECURITIES
Yes. The team continued to make accurate assessments of specific credit
situations and helped us steer clear of many overpriced issues. To find such
hidden values, our credit research team analyzes detailed financial information,
talks directly with municipal officials and frequently travels around the state
for on-site visits and tours. California is a complex, dynamic state, and
thorough research is an integral part of the security selection process. We
therefore work closely with our municipal credit research staff to find
securities that we feel will enhance the fund's performance.
HOW DID YOU MANAGE THE FUND'S AVERAGE MATURITY DURING THE PERIOD?
We made only minor adjustments during the first half of the period, adopting
a neutral position relative to the fund's peers. Due to uncertainty about
interest rates and the possibility of further Fed rate increases, we felt this
conservative stance was warranted. By the time June arrived, however,
uncertainty in the marketplace quickly dissipated as inflation remained benign.
With the market rally gaining momentum, we lengthened the fund's average
maturity slightly to take advantage of rising bond prices. By the end of the
period, the fund's average maturity was a bit longer than that of its peers.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
Revenue 53%
GO 17%
COPs/Leases 17%
Prerefunded/ETM 9%
Land-Secured 3%
Other 1%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97)
Revenue 50%
Prerefunded/ETM 15%
COPs/Leases 15%
GO 13%
Land-Secured 4%
Other 3%
ANNUAL REPORT CALIFORNIA LIMITED-TERM TAX-FREE 7
CALIFORNIA LIMITED-TERM TAX-FREE
DID YOU MAKE ANY CHANGES TO THE FUND'S STRUCTURE DURING THE FISCAL YEAR?
Yes. Structural adjustments remain another important tool we use to enhance
the fund's returns. Early in the fiscal year, the fund was structured to take
advantage of the steep municipal yield curve environment, with a heavier
weighting in securities maturing in one year and 5-8 years and an underweighting
in intermediate-term securities.
This "barbell" structure tends to perform best when the yield curve moves
from steep to flat, as it did during the latter part of the period. While the
yield curve continued to flatten in recent months, we will likely maintain the
fund's barbelled position until rates stabilize. At that time, we will reassess
the fund's position and make any appropriate adjustments.
WHAT IS THE OUTLOOK FOR MUNICIPAL SECURITIES GOING FORWARD?
Our outlook for municipals is generally positive. Inflation remains tame,
having risen at a mere 1.6% annual rate during the first eight months of 1997.
"Real" interest rates (nominal interest rates minus inflation) are relatively
high, which should inhibit inflation and economic growth going forward. In
addition, strong productivity gains should continue to offset wage gains in the
near future. As a result, we think the Federal Reserve can continue to hold
rates steady.
We also expect bond insurers to continue to be active in the California
municipal market, increasing credit quality and generally driving yield spreads
lower. That means credit spreads could continue to narrow.
Nevertheless, municipals may continue to fluctuate, particularly if we get
signs of stronger-than-expected economic growth. For municipal securities to
rally further, it would likely take sharply slower economic growth or a dramatic
drop in inflation.
GIVEN THIS SITUATION, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS?
For the near term, we will likely maintain the fund's slightly
longer-than-average maturity compared with its peers. If the economy continues
to slow as we expect it will, this position should enhance the fund's returns
and add to its income stream. Keep in mind that in a fund such as this, the
majority of the fund's returns come from current income rather than capital
appreciation. As such, we will continue to work closely with our credit research
staff in search of securities offering attractive yields at reasonable prices.
We will also closely monitor where municipals are within their current price
range. Our emphasis in this strategy will be to take advantage of opportunities
to buy when we feel prices are low within the range and sell when prices seem
high.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 58%
AA 15%
A 23%
BBB 4%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97)
AAA 58%
AA 22%
A 20%
Credit ratings given by Standard & Poor's.
8 CALIFORNIA LIMITED-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL SECURITIES
$1,145,000 California Educational Facility Auth.
Rev., (Pepperdine University),
5.125%, 1/15/02 (AMBAC) $ 1,187,365
1,080,000 California Educational Facility Auth.
Rev., Series 1995 A, (Pooled
College & University Project),
4.95%, 12/1/02 1,103,209
1,140,000 California Educational Facility Auth.
Rev., Series 1995 A, (University
Project), 4.55%, 12/1/99 1,149,781
1,710,000 California Educational Facility Auth.
Rev., Series 1997 A, (University
of Southern California), 5.60%,
10/1/01 1,802,956
1,910,000 California Educational Facility Auth.
Rev., Series 1997 A, (University
of Southern California), 5.60%,
10/1/03 2,039,594
395,000 California Educational Facility Auth.
Rev., Series 1997 B, (Pooled
College & University Projects),
5.45%, 4/1/02 407,905
420,000 California Educational Facility Auth.
Rev., Series 1997 B, (Pooled
College & University Projects),
5.55%, 4/1/03 436,094
440,000 California Educational Facility Auth.
Rev., Series 1997 B, (Pooled
College & University Projects),
5.65%, 4/1/04 459,127
465,000 California Educational Facility Auth.
Rev., Series 1997 B, (Pooled
College & University Projects),
5.75%, 4/1/05 487,376
1,180,000 California Health Facility Financing
Auth. Rev., (Valley Presbyterian
Hospital), 5.25%, 5/1/02 (MBIA) 1,223,884
1,400,000 California Health Facility Financing
Auth. Rev., Series 1993 A, (St.
Francis Memorial Hospital),
5.00%, 11/1/98 1,416,856
1,750,000 California Health Facility Financing
Auth. Rev., Series 1993 A, (St.
Francis Memorial Hospital),
5.50%, 11/1/01 1,824,760
Principal Amount Value
- -----------------------------------------------------------------------------------
$2,000,000 California Public Works Board
Lease Rev., Series 1991 A,
(California Community Colleges),
6.75%, 9/1/01, Prerefunded at
102% of Par(1) $ 2,225,980
1,600,000 California Public Works Board
Lease Rev., Series 1995 A,
(Department of Justice Building),
5.50%, 5/1/00 1,650,944
3,000,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Community Colleges),
5.00%, 4/1/02 3,078,960
1,510,000 California State GO, 6.50%,
11/1/97 1,516,976
1,600,000 California State GO, 6.70%,
10/1/01 1,751,280
2,325,000 California State GO, 6.10%,
2/1/02 (AMBAC) 2,500,538
1,000,000 California State GO, 6.75%,
5/1/03 1,119,950
1,000,000 Cawelo Water District Kern County
Rev., 4.30%, 5/1/02 (AMBAC) 1,002,220
1,000,000 Central Valley Financing Auth.
Cogeneration Project Rev.,
5.00%, 7/1/98 1,007,980
1,800,000 Central Valley Financing Auth.
Cogeneration Project Rev.,
5.60%, 7/1/02 1,873,206
3,175,000 City of Whittier Health Rev.,
(Presbyterian Intercommunity
Hospital), 5.50%, 6/1/02 (MBIA) 3,342,640
1,000,000 Contra Costa County Certificates of
Participation, (Merrithew Memorial
Hospital), 6.625%, 11/1/02,
Prerefunded at 102% of Par(1) 1,125,500
1,000,000 Encinitas Unified School District
Certificates of Participation,
5.00%, 9/1/01 1,022,370
1,000,000 Imperial Irrigation District
Certificates of Participation,
(Electrical Systems Project),
6.70%, 11/1/98 1,032,220
1,775,000 Irvine Unified School District
Special Tax, (Community Facilities
District No. 86-1), 5.25%,
11/1/01 (AMBAC) 1,849,674
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA LIMITED-TERM TAX-FREE 9
SCHEDULE OF INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$1,140,000 Kern High School District GO,
Series 1996 A, 6.00%,
2/1/04 (MBIA) $ 1,240,377
3,500,000 Local Government Financing Joint
Powers Auth. Rev., Series 1988
A, (Anaheim Redevelopment
Agency), 7.95%, 9/1/98,
Prerefunded at 102% of Par
(MBIA)(1) 3,710,560
1,000,000 Los Angeles Building Auth. Lease
Redevelopment Rev., 4.90%,
5/1/03 1,021,780
1,800,000 Los Angeles Convention and
Exhibition Center Certificates of
Participation, 6.60%, 8/15/99
(AMBAC) 1,889,136
1,000,000 Los Angeles Convention and
Exhibition Center Certificates of
Participation, Series 1989 A,
7.30%, 8/15/99, Prerefunded at
101.50% of Par(1) 1,076,980
1,265,000 Los Angeles County Capital Asset
Leasing Corporation Rev., 5.625%,
12/1/03 (AMBAC) 1,344,581
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., (Proposition C), 5.90%,
7/1/02 (AMBAC) 1,074,130
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A, (Proposition
C), 5.90%, 7/1/05 (AMBAC) 1,095,700
2,645,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A, 5.50%,
7/1/02 (MBIA) 2,790,449
2,360,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1996 A, 6.00%, 9/1/04
(MBIA) 2,569,214
1,000,000 Los Angeles County Transportation
Community Sales Tax Revenue.,
Series 1991 A, 6.30%, 7/1/01 1,071,110
3,605,000 Los Angeles Municipal Improvement
Corporation Sanitation Rev.,
5.75%, 2/1/98 (MBIA) 3,635,318
1,000,000 Los Angeles Rev. Certificates of
Participation, 6.50%, 11/1/98 1,029,010
Principal Amount Value
- -----------------------------------------------------------------------------------
$3,100,000 Los Angeles Unified School District
GO, Series 1997 A, 5.00%,
7/1/04 (FGIC) $ 3,206,795
2,000,000 Los Angeles Waste Water System
Rev., 6.80%, 8/1/98,
Prerefunded at 102% of Par(1) 2,093,080
1,000,000 Los Angeles Waste Water System
Rev., 6.70%, 2/1/00 1,054,960
1,250,000 Los Angeles Waste Water System
Rev., Series 1990 A, 6.80%,
2/1/01 1,340,513
1,000,000 Los Angeles Waste Water System
Rev., Series 1996 A, 6.00%,
2/1/03 (FGIC) 1,080,400
2,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.10%, 7/1/99 2,077,220
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.375%, 7/1/02 1,092,980
2,000,000 Modesto, Stockton, Redding Public
Power Agency San Juan Project
Rev., Series 1997 G, 5.50%,
7/1/01 (MBIA) 2,095,500
1,365,000 Ontario Redevelopment Financing
Auth. Rev., (Center City Cimarron
Project), 5.70%, 8/1/01 (MBIA) 1,439,802
1,500,000 Orange County Transportation
Sales Tax Rev., 5.50%, 2/15/01
(AMBAC) 1,560,705
5,200,000 Puerto Rico Commonwealth GO,
5.50%, 7/1/01 (MBIA) 5,429,580
2,000,000 Puerto Rico Commonwealth
Highway and Transportation Auth.
Rev., 6.00%, 7/1/01 (MBIA) 2,123,360
1,000,000 Puerto Rico Commonwealth
Highway and Transportation Auth.
Rev., 6.25%, 7/1/04 (MBIA) 1,103,820
1,000,000 Puerto Rico Electric Power Auth.
Rev., Series 1992 R, 5.70%,
7/1/00 (MBIA) 1,041,590
1,000,000 Sacramento County Multifamily
Housing Rev., Issue 1985 B,
(Parcwood Apartments Project),
Mandatory Put, 4.80%, 9/1/02 1,006,620
4,485,000 Sacramento Municipal Utility
District Electric Rev., Series
1993 D, 4.60%, 11/15/98 4,515,722
See Notes to Financial Statements
10 CALIFORNIA LIMITED-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$2,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 L, 5.00%, 7/1/01 (MBIA) $ 2,060,360
895,000 Sacramento Schools Insurance
Auth. Rev., Series 1993 C,
(Workers Compensation
Program), 5.75%, 6/1/03(1) 942,301
2,000,000 San Bernardino County Certificates
of Participation, Series 1995 A,
(Medical Center Project), 5.20%,
8/1/04 (MBIA) 2,081,200
3,000,000 San Diego Area Local Government
Certificates of Participation,
4.50%, 10/1/98 3,019,080
2,000,000 San Diego Unified School District
Certificates of Participation,
Series 1997 A, (Capital
Projects), 5.00%, 7/1/00 2,044,980
1,085,000 San Francisco City and County GO,
6.00%, 6/15/98 (FGIC) 1,104,042
2,000,000 San Francisco City and County
Unified School District Tax & Rev.
Anticipation Notes, 4.50%,
10/30/98 2,013,220
2,930,000 San Francisco Port Commission
Rev., 5.25%, 7/1/99 2,985,553
1,000,000 San Mateo Transportation District
Sales Tax Rev., Series 1990 A,
6.50%, 6/1/98 (MBIA) 1,037,450
1,085,000 Santa Barbara County Certificates
of Participation, 4.90%, 3/1/01 1,107,036
3,000,000 Santa Barbara County Tax & Rev.
Anticipation Notes, Series 1997
A, 4.50%, 10/1/98 3,020,310
1,000,000 Santa Clara County Tax & Revenue
Anticipation Notes, 4.75%,
10/1/98 1,009,360
1,000,000 Southern California Public Power
Auth. Electric Rev., 6.75%,
7/1/99 1,048,220
3,980,000 University of California Rev., Series
1989 A, 7.00%, 9/1/97,
Prerefunded at 102% of Par
(MBIA)(1) 4,059,600
1,570,000 Vallejo Unified School District GO,
6.00%, 8/1/00 (FGIC) 1,653,964
Principal Amount Value
- -----------------------------------------------------------------------------------
$1,040,000 Victor Valley Joint Union High
School District GO, 5.60%,
9/1/04 (MBIA) $ 1,113,892
2,000,000 West Basin Municipal Water District
Certificates of Participation,
6.10%, 8/1/98 (AMBAC)(1) 2,041,860
-------------------
TOTAL MUNICIPAL SECURITIES--99.5% 127,792,765
-------------------
(Cost $126,257,136)
SHORT-TERM MUNICIPAL SECURITIES
200,000 California Pollution Control
Financing Auth. Rev., Series
1996 F, (Pacific Gas &
Electric), VRDN, 3.50%, 9/2/97
(LOC: Banque National de Paris) 200,000
400,000 Orange County Improvement
Bonds, (Assessment District No.
88-1), VRDN, 3.55%, 9/2/97
(LOC: Societe Generale,
Kredietbank N.V.) 400,000
-------------------
TOTAL SHORT-TERM
MUNICIPAL SECURITIES--0.5% 600,000
-------------------
(Cost $600,000)
TOTAL INVESTMENT SECURITIES--100.0% $128,392,765
===================
(Cost $126,857,136)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Indemnity Corporation
FGIC = Financial Guaranty Insurance Co.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is
effective August 31, 1997.
(1) Escrowed in U.S. Government Securities.
See Notes to Financial Statements
</TABLE>
ANNUAL REPORT CALIFORNIA LIMITED-TERM TAX-FREE 11
<TABLE>
<CAPTION>
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
30-DAY 30-DAY TAX-EQUIVALENT YIELDS
SEC 34.70% 37.42% 41.95% 45.22%
YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- ----------------------------------------------------------------------------------------------------------------------
YIELDS AS OF AUGUST 31, 1997
<S> <C> <C> <C> <C> <C>
California Intermediate-Term Tax-Free 3.97% 6.08% 6.34% 6.84% 7.25%
Yields are defined in the Glossary on page 45.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10
YEARS
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1997
California Intermediate-Term Tax-Free .... 3.45% 7.39% 6.42% 6.12% 6.67%
Lehman 5-Year General Obligation Index ... 2.62% 6.10% 5.99% 5.66% 6.53%
Average California Intermediate
Municipal Debt Fund(1) ................... 3.14% 7.29% 6.26% 5.77% 6.67%
Fund's Ranking Among California
Intermediate Municipal Debt Funds(1) ..... -- 13 out of 29 13 out of 24 3 out of 8 1 out of 1
(1) According to Lipper Analytical Services.
</TABLE>
See pages 44-45 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
Growth of $10,000 Over Ten Years$10,000 investment made 8/31/87
Value on 8/31/97
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
Aug-87 $10,000 $10,000
Sep-87 $9,663 $9,664
Dec-87 $10,035 $10,033
Mar-88 $10,319 $10,344
Jun-88 $10,374 $10,388
Sep-88 $10,505 $10,506
Dec-88 $10,628 $10,570
Mar-89 $10,604 $10,541
Jun-89 $11,053 $11,036
Sep-89 $11,134 $11,159
Dec-89 $11,472 $11,403
Mar-90 $11,533 $11,458
Jun-90 $11,780 $11,714
Sep-90 $11,865 $11,838
Dec-90 $12,274 $12,231
Mar-91 $12,515 $12,494
Jun-91 $12,711 $12,713
Sep-91 $13,160 $13,165
Dec-91 $13,547 $13,606
Mar-92 $13,481 $13,596
Jun-92 $13,937 $14,038
Sep-92 $14,305 $14,387
Dec-92 $14,508 $14,615
Mar-93 $14,986 $14,986
Jun-93 $15,389 $15,340
Sep-93 $15,882 $15,672
Dec-93 $16,059 $15,864
Mar-94 $15,420 $15,364
Jun-94 $15,540 $15,570
Sep-94 $15,689 $15,696
Dec-94 $15,461 $15,645
Mar-95 $16,272 $16,279
Jun-95 $16,612 $16,694
Sep-95 $17,079 $17,150
Dec-95 $17,552 $17,464
Mar-96 $17,433 $17,518
Jun-96 $17,549 $17,595
Sep-96 $17,900 $17,881
Dec-96 $18,297 $18,271
Mar-97 $18,285 $18,143
Jun-97 $18,810 $18,595
Aug-97 $19,077 $18,831
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the index's
total return line does not.
PORTFOLIO AT A GLANCE
8/31/97 8/31/96
Number of Securities 142 142
Weighted Average Maturity 7.7 years 7.7 years
Average Duration 5.2 years 5.4 years
Expense Ratio 0.48% 0.48%
12 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
MANAGEMENT Q & A
An interview with Colleen Denzler, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID THE FUND PERFORM?
The fund performed favorably for the fiscal year ended August 31, 1997,
reflecting improving economic conditions. For the period, the fund's 7.39%
return was slightly higher than the 7.29% average return of the 29 "California
Intermediate Municipal Debt Funds" tracked by Lipper Analytical Services. (See
the Total Returns table on the previous page for other fund performance
comparisons.)
HOW WAS THE FUND POSITIONED DURING THE FISCAL YEAR?
Uncertainty concerning interest rates and potential inflation convinced us
to take a conservative stance early in 1997, especially between February and
April. During that time, short- and intermediate-term municipal prices fell
sharply amid investor concern that the Federal Reserve would embark upon a
series of short-term interest rate hikes. In order to limit the fund's
vulnerability to this possibility, we kept its duration neutral with its peers
at around 5.4 years.
Toward the end of April, when investors began to feel that inflation was
under control, intermediate municipal prices rebounded. Securities maturing in
four to seven years performed particularly well thanks to a surge in demand from
investors. We used the rally as an opportunity to sell many of these issues at a
healthy profit.
[bar chart - data below]
California Intermediate-Term Tax-Free's One-Year Returns
For the Past Ten Years (Periods ended August 31)
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
1988 3.90% 4.05%
1989 7.28% 7.19%
1990 6.16% 5.91%
1991 9.74% 10.09%
1992 9.18% 9.93%
1993 10.42% 8.83%
1994 1.11% 1.64%
1995 7.09% 8.12%
1996 4.79% 3.80%
1997 7.39% 6.10%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 44 for a definition of the index.
ANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 13
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
We replaced these securities with issues maturing in 9-15 years that we
believed were more attractively priced and offered greater appreciation
potential. These securities became especially attractive because of their
increased supply, which put downward pressure on their prices. Since demand for
municipals in this area also remained soft, the combination worked in an ideal
way to make the securities available at attractive values. After purchasing
these longer-intermediate municipals, the fund's duration lengthened to as much
as 5.6 years.
As the rally continued, the longer-maturity securities we purchased began to
pay off. Deciding to shorten the fund's duration, we began unwinding this
position by selling the securities at a profit. By the end of the period, the
fund's duration was roughly neutral to its peers.
WHAT PART DID THE MUNICIPAL CREDIT RESEARCH TEAM PLAY IN FINDING THESE
SECURITIES?
The team continued to make accurate assessments of specific credit
situations and helped us steer clear of many overpriced issues. To find such
hidden values, our credit research team analyzes detailed financial information,
talks directly with municipal officials and frequently travels around the state
for on-site visits and tours. California is a complex, dynamic state, and
thorough research is an integral part of the security selection process. We
therefore work closely with our municipal credit research staff to find
securities that we feel will enhance the fund's performance.
WHY DID YOU HOLD SOME TREASURY PUT OPTIONS DURING THE PERIOD?
We bought the Treasury put options for added protection against the
possibility of a bond market selloff. (A put option allows the bondholder to
sell a security at a predetermined price on a specified date.) By hedging the
fund with Treasury puts, we were able to hold more longer-maturity
intermediate-term municipals than we otherwise would have felt comfortable with
WHAT IS THE OUTLOOK FOR CALIFORNIA MUNICIPALS GOING FORWARD?
Our outlook for the state's municipal securities is generally positive.
Inflation remains tame, having risen at a mere 1.6% annual rate during the first
eight months of 1997. "Real" interest rates (nominal interest rates minus
inflation) are relatively high, which should inhibit inflation and economic
growth going forward. In addition, strong productivity gains should continue to
offset wage gains in the near future. As a result, we think the Federal Reserve
can continue to hold rates steady.
We also expect bond insurers to continue to be active in the California
municipal market, increasing credit quality and generally driving yield
spreads--the interest rate difference between higher- and lower-quality
municipals--lower.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
Revenue 50%
COPs/Leases 25%
Prerefunded/ETM 10%
Land-Secured 8%
GO 6%
Other 1%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97)
Revenue 55%
COPs/Leases 22%
Prerefunded/ETM 9%
GO 6%
Land-Secured 6%
Other 2%
14 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
Nevertheless, municipals may continue to fluctuate, particularly if we get
signs of stronger-than-expected economic growth. For municipal securities to
rally further, it would likely take sharply slower economic growth or a dramatic
drop in inflation.
GIVEN THIS SITUATION, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS
For the near term, we plan on maintaining the fund's neutral duration. Since
interest rates are currently very low, refundings may start to rise. When a
municipality refunds old debt, it retires the outstanding security that was
issued when rates were high and replaces the issue with a newer one at
prevailing--typically lower--interest rates. This scenario should be beneficial
for the fund because there are many premium bonds in its portfolio that might be
refunded.
We will also closely monitor where municipals are within their current price
range. Our emphasis in this strategy will be to take advantage of opportunities
to buy when we feel prices are low within the range and sell when prices seem
high.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 70%
AA 12%
A 17%
BBB 1%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97)
AAA 69%
AA 13%
A 17%
BBB 1%
Credit ratings given by Standard & Poor's.
ANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 15
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL SECURITIES
$11,745,000 Alameda County Certificates of
Participation, (Santa Rita Jail
Project), 5.375%, 6/1/09 (MBIA) $12,345,404
4,060,000 Burbank Redevelopment Agency
Tax Allocation, (West Olive
Project), 6.50%, 12/1/01 (AMBAC) 4,433,317
1,175,000 California Educational Facility Auth.
Rev., (Santa Clara University),
5.25%, 9/1/10 (MBIA) 1,199,628
2,145,000 California Educational Facility Auth.
Rev., (University of San Diego),
6.75%, 10/1/02 (MBIA) 2,335,626
5,000,000 California Educational Facility Auth.
Rev., Series 1997 M, (Stanford
University), 5.25%, 12/1/99 5,145,200
1,500,000 California Health Facilities
Financing Auth. Rev., (Pomona
Valley Hospital Medical Center),
6.75%, 1/1/00, Prerefunded at
102% of Par (MBIA)(1) 1,616,895
1,045,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/03 (MBIA) 1,085,901
1,500,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
6.70%, 10/1/99 1,577,700
1,280,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.25%, 11/1/99 1,309,018
1,660,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.375%, 11/1/00 1,713,535
1,745,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.625%, 11/1/02 1,832,512
1,560,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.75%, 11/1/04 1,650,371
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 3,145,000 California Health Facilities
Financing Auth. Rev., Series
1995 A, (Insured Health Facility),
6.00%, 7/1/04 (AMBAC) $ 3,417,923
3,250,000 California Public Works Board
Energy-Efficiency Rev. Certificates
of Participation, Series 1991 A,
(Pooled Project), 6.00%, 9/1/99 3,368,040
3,000,000 California Public Works Board
Lease Rev., Series 1992 A,
(Various California State University
Projects), 5.70%, 10/1/99 3,095,940
3,000,000 California Public Works Board
Lease Rev., Series 1994 A,
(Various University of California
Projects), 6.15%, 11/1/09 3,244,800
2,000,000 California Public Works Board
Lease Rev. Certificates of
Participation, Series 1990 A,
(University of California),
4.53%, 9/1/00(2) 1,748,080
1,000,000 California Public Works Board
Lease Rev. Certificates of
Participation, Series 1992 A,
(Various University of California
Projects), 5.90%, 12/1/03
(AMBAC) 1,084,590
4,520,000 California Public Works Board
Lease Rev. Certificates of
Participation, Series 1992 A,
(Archives Building Project),
6.20%, 12/1/05 (AMBAC) 5,037,992
2,500,000 California State Department of
Veteran's Affairs Rev., Series
1991 A, 6.20%, 8/1/98 2,545,575
4,795,000 California State Department Water
Resource Rev., (Central Valley
Project), Series 1992 J-2, (Water
System), 5.80%, 12/1/04 5,204,637
3,710,000 California State Franchise Tax
Board Certificates of
Participation,
6.90%, 10/1/99, Prerefunded at
102% of Par(1) 3,991,292
10,000,000 California State GO, 6.50%,
3/1/02 (AMBAC) 10,930,900
2,400,000 California State GO, 6.00%,
9/1/03 (MBIA) 2,615,256
1,950,000 California State GO, 6.75%
2/1/06 2,242,871
1,855,000 California State GO, 7.00%,
11/1/06 (FGIC) 2,194,094
See Notes to Financial Statements
16 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 3,000,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) $ 3,109,620
8,000,000 California Statewide Communities
Development Auth. Certificates of
Participation, (California Lutheran
Homes), 5.375%, 11/15/06 8,329,520
2,385,000 California Statewide Communities
Development Auth. Certificates of
Participation, (St. Joseph Health
System), 6.50%, 7/1/03 2,625,432
2,545,000 Capistrano Unified Public Financing
Auth. Special Tax Rev., Series
1996 A, (First Lien), 6.00%,
9/1/06 (AMBAC) 2,807,262
2,945,000 Castaic Lake Water Agency
Certificates of Participation,
Series 1994 A, 5.75%, 8/1/01 (MBIA) 3,105,120
1,000,000 Castaic Lake Water Agency
Certificates of Participation, Series
1994 A, 7.25%, 8/1/09 (MBIA) 1,220,410
2,075,000 Chabot Las Positas Community
College District Certificates of
Participation, 5.50%, 12/1/10
(FSA) 2,211,867
1,465,000 City of Woodland Waste Water
System Refunding Certificates of
Participation, 6.00%, 3/1/06
(AMBAC) 1,616,701
5,000,000 Contra Costa County Certificates of
Participation, (Merrithew Memorial
Hospital), 6.625%, 11/1/02,
Prerefunded at 102% of Par(1) 5,627,500
2,500,000 Contra Costa County Public Facility
Certificates of Participation,
7.45%, 6/1/00 (BIGI) 2,686,800
1,065,000 Contra Costa County Water District
Rev., Series 1990 A, 7.00%,
10/1/00, Prerefunded at
102% of Par(1) 1,170,371
7,935,000 Contra Costa Transportation Auth.
Sales Tax Rev., Series 1993 A,
6.00%, 3/1/05 (FGIC) 8,707,234
1,220,000 Coronado Community Development
Agency Tax Allocation, 6.00%,
9/1/08 (FSA) 1,348,564
3,410,000 East Bay Municipal Utilities District
Wastewater Treatment System
Rev., 5.00%, 6/1/16 (FGIC) 3,281,238
Principal Amount Value
- -----------------------------------------------------------------------------------
$2,570,000 East Bay Municipal Utilities District
Water System Rev., 6.00%,
6/1/05 $ 2,772,490
1,500,000 East Bay Municipal Utilities District
Water System Rev., 5.00%,
6/1/06 (MBIA) 1,547,100
6,850,000 Imperial Irrigation District
Certificates of Participation,
(Electrical System Project),
6.50%, 11/1/07 (MBIA) 7,873,253
1,225,000 Imperial Irrigation District
Certificates of Participation,
(Electrical System Project),
5.20%, 11/1/09 (AMBAC) 1,269,235
2,715,000 Irvine Unified School District
Special Tax, (Community Facilities
District No. 86-1), 5.50%,
11/1/10 (AMBAC) 2,842,496
1,750,000 Loma Linda Hospital Rev.,
(University Medical Center),
6.95%, 12/1/05 (AMBAC) 1,876,788
2,300,000 Los Angeles Airport Rev., Series
1995 A, 6.00%, 5/15/05 (FGIC) 2,519,374
4,000,000 Los Angeles Capital Asset Lease
Rev. Certificates of Participation,
5.875%, 12/1/05 (AMBAC) 4,338,120
1,155,000 Los Angeles Convention and
Exhibition Center Auth. Lease
Rev. Certificates of Participation,
Series 1993 A, 6.00%,
8/15/10 (MBIA) 1,278,146
4,000,000 Los Angeles County Correctional
Facility Project Certificates of
Participation, 6.00%, 9/1/99
(MBIA)(1) 4,158,560
2,625,000 Los Angeles County Metropolitan
Transportation Auth. Rev., Series
1996 A, (Union Station), 5.10%,
7/1/10 (FSA) 2,651,618
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A, (Proposition
C), 5.90%, 7/1/06 (AMBAC) 1,099,570
6,175,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A, (Proposition
A), 5.25%, 7/1/12 (MBIA) 6,225,326
1,000,000 Los Angeles County Public
Properties Certificates of
Participation, 6.25%, 4/1/00
(BIGI) 1,053,760
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 17
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 2,900,000 Los Angeles County Transportation
Commission Certificates of
Participation, Series 1992 B,
6.00%, 7/1/01 $ 3,072,028
4,665,000 Los Angeles County Transportation
Commission Certificates of
Participation, Series 1992 B,
6.20%, 7/1/03 5,069,176
2,000,000 Los Angeles County Transportation
Commission Certificates of
Participation, Series 1992 B,
6.25%, 7/1/04 2,147,000
2,500,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1991 A, (Proposition A),
6.40%, 7/1/01, Prerefunded at
102% of Par(1) 2,740,725
3,515,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1992 A, (Proposition C),
6.20%, 7/1/04 3,844,777
3,765,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series1992 A, (Proposition C),
6.40%, 7/1/06 4,218,946
1,000,000 Los Angeles County Wastewater
System Rev., Series 1990 B,
6.80%, 6/1/02 1,079,160
2,045,000 Los Angeles County Wastewater
System Rev., Series 1991 A,
6.60%, 2/1/00 (MBIA) 2,155,205
4,780,000 Los Angeles County Wastewater
System Rev., Series 1992 B,
6.20%, 6/1/06 (AMBAC) 5,188,499
1,000,000 Los Angeles Department of Water
and Power Electric Rev., 5.70%,
1/15/05 (MBIA) 1,071,450
1,000,000 Los Angeles Department of Water
and Power Water Works Rev.,
6.30%, 4/15/06 (FGIC) 1,084,530
4,685,000 Los Angeles Municipal Improvement
Corporation Rev., Series 1995 A,
6.00%, 2/1/03 (MBIA) 5,061,674
2,000,000 Los Angeles Rev. Certificates of
Participation, 6.40%, 11/1/97 2,008,700
2,000,000 Los Angeles Unified School District
GO, Series 1997 A, 6.00%,
7/1/11 (FGIC) 2,212,680
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 1,000,000 Los Angeles Unified School District
GO, Series 1997 A, 6.00%,
7/1/15 (FGIC) $ 1,094,030
7,190,000 Metropolitan Water District of
Southern California Rev., 6.50%,
7/1/01, Prerefunded at 102%
of Par(1) 7,907,562
1,000,000 Metropolitan Water District of
Southern California Rev., 6.625%,
7/1/01, Prerefunded at 102%
of Par(1) 1,104,200
2,785,000 Metropolitan Water District of
Southern California Rev., 5.00%,
7/1/09 2,818,504
1,100,000 Mojave California Water Agency
Improvement District GO,
(Morongo Basin), 5.40%,
9/1/08 (FGIC) 1,156,111
1,000,000 Oakland Pension Financing Auth.
Rev. Certificates of Participation,
7.20% , 8/1/00 (FGIC) 1,046,430
1,165,000 Ontario Redevelopment Financing
Auth. Local Agency Rev., Series
1995 A, 5.80%, 9/2/06 (FSA) 1,256,021
5,000,000 Orange County Transportation
Sales Tax Rev., 5.50%, 2/15/01
(AMBAC) 5,202,350
1,645,000 Orange County Transportation
Sales Tax Rev., 5.75%, 2/15/05 1,746,645
1,250,000 Orange County Water District
Certificates of Participation,
7.00%, 8/15/00, Prerefunded at
102% of Par(1) 1,373,550
2,410,000 Orange County Water District
Certificates of Participation,
Series 1997 A, 5.00%, 8/15/12
(MBIA) 2,375,031
6,000,000 Orange County Water District
Certificates of Participation,
Series 1997 A, 5.00%,
8/15/14 (MBIA) 5,813,160
1,330,000 Oxnard Harbor District Rev.,
7.00%, 8/1/04 (FSA) 1,532,652
2,590,000 Puerto Rico Public Buildings Auth.
Rev., Series 1995 A, 6.25%,
7/1/09 (AMBAC) 2,925,975
See Notes to Financial Statements
18 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 1,000,000 Ramona Municipal Water District
Certificates of Participation,
6.90%, 10/1/01 (AMBAC) $ 1,096,830
1,060,000 Redding Joint Powers Financing
Auth. Electric System Rev., Series
1996 A, 6.25%, 6/1/07 (MBIA) 1,192,595
1,010,000 Richmond Joint Powers Financing
Auth. Rev. Certificates of
Participation, Series 1995 A,
5.30%, 5/15/06 1,040,098
2,080,000 Riverside County Public Financing
Auth. Special Tax Rev., Series
1995 A, 5.25%, 9/1/04 (MBIA) 2,184,312
2,000,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1991 A, 6.625%, 6/1/01,
Prerefunded at 102% of Par(1) 2,206,460
1,225,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.60%, 6/1/05
(AMBAC) 1,313,139
1,000,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1997 A, 5.25%, 6/1/07
(AMBAC) 1,046,550
1,025,000 Rocklin Unified School District
Community Facility Special Tax
Rev., No. 1, 5.20%, 9/1/09
(MBIA) 1,053,198
2,600,000 Sacramento County Multifamily
Housing Rev., Issue 1995 B,
(Parcwood Apartments Project),
Mandatory Put, 4.80%, 9/1/02 2,617,212
1,205,000 Sacramento County Sanitation
District Financing Auth. Rev.,
5.50%, 12/1/05 1,288,097
6,825,000 Sacramento Municipal Utility
District Electric Rev., Series 1991
Z, 6.00%, 7/1/02 (FGIC) 7,348,136
5,710,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 C, 5.75%, 11/15/07
(MBIA) 6,089,886
4,230,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 L, 5.00%, 7/1/10
(AMBAC) 4,244,720
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 4,925,000 Sacramento Schools Insurance
Auth. Rev., Series 1993 C,
(Workers Compensation Program),
5.75%, 6/1/03(1) $ 5,185,286
1,205,000 Saddleback Valley Unified School
District Public Financing Special
Tax Rev., 6.00%, 9/1/11 (FSA) 1,334,309
1,000,000 San Bernardino County Certificates
of Participation, (Medical Center
Project), 6.00%, 8/1/09 (MBIA) 1,087,540
5,000,000 San Bernardino County Certificates
of Participation, Series 1995 A,
(Medical Center Project), 5.75%,
8/1/07 (MBIA) 5,437,150
2,000,000 San Diego County Certificates of
Participation, (Central Jail),
5.00%, 10/1/10 (AMBAC) 1,972,540
1,500,000 San Diego County Regional
Transportation Commission Sales
Tax Rev., Series 1989 A, 7.75%,
4/1/99(1) 1,587,225
7,200,000 San Diego County Water Auth.
Certificates of Participation,
Series 1991 A, 6.125%, 5/1/03 7,734,024
4,400,000 San Diego County Water Auth.
Certificates of Participation,
Series 1991 A, 6.40%, 5/1/08 4,748,260
3,000,000 San Diego Public Facility Financing
Auth. Sewer Rev., 4.875%,
5/15/09 (FGIC) 3,000,930
3,505,000 San Diego Regional Transportation
Commission Sales Tax Rev.,
Series 1992 A, 5.50%, 4/1/04
(FGIC) 3,727,427
5,175,000 San Diego Regional Transportation
Commission Sales Tax Rev.,
Series 1992 A, 5.50%, 4/1/05
(FGIC) 5,518,051
4,000,000 San Diego Regional Transportation
Commission Sales Tax Rev.,
Series1994 A, 6.00%,
4/1/04 (FGIC) 4,367,240
2,000,000 San Diego Water Auth. Rev.
Certificates of Participation,
5.68%, 4/23/08 (FGIC) 2,128,180
1,000,000 San Francisco Bay Area Rapid
Transit Sales Tax Rev., 5.35%,
7/1/07 (FGIC) 1,044,300
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 19
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 2,000,000 San Francisco Building Auth.
Lease Rev. Certificates of
Participation, Series 1996 A,
(San Francisco Civic Center
Complex), 6.00%, 12/1/09
(AMBAC) $ 2,220,240
2,410,000 San Francisco City and County
Airport Commission Rev., Series
Issue 2, 6.35%, 5/1/01 (MBIA) 2,589,545
3,000,000 San Francisco City and County
Unified School District Tax & Rev.
Anticipation Notes, 4.50%,
10/30/98 3,019,830
3,405,000 San Francisco Port Commission
Rev., 5.625%, 7/1/02 3,564,422
3,950,000 San Jose Financing Auth. Rev.
Certificates of Participation,
(Convention Center), 6.00%,
9/1/05 4,217,534
4,580,000 San Jose Financing Auth. Rev.
Certificates of Participation,
Series 1993 A, (Convention
Center), 6.10%, 9/1/06 4,861,762
6,690,000 San Jose Redevelopment Agency
Tax Allocation, (Merged Area
Redevelopment Project), 6.00%,
8/1/07 (MBIA) 7,406,633
4,550,000 San Jose Redevelopment Agency
Tax Allocation, (Merged Area
Redevelopment Project), 6.00%,
8/1/09 (MBIA) 5,041,127
3,875,000 San Jose Redevelopment Agency
Tax Allocation, Series 1992 A,
(Merged Area Redevelopment
Project), 6.00%, 8/1/02 (MBIA)(1) 4,168,725
4,800,000 San Jose Redevelopment Agency
Tax Allocation, Series 1993 A,
(Merged Area Redevelopment
Project), 6.00%, 8/1/06 (MBIA) 5,301,840
2,310,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.00%, 6/1/09 (MBIA) 2,346,821
4,585,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.00%, 6/1/11 (MBIA) 4,607,329
1,015,000 Santa Ana Police Administration
Certificates of Participation,
Series 1994 A, 5.50%, 7/1/07
(MBIA) 1,075,372
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 2,215,000 Santa Clara County Multi-Facilities
Project Certificates of
Participation, 6.00%, 5/15/01
(AMBAC) $ 2,355,232
1,000,000 Signal Hill California
Redevelopment Agency Tax
Allocation, Series 1990 B,
7.40%, 10/1/00, Prerefunded at
100% of Par(1) 1,095,840
1,785,000 South Sutter Water District
Hydroelectric Refunding Rev.,
6.80%, 8/1/01 (FGIC) 1,904,791
2,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/00 2,136,660
3,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/01 3,249,930
3,090,000 Southern California Public Power
Auth. Rev., (Transmission Project),
5.625%, 7/1/03 (MBIA) 3,295,949
4,065,000 Southern California Rapid Transit
District Certificates of
Participation, (Workers
Compensation), 6.20%, 7/1/02
(MBIA) 4,396,013
5,000,000 Southern California Rapid Transit
District Certificates of
Participation, (Workers
Compensation), 6.40%, 7/1/04
(MBIA) 5,408,600
1,500,000 Southern California Rapid Transit
District Certificates of
Participation, (Workers
Compensation), 6.50%, 7/1/07
(MBIA) 1,622,790
2,000,000 Stanislaus County Refunding
Certificates of Participation,
5.50%, 5/1/06 (MBIA) 2,128,860
1,150,000 Taft Public Financing Auth. Lease
Rev. Certificates of Participation,
Series 1997 A, (Community
Correctional Facility Project),
5.50%, 1/1/06 1,187,145
1,950,000 University of California Rev.,
(University of California Medical
Center), 5.60%, 7/1/09
(AMBAC) 2,063,275
See Notes to Financial Statements
20 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 2,510,000 Watsonville California Hospital
Insured Rev., Series 1996 A,
(Watsonville Community
Hospital), 5.45%, 7/1/03 $ 2,614,742
3,980,000 Whittier California Health Facility
Rev., (Presbyterian
Intercommunity), 6.00%, 6/1/06
(MBIA) 4,380,547
-------------------
TOTAL MUNICIPAL SECURITIES--96.5% 424,482,592
-------------------
(Cost $406,431,291)
SHORT-TERM MUNICIPAL SECURITIES
1,600,000 Association of Bay Area
Governments Financing Auth. for
Nonprofit Corps. Rev., (University
of California Project), VRDN,
3.25% 9/4/97 (LOC: Union
Bank of Switzerland) 1,600,000
2,800,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Sutter Health), VRDN,
3.40%, 9/2/97 (LOC: Morgan
Guaranty Trust) 2,800,000
2,700,000 California Pollution Control
Financing Auth. Rev., Series
1986 D, (Southern California
Edison), VRDN, 3.50%, 9/2/97 2,700,000
1,500,000 California Pollution Control
Financing Auth. Rev., Series
1996 F, (Pacific Gas & Electric),
VRDN, 3.50%, 9/2/97 (LOC:
Banque National de Paris) 1,500,000
4,000,000 California State GO, VRDN, 3.60%,
9/3/97 (FGIC) (Liquidity
Agreement Societe Generale) 4,000,000
2,715,000 Richmond Joint Powers Financing
Port Auth. Term Lease Rev.,
VRDN, 3.60%, 9/2/97 (LOC:
Union Bank of California, N.A.) 2,715,000
-------------------
TOTAL SHORT-TERM
MUNICIPAL SECURITIES--3.5% 15,315,000
-------------------
(Cost $15,315,000)
TOTAL INVESTMENT SECURITIES--100.0% $439,797,592
===================
(Cost $421,746,291)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Indemnity Corporation
BIGI = Bond Investor's Guaranty, Inc.
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corporation
VRDN = Variable Rate Demand Note. Interest reset dates are indicated and used
in calculating the weighted average maturity of the portfolio. Rates
shown are effective August 31, 1997.
(1) Escrowed in U.S. Government Securities.
(2) These securities are zero-coupon municipal bonds. The yield to maturity at
August 31, 1997 is indicated instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity.
</TABLE>
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 21
<TABLE>
<CAPTION>
CALIFORNIA LONG-TERM TAX-FREE
30-DAY 30-DAY TAX-EQUIVALENT YIELDS
SEC 34.70% 37.42% 41.95% 45.22%
YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- ---------------------------------------------------------------------------------------------------------------------
YIELDS AS OF AUGUST 31, 1997
<S> <C> <C> <C> <C> <C>
California Long-Term Tax-Free 4.64% 7.11% 7.41% 7.99% 8.47%
Yields are defined in the Glossary on page 45.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10
YEARS
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1997
California Long-Term Tax-Free ............... 4.29% 9.70% 7.89% 7.27% 7.97%
Lehman Long-Term Municipal Bond Index ....... 4.97% 11.26% 9.17% 7.90% 9.29%
Average California Municipal Debt Fund(1) ... 4.06% 8.98% 7.22% 6.54% 7.67%
Fund's Ranking Among California
Municipal Debt Funds(1) ..................... -- 23 out of 101 16 out of 77 7 out of 51 10 out of 30
(1) According to Lipper Analytical Services.
</TABLE>
See pages 44-45 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
Growth of $10,000 Over Ten Years
$10,000 investment made 8/31/87
Value on 8/31/97
Long-Term Lehman Long-Term
Tax-Free Municipal Index
Aug-87 $10,000 $10,000
Sep-87 $9,518 $9,592
Dec-87 $9,929 $10,027
Mar-88 $10,324 $10,399
Jun-88 $10,483 $10,697
Sep-88 $10,704 $11,056
Dec-88 $10,967 $11,381
Mar-89 $11,088 $11,495
Jun-89 $11,691 $12,291
Sep-89 $11,612 $12,226
Dec-89 $12,037 $12,744
Mar-90 $12,025 $12,771
Jun-90 $12,309 $13,099
Sep-90 $12,174 $12,993
Dec-90 $12,832 $13,664
Mar-91 $13,055 $13,979
Jun-91 $13,341 $14,335
Sep-91 $13,923 $14,980
Dec-91 $14,345 $15,517
Mar-92 $14,337 $15,571
Jun-92 $14,920 $16,258
Sep-92 $15,251 $16,701
Dec-92 $15,515 $17,104
Mar-93 $16,186 $17,850
Jun-93 $16,828 $18,587
Sep-93 $17,508 $19,330
Dec-93 $17,647 $19,626
Mar-94 $16,640 $18,052
Jun-94 $16,742 $18,182
Sep-94 $16,840 $18,257
Dec-94 $16,498 $17,840
Mar-95 $17,674 $19,617
Jun-95 $17,978 $20,066
Sep-95 $18,539 $20,614
Dec-95 $19,765 $21,995
Mar-96 $19,202 $21,421
Jun-96 $19,361 $21,674
Sep-96 $19,920 $22,346
Dec-96 $20,474 $22,967
Mar-97 $20,348 $22,770
Jun-97 $21,108 $23,785
Aug-97 $21,521 $24,319
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the index's
total return line does not.
PORTFOLIO AT A GLANCE
8/31/97 8/31/96
Number of Securities 87 85
Weighted Average Maturity 19.8 years 18.8 years
Average Duration 8.0 years 8.0 years
Expense Ratio 0.48% 0.48%
22 CALIFORNIA LONG-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
MANAGEMENT Q & A
An interview with Dave MacEwen, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID THE FUND PERFORM?
The fund performed very well relative to its peers. For the fiscal year
ended August 31, 1997, the fund returned 9.70%, compared with the 8.98% average
return of the 101 "California Municipal Debt Funds" tracked by Lipper Analytical
Services. The fund's longer-term returns are even more impressive. For example,
the fund's three- and five-year returns place it in the top quarter of its peer
group. (See the Total Returns table on the previous page for other fund
performance comparisons.)
The fund also produced a higher level of current income than its peer group
average. As of August 31, the fund's 30-day SEC yield was 4.64%, compared with
the 4.23% average yield of the fund's peers. One reason we've been able to
produce such strong yields and returns is that the fund's expenses are below the
peer group average. All else being equal, lower expenses mean higher yields and
returns for fund shareholders.
HOW WAS THE FUND POSITIONED DURING THE PERIOD?
We lengthened the fund's duration slightly in the second quarter to take
advantage of the decline in interest rates. (Duration is a measure of the
portfolio's sensitivity to changes in rates.) The longer a fund's duration, the
more its share price tends to rise when rates decline. In general, we use a
conservative approach to managing the fund's duration, keeping it in a narrow
range around eight years. Instead, we look to add value to the fund primarily
through careful credit analysis and security selection.
[bar chart - data below]
California Long-Term Tax-Free's One-Year Returns
For the Past Ten Years (Periods ended August 31)
Long-Term Lehman Long-Term
Tax-Free Municipal Index
1988 5.61% 8.10%
1989 10.39% 13.44%
1990 4.66% 6.11%
1991 12.26% 13.47%
1992 10.58% 12.60%
1993 14.02% 14.76%
1994 -0.78% -2.05%
1995 7.21% 9.43%
1996 6.77% 6.88%
1997 9.70% 11.26%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 44 for a definition of the index.
ANNUAL REPORT CALIFORNIA LONG-TERM TAX-FREE 23
CALIFORNIA LONG-TERM TAX-FREE
CAN YOU GIVE AN EXAMPLE OF HOW YOU MANAGED THE FUND FOR A COMBINATION OF YIELD
AND RETURN?
Sure. We tried to enhance the fund's yield and return by carefully managing
the fund's coupon structure. For example, many of the outstanding long-term
municipal bonds have coupons between 5.125% and 5.875%. We put less emphasis on
these securities, buying them only if there was a compelling credit story.
Instead, we tried to maintain a "barbell" coupon structure, with the majority of
the fund's assets in higher-coupon premium bonds and lower-coupon discount and
non-callable bonds.
The premium bonds were intended to shorten duration, while the lower-coupon
discount bonds helped the fund's returns because their prices tend to rise more
rapidly than premium bonds when rates fall.
WHY DOES THE FUND HAVE SUCH A SMALL HOLDING OF BONDS RATED BBB?
With credit spreads at historic lows (see page 4), we don't think we're
being properly compensated for the additional credit risk of holding most BBB
securities. In the past, BBB-rated bonds might offer yields 100 basis points or
more above AAA bonds. Today, that risk premium can be as low as 20 or 30 basis
points. As a result, we're very selective when adding these lower-rated
securities to the fund. Nevertheless, our ability to buy the entire spectrum of
investment-grade securities has helped the fund's performance. Though we hold
only about 5% of the fund in these lower-rated bonds, we've carefully selected
securities we think have a good chance to appreciate in value as spreads
continue to tighten.
HOW HAS THE DEREGULATION OF THE ELECTRIC UTILITIES INDUSTRY AFFECTED THE FUND?
Deregulation has changed the way we look at this sector. In general, we're
avoiding new municipal electric utility debt because we're uncertain how these
entities will perform when faced with competition. But the change has been good
for debt issued before the reforms were enacted. That's because municipal
utilities have been refunding much of that debt to get it off their books. In a
refunding, the issuer establishes an escrow account of Treasury securities.
That's great for the fund because we continue to draw current tax-free income on
an investment secured by Treasurys.
YOU HELD SOME TREASURY PUT OPTIONS DURING THE PERIOD. WHY?
We bought Treasury put options as a form of insurance against a bond market
decline. (A put option allows the bondholder to sell a security at a
pre-determined price on a specified date.) Hedging the fund with Treasury puts
allowed us to hold more long-term municipal securities than we otherwise would
have felt comfortable with.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
Revenue 44%
COPs/Leases 23%
Land-Secured 18%
GO 7%
Prerefunded/ETM 4%
Other 4%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97)
Revenue 44%
COPs/Leases 25%
Land-Secured 14%
Prerefunded/ETM 7%
GO 4%
Other 6%
24 CALIFORNIA LONG-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
WHAT IS YOUR OUTLOOK FOR THE CALIFORNIA MUNICIPAL MARKET OVER THE NEXT SIX
MONTHS?
Our outlook for municipals is generally positive. Inflation remains tame,
having risen by just 2.2% for the twelve months ended August 31, 1997. "Real"
interest rates (nominal interest rates minus the inflation rate) are relatively
high, which should inhibit inflation and economic growth going forward. In
addition, strong productivity gains should continue to offset wage gains in the
near future. As a result, we think the Federal Reserve can continue to hold
rates steady.
We also expect bond insurers to continue to be active in the California
municipal market, increasing credit quality and driving down yield spreads
generally.
Nevertheless, municipal securities may continue to fluctuate, particularly
if we get signs of stronger-than-expected economic growth. For municipals to
rally further, it would likely take sharply slower economic growth or a dramatic
drop in inflation.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
We'll likely keep the fund's duration slightly longer than neutral, which is
around eight years. That should help the fund's performance if economic growth
and inflation remain tame. We'll also adopt a contrarian strategy--buying when
others sell and selling when they buy. While we can't guarantee this strategy
will be successful, we believe it may allow us to sell at peaks and buy at dips.
We will also continue to work closely with our credit research team to look for
attractively valued securities.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 48%
AA 15%
A 32%
BBB 5%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97)
AAA 42%
AA 19%
A 34%
BBB 5%
Credit ratings given by Standard & Poor's.
ANNUAL REPORT CALIFORNIA LONG-TERM TAX-FREE 25
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL SECURITIES
$ 2,300,000 Alameda County Certificates of
Participation, 5.61%, 6/15/17
(MBIA)(1) $ 769,304
2,700,000 Brea Public Financing Auth. Rev.,
(Project Area AB), 7.00%,
8/1/15 (MBIA) 2,982,366
2,920,000 Brea Redevelopment Agency Tax
Allocation (Project AB), 6.125%,
8/1/13 (MBIA) 3,101,186
1,300,000 California Educational Facility Auth.
Rev., Series 1989 I, (Stanford
University), 7.125%, 1/1/19 1,377,363
1,500,000 California Educational Facility Auth.
Rev., Series 1997 B, (Pooled
College and University Projects),
6.30%, 4/1/21 1,556,130
2,775,000 California Health Facilities
Financing Auth. Rev., (Episcopal
Homes), 7.80%, 7/1/15 2,914,832
6,420,000 California Health Facilities
Financing Auth. Rev., (Kaiser
Permanente), 7.00%, 10/1/18 6,858,550
1,500,000 California Health Facilities
Financing Auth. Rev., Series
1988 A, (H.M. Newhall Memorial
Hospital), 8.00%, 10/1/18 1,592,625
3,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
5.22%, 10/1/09(1) 1,609,080
1,730,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Gould Medical), 7.30%,
4/1/20(2) 1,938,188
4,915,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Kaiser Permanente),
6.50%, 12/1/20 5,270,944
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1991 B, (Adventist Health),
6.75%, 3/1/14 (MBIA) 2,714,825
2,000,000 California Health Facilities
Financing Auth. Rev., Series
1992 A, 6.75%, 3/1/20 2,160,700
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 1,290,000 California Health Facilities
Financing Auth. Rev., Series
1992 C, (AIDS Healthcare
Foundation), 6.25%, 9/1/17 $ 1,365,426
5,165,000 California Health Facilities
Financing Auth. Rev., Series
1993 C, (St. Francis Memorial
Hospital), 5.875%, 11/1/23 5,424,180
1,400,000 California Housing Finance
Agency Rev., (Multi-Unit Rental
Housing), 6.75%, 2/1/09 1,410,500
1,290,000 California Housing Finance Agency
Rev., (Multi-Unit Rental Housing),
6.875%, 2/1/22 1,316,213
5,125,000 California Housing Finance Agency
Rev., Series 1994 G, (Home
Mortgage), 7.25%, 8/1/17 5,524,033
1,135,000 California Housing Finance Agency
Rev., Series 1995 C, (Home
Mortgage), 6.80%, 8/1/17 1,206,278
1,500,000 California Pollution Control
Financing Auth. Rev., Series
1987 D, (Southern California
Edison), 6.85%, 12/1/08 1,591,890
2,755,000 California State Department of
Water Resource Center Rev.,
Series 1993 M, 5.00%, 12/1/19 2,589,287
2,200,000 California State Department of
Water Resource Center Rev.,
Series 1995 O, (Central Valley
Project), 5.00%, 12/1/22 2,079,286
1,000,000 California State Franchise Tax
Board Certificates of Participation,
6.90%, 10/1/99, Prerefunded at
102% of Par(2) 1,075,820
3,000,000 California State GO, 6.125%,
10/1/11 (AMBAC) 3,367,380
1,410,000 California State GO, Series 1984
B, (New Prison Construction),
10.00%, 8/1/03 1,814,247
17,100,000 California State Public Works
Board Lease Rev. Certificates of
Participation, Series 1993 D,
(Department of Corrections State
Prisons), 5.25%, 6/1/15 (FSA) 17,187,039
See Notes to Financial Statements
26 CALIFORNIA LONG-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 1,000,000 California State Public Works
Board Lease Rev. Certificates of
Participation, Series 1994 B,
(Various University of California
Projects), 6.625%, 12/1/04,
Prerefunded at 102% of Par(2) $ 1,148,390
4,000,000 California Statewide Community
Development Auth. Certificates
of Participation, (Sisters of
Charity Leavenworth), 5.00%,
12/1/23 3,713,040
5,695,000 Capistrano School District Special
Tax, (Refunding Issue 1988-1),
6.50%, 9/1/14 (FSA) 6,381,361
3,190,000 Coachella Valley Unified School
District GO, Series 1997 A,
5.00%, 8/1/22 (FSA) 2,999,557
1,000,000 Coachella Valley Water District
#71 Certificates of Participation,
(Flood Control Project), 6.75%,
10/1/12 1,084,340
8,000,000 Compton Redevelopment Agency
Tax Allocation, Series 1995 A,
6.50%, 8/1/13 (FSA) 8,912,720
2,580,000 Concord Joint Power Financing
Auth. Lease Rev. Certificates of
Participation, (Police Facilities
Project), 5.25%, 8/1/13 2,549,737
2,000,000 Culver City Redevelopment
Financing Auth. Tax Allocation
Rev., 5.00%, 11/1/23 (AMBAC) 1,869,860
5,000,000 Irvine Ranch Water District Joint
Powers Agency Local Pool Rev.,
7.80%, 2/15/08 (FGIC) 5,088,500
1,900,000 Irvine Ranch Water District Joint
Powers Agency Rev., 7.875%,
2/15/23 1,932,623
1,815,000 Kern County High School District
GO, 7.15%, 8/1/14 (MBIA)(2) 2,208,837
3,555,000 Long Beach Water Rev., 6.125%,
5/1/19 3,779,356
1,305,000 Los Altos Association of Bay Area
Governments Certificates of
Participation, 5.90%, 5/1/27 1,343,223
3,475,000 Los Angeles Community
Redevelopment Agency Housing
Rev., Series 1994 A, 6.45%,
7/1/17 (AMBAC) 3,648,750
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 2,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1996 A, 6.00%,
7/1/23 (MBIA) $ 2,097,220
3,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1987 A, 7.40%, 7/1/15 3,220,200
4,050,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1989 A, (Capital
Appreciation), 4.63%, 7/1/02
(MBIA)(1) 3,101,531
1,000,000 Los Angeles Municipal
Improvement Corp. Lease Rev.,
Series 1990 A, (Central Library
Project), 7.10%, 6/1/99,
Prerefunded at 102% of Par(2) 1,071,240
1,000,000 Los Angeles Transportation Sales
Tax Rev., 6.50%, 7/1/13 (MBIA) 1,085,470
7,000,000 Los Angeles Unified School District
GO, Series 1997 A, 5.00%,
7/1/21 (FGIC) 6,599,740
2,420,000 Los Angeles Waste Water System
Rev., Series 1991 C, 6.90%,
6/1/09 2,580,228
3,050,000 Los Angeles Waste Water System
Rev., Series 1991 C, 7.10%,
6/1/18 3,250,324
1,865,000 Mendocino Coast District Health
Care Facility Rev., 5.875%,
2/1/20 1,903,512
8,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 5.75%, 8/10/18 8,276,880
5,150,000 Mid-Peninsula Regional Open
Space District GO, 7.00%,
9/1/14 5,747,143
5,830,000 Modesto, Stockton, Redding Public
Power Agency Rev., Series 1989
D, (San Juan Project), 6.75%,
7/1/20 (MBIA) 6,885,288
1,000,000 Moulton-Niguel Water District GO,
5.00%, 9/1/19 (MBIA) 940,280
4,835,000 Northern California Power Agency
Public Power Rev., Series 1985
E, (Hydroelectric Project #1),
7.15%, 7/1/24 5,040,197
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA LONG-TERM TAX-FREE 27
SCHEDULE OF INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 3,000,000 Oakland Redevelopment Agency
Tax Allocation, (Central District
Redevelopment Tax), 5.50%,
2/1/14 (AMBAC) $ 3,120,360
3,000,000 Orange County Water District
Certificates of Participation,
6.50%, 8/15/99, Prerefunded at
102% of Par (AMBAC)(2) 3,199,980
1,855,000 Pacifica Financing Auth. Sewer Rev.,
6.20%, 8/1/26 1,871,973
1,000,000 Pasadena Certificates of
Participation, (Old Pasadena
Parking Facility Project), 6.25%,
1/1/18 1,101,440
4,475,000 Pittsburg Redevelopment Agency
Tax Allocation, 6.20%, 8/1/19 4,615,605
5,000,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development Project),
6.25%, 8/1/26 5,180,100
2,700,000 Pittsburg Redevelopment Agency
Tax Allocation, Series 1993 B,
(Los Medanos Project), 5.80%,
8/1/34 (FSA) 2,800,818
2,100,000 Pomona Public Financing Auth. Rev.,
Series 1992 A, (Water Treatment
Project), 6.10%, 7/1/17
(AMBAC) 2,207,436
4,680,000 Riverside County Asset Leasing
Corporation Rev. Certificates of
Participation, Series 1997 B,
(Riverside County Hospital
Project), 5.00%, 6/1/19 (MBIA) 4,407,437
7,500,000 Sacramento Municipal Utility District
Electric Rev., Series 1997 K,
5.25%, 7/1/24 (AMBAC) 7,414,275
1,000,000 Saddleback Valley Unified School
District Public Financing Auth.
Special Tax Rev., Series 1997 A,
6.00%, 9/1/16 (FSA) 1,092,670
6,000,000 San Bernardino Joint Powers
Financing Auth. Lease Rev.
Certificates of Participation, Series
1995 A, 5.50%, 12/1/20 5,921,940
3,400,000 San Diego County Certificates of
Participation, 5.625%, 9/1/12
(AMBAC) 3,552,796
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 3,500,000 San Diego County Regional
Transportation Sales Tax Rev.,
Series 1991 A, 4.70%,
4/1/04(1)(2) $ 2,577,925
1,000,000 San Francisco City and County
Redevelopment Hotel Tax Rev.,
6.75%, 7/1/15 (FSA) 1,122,550
5,500,000 San Jose Financing Auth. Rev.
Certificates of Participation,
Series 1993 B, (Community
Facilities Project), 5.625%,
11/15/18 5,526,950
3,000,000 San Jose Financing Auth. Rev.
Certificates of Participation,
Series 1993 C, (Convention
Center Project), 6.375%,
9/1/13 3,179,310
5,000,000 San Jose Financing Auth. Rev.
Certificates of Participation,
Series 1993 D, (Central Service
Yard), 5.25%, 10/15/23 4,747,850
9,525,000 San Jose Redevelopment Agency
Tax Allocation, Series 1993 D,
(Merged Area Redevelopment
Project), 5.75%, 8/1/24 9,651,302
3,475,000 San Mateo County Joint Powers
Finance Auth. Lease Rev.
Certificates of Participation,
(Capital Projects Program),
6.50%, 7/1/16 (MBIA) 3,999,482
4,000,000 San Mateo County Joint Powers
Finance Auth. Lease Rev.
Certificates of Participation,
(Capital Projects Program),
6.00%, 7/1/19 (MBIA) 4,343,080
3,500,000 Santa Ana Finance Auth. Lease
Rev. Certificates of Participation,
6.25%, 7/1/15 (MBIA) 3,930,150
3,000,000 Santa Monica Community College
District Certificates of
Participation, Series 1997 A,
5.90%, 2/1/27 3,100,620
1,425,000 Southern California Public Power
Auth. Rev., (Transportation Auth.),
7.00%, 7/1/09 (FGIC) 1,532,459
7,315,000 Southern California Public Power
Auth. Rev., 6.75%,
7/1/12 (FSA) 8,631,554
See Notes to Financial Statements
28 CALIFORNIA LONG-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -----------------------------------------------------------------------------------
$ 3,260,000 Southern California Public Power
Auth. Rev., 6.00%, 7/1/18 $ 3,316,561
3,730,000 Southern California Public Power
Auth. Rev., (Multipurpose
Projects), 6.75%, 7/1/13 (FSA) 4,404,123
3,000,000 Southern California Public Power
Auth. Rev., Series 1989 A,
4.75%, 7/1/04 (AMBAC)(1) 2,176,170
2,000,000 Southern Orange County Finance
Auth. Special Tax Rev., Series
1994 A, 7.00%, 9/1/11 (MBIA) 2,415,200
2,000,000 Taft California Public Financing
Auth. Lease Rev Certificates of
Participation, Series 1997 A,
(Community Correctional Facility),
6.05%, 1/1/17 2,049,300
3,020,000 Watsonville California Insured
Hospital Rev., Series 1996 A,
(Watsonville Community Hospital),
6.20%, 7/1/12 3,262,597
-------------------
TOTAL MUNICIPAL SECURITIES--98.2% 295,711,232
-------------------
(Cost $279,177,988)
MUNICIPAL DERIVATIVES-1.2%
4,000,000 Northern California Transmission
Rev., Inverse Floater, 6.61%,
4/29/24 (MBIA)(3) 3,800,000
-------------------
(Cost $3,963,920)
SHORT-TERM MUNICIPAL SECURITIES--0.6%
1,700,000 Orange County Sanitation Districts
Certificates of Participation,
Series 1991 C, VRDN, 3.55%,
9/2/97 (FGIC) 1,700,000
-------------------
(Cost $1,700,000)
TOTAL INVESTMENT SECURITIES--100.0% $301,211,232
===================
(Cost $284,841,908)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Indemnity Corporation
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Assurance
GO = General Obligation
MBIA = MBIA Insurance Corp.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is
effective August 31, 1997.
(1) These securities are zero-coupon municipal bonds. The yield to maturity at
August 31, 1997 is indicated instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity.
(2) Escrowed in U.S. Government Securities.
(3) Inverse floaters have interest rates which move inversely to market interest
rates. Inverse floaters typically have durations which are longer than
long-term bonds, which may cause their value to be more volatile than
long-term bonds when interest rates change.
</TABLE>
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA LONG-TERM TAX-FREE 29
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
AUGUST 31, 1997
LIMITED-TERM INTERMEDIATE- TERM LONG-TERM
TAX-FREE TAX-FREE TAX-FREE
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of
$126,857,136, $421,746,291, and
$284,841,908, respectively) (Note 3) .......... $128,392,765 $439,797,592 $301,211,232
Cash ............................................ 97,855 120,733 1,005,811
Interest receivable ............................. 1,676,122 6,135,388 3,733,919
------------ ------------ ------------
130,166,742 446,053,713 305,950,962
------------ ------------ ------------
LIABILITIES
Disbursements in excess of
demand deposit cash ........................... 21,889 213,893 423,034
Payable for investments purchased ............... 3,221,427 9,405,432 --
Payable for capital shares redeemed ............. 188,658 670,221 633,765
Accrued management fees (Note 2) ................ 55,290 191,259 133,191
Dividends payable ............................... 48,297 129,119 89,363
Accrued expenses and other liabilities .......... -- 3,950 1,041
------------ ------------ ------------
3,535,561 10,613,874 1,280,394
------------ ------------ ------------
Net Assets Applicable to
Outstanding Shares ............................ $126,631,181 $435,439,839 $304,670,568
============ ============ ============
CAPITAL SHARES
Outstanding (Unlimited number
of shares authorized) ......................... 12,292,606 38,621,249 26,542,552
============ ============ ============
Net Asset Value Per Share ....................... $10.30 $11.27 $11.48
============ ============ ============
NET ASSETS CONSIST OF:
Capital paid in ................................. $125,929,209 $413,049,753 $284,246,593
Accumulated undistributed net realized
gain (loss) on investments .................... (833,657) 4,338,785 4,054,651
Net unrealized appreciation on
investments (Note 3) .......................... 1,535,629 18,051,301 16,369,324
------------ ------------ ------------
$126,631,181 $435,439,839 $304,670,568
============ ============ ============
See Notes to Financial Statements
</TABLE>
30 STATEMENTS OF ASSETS AND LIABILITIES AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST 31, 1997
LIMITED-TERM INTERMEDIATE- TERM LONG-TERM
TAX-FREE TAX-FREE TAX-FREE
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ........................................ $5,234,789 $22,980,749 $17,522,358
------------ ------------ ------------
Expenses (Note 2):
Investment advisory fees. ....................... 346,562 1,340,435 920,960
Administrative fees ............................. 94,859 373,977 256,250
Transfer agency fees ............................ 39,157 164,081 108,533
Printing and postage ............................ 18,395 77,575 51,149
Auditing and legal fees ......................... 10,778 31,735 23,237
Custodian fees .................................. 14,790 28,078 22,540
Trustees' fees and expenses ..................... 6,681 10,364 8,847
Telephone expenses .............................. 2,153 7,020 5,156
Registration and filing fees .................... 2,552 2,023 1,797
Other operating expenses ........................ 15,931 41,221 25,825
------------ ------------ ------------
Net expenses .................................. 551,858 2,076,509 1,424,294
------------ ------------ ------------
Net investment income ........................... 4,682,931 20,904,240 16,098,064
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 3)
Net realized gain on investments ................ 317,683 4,489,257 4,196,683
Change in net unrealized appreciation
on investments ................................ 857,109 5,607,704 7,428,889
------------ ------------ ------------
Net realized and unrealized
gain on investments ............................. 1,174,792 10,096,961 11,625,572
------------ ------------ ------------
Net Increase in Net Assets
Resulting from Operations ....................... $5,857,723 $31,001,201 $27,723,636
============ ============ ============
See Notes to Financial Statements
</TABLE>
ANNUAL REPORT STATEMENTS OF OPERATIONS 31
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED AUGUST 31, 1997 AND AUGUST 31, 1996
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-FREE TAX-FREE TAX-FREE
Increase (Decrease) in Net Assets 1997 1996 1997 1996 1997 1996
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ..............$4,682,931 $4,255,556 $20,904,240 $20,942,789 $16,098,064 $15,704,747
Net realized gain on investments ... 317,683 268,474 4,489,257 3,000,776 4,196,683 780,713
Change in net unrealized
appreciation (depreciation)
on investments ................... 857,109 (634,911) 5,607,704 (3,916,167) 7,428,889 2,019,723
------------ ------------ ------------ ------------ ------------ -----------
Net increase in net assets
resulting from operations ........ 5,857,723 3,889,119 31,001,201 20,027,398 27,723,636 18,505,183
------------ ------------ ------------ ------------ ------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ........(4,696,464) (4,248,485) (20,910,599) (20,936,393) (16,104,213) (15,699,168)
From net realized gains
from investment transactions ..... - - (1,183,599) - (424,536) -
------------ ------------ ------------ ------------ ------------ -----------
Decrease in net assets
from distributions ..............(4,696,464) (4,248,485) (22,094,198) (20,936,393) (16,528,749) (15,699,168)
------------ ------------ ------------ ------------ ------------ -----------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ......... 65,320,633 34,544,488 156,377,551 89,549,209 114,942,666 87,219,622
Proceeds from reinvestment
of distributions ................ 3,333,775 3,349,483 16,509,842 15,976,338 11,252,698 10,632,390
Payments for shares redeemed .....(46,891,310) (38,551,043) (177,304,237) (91,217,016) (120,742,069) (88,720,686)
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in
net assets from
capital share transactions ..... 21,763,098 (657,072) (4,416,844) 14,308,531 5,453,295 9,131,326
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease)
in net assets .................. 22,924,357 (1,016,438) 4,490,159 13,399,536 16,648,182 11,937,341
NET ASSETS
Beginning of year ................ 103,706,824 104,723,262 430,949,680 417,550,144 288,022,386 276,085,045
------------ ------------ ------------ ------------ ------------ -----------
End of year ......................$126,631,181 $103,706,824 $435,439,839 $430,949,680 $304,670,568 $288,022,38
============ ============ ============ ============ ============ ===========
TRANSACTIONS IN SHARES OF THE FUNDS
Sold ............................. 6,370,918 3,379,409 13,989,592 8,045,676 10,168,195 7,807,077
Issued in reinvestment
of distributions ............... 325,340 327,171 1,479,691 1,435,175 995,435 951,174
Redeemed ......................... (4,577,218) (3,766,840) (15,865,262) (8,207,114) (10,670,666) (7,947,182)
------------ ------------ ------------ ------------ ------------ -----------
Net increase (decrease) .......... 2,119,040 (60,260) (395,979) 1,273,737 492,964 811,069
============ ============ ============ ============ ============ ===========
</TABLE>
See Notes to Financial Statements
32 STATEMENTS OF CHANGES IN NET ASSETS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century California Tax-Free and Municipal Funds (the
Trust) is registered under the Investment Company Act of 1940 as an open-end
management investment company. American Century - Benham California Limited-Term
Tax-Free Fund (Limited-Term), American Century - Benham California
Intermediate-Term Tax-Free Fund (Intermediate-Term) , and American Century -
Benham California Long-Term Tax-Free Fund (Long-Term) (the "Funds") are three of
the seven funds issued by the Trust. Each Fund is diversified under the 1940
Act. The Funds seek to obtain as high a level of interest income exempt from
federal and California income taxes as is consistent with prudent investment
management and conservation of shareholders' capital. The Funds invest primarily
in municipal obligations with maturities based on each Fund's investment
objective. The Funds concentrate their investments in a single state and
therefore may have more exposure to credit risk related to the state of
California than a fund with a broader geographical diversification. The
following significant accounting policies, related to the Funds, are in
accordance with accounting policies generally accepted in the investment company
industry.
SECURITY VALUATIONS--Securities are valued through valuations obtained from
a commercial pricing service or at the mean of the most recent bid and asked
prices. When valuations are not readily available, securities are valued at fair
value as determined in accordance with procedures adopted by the Board of
Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Interest income is recorded on the accrual basis and
includes amortization of premiums and discounts. Premium and original issue
discount are amortized daily using the effective interest rate method. Market
discount is recognized as income upon the sale or maturity of the security.
INCOME TAX STATUS--It is the Funds' policy to distribute all net investment
income and net realized capital gains to shareholders and to otherwise qualify
as a regulated investment company under the provisions of the Internal Revenue
Code. Accordingly, no provision has been made for federal or state taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income for
the Funds are declared daily and distributed monthly. Distributions from net
realized gains for the Funds are declared and paid annually.
At August 31, 1997, accumulated net realized capital loss carryovers of
$833,657 for Limited-Term (expiring 2003 through 2004) may be used to offset
future taxable gains. Distributions from net investment income for the Funds for
the year ended August 31, 1997, are exempt from federal and California state
taxes.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are due to differences in the
recognition of income and expense items for financial statement and tax
purposes.
FUTURES CONTRACTS --Each Fund may buy and sell interest rate futures
contracts relating to debt securities. Each Fund may use futures transactions to
maintain cash reserves while remaining fully invested, to facilitate trading, to
reduce transaction costs, or to pursue higher investment returns when a futures
contract is priced more attractively than its underlying security or index. One
of the risks of entering into futures contracts may include the possibility that
the changes in value of the contract may not correlate with the changes in value
of the underlying securities. Upon entering into a futures contract, the Funds
are required to deposit either cash or securities in an amount equal to a
certain percentage of the contract value (initial margin). Subsequent payments
(variation margin) are made or received daily, in cash, by the Funds. The
variation margin is equal to the daily change in the contract value and is
recorded as an unrealized gain or loss. The Fund recognizes a realized gain or
loss when the contract is closed or expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively. There were no open futures
contracts at August 31, 1997.
SUPPLEMENTARY INFORMATION--Certain officers and trustees of the Trust are
also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Trust's investment manager,
American Century Investment Management, Inc. (ACIM), the Trust's distributor,
American Century Investment Services, Inc., and the Trust's transfer agent,
American Century Services Corporation (ACSC).
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 33
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
USE OF ESTIMATES-- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the period. Actual results could differ from
these estimates.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The shareholders of the Fund approved a new management agreement with ACIM
on July 30, 1997, effective August 1, 1997, which replaced the previously
existing contracts between the Funds and Benham Management Corporation and ACSC
for advisory, administrative and transfer agency services. Under the agreement,
ACIM provides all services required by the Funds in exchange for one "unified"
management fee. The annual rate at which this fee is assessed is determined
monthly in a two-step process: First, a fee rate schedule is applied to the
assets of all of the funds in the Fund's investment category which are managed
by ACIM (the "Investment Category Fee"). The overall investment objective of
each Fund determines its Investment Category. The three investment categories
are: the Money Market Fund Category, the Bond Fund Category and the Equity Fund
Category. Limited-Term, Intermediate-Term and Long-Term are included in the Bond
Fund Category. Second, a separate fee rate schedule is applied to the assets of
all of the funds managed by ACIM (the "Complex Fee"). The Investment Category
Fee and the Complex Fee are then added to determine the unified management fee
rate. The management fee is paid monthly by each Fund based on each Fund's
aggregate average daily net assets during the previous month multiplied by the
monthly management fee rate. The annualized Investment Category Fee schedule is
as follows:
0.2800% of the first $1 billion
0.2280% of the next $1 billion
0.1980% of the next $3 billion
0.1780% of the next $5 billion
0.1650% of the next $15 billion
0.1630% of the next $25 billion
0.1625% of the average daily net assets over $50 billion
The annualized Complex Fee schedule (for all Funds) is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
The following total expenses, incurred under the new management agreement, are
included in Investment Advisory Fees in the Statements of Operations:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
- --------------------------------------------------------------------------------
$ 54,732 $ 189,962 $ 132,578
Total expenses and the ratio of operating expenses to average net assets,
under the previous agreement, for the eleven months ended July 31, 1997 were as
follows:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
- --------------------------------------------------------------------------------
Total expenses ..........$ 497,126 $1,886,547 $1,291,716
Ratio of operating
expenses to
average net assets .... 0.49% 0.47% 0.47%
34 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the year ended
August 31, 1997, were as follows:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
PURCHASES
Municipal Debt Obligations ... $80,301,623 $180,927,771 $152,540,553
PROCEEDS FROM SALES
Municipal Debt Obligations ... $51,498,932 $190,774,790 $149,130,117
On August 31, 1997, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal income tax purposes was as follows:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
Appreciation ......... $ 1,539,571 $ 18,189,888 $ 16,834,201
Depreciation ......... (3,942) (138,587) (464,877)
----------- ------------- -------------
Net .................. $ 1,535,629 $ 18,051,301 $ 16,369,324
============ ============= =============
The aggregate cost of investments for federal income tax purposes was the same
as the cost for financial reporting purposes.
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 35
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA LIMITED-TERM TAX-FREE
For a Share Outstanding Throughout the Years Ended August 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year ...................... $10.19 $10.23 $10.12 $10.34 $10.12
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income ................ 0.43 0.43 0.41 0.38 0.38
Net Realized and Unrealized
Gain (Loss)
on Investment Transactions ........... 0.11 (0.04) 0.11 (0.18) 0.22
-------- -------- -------- -------- --------
Total From
Investment Operations ................ 0.54 0.39 0.52 0.20 0.60
-------- -------- -------- -------- --------
Distributions
From Net Investment Income ........... (0.43) (0.43) (0.41) (0.38) (0.38)
In Excess of Net Realized Gains ...... -- -- -- (0.04) --
-------- -------- -------- -------- --------
Total Distributions .................. (0.43) (0.43) (0.41) (0.42) (0.38)
-------- -------- -------- -------- --------
Net Asset Value, End of Year ........... $10.30 $10.19 $10.23 $10.12 $10.34
======== ======== ======== ======== ========
Total Return(1) ...................... 5.42% 3.87% 5.33% 1.90% 6.15%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 0.49% 0.49% 0.51% 0.51% 0.36%
Ratio of Net Investment Income
to Average Net Assets .................. 4.20% 4.20% 4.10% 3.68% 3.76%
Portfolio Turnover Rate ................ 47% 44% 50% 66% 54%
Net Assets, End
of Year (in thousands) .................$126,631 $103,707 $104,723 $120,627 $114,019
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
36 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
For a Share Outstanding Throughout the Years Ended August 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year ...................... $11.05 $11.06 $10.86 $11.36 $10.85
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ................ 0.54 0.54 0.54 0.54 0.56
Net Realized and Unrealized
Gain (Loss)
on Investment Transactions ........... 0.25 (0.01) 0.20 (0.41) 0.53
-------- -------- -------- -------- --------
Total From
Investment Operations ................ 0.79 0.53 0.74 0.13 1.09
-------- -------- -------- -------- --------
Distributions
From Net Investment Income ........... (0.54) (0.54) (0.54) (0.54) (0.56)
From Net Realized Gains
on Investment Transactions ........... (0.03) -- -- (0.08) (0.02)
In Excess of Net Realized Gains ...... -- -- -- (0.01) --
-------- -------- -------- -------- --------
Total Distributions .................. (0.57) (0.54) (0.54) (0.63) (0.58)
-------- -------- -------- -------- --------
Net Asset Value, End of Year ........... $11.27 $11.05 $11.06 $10.86 $11.36
======== ======== ======== ======== ========
Total Return(1) ...................... 7.39% 4.79% 7.09% 1.11% 10.42%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 0.48% 0.48% 0.48% 0.48% 0.50%
Ratio of Net Investment Income
to Average Net Assets .................. 4.81% 4.87% 5.02% 4.82% 5.05%
Portfolio Turnover Rate ................ 42% 36% 25% 44% 27%
Net Assets, End
of Year (in thousands) ................. $435,440 $430,950 $417,550 $448,293 $444,460
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
ANNUAL REPORT FINANCIAL HIGHLIGHTS 37
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA LONG-TERM TAX-FREE
For a Share Outstanding Throughout the Years Ended August 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year ............................. $11.06 $10.94 $10.88 $12.02 $11.44
-------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ....................... 0.61 0.61 0.62 0.63 0.66
Net Realized and Unrealized Gain (Loss)
on Investment Transactions .................. 0.44 0.12 0.12 (0.71) 0.85
-------- -------- -------- -------- --------
Total From
Investment Operations ....................... 1.05 0.73 0.74 (0.08) 1.51
-------- -------- -------- -------- --------
Distributions
From Net
Investment Income ........................... (0.61) (0.61) (0.62) (0.63) (0.66)
From Net Realized Gains
on Investment Transactions .................. (0.02) - (0.06) (0.43) (0.27)
-------- -------- -------- -------- --------
Total Distributions ......................... (0.63) (0.61) (0.68) (1.06) (0.93)
-------- -------- -------- -------- --------
Net Asset Value,
End of Year ................................... $11.48 $11.06 $10.94 $10.88 $12.02
======== ======== ======== ======== ========
Total Return(1) ............................. 9.70% 6.77% 7.21% (0.78)% 14.02%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......................... 0.48% 0.48% 0.49% 0.48% 0.49%
Ratio of Net Investment Income
to Average Net Assets ......................... 5.40% 5.48% 5.84% 5.51% 5.76%
Portfolio Turnover Rate ....................... 50% 42% 60% 62% 55%
Net Assets, End
of Year (in thousands) ........................ $304,671 $288,022 $276,085 $277,477 $338,075
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
38 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
American Century California Tax-Free and Municipal Funds
We have audited the accompanying statements of assets and liabilities,
including the schedules of investment securities, of American Century - Benham
California Limited-Term Tax-Free Fund, American Century - Benham California
Intermediate-Term Tax-Free Fund, and American Century - Benham California
Long-Term Tax-Free Fund, (three of the series issued by American Century
California Tax-Free and Municipal Funds) (the Funds) as of August 31, 1997, and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Funds as of August 31, 1997, the results of their operations,
the changes in their net assets and the financial highlights for the periods
indicated above in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
October 3, 1997
ANNUAL REPORT INDEPENDENT AUDITORS' REPORT 39
PROXY VOTING RESULTS
An annual meeting of shareholders was held on July 30, 1997, to vote on the
following proposals. All of the proposals received the required majority of
votes and were adopted.
A summary of voting results is listed below each proposal.
PROPOSAL 1:
To vote on the selection by the Board of Directors of Coopers & Lybrand LLP
as independent auditors for the Companies.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 6,739,921 22,898,889 16,822,371
Withheld: 136,243 1,383,116 373,883
Abstain: 134,215 366,325 208,845
PROPOSAL 2:
To vote on the approval of a Management Agreement with American Century
Investment Management, Inc.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,348,658 21,214,226 15,555,467
Against: 830,500 2,529,690 1,346,688
Abstain: 531,404 451,405 286,789
Broker
Non-Vote: 299,817 453,009 216,155
PROPOSAL 3:
To vote on the adoption of standardized investment limitations for the
following items:
* Amend the fundamental investment limitation concerning the issuance of
senior securities.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,202,859 21,848,624 15,460,334
Against: 1,081,997 1,746,559 1,389,065
Abstain: 425,706 600,138 339,545
Broker
Non-Vote: 299,817 453,009 216,155
* Amend the fundamental investment limitation concerning borrowing.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,198,091 21,782,196 15,402,767
Against: 1,091,010 1,806,357 1,446,448
Abstain: 421,461 606,768 339,729
Broker
Non-Vote: 299,817 453,009 216,155
* Amend the fundamental investment limitation concerning lending.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,189,441 21,819,537 15,402,010
Against: 1,099,804 1,777,562 1,447,389
Abstain: 421,317 598,222 339,545
Broker
Non-Vote: 299,817 453,009 216,155
40 PROXY VOTING RESULTS AMERICAN CENTURY INVESTMENTS
PROXY VOTING RESULTS
* Amend the fundamental investment limitation concerning concentration of
investments in a particular industry.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,208,404 21,662,972 15,331,463
Against: 1,083,620 1,849,168 1,469,168
Abstain: 418,538 683,181 388,313
Broker
Non-Vote: 299,817 453,009 216,155
* Eliminate the fundamental investment limitation regarding investments in
illiquid securities.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,182,396 21,689,853 15,326,856
Against: 1,092,911 1,816,013 1,460,457
Abstain: 435,255 689,455 401,631
Broker
Non-Vote: 299,817 453,009 216,155
* Eliminate the fundamental limitation concerning investment in other
investment companies.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,198,469 21,725,502 15,326,525
Against: 1,085,710 1,774,542 1,461,233
Abstain: 426,383 695,277 401,186
Broker
Non-Vote: 299,817 453,009 216,155
* Amend the fundamental investment limitation concerning investments in real
estate.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,225,221 21,747,400 15,328,012
Against: 1,062,167 1,797,196 1,465,575
Abstain: 423,174 650,725 395,357
Broker
Non-Vote: 299,817 453,009 216,155
* Amend the fundamental investment limitation concerning underwriting.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,215,600 21,632,818 15,355,080
Against: 1,065,229 1,914,462 1,442,112
Abstain: 429,733 648,041 391,752
Broker
Non-Vote: 299,817 453,009 216,155
* Amend the fundamental investment limitation concerning commodities.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,186,343 21,702,411 15,385,665
Against: 1,098,770 1,899,876 1,452,003
Abstain: 425,449 593,034 351,276
Broker
Non-Vote: 299,817 453,009 216,155
ANNUAL REPORT PROXY VOTING RESULTS 41
PROXY VOTING RESULTS
* Eliminate the fundamental limitation concerning short sales.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,173,411 21,602,268 15,360,753
Against: 1,108,701 1,975,009 1,436,329
Abstain: 428,450 618,044 391,862
Broker
Non-Vote: 299,817 453,009 216,155
* Eliminate the fundamental investment limitation concerning margin purchases
of securities.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,205,835 21,741,100 15,387,545
Against: 1,087,756 1,824,824 1,411,586
Abstain: 416,971 629,397 389,813
Broker
Non-Vote: 299,817 453,009 216,155
* Eliminate the fundamental investment limitation concerning warrants.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,220,618 21,597,321 15,364,669
Against: 1,069,954 1,924,280 1,432,228
Abstain: 419,990 673,720 392,047
Broker
Non-Vote: 299,817 453,009 216,155
* Eliminate the fundamental investment limitation concerning investments in
oil, gas and mineral exploration development programs.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,183,332 21,698,605 15,419,431
Against: 1,097,520 1,917,090 1,426,700
Abstain: 429,710 579,626 342,813
Broker
Non-Vote: 299,817 453,009 216,155
* Eliminate the fundamental investment limitations concerning investments in
securities owned by officers and directors.
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
For: 5,186,445 21,592,069 15,369,280
Against: 1,090,937 1,978,108 1,418,948
Abstain: 433,180 625,144 400,716
Broker
Non-Vote: 299,817 453,009 216,155
42 PROXY VOTING RESULTS AMERICAN CENTURY INVESTMENTS
NOTES
ANNUAL REPORT NOTES 43
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 38 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
CALIFORNIA LIMITED-TERM TAX-FREE is a variable-price bond fund that seeks to
provide interest income exempt from both federal and California state income
taxes. The fund invests primarily in California municipal securities with
maturities of 1-5 years and maintains a weighted average maturity of five years
or less.
CALIFORNIA INTERMEDIATE-TERM TAX-FREE is a variable-price bond fund that
seeks to provide interest income exempt from both federal and California state
income taxes. The fund invests primarily in California municipal securities with
maturities of four years or more and maintains a weighted average maturity of
5-10 years.
CALIFORNIA LONG-TERM TAX-FREE is a variable-price bond fund that seeks to
provide interest income exempt from federal and California state income taxes.
The fund invests primarily in California municipal securities and maintains a
weighted average maturity of 10 years or more.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The LEHMAN BROTHERS 3-YEAR MUNICIPAL BOND INDEX is composed of more than
4,000 municipal bonds with maturities of 2 to 4 years. The average credit rating
of the securities in the index is AA1/AA2. The average maturity of the index is
3 years.
The LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of more
than 5,000 municipal bonds with maturities of 4 to 6 years. The average credit
rating of the securities in the index is AA1/AA2. The average maturity of the
index is approximately 5 years.
THE LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of more than
2,800 municipal bonds with maturities greater than 22 years. The average credit
rating of the securities in the index is AA2/AA3. The average maturity of the
index is approximately 27 years.
LIPPER RANKINGS
LIPPER ANALYTICAL SERVICES, INC. is an independent mutual fund ranking
service that groups funds according to their investment objectives. Rankings are
based on average annual returns for each fund in a given category for the
periods indicated. Rankings are not included for periods less than one year.
The Lipper categories for the California Tax-Free Bond Funds are:
CALIFORNIA SHORT-INTERMEDIATE MUNICIPAL DEBT FUNDS (Limited-Term Tax-Free)
- --funds that invest at least 65% of assets in municipal debt issues that are
exempt from taxation in California with dollar-weighted average maturities of 1
to 5 years.
CALIFORNIA INTERMEDIATE MUNICIPAL DEBT FUNDS (Intermediate-Term Tax-Free)
- --funds that invest at least 65% of assets in municipal debt issues that are
exempt from taxation in California with dollar-weighted average maturities of 5
to 10 years.
CALIFORNIA MUNICIPAL DEBT FUNDS (Long-Term Tax-Free)--funds that invest at
least 65% of assets in municipal debt issues that are exempt from taxation in
California.
INVESTMENT TEAM LEADERS
Portfolio Managers Dave MacEwen
Colleen Denzler
Joel Silva
Credit Research Director Steve Permut
44 BACKGROUND INFORMATION AMERICAN CENTURY INVESTMENTS
GLOSSARY
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 36-38.
YIELDS
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
* TAX-EQUIVALENT YIELDS show the taxable yields that investors in a combined
California and federal income tax bracket would have to earn before taxes to
equal the fund's tax-free yield.
BOND PORTFOLIO STRUCTURES
* BARBELL STRUCTURE--a structure that overweights a portfolio in short- and
long-term securities and underweights intermediate-term securities. This
structure tends to perform best when short-term rates are rising faster than
long-term rates, or long-term rates are falling faster than short-term rates.
* LADDER STRUCTURE--a balanced structure that staggers bond maturities so they
occur at regular intervals. This structure tends to perform best when interest
rates are relatively stable.
INVESTMENT TERMS
* BASIS POINT--one one-hundredth of a percentage point (or 0.01%).
* YIELD CURVE--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
STATISTICAL TERMINOLOGY
* NUMBER OF SECURITIES--the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM)--a measurement of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
* AVERAGE DURATION--a time-weighted average of the interest and principal
payments of the securities in a portfolio. As the duration of a portfolio
increases, so does the impact of a change in interest rates on the value of the
portfolio.
* EXPENSE RATIO--the operating expenses of the fund, expressed as a percentage
of average net assets. Shareholders pay an annual fee to the investment manager
for investment advisory and management services. The expenses and fees are
deducted from fund income, not from each shareholder account. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF MUNICIPAL SECURITIES
* COPS (CERTIFICATES OF PARTICIPATION)/LEASES--securities issued to finance
public property improvements (such as city halls and police stations) and
equipment purchases. Certificates of participation represent long-term debt
obligations, but leases have a higher risk profile because they require annual
appropriation.
* GO BONDS--general obligation securities backed by the taxing power of the
issuer.
* LAND-SECURED BONDS--securities such as Mello-Roos bonds and 1915 Act bonds
that are issued to finance real estate development projects.
* PREREFUNDED/ETM BONDS--securities refinanced or escrowed to maturity by the
issuer because of their premium coupons (higher-than-market interest rates).
These bonds tend to have higher credit ratings because they are backed by
Treasury securities.
* REVENUE BONDS--securities backed by revenues from sales taxes or from a
specific project, system or facility (such as a hospital, electric utility or
water system).
ANNUAL REPORT GLOSSARY 45
[american century logo]
American
Century(reg.sm)
P.O. BOX 419200 KANSAS CITY
MISSOURI 64141-6200
INVESTOR SERVICES:
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 OR 816-444-3485
FAX: 816-340-7962
INTERNET: www.americancentury.com
AMERICAN CENTURY CALIFORNIA TAX-FREE &
MUNICIPAL FUNDS
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT
CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE
REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
AMERICAN CENTURY INVESTMENT SERVICES, INC.
9710 [recycled logo]
SH-BKT-9885 Recycled
<PAGE>
[BOOK TWO]
ANNUAL
REPORT
[american century logo]
American
Century(reg.sm)
AUGUST 31, 1997
BENHAM
GROUP
California Tax-Free Money Market
California Municipal Money Market
California High-Yield Municipal
California Insured Tax-Free
TABLE OF CONTENTS
Our Message to You .......................................................... 1
Report Highlights ........................................................... 2
Market Perspective .......................................................... 4
Municipal Credit Review ..................................................... 5
California Tax-Free Money Market
Performance & Portfolio Information .............................. 6
Management Q & A ................................................. 7
Schedule of Investments .......................................... 9
Financial Highlights .............................................44
California Municipal Money Market
Performance & Portfolio Information ..............................14
Management Q & A .................................................15
Schedule of Investments ..........................................17
Financial Highlights .............................................45
California High-Yield Municipal
Performance & Portfolio Information ..............................21
Management Q & A .................................................22
Schedule of Investments ..........................................25
Financial Highlights .............................................46
California Insured Tax-Free
Performance & Portfolio Information ..............................30
Management Q & A .................................................31
Schedule of Investments ..........................................34
Financial Highlights .............................................47
Statements of Assets and Liabilities ........................................37
Statements of Operations ....................................................38
Statements of Changes in Net Assets .........................................39
Notes to Financial Statements ...............................................41
Independent Auditors' Report ................................................48
Proxy Voting Results ........................................................49
Background Information ......................................................56
Glossary ....................................................................57
American Century Investments offers you nearly 70 fund choices covering
stocks, bonds, money markets, specialty investments and blended portfolios.
We've organized our funds into three distinct groups to help you identify those
that best fit your needs. These groups, which appear below, are designed to help
simplify your fund decisions.
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- --------------------------------------------------------------------------------
Benham American Century Twentieth Century(reg. tm)
Group(reg. tm) Group Group
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS ASSET ALLOCATION & GROWTH FUNDS
GOVERNMENT BOND FUNDS BALANCED FUNDS INTERNATIONAL FUNDS
DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS
MUNICIPAL BOND FUNDS SPECIALTY FUNDS
- --------------------------------------------------------------------------------
California Tax-Free Money Market
California Municipal Money Market
California High-Yield Municipal
California Insured Tax-Free
We welcome your comments or questions about this report.
See the back cover for ways to contact us by mail, phone or e-mail.
Twentieth Century and American Century are registered marks of American Century
Services Corporation. Benham Group is a registered mark of Benham Management
Corporation.
AMERICAN CENTURY INVESTMENTS
OUR MESSAGE TO YOU
[photo of James E. Stowers III and James M. Benham]
For the twelve months ended August 31, 1997, municipal bonds posted strong
returns as bond yields declined overall. Municipal bonds benefited from the fact
that issuance of new securities remained relatively low. In the following pages,
our municipal investment team provides further details about the municipal bond
market and how your fund was managed during the period.
During the summer, American Century held its largest proxy vote ever, asking
shareholders to approve measures to simplify fund management and eliminate
overlapping funds. Most notably, shareholders approved a unified fee for all
funds. In the past, many of our funds had both a management fee and separate
administrative and transfer agency fees. Under the new fee structure, fund
shareholders pay one annual management fee, based on a percentage of fund
assets.
We also made some important corporate changes. In June, Bill Lyons, American
Century's chief operating officer, became president, assuming full
responsibility for the company's day-to-day operations. With this change, Jim
Stowers, Jr. and Jim Stowers III will be able to spend more time developing and
refining new investment technologies and tools that build on and leverage the
proprietary system they pioneered 25 years ago. One of our goals is to ensure
that we continue to evolve and innovate--building the investment tools today
that will lead us and our investors to success in the next century.
In July, American Century agreed to enter into a business partnership with
J.P. Morgan & Co., Inc., one of the strongest and most respected firms in the
financial services industry. J.P. Morgan will become a significant minority
owner of American Century Companies, Inc. Through this partnership, we see many
opportunities to expand the range of investment choices and services we offer
you. A global financial services firm, J.P. Morgan has been in business for more
than 150 years, serving institutions, governments and individuals with complex
financial needs.
Within the framework of this new relationship, American Century will
continue to operate as an independent company. No changes in your fund's
investment managers, policies or fees are anticipated as a result of this
transaction. American Century's corporate management team remains the same, and
the Stowers family will retain voting control of the company.
In closing, we want to reassure you that American Century remains committed
to serving your investment needs first and foremost. Thank you for your trust
and confidence.
Sincerely,
/s/James E. Stowers III /s/James M. Benham
James E. Stowers III James M. Benham
Chief Executive Officer Vice Chairman
American Century Companies, Inc. American Century Companies, Inc.
ANNUAL REPORT OUR MESSAGE TO YOU 1
REPORT HIGHLIGHTS
MARKET PERSPECTIVE
* Municipal securities produced solid returns during the year ended August 31,
1997, as interest rates declined overall.
* Municipals rallied sharply in the second quarter after it was clear that
economic growth had moderated and inflation remained tame.
* Relatively low municipal issuance and strong demand helped support municipal
bond prices.
* About 70% of all California municipal bonds now come to market insured with
a AAA rating. That dramatically reduced the supply of higher-yielding,
lower-quality paper.
* Credit spreads--or the difference in yield between AAA- and lower-rated
debt--fell to historically low levels because of the increase in insured
securities and stronger California municipal credit quality.
MUNICIPAL CREDIT REVIEW
* California's economy continued to expand during the fiscal year, leading to
further improvements in state and local municipal credit quality.
* Emanating from the Bay Area, growth has been spreading throughout much of
California, particularly among the coastal areas of Southern California.
* We believe the favorable growth scenario currently in place will result in
yet another upgrade of California's credit rating in the near future.
TAX-FREE MONEY MARKET
* The fund outperformed the average California money market fund for the year
ended August 31, 1997.
* Because of changing economic conditions and low supply among longer-term
municipal money market securities, we shortened the fund's average maturity
from 40 days to around 20 days during the first nine months of the fiscal
year.
* We lengthened the fund's average maturity back to 40 days in June and July
as one-year municipal note yields became more attractive.
* Going forward, we plan to extend the fund's average maturity further,
possibly as high as 70 days, in the coming months.
* We also intend to put further limits on the fund's exposure to Japanese
banks, which provide credit backing for many California municipal money
market securities.
MUNICIPAL MONEY MARKET
* The fund outperformed the average California money market fund for the year
ended August 31, 1997.
* Because of changing economic conditions and low supply among longer-term
municipal money market securities, we shortened the fund's average maturity
from 40 days to around 20 days during the first eight months of the fiscal
year.
* We lengthened the fund's average maturity back to 40 days in June and July
as one-year municipal note yields became more attractive.
TAX-FREE
MONEY MARKET
TOTAL RETURNS: AS OF 8/31/97
6 Months 1.60%*
1 Year 3.17%
7-DAY CURRENT YIELD: 2.91%
NET ASSETS: $417.8 million
(AS OF 8/31/97)
INCEPTION DATE: 11/9/83
TICKER SYMBOL: BCTXX
MUNICIPAL
MONEY MARKET
TOTAL RETURNS: AS OF 8/31/97
6 Months 1.62%*
1 Year 3.15%
7-DAY CURRENT YIELD: 2.97%
NET ASSETS: $170.5 million
(AS OF 8/31/97)
INCEPTION DATE: 12/31/90
TICKER SYMBOL: BNCXX
* Not annualized.
Many of the investment terms in this report are defined in the Glossary on page
57.
2 REPORT HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
* More than 75% of the fund's assets were invested in AMT paper (municipal
securities that pay income subject to the federal alternative minimum tax),
higher than the 60% the fund typically holds.
* Going forward, we plan to extend the fund's average maturity further,
possibly as high as 70 days, in the coming months.
* We also intend to put further limits on the fund's exposure to Japanese
banks, which provide credit backing for many California municipal money
market securities.
HIGH-YIELD MUNICIPAL
* The fund continued to perform very well compared with its peers during the
fiscal year ended August 31, 1997.
* One of the reasons the fund performed so well was our thorough approach to
security selection.
* Our municipal credit research team continued to provide a vital link to the
fund's success.
* Going forward, we will likely maintain the fund's conservative duration
positioning and credit barbell structure.
INSURED TAX-FREE
* The fund outperformed the average California insured municipal debt fund for
the year ended August 31, 1997.
* The fund's 4.55% 30-day SEC-yield far exceeded the 3.88% average yield of
its peers. Our lower-than-average expenses and careful security selection
account for the fund's strong performance.
* To enhance the fund's yield and return, we were underweighted in bonds with
coupons between 5.125% and 5.875% and overweighted in higher-coupon premium
bonds and lower-coupon and non-callable discount bonds.
* We used Treasury put options during the period as insurance against a bond
market decline. Using Treasury puts allowed us to hold more longer-term
municipal securities.
* Our outlook for the California municipal market is generally positive,
though we think yields could continue to fluctuate.
* Going forward, we'll continue to manage the fund's duration conservatively.
We'll likely adopt a contrarian strategy best suited to a range-bound
market.
HIGH-YIELD
MUNICIPAL
TOTAL RETURNS: AS OF 8/31/97
6 Months 5.30%*
1 Year 10.61%
30-DAY SEC YIELD: 5.04%
NET ASSETS: $192.8 million
(AS OF 8/31/97)
INCEPTION DATE: 12/30/86
TICKER SYMBOL: BCHYX
INSURED
TAX-FREE
TOTAL RETURNS: AS OF 8/31/97
6 Months 4.15%*
1 Year 9.25%
30-DAY SEC YIELD: 4.55%
NET ASSETS: $189.1 million
(AS OF 8/31/97)
INCEPTION DATE: 12/30/86
TICKER SYMBOL: BCINX
* Not annualized.
ANNUAL REPORT REPORT HIGHLIGHTS 3
MARKET PERSPECTIVE
[line graph - data below]
Narrowing Credit Spreads: Insured vs. BBB Bond Yields
8/31/96 through 8/31/97
Bond Yields
BBB AAA Insured
08/31/00 6.50% 5.87%
09/07/00 6.57% 6.00%
09/14/00 6.50% 5.90%
09/21/00 6.45% 5.85%
09/28/00 6.30% 5.70%
10/05/00 6.20% 5.60%
10/12/00 6.35% 5.80%
10/19/00 6.27% 5.72%
10/26/00 6.37% 5.87%
11/02/00 6.27% 5.70%
11/09/00 6.23% 5.66%
11/16/00 6.18% 5.66%
11/23/00 6.13% 5.61%
11/30/00 6.08% 5.56%
12/07/00 6.05% 5.53%
12/14/00 6.20% 5.72%
12/20/00 6.18% 5.70%
12/28/00 6.16% 5.68%
01/04/01 6.12% 5.64%
01/11/01 6.29% 5.76%
01/18/01 6.33% 5.80%
01/25/01 6.31% 5.80%
02/01/01 6.31% 5.80%
02/08/01 6.26% 5.75%
02/15/01 6.23% 5.72%
02/22/01 6.09% 5.65%
03/01/01 6.14% 5.72%
03/08/01 6.17% 5.75%
03/15/01 6.25% 5.83%
03/22/01 6.29% 5.86%
03/29/01 6.34% 5.90%
04/05/01 6.38% 5.95%
04/12/01 6.38% 5.95%
04/19/01 6.37% 5.88%
04/26/01 6.37% 5.92%
05/03/01 6.27% 5.82%
05/10/01 6.22% 5.77%
05/17/01 6.06% 5.72%
05/24/01 6.05% 5.71%
05/31/01 6.00% 5.66%
06/07/01 5.93% 5.59%
06/14/01 5.88% 5.54%
06/21/01 5.82% 5.48%
06/28/01 5.92% 5.58%
07/05/01 5.85% 5.52%
07/12/01 5.81% 5.48%
07/19/01 5.76% 5.43%
07/26/01 5.60% 5.40%
08/02/01 5.57% 5.37%
08/09/01 5.67% 5.47%
08/16/01 5.73% 5.58%
08/23/01 5.79% 5.64%
08/30/01 5.76% 5.61%
Source: Bear Stearns
Municipal securities produced solid returns during the twelve months ended
August 31, 1997, as interest rates declined. Longer-term securities, which are
most sensitive to changes in interest rates and inflation, performed best. The
Lehman Long-Term Municipal Index returned 11.26% for the period; in contrast,
the Lehman 3-Year Municipal Index returned 5.65%.
Despite lower rates overall, municipal yields fluctuated throughout the
period (see the accompanying graph). Yields rose and prices fell most sharply in
the first quarter of 1997, when it appeared rapid economic growth and wage gains
would spark inflation. To head off potential inflation, the Federal Reserve
raised short-term interest rates in March, the first increase since February
1995.
Municipal securities began to rally in May, when U.S. economic growth slowed
and it was clear that inflation remained tame. Rising worker productivity also
helped bonds because it suggests that wages can rise without translating into
higher prices.
Retail-investor demand for municipal securities was reasonably strong during
the period. Property and casualty insurance companies in particular were big
buyers, especially early in the period.
Municipal debt issuance is up so far in 1997 over 1996 levels, but is still
low by historical standards. Total municipal debt issuance topped $126 billion
through August; in contrast, only $118 billion in municipal debt was issued for
all of 1996. The combination of relatively strong demand and low supply compared
with prior years supported municipal prices throughout the period.
Low supply in recent years has caused a fight for market share among bond
insurers. While insurers used to insure municipal bonds down to an A rating,
they have recently begun to insure even BBB-rated bonds. As a result, about 70%
of all municipal debt issued in California now comes to market insured with a
AAA rating.
This has helped boost credit quality generally by dramatically reducing the
amount of securities issued at the lower investment grades. But it has also
increased competition for a shrinking supply of lower-rated, higher-yielding
paper. The net effect is that the market is paying less and less attention to
credit quality in an attempt to grab yield.
The scarcity of high-yielding securities caused the difference in yield, or
"spread," between securities rated AAA and BBB to fall to historically low
levels (see the accompanying graph). The strong growth of California's economy
and tax revenues has also contributed to this trend as credit quality improves
across the state (see page 5).
4 MARKET PERSPECTIVE AMERICAN CENTURY INVESTMENTS
MUNICIPAL CREDIT REVIEW
[line graph - data below]
California Unemployment
1/31/90 5.0%
2/28/90 5.1%
3/31/90 5.2%
4/30/90 5.4%
5/31/90 5.4%
6/30/90 5.5%
7/31/90 5.6%
8/31/90 5.8%
9/30/90 6.1%
10/31/90 6.4%
11/30/90 6.8%
12/31/90 6.9%
1/31/91 7.0%
2/28/91 7.4%
3/31/91 7.7%
4/30/91 7.8%
5/31/91 7.7%
6/30/91 7.7%
7/31/91 7.8%
8/31/91 7.7%
9/30/91 7.8%
10/31/91 7.9%
11/30/91 8.0%
12/31/91 8.2%
1/31/92 8.4%
2/29/92 9.0%
3/31/92 8.9%
4/30/92 9.0%
5/31/92 9.1%
6/30/92 9.3%
7/31/92 9.4%
8/31/92 9.6%
9/30/92 9.7%
10/31/92 9.7%
11/30/92 9.7%
12/31/92 9.7%
1/31/93 9.7%
2/28/93 9.6%
3/31/93 9.5%
4/30/93 9.3%
5/31/93 9.4%
6/30/93 9.4%
7/31/93 9.3%
8/31/93 9.3%
9/30/93 9.3%
10/31/93 9.3%
11/30/93 9.3%
12/31/93 9.2%
1/31/94 9.2%
2/28/94 9.3%
3/31/94 9.0%
4/30/94 8.8%
5/31/94 8.9%
6/30/94 8.7%
7/31/94 8.6%
8/31/94 8.5%
9/30/94 8.3%
10/31/94 8.1%
11/30/94 7.9%
12/31/94 7.8%
1/31/95 8.1%
2/28/95 7.8%
3/31/95 7.8%
4/30/95 7.9%
5/31/95 7.9%
6/30/95 7.8%
7/31/95 7.8%
8/31/95 7.8%
9/30/95 7.8%
10/31/95 7.8%
11/30/95 7.9%
12/31/95 7.8%
1/31/96 7.6%
2/29/96 7.6%
3/31/96 7.5%
4/30/96 7.4%
5/31/96 7.3%
6/30/96 7.2%
7/31/96 7.1%
8/31/96 7.1%
9/30/96 7.1%
10/31/96 7.0%
11/30/96 6.9%
12/31/96 6.8%
1/31/97 6.9%
2/28/97 6.5%
3/31/97 6.6%
4/30/97 6.5%
5/31/97 6.4%
6/30/97 6.3%
7/31/97 6.2%
8/31/97 6.2%
Source: DRI/McGraw Hill
California's economy continued to improve during the fiscal year ended
August 31, 1997. The state's ability to generate strong job growth in various
sectors, while benefiting from an improving national economy, has been the
cornerstone of California's impressive economic growth. With the state's
workforce burgeoning, the unemployment rate dropped to 6.2% by August 1997 (see
the accompanying graph), down sharply from the 7.1% figure posted in August
1996.
Not only has California's employment growth continued to exceed the national
average, but so have its income gains. Perhaps the largest contributor to this
favorable scenario has been strong growth in the high-technology sector, which
has helped eliminate the negative impact of the job losses caused by the 1990
recession.
Another factor working in California's favor is its exports, which are
nearly equal those of the other 49 states combined. Its gross product surpassed
the $1 trillion milestone in 1997--a landmark passed by the U.S. as a whole less
than 30 years ago. The state's finances also continued to improve--its revenue
for the 1996-1997 fiscal year was approximately $300 million over budget.
Anchoring the state's strongest growth has been the San Francisco Bay Area,
led by the hub of the state's thriving high-technology industry, Santa Clara
County. This growth trend has been spreading throughout much of California,
especially among the coastal areas of Southern California. For instance,
year-over-year employment growth in the L.A. County area was 4%. Other improving
coastal areas include San Diego, Long Beach and Orange County, which is
benefiting from a thriving biotechnology industry. The central valley areas,
such as Sacramento and Stanislaus Counties, are also experiencing improved
economic conditions.
As a result of the stronger economy, both state and local municipal credit
quality have continued to improve. Securities that benefited the most from this
trend were tax-based securities such as COPs and tax-allocation bonds. On the
other hand, electric utility and hospital issues suffered under increased
competition in their industries.
Despite the currently favorable environment, California will likely face
some difficult choices in the coming years. Foremost among these concerns is the
likelihood that capital needs will increase for education and transportation.
The state's infrastructure, particularly its public school system, will require
additional funds to support its growing population. In addition, California
housing prices have continued to rise along with the cost of living, making
quality of life issues a greater concern for residents.
Nevertheless, our outlook for the state's credit rating remains very
positive. We believe the favorable growth scenario currently in place will
result in yet another upgrade of California's credit rating in the near future.
To help ensure that the municipals chosen for the California funds match our
strict criteria, the five members of our municipal credit research team continue
to keep a close watch on these issues and other economic and legislative trends
within the state.
ANNUAL REPORT MUNICIPAL CREDIT REVIEW 5
<TABLE>
<CAPTION>
CALIFORNIA TAX-FREE MONEY MARKET
7-DAY 7-DAY 7-DAY TAX-EQUIVALENT YIELDS
CURRENT EFFECTIVE 34.70% 37.42% 41.95% 45.22%
YIELD YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- ---------------------------------------------------------------------------------------------------------------
YIELDS AS OF
AUGUST 31, 1997
California Tax-Free
<S> <C> <C> <C> <C> <C> <C>
Money Market 2.91% 2.95% 4.46% 4.65% 5.01% 5.31%
Yields are defined in the Glossary on page 57.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1997
California Tax-Free Money Market ....... 1.60% 3.17% 3.20% 2.76% 3.64%
Average California Tax-Exempt
Money Market Fund(1) ................... 1.51% 2.96% 3.04% 2.68% 3.68%
Fund's Ranking Among California
Tax-Exempt Money Market Funds(1) ....... -- 11 out of 54 12 out of 48 15 out of 43 7 out of 13
(1) According to Lipper Analytical Services.
</TABLE>
See pages 56-57 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
8/31/97 8/31/96
Number of Securities 86 91
Weighted Average Maturity 36 days 39 days
Expense Ratio 0.49% 0.49%
Money market funds are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the fund will be able
to maintain a stable $1.00 share price.
6 CALIFORNIA TAX-FREE MONEY MARKET AMERICAN CENTURY INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
MANAGEMENT Q & A
An interview with Todd Pardula, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
The fund continued to provide a higher level of tax-exempt income than the
average California money market fund. For the fiscal year ended August 31, 1997,
the fund had a total return of 3.17%, compared with the 2.96% average return of
the 54 "California Tax-Exempt Money Market Funds" tracked by Lipper Analytical
Services. (See the Total Returns table on the previous page for other fund
performance comparisons.)
HOW DID THE FUND'S POSITIONING CHANGE DURING THE FISCAL YEAR?
The fund's average maturity shortened gradually from around 40 days at the
beginning of the period to less than 20 days by mid-April. This shift was partly
driven by our expectations for a short-term interest rate increase by the
Federal Reserve--which occured in March--but it also reflected a shortage of
one-year California municipal securities. The limited supply depressed one-year
municipal yields; the few attractive one-year notes we found failed to meet our
strict credit standards.
In June and July, when most California municipalities issue one-year notes,
we extended the fund's average maturity back out to about 40 days. We took
advantage of the seasonal supply by purchasing several notes with attractive
yields. We would have liked to extend the fund's maturity even further, but we
were leery of buying too many securities with the same 6/30/98 maturity
date--the end of the fiscal year for most California municipalities.
ALTHOUGH THE FED RAISED SHORT-TERM RATES IN MARCH, THE FUND'S YIELD IS VIRTUALLY
THE SAME AS IT WAS A YEAR AGO. WHY?
The Fed's interest rate changes tend to have less of an impact on municipal
money market yields than on taxable money market yields. The Fed raised rates
from 5.25% to only 5.50%, and such a small increase typically has a negligible
effect on municipal money market rates.
Supply and demand factors have the biggest impact on municipal money market
rates, and that's why yields haven't changed much over the past year.
THE FUND IS HOLDING A FEW PUT BONDS. WHAT'S THE ATTRACTION OF THESE SECURITIES?
Put bonds are longer-term municipal bonds that can be "put back"--that is,
sold at face value to a specific dealer at a prearranged date. The fund
typically holds put bonds that can be put back on a quarterly, semiannual or
annual basis.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
VRDNs 77%
Municipal Notes 7%
Commercial Paper 7%
Bonds less than 1 Year 5%
Put Bonds 4%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97)
VRDNs 75%
Bonds less than 1 Year 11%
Municipal Notes 7%
Commercial Paper 7%
ANNUAL REPORT CALIFORNIA TAX-FREE MONEY MARKET 7
CALIFORNIA TAX-FREE MONEY MARKET
We usually retain the fund's put bonds when their yields are higher than
prevailing yields. This situation occurred in May, when one of our put bonds
reached its annual "put" date. Based on one-year note yields at the time, we
felt that the put bond was more attractive, so we kept it in the fund's
portfolio.
Keeping the put bond was the equivalent of buying a one-year security, so
our decision to keep this bond caused the fund's average maturity to jump from
18 days to 29 days overnight.
LOOKING AHEAD, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS?
We're looking to extend the fund's average maturity further in the coming
months. We already lengthened the fund's maturity to more than 50 days by
mid-September, and we'd like to extend another 10-15 days.
The next opportunity to extend will probably be the latter half of
September. Yields tend to be more attractive at the end of a quarter, when many
dealers try to clear out some of their inventory and corporate buyers reduce
their municipal exposure.
Beginning in November, we're also going to be putting tighter restrictions
on the fund's exposure to Japanese banks.
HOW DO JAPANESE BANKS AFFECT THE FUND'S PORTFOLIO?
Many California municipal money market securities are backed by a letter of
credit from a bank, and this may include Japanese banks. In the last couple of
years, the Japanese banking system has suffered from a lengthy domestic
recession and bad real estate loans.
As a result, we established credit standards that prevent the fund from
holding more than 10% of its assets in securities guaranteed by Japanese banks.
This limit is low compared to most other California money market funds, but we
plan to reduce this internal restriction even further--it will be around 5%
starting in November.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
SP1+ 64%
SP1 36%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97)
SP1+ 70%
SP1 30%
"SP1+" and "SP1" are Standard & Poor's highest credit ratings for short-term
municipal securities.
8 CALIFORNIA TAX-FREE MONEY MARKET AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL SECURITIES
$ 7,375,000 Agoura Hills Multifamily Housing
Rev., (Oakridge Apartments),
VRDN, 3.35%, 9/3/97 (LOC:
Continental Casualty Co.) $ 7,375,000
4,000,000 Anaheim Electric Rev., 4.25%,
10/1/97 (AMBAC) 4,001,268
4,800,000 Anaheim Housing Auth. Rev.,
Series 1992 A, (Heritage Village
Apartments), VRDN, 3.15%,
9/4/97 (LOC: Barclays Bank
PLC) 4,800,000
1,035,000 Antioch Public Financing Authority
Reassessment Rev., Series 1997
A, (California Improvement Bond
Act 1915), 9.00%, 9/2/97
(AMBAC) 1,035,145
10,480,000 Association of Bay Area
Governments Financing Auth. for
Nonprofit Corps. Rev., (University
of California Project), VRDN,
3.25%, 9/4/97 (LOC: Union
Bank of Switzerland) 10,480,000
2,000,000 Association of Bay Area
Governments Financing Auth.
Certificates of Participation,
(Bentley School), VRDN, 3.50%,
9/3/97 (LOC: Banque
Nationale de Paris S.A.) 2,000,000
4,000,000 Auburn Unified School District
Certificates of Participation,
(Capital Improvement Financing
Project), VRDN, 3.30%,
9/4/97 (LOC: Union Bank of
California, N.A.) 4,000,000
7,800,000 Azusa Multifamily Housing Rev.,
(Pacific Glen Apartments Project),
VRDN, 3.50%, 9/4/97 (LOC:
Continental Casualty Co.) 7,800,000
5,000,000 Bassett Unified School District
Certificates of Participation,
(Capital Improvement Project),
VRDN, 3.30%, 9/4/97 (LOC:
Union Bank of California, N.A.) 5,000,000
1,695,000 Burbank Redevelopment Agency
Tax Allocation, (West Olive
Project), 6.00%, 12/1/97
(AMBAC) 1,703,863
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 4,500,000 California Educational Facilities
Auth. Rev., (Mount St. Marys
College), VRDN, 3.30%, 9/3/97
(LOC: Allied Irish Banks, PLC) $ 4,500,000
1,000,000 California Health Facilities
Financing Auth. Rev., Series
1987 A, (Pooled Loan Program),
VRDN, 3.05%, 9/4/97 (LOC:
Rabobank Nederland) 1,000,000
6,000,000 California Health Facilities
Financing Auth. Rev., Series
1985 B, (Scripps Memorial
Hospital), VRDN, 3.05%,
9/4/97 (MBIA) (SBBPA:
Morgan Guaranty Trust Co. of
New York) 6,000,000
2,300,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Pooled Project), VRDN,
3.05%, 9/3/97 (LOC: Rabobank
Nederland) 2,300,000
1,175,000 California Health Facilities
Financing Auth. Rev.,
(Presbyterian Hospital), 4.50%,
5/1/98 (MBIA) 1,180,299
1,000,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA, Inc. Project), 3.90%,
11/15/97 (Guaranteed: Chevron
Corporation) 1,000,000
10,500,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA, Inc. Project), 4.00%,
5/15/98 (Guaranteed: Chevron
Corporation) 10,500,000
5,000,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, 3.85%,
9/15/97 (LOC: National
Westminster Bank PLC) 5,000,000
19,000,000 California School Cash Reserve
Program Auth. Rev., Series 1997
A, 4.75%, 7/2/98 (AMBAC) 19,138,022
8,000,000 California Statewide Certificates of
Participation, (Covenant
Retirement Community), VRDN,
3.25%, 9/4/97 (LOC: LaSalle
National Bank) 8,000,000
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA TAX-FREE MONEY MARKET 9
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 5,000,000 California Statewide Communities
Apartment Development Auth.
Rev., (Whispering Winds
Apartments), VRDN, 3.35%,
9/3/97 (LOC: Continental
Casualty Co.) $ 5,000,000
2,385,000 Central Unified School District
Certificates of
Participation, VRDN, 3.40%, 9/3/97 (LOC:
Union Bank of California, N.A.) 2,385,000
2,700,000 Covina Redevelopment Agency
Multifamily Housing Rev.,
(Shadowhills Apartments), VRDN,
3.50%, 9/4/97 (LOC:
Continental Casualty Co.) 2,700,000
2,155,000 Dinuba Financing Auth. Lease Rev.
Certificates of Participation,
Series 1996 A, (Wastewater
Treatment Plant), VRDN, 3.40%,
9/3/97 (LOC: Union Bank of
California, N.A.) 2,155,000
1,000,000 Glendale Industrial Development
Auth. Rev., (Reliance
Development), VRDN, 3.60%,
9/15/97 (LOC: Barclays Bank
PLC) 1,000,000
1,320,000 Hanford Certificates of Participation,
(Public IMPC Corp.), VRDN,
3.40%, 9/4/97 (LOC: Union
Bank of California, N.A.) 1,320,000
2,755,000 Hanford Sewer Rev., Series 1996 A,
VRDN, 3.40%, 9/4/97 (LOC:
Union Bank of California, N.A.) 2,755,000
12,100,000 Hayward Multifamily Housing Rev.,
(Shorewood Apartments), VRDN, 3.00%,
9/4/97 (FGIC) (SBBPA:
General Electric Capital Corp.) 12,100,000
4,965,000 Irvine Industrial Development
Authority Rev., (Shimano Amer
Corporation), VRDN, 3.25%,
9/3/97 (LOC: Bank of Tokyo-
Mitsubishi, Ltd.) 4,965,000
3,900,000 Irvine Public Facilities and
Infrastructure Auth. Lease Rev.,
(Capital Improvement Project),
VRDN, 3.10%, 9/4/97 (LOC:
National Westminster Bank PLC) 3,900,000
Principal Amount Value
- -------------------------------------------------------------------------------------------
$19,000,000 Kern County Superintendent of
Schools Certificates of
Participation, VRDN, 3.30%,
9/4/97 (LOC: Anchor National
Life Insurance Company) $ 19,000,000
4,250,000 Lancaster Redevelopment Agency
Rev., Series 1996 C, (20th Street
Apartment Project), VRDN,
3.15%, 9/4/97 (LOC: FHLB) 4,250,000
2,100,000 Lemore Certificates of Participation,
(Golf Course Project), VRDN,
3.35%, 9/4/97 (LOC: Union
Bank of California, N.A.) 2,100,000
3,600,000 Livermore Certificates of
Participation, (Reverse Osmosis
Project), VRDN, 3.15%, 9/4/97
(LOC: National Westminster
Bank PLC) 3,600,000
3,000,000 Loma Linda Water Rev., VRDN,
3.40%, 9/3/97 (LOC: Union
Bank of California, N.A.) 3,000,000
5,000,000 Long Beach Multifamily Housing
Rev., (Channel Point Apartments),
VRDN, 3.25%, 9/3/97 (LOC:
Union Bank of California, N.A.) 5,000,000
4,900,000 Los Angeles Community
Redevelopment Agency, VRDN,
3.20%, 9/4/97 (LOC: Barclays
Bank PLC) 4,900,000
3,300,000 Los Angeles County Public Works
Financing Auth. Lease Rev.
Certificates of Participation, Series
1996 B, 4.50%, 9/1/97 (MBIA) 3,300,000
2,750,000 Los Angeles County Public Works
Financing Auth. Lease Rev.
Certificates of Participation, Series
1996 A, 4.50%, 9/1/97 (MBIA) 2,749,999
1,355,000 Los Angeles Unified School District
Certificates of Participation,
3.80%, 10/1/97 (FSA) 1,354,944
2,000,000 Modesto Multifamily Housing Rev.,
Series 1996 A,(Shadowbrook), VRDN,
3.35%, 9/4/97 (LOC:
Bank of America N.T. & S.A.) 2,000,000
2,000,000 Moreno Valley Certificates of
Participation, (City Hall
Refinancing Project), VRDN,
3.40%, 9/4/97 (LOC: Union
Bank of California, N.A.) 2,000,000
See Notes to Financial Statements
10 CALIFORNIA TAX-FREE MONEY MARKET AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$12,000,000 Oceanside Multifamily Housing
Rev., (Lakeridge Apartments
Project), VRDN, 3.50%, 9/3/97
(LOC: Continental Casualty Co.) $ 12,000,000
5,000,000 Orange County Apartment
Development Rev., (Bear Brand
Apartments), VRDN, 2.95%,
9/4/97 (LOC: Credit Suisse
First Boston, Inc.) 5,000,000
6,500,000 Orange County Apartment
Development Rev., Series 1991
A, (The Lakes Project), VRDN,
3.20%, 9/4/97 (LOC: Citibank,
N.A.) 6,500,000
10,500,000 Orange County Local Transportation
Auth. Tax Exempt Commercial
Paper, 3.70%, 9/11/97 (LOC:
Union Bank of Switzerland) 10,500,000
5,000,000 Orange County Local Transportation
Auth. Tax Exempt Commercial
Paper, 3.70%, 9/12/97 (LOC:
Union Bank of Switzerland) 5,000,000
800,000 Palm Springs Redevelopment
Agency Certificates of
Participation, VRDN, 3.05%,
9/3/97 (LOC: Citibank, N.A.) 800,000
8,080,000 Pasadena Certificates of
Participation, (Rose Bowl
Improvements Project), VRDN,
3.00%, 9/3/97 (LOC: Canadian
Imperial Bank of Commerce) 8,080,000
7,000,000 Pico Rivera Certificates of
Participation, (Redevelopment
Agency Project), VRDN, 3.15%,
9/2/97 (LOC: Wachovia Bank of
Georgia, N.A.) 7,000,000
6,000,000 Redlands Certificates of Participation,
(Sewer Treatment Facilities Project),
VRDN, 3.05%, 9/3/97 (FGIC) (SBBPA:
General Electric Capital Corp.) 6,000,000
6,860,000 Redlands Certificates of Participation,
(Water Treatment Facilities Project),
VRDN, 3.05%, 9/3/97 (FGIC) (SBBPA:
General Electric Capital Corp.) 6,860,000
1,200,000 Richmond Joint Powers Financing
Port Auth. Term Lease Rev.,
VRDN, 3.60%, 9/2/97 (LOC:
Union Bank of California, N.A.) 1,200,000
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 3,540,000 Riverside County Multifamily
Housing Rev., (Ambergate
Apartments), VRDN, 3.25%,
9/4/97 (LOC: Union Bank of
California, N.A.) $ 3,540,000
1,715,000 Rohnert Park Multifamily Housing
Rev., (Crossbrook Apartments),
VRDN, 3.10%, 9/3/97 (FNMA
Collateral Agreement) 1,715,000
1,330,000 Sacramento County Certificates of
Participation, 4.00%, 2/1/98
(MBIA) 1,331,905
5,000,000 Sacramento County Housing Auth.,
VRDN, 3.35%, 9/3/97 (LOC:
Dai-Ichi Kangyo Bank, Ltd.) 5,000,000
8,200,000 Sacramento County Multifamily
Housing Rev., (River Oaks),
VRDN, 3.25%, 9/4/97 (LOC:
Dai-Ichi Kangyo Bank, Ltd.) 8,200,000
1,500,000 Sacramento County Multifamily
Housing Rev., Series 1985 C,
VRDN, 3.25%, 9/4/97 (LOC:
Dai-Ichi Kangyo Bank, Ltd.) 1,500,000
3,400,000 Sacramento County Multifamily
Housing Rev., Series 1996 A,
VRDN, 3.20%, 9/3/97 (LOC:
California State Teachers'
Retirement System) 3,400,000
3,200,000 San Bernardino County Certificates
of Participation, VRDN, 3.40%,
9/4/97 (LOC: Sumitomo Bank,
Ltd.) 3,200,000
10,000,000 San Bernardino County Certificates
of Participation, (PA-100), VRDN,
3.60%, 9/4/97 (MBIA) (SBBPA:
Merrill Lynch & Co., Inc.) 10,000,000
12,300,000 San Bernardino County Multifamily
Housing Rev., Series 1985 A,
(Castle Park Apartments), VRDN,
3.25%, 9/3/97 (LOC: Bank of
Tokyo-Mitsubishi, Ltd.) 12,300,000
3,050,000 San Bernardino County Multifamily
Housing Rev., Series 1992 A,
(Arrowview Park Apartments
Project), VRDN, 3.15%, 9/4/97
(LOC: FHLB) 3,050,000
2,125,000 San Bernardino County Multifamily
Housing Rev., Series 1993 A,
(Monterey Villas Apartments),
VRDN, 3.15%, 9/4/97
(LOC: FHLB) 2,125,000
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA TAX-FREE MONEY MARKET 11
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 1,370,000 San Diego County Multifamily
Housing Rev., (Country Hills),
VRDN, 3.00%, 9/3/97 (FNMA
Collateral Agreement) $ 1,370,000
4,300,000 San Diego Multifamily Housing
Rev., Series 1993 A, (Coral Point
Apartments), VRDN, 3.45%,
9/4/97 (LOC: Continental
Casualty Co.) 4,300,000
11,250,000 San Francisco City and County Redevelopment
Financing Auth. Rev.,
(Yerba Buena Garden),
VRDN, 3.15%, 9/3/97 (LOC:
National Westminster Bank PLC) 11,250,000
1,400,000 San Jose Financing Auth. Rev.,
Series 1995 B, (Hayes Mansion
Project), VRDN, 3.35%, 9/3/97
(LOC: Sumitomo Bank, Ltd.) 1,400,000
3,900,000 San Leandro Multifamily Housing
Rev., (Parkside Project), VRDN,
3.00%, 9/3/97 (FNMA
Collateral Agreement) 3,900,000
4,200,000 Santa Clara Multifamily Housing
Rev., VRDN, 3.00%, 9/3/97
(LOC: National Westminster
Bank PLC) 4,200,000
5,800,000 Santa Clara Multifamily Housing
Rev., (Foxchase Apartments),
VRDN, 3.00%, 9/4/97 (FGIC)
(SBBPA: General Electric Capital
Corp.) 5,800,000
9,300,000 Santa Paula Public Financing Auth.
Rev. Certificates of Participation,
(Water System Acquisition Project),
VRDN, 3.40%, 9/3/97
(LOC: Sumitomo Bank Ltd.,
Union Bank of California, N.A.) 9,300,000
10,000,000 South Coast County Local
Educational Agencies Tax and
Rev. Anticipation Notes, Series
1997 A, 4.50%, 6/30/98
(MBIA) 10,050,910
275,000 South San Francisco Certificates of
Participation, (Quality Control
Plant Project), VRDN, 3.15%,
9/4/97 (LOC: National
Westminster Bank PLC) 275,000
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 8,800,000 Southern California Public Power
Auth. Rev., VRDN, 3.00%,
9/3/97 (FSA) (SBBPA: Morgan
Guaranty Trust Co. of New York) $ 8,800,000
3,000,000 State of California GO, 5.00%,
10/1/97 3,003,247
3,000,000 State of California Tax Exempt
Commercial Paper, GO, 3.50%,
9/11/97 (Line of Credit: Credit
Suisse First Boston, Inc.,
Bayerische Landesbank
Girozentrale, Landesbank
Hessen-Thuringen Girozentrale,
Morgan Guaranty Trust Co. of
New York, Westdeutsche
Landesbank Girozentrale) 3,000,000
3,000,000 State of California Tax Exempt
Commercial Paper, GO, 3.70%,
9/18/97 (LOC: Morgan
Guaranty Trust Co. of New York,
Credit Suisse First Boston, Inc.,
Bayerische Landesbank
Girozentrale, Landesbank
Hessen-Thuringen Girozentrale,
Westdeutsche Landesbank
Girozentrale) 3,000,000
3,000,000 State of California Tax Exempt
Commercial Paper, GO, 3.75%,
9/18/97 (LOC: Westdeutsche
Landesbank Girozentrale,
Landesbank Hessen-Thuringen
Girozentrale, Morgan Guaranty
Trust Co. of New York) 3,000,000
5,000,000 State of California Tax Exempt
Commercial Paper, GO, 3.65%,
10/17/97 (LOC: Morgan
Guaranty Trust Co. of New York,
Landesbank Hessen-Thuringen
Girozentrale, Westdeutsche
Landesbank Girozentrale) 5,000,000
5,400,000 Three Valleys Municipal Water
District Certificates of
Participation, (Miramar Water
Treatment), VRDN, 3.25%,
9/3/97 (LOC: Barclays Bank
PLC) 5,400,000
1,600,000 Triunfo Sanitation District
Refunding Rev., VRDN, 3.20%,
9/3/97 (LOC: Banque Nationale
de Paris S.A.) 1,600,000
See Notes to Financial Statements
12 CALIFORNIA TAX-FREE MONEY MARKET AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 825,000 Upland Community Redevelopment
Agency Multifamily Housing Rev.,
(Northwoods Project), VRDN,
4.10%, 9/3/97 (LOC: Sanwa
Bank, Ltd.) $ 825,000
6,300,000 Victor Valley Community College
Certificates of Participation,
VRDN, 3.30%, 9/4/97 (LOC:
Banque Nationale de Paris S.A.,
Dai-Ichi Kangyo Bank, Ltd.) 6,300,000
1,700,000 West Sacramento Financing Auth.
Special Tax Rev., Series 1996 C,
VRDN, 3.10%, 9/4/97 (LOC:
Wells Fargo Bank, N.A.) 1,700,000
--------------------
TOTAL INVESTMENT SECURITIES--100.0% $416,124,602
====================
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Indemnity Corp.
FGIC = Financial Guaranty Insurance Company
FHLB = Federal Home Loan Bank
FNMA = Federal National Mortgage Association
FSA = Financial Security Association
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is
effective August 31, 1997.
</TABLE>
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA TAX-FREE MONEY MARKET 13
<TABLE>
<CAPTION>
CALIFORNIA MUNICIPAL MONEY MARKET
7-DAY 7-DAY 7-DAY TAX-EQUIVALENT YIELDS
CURRENT EFFECTIVE 34.70% 37.42% 41.95% 45.22%
YIELD YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- ----------------------------------------------------------------------------------------------------------------------
YIELDS AS OF
AUGUST 31, 1997
California Municipal
<S> <C> <C> <C> <C> <C> <C>
Money Market 2.97% 3.01% 4.55% 4.75% 5.12% 5.42%
Yields are defined in the Glossary on page 57.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS LIFE OF FUND(1)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1997
California Municipal Money Market ..... 1.62% 3.15% 3.24% 2.82% 3.12%
Average California Tax-Exempt
Money Market Fund(2) .................. 1.51% 2.96% 3.04% 2.68% 2.90%
Fund's Ranking Among California
Tax-Exempt Money Market Funds(2) ...... -- 12 out of 54 9 out of 48 10 out of 43 6 out of 36
(1) Inception date was December 31, 1990.
(2) According to Lipper Analytical Services.
</TABLE>
See pages 56-57 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
8/31/97 8/31/96
Number of Securities 57 61
Weighted Average Maturity 38 days 42 days
Expense Ratio 0.52% 0.53%
Money market funds are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the fund will be able
to maintain a stable $1.00 share price.
14 CALIFORNIA MUNICIPAL MONEY MARKET AMERICAN CENTURY INVESTMENTS
CALIFORNIA MUNICIPAL MONEY MARKET
MANAGEMENT Q & A
An interview with Todd Pardula, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
The fund continued to provide a higher level of tax-exempt income than the
average California money market fund. For the fiscal year ended August 31, 1997,
the fund had a total return of 3.15%, compared with the 2.96% average return of
the 54 "California Tax-Exempt Money Market Funds" tracked by Lipper Analytical
Services. (See the Total Returns table on the previous page for other fund
performance comparisons.)
HOW DID THE FUND'S POSITIONING CHANGE DURING THE FISCAL YEAR?
The fund's average maturity shortened gradually from around 40 days at the
beginning of the period to about 20 days by mid-March. This shift was partly
driven by our expectations for a short-term interest rate increase by the
Federal Reserve--which occured in March--but it also reflected a shortage of
one-year California municipal securities. The limited supply depressed one-year
municipal yields; the few attractive one-year notes we found failed to meet our
strict credit standards.
In June and July, when most California municipalities issue one-year notes,
we extended the fund's average maturity back out to about 40 days. We took
advantage of the seasonal supply by purchasing several notes with attractive
yields. We would have liked to extend the fund's maturity even further, but we
were leery of buying too many securities with the same 6/30/98 maturity
date--the end of the fiscal year for most California municipalities.
ALTHOUGH THE FED RAISED SHORT-TERM RATES IN MARCH, THE FUND'S YIELD IS VIRTUALLY
THE SAME AS IT WAS A YEAR AGO. WHY?
The Fed's interest rate changes tend to have less of an impact on municipal
money market yields than on taxable money market yields. The Fed raised rates
from 5.25% to only 5.50%, and such a small increase typically has a negligible
effect on municipal money market rates.
Supply and demand factors have the biggest impact on municipal money market
rates, and that's why yields haven't changed much over the past year.
THE FUND RECENTLY PURCHASED SOME PUT BONDS. WHAT'S THE ATTRACTION OF THESE
SECURITIES?
Put bonds are longer-term municipal bonds that can be "put back"--that is,
sold at face value to a specific dealer at a prearranged date. The fund
typically holds put bonds that can be put back on a quarterly, semiannual or
annual basis.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
VRDNs 78%
Bonds less than 1 Year 12%
Put Bonds 4%
Commercial Paper 4%
Municipal Notes 2%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97)
VRDNs 83%
Bonds less than 1 Year 9%
Municipal Notes 5%
Commercial Paper 3%
ANNUAL REPORT CALIFORNIA MUNICIPAL MONEY MARKET 15
CALIFORNIA MUNICIPAL MONEY MARKET
The put bonds we purchased for the fund pay interest that is subject to the
federal alternative minimum tax (AMT). Because the supply of one-year California
AMT paper is limited, we were quick to take advantage of the put bonds, which
also gave us an extra 10 basis points in yield compared to non-AMT securities.
DOES THAT MEAN THE FUND IS HOLDING MORE AMT PAPER THAN NORMAL?
Yes. The fund typically invests about 60% of its assets in AMT paper, but
the put bonds we recently bought pushed that percentage to more than 75%.
LOOKING AHEAD, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS?
We're looking to extend the fund's average maturity further in the coming
months. We already lengthened the fund's maturity to more than 50 days by
mid-September, and we'd like to extend another 10-15 days.
The next opportunity to extend will probably be the latter half of
September. Yields tend to be more attractive at the end of a quarter, when many
dealers try to clear out some of their inventory and corporate buyers reduce
their municipal exposure.
Beginning in November, we're also going to be putting tighter restrictions
on the fund's exposure to Japanese banks.
HOW DO JAPANESE BANKS AFFECT THE FUND'S PORTFOLIO?
Many California municipal money market securities are backed by a letter of
credit from a bank, and this may include Japanese banks. In the last couple of
years, the Japanese banking system has suffered from a lengthy domestic
recession and bad real estate loans.
As a result, we established credit standards that prevent the fund from
holding more than 10% of its assets in securities guaranteed by Japanese banks.
This limit is low compared to most other California money market funds, but we
plan to reduce this internal restriction even further--it will be around 5%
starting in November.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
SP1+ 59%
SP1 41%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97)
SP1+ 67%
SP1 33%
"SP1+" and "SP1" are Standard & Poor's highest credit ratings for short-term
municipal securities.
16 CALIFORNIA MUNICIPAL MONEY MARKET AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
CALIFORNIA MUNICIPAL MONEY MARKET
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL SECURITIES
$ 2,000,000 Alameda County Industrial
Development Auth. Rev., Series
1994 A, (Scientific Technology
Project), VRDN, 3.25%, 9/3/97
(LOC: Banque National de
Paris S.A.) $ 2,000,000
3,250,000 Alameda County Industrial
Development Auth. Rev., Series
1997 A, (Tool Family
Partnership), VRDN, 3.35%,
9/4/97 (LOC: Wells Fargo
Bank, N.A.) 3,250,000
2,000,000 Anaheim Electrical Rev., 4.25%,
10/1/97 (AMBAC) 2,000,635
2,200,000 Association of Bay Area Governments
Multifamily Housing Rev.,
Series 1997 A, (Mountain View
Apartments), VRDN, 3.50%, 9/4/97 (LOC:
Comerica Bank) 2,200,000
4,100,000 Auburn Unified School District
Certificates of Participation,
(Capital Improvement Financing
Project), VRDN, 3.30%, 9/4/97
(LOC: Union Bank of
California, N.A.) 4,100,000
2,815,000 Azusa Multifamily Housing Rev.,
(Pacific Glen Apartments Project),
VRDN, 3.50%, 9/4/97 (LOC:
Continental Casualty Co.) 2,815,000
3,450,000 California Housing Financing Agency Rev., Series
PT-68, VRDN, 3.40%, 9/4/97 (MBIA)
(SBBPA: Credit Suisse) 3,450,000
8,000,000 California Housing Financing
Agency Rev., Series 1997 J,
3.95%, 8/3/98 (GIC: FGIC) 8,000,000
1,600,000 California Housing Financing
Agency Rev., Series 1997 B,
(Multifamily Housing III), VRDN,
3.20%, 9/3/97 (LOC: Credit
Suisse First Boston, Inc., Morgan
Guaranty Trust Co. of New York) 1,600,000
Principal Amount Value
- -------------------------------------------------------------------------------------------
$10,430,000 California Housing Financing
Agency Rev., Series 1997 C,
(Multifamily Housing III), VRDN,
3.20%, 9/3/97 (LOC: Credit
Suisse First Boston, Inc., Morgan
Guaranty Trust Co. of New York) $ 10,430,000
3,625,000 California Housing Financing
Agency Mortgage Rev., Series
1996 J, Mandatory Put, 4.00%,
8/1/98 (GIC: FGIC) 3,625,000
3,000,000 California Pollution Control
Financing Auth. Rev., Series
1996 A, (Pacific Gas and
Electric), VRDN, 3.05%,
9/3/97 (LOC: Swiss Bank
Corporation) 3,000,000
2,300,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, 3.85%,
9/15/97 (LOC: National
Westminster Bank PLC) 2,300,000
4,000,000 California School Cash Reserve
Program Auth. Rev., Series
1997 A, 4.75%, 7/2/98
(AMBAC) 4,028,851
1,200,000 California State Economic Development
Financing Auth. Industrial Rev.,
(CALCO Project), VRDN,
3.75%, 9/3/97 (LOC:
Wells Fargo Bank, N.A.) 1,200,000
200,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
Series 1997 A, (Serra Mission
Project), VRDN, 3.55%,
9/2/97 (LOC: First Bank N.A.,
Minneapolis, Minnesota) 200,000
1,800,000 California Statewide Community
Development Auth. Rev., Series
1995 B, (Howard S. Leight &
Assoc.), VRDN, 3.50%, 9/3/97
(LOC: Sanwa Bank, Ltd.) 1,800,000
1,365,000 California Statewide Communities
Development Auth. Rev., Series
1996 G, (Lansmont Property),
VRDN, 3.40%, 9/3/97 (LOC:
Wells Fargo Bank, N.A.) 1,365,000
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA MUNICIPAL MONEY MARKET 17
SCHEDULE OF INVESTMENTS
CALIFORNIA MUNICIPAL MONEY MARKET
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 1,325,000 California Statewide Communities
Development Corporation Rev.,
Series 1994 B, (Individual
Developer, J. Michelle), VRDN,
3.25%, 9/3/97 (LOC: California
State Teachers' Retirement
System) $ 1,325,000
4,000,000 California Statewide Communities
Multifamily Housing
Development Auth. Rev., Series
1997 A, (Plaza Club Apartments
Project), VRDN, 3.60%, 9/3/97
(LOC: Comerica Bank) 4,000,000
1,200,000 California Statewide Communities
Multifamily Housing Development Auth.
Rev., Series 1997 G, (Sunrise of Moraga),
VRDN, 3.25%, 9/4/97 (LOC:
Commerzbank A.G.) 1,200,000
8,700,000 Chula Vista Industrial Development
Rev., Series 1996 B, (San Diego
Gas & Electric), VRDN, 3.75%,
9/2/97 8,700,000
3,755,000 Contra Costa County Certificates of
Participation, (Concord
Healthcare Center), VRDN,
3.35%, 9/3/97 (LOC:
Boatman's First NB of Kansas
City, MO) 3,755,000
4,000,000 Contra Costa County Multifamily
Housing Rev., Series 1994 A,
(Del Norte Apartments), VRDN,
3.40%, 9/2/97 (LOC: Sumitomo
Bank, Ltd.) 4,000,000
2,500,000 Fairfield Industrial Development
Auth. Rev., Series 1997 A,
(Meyer Cookware Industries
Project), VRDN, 3.35%, 9/4/97
(LOC: Banque Nationale de
Paris S.A.) 2,500,000
2,000,000 Fowler Industrial Development
Auth. Rev., (Bee Sweet Citrus
Inc.), VRDN, 3.40%, 9/4/97
(LOC: Bank of America N.T.
& S.A.) 2,000,000
1,000,000 Glenn Industrial Development
Auth. Rev., (Land O'Lakes
Income Project), VRDN, 3.75%,
9/5/97 (LOC: Sanwa Bank,
Ltd.) 1,000,000
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 3,500,000 Hanford Sewer Rev., Series 1996 A,
VRDN, 3.40%, 9/4/97 (LOC:
Union Bank of California, N.A.) $ 3,500,000
2,930,000 Irvine Unified School District
Special Tax, (District #86-1),
5.25%, 11/1/97 (AMBAC) 2,937,087
2,300,000 Lassen Municipal Utility District
Rev., VRDN, 3.40%, 9/4/97
(FSA) (SBBPA: Credit Local de
France) 2,300,000
1,185,000 Los Angeles County Industrial
Development Auth. Rev.,
(Keystone Engineering Company
Project), VRDN, 3.40%, 9/3/97
(LOC: Bank of Hawaii) 1,185,000
2,800,000 Los Angeles County Industrial
Development Auth.,
(Tulip Corporation, Project
1989 A), VRDN,
3.30%, 9/3/97 (LOC:
La Salle National Bank) 2,800,000
1,570,000 Los Angeles County Public Works
Financing Auth. Lease Rev.
Certificates of Participation,
Series 1996 B, 4.50%, 9/1/97
(MBIA) 1,570,000
1,250,000 Los Angeles County Public Works
Financing Lease Rev.
Certificates of Participation,
Series 1996 A, 4.50%, 9/1/97
(MBIA) 1,250,000
4,950,000 Los Angeles Multifamily Housing
Rev., (Oakwood Apartments),
VRDN, 3.40%, 9/2/97
(LOC: Sumitomo Bank, Ltd.) 4,950,000
3,900,000 Los Angeles Multifamily Housing
Rev., Series 1989 C, (Vermont
Knoll Apartments), VRDN,
3.75%, 9/3/97 (LOC: Wells
Fargo Bank, N.A.) 3,900,000
3,500,000 Los Angeles Multifamily Housing
Rev., Series 1997 D, (Mission
Village Terrace), VRDN, 3.20%,
9/4/97 (LOC: FHLB) 3,500,000
2,000,000 Oceanside Multifamily Housing
Rev., (Lakeridge Apartments
Project), VRDN, 3.50%, 9/3/97
(LOC: Continental Casualty Co.) 2,000,000
See Notes to Financial Statements
18 CALIFORNIA MUNICIPAL MONEY MARKET AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA MUNICIPAL MONEY MARKET
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 1,000,000 Orange County Certificates of
Participation Commercial Paper,
8.25%, 12/1/97, Prerefunded at
102% of Par(1) $ 1,030,528
2,000,000 Orange County Industrial
Development Auth. Rev., Series
1997 A, (Control Air
Conditioning Project), VRDN,
3.45%, 9/3/97 (LOC: California
State Teachers' Retirement
System) 2,000,000
2,500,000 Orange County Local
Transportation Auth. Tax Exempt
Commercial Paper, 3.70%,
9/11/97 (LOC: Union Bank of
Switzerland) 2,500,000
2,200,000 Orange County Local
Transportation Auth. Tax Exempt
Commercial Paper, 3.70%,
9/12/97 (LOC: Union Bank of
Switzerland) 2,200,000
2,660,000 Pleasant Hill Redevelopment Agency,
Series 1996 A, VRDN, 3.25%, 9/4/97
(LOC: Commerzbank A.G.) 2,660,000
3,300,000 Richmond Joint Powers Financing Port Auth.
Term Lease Rev., VRDN, 3.60%, 9/2/97 (LOC:
Union Bank of California, N.A.) 3,300,000
2,320,000 Riverside County Industrial
Development Auth. Rev.,
(Merrick Engineering Inc.), VRDN,
3.75%, 9/3/97 (LOC: Wells
Fargo Bank, N.A.) 2,320,000
1,015,000 Riverside County Multifamily
Housing Rev., Series 1986 A,
(Tyler Village Project), VRDN,
3.35%, 9/3/97 (LOC: Chase
Manhattan Bank) 1,015,000
9,500,000 Sacramento County Housing Auth.
Rev., Issue 1992 A, (Shadowood
Apartments Projects), VRDN,
3.30%, 9/3/97 (LOC: General
Electric Capital Corp.) 9,500,000
3,000,000 Sacramento County Multifamily
Housing Auth. Rev., Series 1997
A, (Chesapeake Commons
Apartments), VRDN, 3.20%,
9/4/97 (LOC: Bank One
Arizona, N.A.) 3,000,000
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 1,000,000 Sacramento County Sanitation
District Financing Auth. Rev.,
5.00%, 12/1/97 $ 1,003,050
900,000 San Diego Industrial Development
Rev., Series 1987 A,
(Kaiser Aerospace and Electricity),
VRDN, 3.55%, 9/4/97 (LOC:
ABN Amro Bank N.V.) 900,000
6,300,000 San Francisco City & County
Airport Rev., (Community
International Airport, SGA 50),
VRDN, 3.40%, 9/3/97 (MBIA)
(SBBPA: Societe Generale) 6,300,000
1,500,000 San Francisco City & County
Airport Commission Tax Exempt
Commercial Paper, 3.65%,
9/12/97 (LOC: Bayerische
Landesbank Girozentrale,
Morgan Guaranty Trust Co. of
New York) 1,500,000
3,500,000 San Jose Multifamily Housing Rev.,
Series 1996 A, (Siena at
Renaissance), VRDN, 3.20%,
9/3/97 (LOC: Bank One
Arizona, N.A.) 3,500,000
2,000,000 Santa Rosa Multifamily Housing
Rev., Series 1997 A, (Quail Run
Apartments), VRDN, 3.55%,
9/4/97 (LOC: U.S. Bank of
Washington, N.A.) 2,000,000
2,000,000 State of California GO, 5.00%,
10/1/97 2,002,166
4,400,000 Vallejo Industrial Development
Auth. Rev., Series 1993 A,
(Meyer Cookware Industries
Project), VRDN, 3.40%, 9/3/97
(LOC: Bank of Tokyo-Mitsubishi,
Ltd.) 4,400,000
2,725,000 Vallejo Multifamily Housing Rev.,
Series 1997 A, (Hillside Terrace
Apartments), VRDN, 3.15%,
9/4/97 (FNMA Collateral
Agreement) 2,725,000
--------------------
TOTAL INVESTMENT SECURITIES--100.0% $169,592,317
====================
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA MUNICIPAL MONEY MARKET 19
SCHEDULE OF INVESTMENTS
CALIFORNIA MUNICIPAL MONEY MARKET
AUGUST 31, 1997
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Indemnity Corporation
FGIC = Financial Guaranty Insurance Co.
FHLB = Federal Home Loan Bank
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance
GIC = Guaranteed Investment Contract
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
alculating the weighted average portfolio maturity. Rate shown is
effective August 31, 1997.
(1) Escrowed in U.S. Government Securities.
</TABLE>
See Notes to Financial Statements
20 CALIFORNIA MUNICIPAL MONEY MARKET AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
CALIFORNIA HIGH-YIELD MUNICIPAL
30-DAY 30-DAY TAX-EQUIVALENT YIELDS
SEC 34.70% 37.42% 41.95% 45.22%
YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- -----------------------------------------------------------------------------------------------------------------
YIELDS AS OF AUGUST 31, 1997
<S> <C> <C> <C> <C> <C>
California High-Yield Municipal 5.04% 7.72% 8.05% 8.68% 9.20%
Yields are defined in the Glossary on page 57.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1997
California High-Yield Municipal ........... 5.30% 10.61% 8.56% 7.76% 8.13%
Lehman Long-Term Municipal Bond Index ..... 4.97% 11.26% 9.17% 7.90% 9.29%
Average California Municipal Debt Fund(1) . 4.06% 8.98% 7.22% 6.54% 7.67%
Fund's Ranking Among California
Municipal Debt Funds(1) ................... -- 10 out of 101 6 out of 77 3 out of 51 7 out of 30
(1) According to Lipper Analytical Services.
</TABLE>
See pages 56-57 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
Growth of $10,000 Over Ten Years
$10,000 investment made 8/31/87
Value on 8/31/97
High-Yield Lehman Long-Term
Municipal Municipal Bond Index
Aug-87 $10,000 $10,000
Sep-87 $9,478 $9,592
Dec-87 $9,734 $10,027
Mar-88 $10,091 $10,399
Jun-88 $10,331 $10,697
Sep-88 $10,683 $11,056
Dec-88 $10,945 $11,381
Mar-89 $11,145 $11,495
Jun-89 $11,634 $12,291
Sep-89 $11,676 $12,226
Dec-89 $12,004 $12,744
Mar-90 $12,130 $12,771
Jun-90 $12,444 $13,099
Sep-90 $12,299 $12,993
Dec-90 $12,682 $13,664
Mar-91 $12,977 $13,979
Jun-91 $13,335 $14,335
Sep-91 $13,845 $14,980
Dec-91 $14,066 $15,517
Mar-92 $14,267 $15,571
Jun-92 $14,771 $16,258
Sep-92 $15,132 $16,701
Dec-92 $15,357 $17,104
Mar-93 $15,881 $17,850
Jun-93 $16,555 $18,587
Sep-93 $17,158 $19,330
Dec-93 $17,381 $19,626
Mar-94 $16,592 $18,052
Jun-94 $16,721 $18,182
Sep-94 $16,885 $18,257
Dec-94 $16,449 $17,840
Mar-95 $17,630 $19,617
Jun-95 $17,982 $20,066
Sep-95 $18,423 $20,614
Dec-95 $19,458 $21,995
Mar-96 $19,163 $21,421
Jun-96 $19,515 $21,674
Sep-96 $20,091 $22,346
Dec-96 $20,605 $22,967
Mar-97 $20,551 $22,770
Jun-97 $21,406 $23,785
Aug-97 $21,856 $24,319
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the index's
total return line does not.
PORTFOLIO AT A GLANCE
8/31/97 8/31/96
Number of Securities 102 90
Weighted Average Maturity 20.3 years 20.7 years
Average Duration 7.5 years 7.5 years
Expense Ratio 0.50% 0.51%
ANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 21
CALIFORNIA HIGH-YIELD MUNICIPAL
MANAGEMENT Q & A
An interview with Steven Permut, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID THE FUND PERFORM?
The fund continued to perform very well compared with its peers. For the
fiscal year ended August 31, 1997, the fund's 10.61% return was higher than the
8.98% average return of the 101 "California Municipal Debt Funds" tracked by
Lipper Analytical Services. (See the Total Returns table on the previous page
for other fund performance comparisons.) The fund's one-, three- and five-year
returns place it in the top 10% of its peer group.
HOW DID THE FUND'S YIELD STACK UP AGAINST ITS PEERS?
The fund continued to provide shareholders with a high level of tax-free
current income. As of August 31, 1997, the fund's 30-day SEC yield was 5.04%,
compared with the 4.23% average yield of its peers.(+)
HOW DID YOU POSITION THE FUND DURING THE FISCAL YEAR?
We continued to avoid making interest rate bets that can cause unwanted
swings in the fund's returns from period to period. We made only minor
adjustments, keeping the duration fairly neutral compared with the fund's peers.
(Duration is a measure of the portfolio's sensitivity to changes in interest
rates.) The fund ended the period with a duration of 7.5 years, unchanged from
the beginning of the period.
(+) Although the fund's yield may be significantly higher than the yields of
other fixed-income funds that purchase higher-rated securities, this higher
yield is generally based upon the greater credit risk of the securities in
the fund's portfolio.
[bar graph - data below]
California High-Yield Municipal's One-Year Returns
For the Past Ten Years (Periods ended August 31)
High-Yield Lehman Long-Term
Municipal Municipal Bond Index
1988 5.17% 8.10%
1989 10.88% 13.44%
1990 5.77% 6.11%
1991 10.75% 13.47%
1992 10.11% 12.60%
1993 12.61% 14.76%
1994 0.87% -2.05%
1995 7.09% 9.43%
1996 8.02% 6.88%
1997 10.61% 11.26%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 56 for a definition of the index.
22 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
WHAT FACTORS LED TO THE FUND'S IMPRESSIVE PERFORMANCE?
A large portion of the municipal securities the fund owns are lower-rated
securities that benefited from trends that drove yields lower. For example,
strong growth in California's economy continued to act as a catalyst, further
compressing credit spreads--the difference in yield between higher- and
lower-rated securities. The amount of lower-quality California issues being
backed by municipal bond insurers also continued to grow, which placed
additional tightening pressure on credit spreads. The fund's returns were
further enhanced by some securities being prerefunded.
DOES THE COMPRESSION OF CREDIT SPREADS HAVE ANY BEARING ON YOUR DECISION TO
POSITION THE FUND'S PORTFOLIO TOWARD THE ENDS OF THE CREDIT SPECTRUM?
Yes. During the period, we employed what is known as a "credit barbell,"
where we focused on purchasing more securities at the top and bottom of the
credit spectrum and less from the middle. This structure tends to perform best
when credit spreads are tightening.
WERE THERE ANY OTHER KEY FACTORS CONTRIBUTING TO THE FUND'S PERFORMANCE?
Yes. Another key ingredient to the fund's strong returns is our disciplined
bottom-up, value-oriented approach that looks for securities that may be
undervalued by virtue of their credit rating or market valuation. Based on this
process, we purchased many municipals in recent years that have appreciated as
their ratings were raised or the market recognized their value.
One such example is a Colton, California municipal utility issue that we
bought approximately two years ago. After extensive research, we determined that
the electric utility's underlying fundamentals would likely lead to stronger and
more profitable performance in the years ahead. As a result, we purchased a
non-rated issue from the utility at a significantly higher yield than insured
bonds. Thanks to subsequently improving conditions at the utility, the issue was
recently refunded, providing a healthy 15% net gain from the time of purchase.
Of course, not all portfolio holdings are this successful.
WHAT PART DOES THE MUNICIPAL CREDIT RESEARCH TEAM PLAY IN FINDING SUCH
SECURITIES?
A significant one. By making accurate assessments of specific credit
situations, the group has helped us steer clear of many issues not appropriate
for purchase, while locating attractively valued securities that others may have
passed over. To find such hidden values, our credit research team analyzes
detailed financial information, talks directly with municipal officials and
frequently travels around the state for on-site visits and tours. California is
a complex, dynamic state, and thorough research is an integral part of the
security selection process. We therefore work closely with our municipal credit
research staff to find securities that we feel will enhance fund performance.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
Revenue 40%
Land-Secured 34%
COPs/Leases 12%
Prerefunded/ETM 7%
GO 4%
Other 3%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97)
Revenue 37%
Land-Secured 35%
COPs/Leases 19%
Prerefunded/ETM 5%
GO 2%
Other 2%
ANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 23
CALIFORNIA HIGH-YIELD MUNICIPAL
WHAT IS THE OUTLOOK FOR MUNICIPAL SECURITIES FOR THE REMAINDER OF 1997?
Our outlook for municipals is generally positive. Inflation remains tame,
having risen at a mere 1.6% annual rate during the first eight months of 1997.
"Real" interest rates (nominal interest rates minus inflation) are relatively
high, which should inhibit inflation and economic growth going forward. In
addition, strong productivity gains should continue to offset wage gains in the
near future. As a result, we think the Federal Reserve can continue to hold
rates steady.
We also expect bond insurers to continue to be active in the California
municipal market, increasing credit quality and generally driving yields lower.
That means credit spreads could continue to narrow.
Nevertheless, municipal yields may continue to fluctuate, particularly if we
get signs of stronger-than-expected economic growth. For municipal securities to
rally further, it would likely take sharply slower economic growth or a dramatic
drop in inflation.
GIVEN THIS SITUATION, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS
For the near term, we will likely maintain the fund's conservative duration
positioning. Since interest rates are currently very low, refundings may
continue to rise and will therefore bear close watching. We will also continue
working closely with our research staff to uncover attractively valued
securities with the potential to enhance the fund's returns. With credit spreads
shrinking, however, these opportunities are fewer and farther between, requiring
us to be more selective than ever. In addition, we will likely continue to favor
a credit barbell for the fund in the near future, picking up AAA and unrated
municipals that become available at attractive prices.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 28%
AA 9%
A 20%
BBB 10%
Unrated 33%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97)
AAA 26%
AA 4%
A 23%
BBB 15%
Unrated 32%
Credit ratings given by Standard & Poor's.
24 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL SECURITIES
$2,000,000 Alameda Public Financing Auth.
Local Agency Rev., Series 1996
A, (Community Facility District
Number 1), 7.00%, 8/1/19 $ 2,154,780
1,000,000 Albany Unified School District GO, Series 1995
C, 5.00%, 8/1/19
(FSA) 941,570
1,000,000 American Canyon Joint Powers
Financing Auth. Lease Rev.,
(Civic-Recreation Facilities),
6.40%, 6/1/22 1,033,030
700,000 Bishop, Escalon & Lemoore Cities
Certificates of Participation,
Series 1991 A, 7.70%, 5/1/11 756,000
3,000,000 Brawley Certificates of
Participation, (Water System
Improvement Project), 6.40%,
12/1/26 3,023,550
1,540,000 Brisbane Certificates of
Participation, (Capital
Improvement Refinancing
Project), 6.00%, 4/1/18 1,566,842
500,000 California Educational Facilities
Auth. Rev., (California Lutheran
University), 7.375%, 12/1/16 539,495
3,350,000 California Educational Facilities
Auth. Rev., (St. Mary's College),
4.75%,10/1/20 (MBIA) 3,003,376
1,000,000 California Educational Facilities
Auth. Rev., (Mills College),
6.875%, 9/1/22 1,089,840
1,000,000 California Educational Facilities
Auth. Rev., Series 1993 B,
(Pooled College and University
Financing), 6.125%, 6/1/09 1,044,700
4,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
5.43%, 10/1/12 (AMBAC)(1) 1,782,280
165,000 California Housing Finance
Agency Home Mortgage Rev.
Bonds, Series 1988 B, 8.60%,
8/1/19 171,100
565,000 California Housing Finance
Agency Home Mortgage Rev.
Bonds, Series 1989 B, 8.00%,
8/1/29 590,866
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 440,000 California Housing Finance
Agency Home Mortgage Rev.
Bonds, Series 1990 C, 7.60%,
8/1/30 $ 464,530
1,955,000 California Housing Finance
Agency Home Mortgage Rev.
Bonds, Series 1997 B, 6.10%,
2/1/28 (MBIA) 2,011,617
1,500,000 California Housing Finance
Agency Home Mortgage Rev.
Bonds, Series 1997 E, 6.10%,
8/1/29 (AMBAC) 1,544,775
3,455,000 California Housing Finance
Agency Multifamily Mortgage
Rev. Bonds, Series 1997 A,
5.95%, 8/1/28 (MBIA) 3,509,209
3,500,000 California Housing Finance
Agency Multi-Unit Mortgage
Rev. Bonds, Series 1992 C,
6.875%, 8/1/24 3,667,160
2,500,000 California Housing Finance
Agency Single-Family Mortgage
Rev. Bonds, Series 1997 A-1,
5.95%, 8/1/16 2,562,350
1,500,000 California Maritime Infrastructure
Auth. Airport Rev., (San Diego
Unified Port District Airport),
5.00%, 11/1/20 (AMBAC) 1,394,895
400,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 A, (Pooled
Project), 8.50%, 3/1/18 415,752
500,000 California State Department of
Veterans Affairs Home Purchase
Rev., Series 1988 A, 8.30%,
8/1/19 518,090
4,000,000 California State Department of
Water Resource Rev., Series
1993 M, 5.00%, 12/1/19 3,759,400
6,400,000 California State Department of
Water Resource Rev., Series
1995 O, (Central Valley Project),
5.00%, 12/1/22 6,048,832
3,665,000 California State GO, 5.12%,
9/1/09(1) 1,997,462
1,585,000 California State Local Government
Financing Auth. Rev., (Marin
Valley Mobile Country-B), 7.50%,
10/1/24 1,619,474
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 25
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$2,000,000 California State Public Works
Board Lease Rev. Certificates of
Participation, Series 1993 D,
(Department of Corrections
State Prisons), 5.25%, 6/1/15
(FSA) $ 2,010,180
1,000,000 California State Public Works
Board Lease Rev., Series 1993
A, (Various State University
Projects), 5.50%, 12/1/18 982,690
2,500,000 California State Public Works
Board Lease Rev., Series 1993
B, (Various State University
Projects), 5.50%, 6/1/19 2,465,450
1,000,000 California Statewide Communities
Development Auth. Rev.
Certificates of Participation,
Series 1996 A, (Insurance
Health Facility, San Gabriel
Valley), 5.50%, 9/1/14
(California Mortgage Insurance) 1,005,740
480,000 Clayton Improvement Bond Act
1915 Special Assessment,
(Oakhurst Assessment District),
8.00%, 9/2/14 498,360
120,000 Clayton Improvement Bond Act
1915 Special Assessment,
Series 1988 A, (Oakhurst
Assessment District ), 8.40%,
9/2/10 124,710
4,500,000 Colton Public Financing Auth. Rev.,
(Electric System), 7.50%,
10/1/03, Prerefunded at
101% of Par(2) 5,260,500
750,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev., Series 1992 A, 7.10%,
8/1/22 816,308
690,000 Corcoran Certificates of
Participation, 8.75%, 6/1/16
(Acquired 4/2/92, Cost
$690,000)(3) 727,584
1,000,000 Davis Community Facility District
Number 1991-2 Special Tax,
Series 1992 B, 7.80%, 9/1/02,
Prerefunded at 103% of Par(2) 1,175,390
1,500,000 Del Mar Race Track Auth. Rev.,
6.20%, 8/15/11 1,586,805
Principal Amount Value
- -------------------------------------------------------------------------------------------
$1,000,000 El Dorado County Board Auth.
Lease Rev., (Capital Facility
Project), 7.40%, 11/1/09 $ 1,102,750
3,000,000 Folsom Public Financing Auth.
Rev., Series 1997 A, 6.875%,
9/2/19 3,037,770
1,500,000 Folsom Special Tax, (Community
Facility District Number 7),
7.25%, 9/1/21 1,594,680
2,500,000 Fontana Redevelopment Agency
Tax Allocation, Series 1994 B,
(Jurupa Hills Project), 7.70%,
1/1/19 2,745,400
1,040,000 Foothill-De Anza Community
College District Certificates of
Participation, (Campus Center
Project), 7.35%, 3/1/07 1,156,022
2,500,000 Foster City Redevelopment Agency
Tax Allocation, (Metro Center),
6.75%, 9/1/20 2,710,500
1,185,000 Gateway Improvement Auth. Rev.,
Series 1995 A, (Marin City
Community Facility), 7.75%,
9/1/25 1,316,452
2,000,000 Industry Urban Redevelopment
Agency Tax Allocation, (Project
3), 6.90%, 11/1/16 2,163,020
985,000 Irvine Improvement Bond 1915
Special Assessment, Series
1992 A, (District Number 89-9),
7.40%, 9/2/17 1,015,594
1,000,000 Lake Elsinore School Financing
Auth. Rev., 6.125%, 9/1/19 1,021,270
1,000,000 Lake Elsinore Unified School
District Community Facilities
District Special Tax,
(Number 88-1), 8.25%, 9/1/16 1,087,780
2,000,000 Los Angeles County Public Works
Financing Auth Rev., 5.00%,
3/1/17 1,901,920
3,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1993 A, 5.00%,
7/1/21 (FGIC) 2,813,220
120,000 Los Angeles County Single Family
Mortgage Rev., (GNMA
Mortgage, Issue B), 9.00%,
12/1/20, Prerefunded at Par(2) 127,625
See Notes to Financial Statements
26 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1991 B, 6.50%, 7/1/13 $ 1,067,180
30,000 Los Angeles Home Mortgage Rev.
Bonds, 9.00%, 6/15/18 30,531
2,150,000 Los Angeles State Building Auth.
Lease Rev. Certificates of
Participation, Series 1993 A,
5.625%, 5/1/11 2,255,651
2,000,000 Los Angeles Unified School
District GO, Series 1997 A,
5.00%, 7/1/21 (FGIC) 1,885,640
3,000,000 Milpitas Improvement Bond Act
1915 Special Assessment,
Series 1996 A, (District Number
18), 6.75%, 9/2/16 3,090,420
4,885,000 Northern California Power Agency
Rev., Series 1985 E,
(Hydroelectric Project Number
1), 7.15%, 7/1/24 5,092,319
2,000,000 Novato Community Facility District
Number 1 Special Tax, (Vintage
Oaks Project), 7.20%, 8/1/15 2,145,260
1,000,000 Orange County Community
Facilities District Special Tax,
Series 1993 A, (Number 87-5E),
7.30%, 8/15/18 1,077,550
1,000,000 Pioneer Union Elementary School
District GO, 7.50%, 8/1/14 1,072,280
880,000 Pittsburg Assessment District 90-1
Special Assessment, (Oak Hills),
7.75%, 9/2/20 915,649
1,500,000 Pittsburg Assessment District 92-1
Special Assessment, (Village at
New York Landing), 8.00%,
9/2/22 1,558,605
2,240,000 Pittsburg Redevelopment Agency
Tax Allocation, Series 1993 A,
(Los Medanos Project), 5.00%,
8/1/17 (AMBAC) 2,115,702
3,500,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development
Project), 6.25%, 8/1/26 3,626,070
5,000,000 Pomona Improvement Bond Act
1915, (Rio Rancho Assessment
District), 7.50%, 9/2/21 5,189,950
Principal Amount Value
- -------------------------------------------------------------------------------------------
$1,500,000 Pomona Public Financing Auth.
Rev., Series 1993 L, (Southwest
Pomona Redevelopment), 5.70%,
2/1/13 $ 1,509,885
2,250,000 Rancho Mirage Joint Powers
Financing Auth. Certificates of
Participation, (Eisenhower
Memorial Hospital), 7.00%,
3/1/02, Prerefunded at 102%
of Par(2) 2,536,042
1,815,000 Redondo Beach Public Financing
Auth. Rev., (South Bay Center
Redevelopment Project),
7.125%, 7/1/08 1,976,136
1,000,000 Richmond Joint Powers Financing
Auth. Rev. Certificates of
Participation, Series 1995 A,
5.25%, 5/15/13 979,500
500,000 Roseville Community Facilities
District Number 2 Special Tax,
8.25%, 9/1/21 538,465
1,500,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 6.30%, 9/1/21 1,501,365
3,970,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 3,924,623
2,485,000 Sacramento Schools Insurance
Auth. Rev., Series 1993 C,
(Workers Compensation
Program), 5.75%, 6/1/03(2) 2,616,332
1,965,000 Salinas Improvement Bond Act
1915 Special Assessment,
(Harden Ranch Assessment
District 94-1), 6.875%, 9/2/11 2,099,386
1,000,000 San Diego Community Facilities
District Number 1 Special Tax,
Series 1995 B, 7.10%, 9/1/20 1,072,520
3,990,000 San Diego County Improvement
Bond Act 1915 GO, 6.25%,
9/2/12 3,963,147
1,500,000 San Diego Public Facilities
Financing Auth. Sewer Rev.,
5.00%, 5/15/25 (FGIC) 1,401,900
2,440,000 San Diego Sewer Rev., Series
1993 A, 5.00%, 5/15/23
(AMBAC) 2,282,498
3,250,000 San Diego Sewer Rev., Series
1993 A, 5.00%, 5/15/23
(MBIA) 3,040,213
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 27
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$1,500,000 San Francisco City & County
Airport Commission International
Airport Rev., 5.90%, 5/1/26 $ 1,538,745
1,780,000 San Jose Finance Auth. Rev.
Certificates of Participation,
Series 1993 C, (Convention
Center), 6.30%, 9/1/09 1,903,657
3,000,000 South Orange County Public
Financing Auth. Special Tax,
Series 1994 B, (Jr. Lien), 7.25%,
9/1/13 3,150,060
1,615,000 South San Francisco
Redevelopment Agency Tax
Allocation, 7.60%, 9/1/18 1,746,413
480,000 Southern California Housing
Finance Auth. Single Family
Mortgage Rev., Series 1991 A,
(GNMA & FNMA Mortgage-
Backed Securities), 7.35%,
9/1/24 508,013
500,000 Southern California Public Power
Auth. Rev., (Pooled Project),
6.75%, 7/1/10 (FSA) 588,385
2,000,000 Southern California Public Power
Auth. Rev., Series 1993 A,
5.00%, 7/1/15 (AMBAC) 1,898,000
2,400,000 Southern California Public Power
Auth. Rev., (Transmission Project),
5.43%, 7/1/14 (MBIA)(1) 974,472
1,250,000 Southern California Public Power
Auth. Rev., (Transmission Project),
5.55%, 7/1/15 (MBIA)(1) 470,750
1,000,000 Standard Elementary School
District Certificates of
Participation, 7.375%, 6/1/11 1,074,630
1,770,000 Tehama Community Certificates of
Participation, (Social Services
Building Project), 7.00%,
10/1/20 1,985,197
1,700,000 Torrance Hospital Rev., (Little
County of Mary Hospital),
6.875%, 7/1/15 1,828,622
2,260,000 Tracy Operating Partnership Joint
Powers Auth. Rev., (Jr. Lien
Assessment District 87-3),
6.375%, 9/2/11 2,284,973
1,565,000 Twentynine Palms Water District
Certificates of Participation,
7.10%, 8/1/22 1,671,780
Principal Amount Value
- -------------------------------------------------------------------------------------------
$2,250,000 Vacaville Improvement Bond Act
1915 Special Assessment,
(Northeast Sector Assessment
District A), 7.00%, 9/2/22 $ 2,356,493
7,955,000 University of California Rev., Series
1993 C, (Multiple Purpose
Projects), 5.00%, 9/1/23
(AMBAC) 7,439,436
2,000,000 West Contra Costa Unified School
District Certificates of
Participation, 7.125%, 1/1/24 2,143,880
1,520,000 Windsor Redevelopment Agency
Tax Allocation, 6.875%, 9/1/15 1,650,750
960,000 Yosemite Community College
District Certificates of
Participation, 7.75%, 7/1/01,
Prerefunded at 102% of Par(2) 1,093,747
--------------------
TOTAL MUNICIPAL SECURITIES-97.1% 184,531,517
--------------------
(Cost $175,647,319)
SHORT-TERM MUNICIPAL SECURITIES
1,250,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
Series 1997 A, (Serra Mission
Project), VRDN, 3.55%, 9/2/97
(LOC: First Bank N.A.,
Minneapolis, Minnesota) 1,250,000
1,900,000 California Statewide Development
Corp. Rev., VRDN, 3.50%,
9/3/97 (LOC: Dai-Ichi Kangyo
Bank Ltd.) 1,900,000
1,000,000 Chula Vista Industrial Development
Rev., Series 1996 B, (San Diego
Gas & Electric Co.), VRDN,
3.75%, 9/2/97 1,000,000
1,300,000 Orange County Sanitation District Certificates
of Participation, VRDN, 3.40%, 9/2/97 (LOC:
National Westminster Bank) 1,300,000
--------------------
TOTAL SHORT-TERM
MUNICIPAL SECURITIES-2.9% 5,450,000
--------------------
(Cost $5,450,000)
TOTAL INVESTMENT SECURITIES-100.0% $189,981,517
====================
(Cost $181,097,319)
See Notes to Financial Statements
28 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
AUGUST 31, 1997
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Indemnity Corporation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance
GNMA = Government National Mortgage Association
GO = General Obligation
MBIA = MBIA Insurance Corp.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is
effective August 31, 1997.
(1) This security is a zero-coupon municipal bond. The yield to maturity at
August 31, 1997 is indicated instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity.
(2) Escrowed in U.S. Government Securities.
(3) Private placement. Security may only be sold to qualified institutional
investors. The aggregate value of private placements at August 31, 1997,
was $727,584, which represented 0.4% of net assets.
</TABLE>
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 29
<TABLE>
<CAPTION>
CALIFORNIA INSURED TAX-FREE
30-DAY 30-DAY TAX-EQUIVALENT YIELDS
SEC 34.70% 37.42% 41.95% 45.22%
YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket
- --------------------------------------------------------------------------------------------------------------------
YIELDS AS OF AUGUST 31, 1997
<S> <C> <C> <C> <C> <C>
California Insured Tax-Free 4.55% 6.97% 7.27% 7.84% 8.31%
Yields are defined in the Glossary on page 57.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1997
California Insured Tax-Free ............. 4.15% 9.25% 7.97% 7.08% 7.91%
Lehman Long-Term Municipal Bond Index ... 4.97% 11.26% 9.17% 7.90% 9.29%
Average California Insured
Municipal Debt Fund(1) .................. 3.81% 8.84% 7.30% 6.88% 8.04%
Fund's Ranking Among California
Insured Municipal Debt Funds(1) ......... -- 10 out of 26 2 out of 19 2 out of 8 5 out of 8
(1) According to Lipper Analytical Services.
</TABLE>
See pages 56-57 for more information about returns, the comparative index and
Lipper fund rankings.
[mountain graph - data below]
Growth of $10,000 Over Ten Years
$10,000 investment made 8/31/87
Value on 8/31/97
Insured Lehman Long-Term
Tax-Free Municipal Bond Index
Aug-87 $10,000 $10,000
Sep-87 $9,279 $9,592
Dec-87 $9,897 $10,027
Mar-88 $10,123 $10,399
Jun-88 $10,378 $10,697
Sep-88 $10,661 $11,056
Dec-88 $10,904 $11,381
Mar-89 $11,049 $11,495
Jun-89 $11,757 $12,291
Sep-89 $11,625 $12,226
Dec-89 $12,028 $12,744
Mar-90 $12,011 $12,771
Jun-90 $12,289 $13,099
Sep-90 $12,123 $12,993
Dec-90 $12,841 $13,664
Mar-91 $13,000 $13,979
Jun-91 $13,256 $14,335
Sep-91 $13,829 $14,980
Dec-91 $14,288 $15,517
Mar-92 $14,249 $15,571
Jun-92 $14,895 $16,258
Sep-92 $15,243 $16,701
Dec-92 $15,601 $17,104
Mar-93 $16,286 $17,850
Jun-93 $16,855 $18,587
Sep-93 $17,527 $19,330
Dec-93 $17,699 $19,626
Mar-94 $16,516 $18,052
Jun-94 $16,639 $18,182
Sep-94 $16,744 $18,257
Dec-94 $16,539 $17,840
Mar-95 $17,698 $19,617
Jun-95 $18,044 $20,066
Sep-95 $18,550 $20,614
Dec-95 $19,686 $21,995
Mar-96 $19,138 $21,421
Jun-96 $19,276 $21,674
Sep-96 $19,873 $22,346
Dec-96 $20,415 $22,967
Mar-97 $20,199 $22,770
Jun-97 $20,956 $23,785
Aug-97 $21,403 $24,319
Past performance does not guarantee future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
The line representing the fund's total return includes operating expenses (such
as transaction costs and management fees) that reduce returns, while the index's
total return line does not.
PORTFOLIO AT A GLANCE
8/31/97 8/31/96
Number of Securities 63 69
Weighted Average Maturity 18.5 years 17.0 years
Average Duration 8.1 years 7.8 years
Expense Ratio 0.48% 0.49%
30 CALIFORNIA INSURED TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA INSURED TAX-FREE
MANAGEMENT Q & A
An interview with Dave MacEwen, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID THE FUND PERFORM?
The fund performed very well relative to its peers. For the fiscal year
ended August 31, 1997, the fund returned 9.25%, compared with the 8.84% average
return of the 26 "California Insured Municipal Debt Funds" tracked by Lipper
Analytical Services. The fund's three- and five-year returns are even more
impressive. For example, the fund's three-year returns place it in the top 10%
of its peer group, while its five-year returns place it in the top 25%. (See the
Total Returns table on the previous page for other fund performance
comparisons.)
The fund also produced significantly more current income than the peer group
average. As of August 31, the fund's 30-day SEC yield was 4.55%, compared with
the 3.88% average yield of the fund's peers. One reason we've been able to
produce such strong yields and returns is that the fund's expenses are below the
peer group average. Other things being equal, lower expenses mean higher yields
and returns for our shareholders.
[bar graph - data below]
California Insured Tax-Free's One-Year Returns
For the Past Ten Years (Periods ended August 31)
Insured Lehman Long-Term
Tax-Free Municipal Bond Index
1988 4.58% 8.10%
1989 12.04% 13.44%
1990 3.96% 6.11%
1991 11.87% 13.47%
1992 11.67% 12.60%
1993 13.74% 14.76%
1994 -1.68% -2.05%
1995 8.09% 9.43%
1996 6.60% 6.88%
1997 9.25% 11.26%
This graph illustrates the fund's returns over the past 10 years and compares
them with the index's returns. The fund's total returns include operating
expenses, while the index's do not. See page 56 for a definition of the index.
ANNUAL REPORT CALIFORNIA INSURED TAX-FREE 31
CALIFORNIA INSURED TAX-FREE
HOW WAS THE FUND POSITIONED DURING THE PERIOD?
We lengthened the fund's duration slightly in the second quarter to take
advantage of the decline in interest rates. (Duration is a measure of the
portfolio's sensitivity to changes in rates.) The longer a fund's duration, the
more its share price tends to rise when rates decline. In general, we use a
conservative approach to managing the fund's duration, keeping it in a narrow
range around 8 years. We look to add value to the fund primarily through careful
credit analysis and security selection.
CAN YOU GIVE AN EXAMPLE OF HOW YOU MANAGED THE FUND FOR A COMBINATION OF YIELD
AND RETURN?
Sure. We tried to enhance the fund's yield and return by carefully managing
the fund's coupon structure. For example, many of the outstanding long-term
municipal bonds have coupons between 5.125% and 5.875%. We put less emphasis on
these securities, buying these bonds only if there was a compelling credit
story. Instead, we tried to maintain a "barbell" coupon structure, with the
majority of the fund's assets in higher-coupon premium bonds and lower-coupon
discount and non-callable bonds. The premium bonds were intended to shorten the
fund's duration, while the lower-coupon discount bonds helped the fund's returns
because their price tends to rise more rapidly than premium bonds when rates
fall.
HOW HAS THE DEREGULATION OF THE ELECTRIC UTILITY INDUSTRY AFFECTED THE FUND?
Deregulation has changed the way we look at this sector. In general, we're
avoiding new municipal electric utility debt because we're uncertain how these
entities will perform when faced with competition. But the change has been good
for debt issued before the reforms were enacted. That's because municipal
utilities have been refunding much of that debt to get it off their books. In a
refunding, the issuer establishes an escrow account of Treasury
securities--that's great for the fund because we continue to draw current
tax-free income on an investment secured by Treasurys.
YOU HELD SOME TREASURY PUT OPTIONS DURING THE PERIOD. WHY?
We bought Treasury put options as a form of insurance against a bond market
decline. (A put option allows the bondholder to sell a security at a
pre-determined price on a specified date.) Hedging the fund with Treasury puts
allowed us to hold more long-term municipal securities than we otherwise would
have felt comfortable with. That helped the fund because long-term municipals
performed well during the period.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
Revenue 48%
COPs/Leases 24%
Land-Secured 13%
GO 11%
Prerefunded/ETM 4%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97)
Revenue 42%
COPs/Leases 32%
Land-Secured 12%
GO 9%
Prerefunded/ETM 4%
Other 1%
32 CALIFORNIA INSURED TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA INSURED TAX-FREE
WHAT IS YOUR OUTLOOK FOR THE CALIFORNIA MUNICIPAL MARKET OVER THE NEXT SIX
MONTHS?
Our outlook for municipals is generally positive. Inflation remains tame,
having risen by just 2.2% for the twelve months ended August 31, 1997. "Real"
interest rates (nominal interest rates minus the inflation rate) are relatively
high, which should inhibit inflation and economic growth going forward. In
addition, strong productivity gains should continue to offset wage gains in the
near future. As a result, we think the Federal Reserve can continue to hold
rates steady.
We also expect bond insurers to continue to be active in the California
municipal market, increasing credit quality and driving down yield spreads
generally.
Nevertheless, municipal yields may continue to fluctuate, particularly if we
get signs of stronger-than-expected economic growth. For municipal securities to
rally further, it would likely take sharply slower economic growth or a dramatic
drop in inflation.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
We'll likely keep the fund's duration slightly longer than neutral, which is
around 8 years. That should help the fund's performance if economic growth and
inflation remain tame. We'll also adopt a contrarian strategy--buying when
others sell and selling when they buy. While we can't guarantee this strategy
will be successful, we believe that it is a great range trading strategy because
you're selling at peaks and buying on dips. We will also continue to work
closely with our credit research team to look for attractively valued
securities.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 100%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97)
AAA 100%
Credit ratings given by Standard & Poor's.
ANNUAL REPORT CALIFORNIA INSURED TAX-FREE 33
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
CALIFORNIA INSURED TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL SECURITIES
$ 1,000,000 Banning Certificates of
Participation, (Wastewater
System, Refunding and
Improvement Project), 8.00%,
1/1/19 (AMBAC) $ 1,331,560
1,000,000 Berkeley Certificates of
Participation, 7.50%,
6/1/19 (AMBAC) 1,043,880
900,000 Brea Redevelopment Agency Tax
Allocation, (Project AB), 6.125%,
8/1/13 (MBIA) 955,845
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Sutter Hospital),
6.70%, 1/1/13 (AMBAC) 2,600,025
1,250,000 California Health Facilities
Financing Auth. Rev., Series
1991 A, (Adventist Health),
7.00%, 3/1/13 (MBIA) 1,367,425
1,530,000 California Public Capital
Improvements Financing Auth.
Rev., (Pooled Project 1988 B),
8.10%, 3/1/18 (BIGI) 1,589,808
6,500,000 California State GO, 6.00%,
10/1/10 (MBIA) 7,211,100
6,000,000 California State Public Works
Board Lease Rev. Certificates of
Participation, Series 1993 D,
(Department of Corrections
State Prisons), 5.25%, 6/1/15
(FSA) 6,030,540
2,000,000 California State Public Works
Board Lease Rev. Certificates of
Participation, Series 1993 A,
(Department of Corrections
State Prisons), 5.00%, 12/1/19
(AMBAC) 1,916,920
4,135,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) 4,286,093
3,925,000 California Statewide Communities
Development Auth. Rev.
Certificates of Participation,
(Gemological Institute), 6.75%,
5/1/10 (Connie Lee) 4,559,633
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 1,520,000 Castaic Lake Water Agency
Certificates of Participation,
Series 1994 A, (Water System
Improvement Project), 7.00%,
8/1/12 (MBIA) $ 1,834,245
1,000,000 Contra Costa County Certificates of
Participation, 7.80%, 6/1/07
(BIGI) 1,076,680
1,200,000 Contra Costa Water District Rev.,
Series 1992 E, 6.25%, 10/1/12
(AMBAC) 1,355,484
1,000,000 East Valley Water District
Certificates of Participation,
(Treatment Plant Project), 6.60%,
12/1/14 (AMBAC) 1,103,150
2,000,000 Escondido Joint Powers Financing
Auth. Rev., Certificates of
Participation, 6.125%, 9/1/11
(AMBAC) 2,112,840
2,000,000 Fontana Unified School District GO, Series 1997
D, 5.74%, 5/1/22
(FGIC)(1) 1,719,940
2,100,000 Foothill-De Anza Community
College District Certificates of
Participation, 6.25%, 9/1/13
(Connie Lee) 2,246,727
1,725,000 Fresno Sewer Rev., Series 1993
A-1, 6.25%, 9/1/14 (AMBAC) 1,941,401
1,240,000 Fresno Sewer Rev., Series 1993
A-1, 4.75%, 9/1/21 (AMBAC) 1,136,956
5,000,000 Glendale Hospital Rev., Series
1991 A, (Adventist Hospital),
6.75%, 3/1/13 (MBIA) 5,429,650
4,830,000 Glendale Unified School District
Certificates of Participation,
Series 1994 A, 6.50%, 3/1/12
(AMBAC) 5,315,174
1,340,000 Kern High School District GO, Series 1993 C,
6.25%, 8/1/13
(MBIA)(2) 1,502,663
3,630,000 Kern High School District GO, Series 1993 D,
7.00%,
8/1/17(2) 4,211,272
790,000 Lake Elsinore Public Financing
Auth. Tax Allocation Rev., Series
1992 C, (Redevelopment
Projects), 6.625%, 2/1/17
(FGIC) 843,775
See Notes to Financial Statements
34 CALIFORNIA INSURED TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INSURED TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 1,500,000 Lakewood Redevelopment Agency
Tax Allocation Rev., Series
1992 A, (Project No. 1), 6.50%,
9/1/17 (FSA) $ 1,644,375
2,000,000 La Quinta Financing Auth. Lease
Rev. Certificates of Participation,
(La Quinta City Hall Project),
5.55%, 10/1/18 (MBIA) 2,057,780
1,200,000 Los Angeles Community
Redevelopment Agency Housing
Rev., Series 1994 C, 7.00%,
1/1/14 (AMBAC) 1,304,268
3,500,000 Los Angeles Community
Redevelopment Agency Tax
Allocation Rev., Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 3,873,975
4,000,000 Los Angeles Community
Redevelopment Agency Tax
Allocation Rev., Series 1993 H,
(Bunker Hill), 6.50%, 12/1/15
(FSA) 4,427,400
1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
6.50%, 7/1/13 (AMBAC) 1,085,470
1,500,000 Los Angeles Metropolitan Transit
Auth. Sales Tax Rev., Series
1995 A, 5.00%, 7/1/25
(AMBAC) 1,401,720
2,000,000 Los Angeles Unified School
District GO, Series 1997 A,
5.00%, 7/1/21 (FGIC) 1,885,640
1,100,000 Los Angeles Wastewater System
Rev., Series 1991 C, 7.00%,
6/1/11 (AMBAC) 1,169,641
1,915,000 Midpeninsula Regional Open
Space District Financing Auth.
Rev., 5.90%, 9/1/14 (AMBAC) 2,010,137
5,000,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan
Project), 6.75%, 7/1/20 (MBIA) 5,905,050
1,200,000 National City Joint Powers Auth.
Lease Rev. Certificates of
Participation, (Police Facilities
Project), 6.75%, 10/1/17 (AMBAC) 1,318,344
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 2,810,000 Oakland Redevelopment Agency
Tax Allocation, (Central District
Redevelopment Tax), 5.50%,
2/1/14 (AMBAC) $ 2,922,737
1,925,000 Oakland Refunding Pension
Financing Rev., Series 1988 A,
7.60%, 8/1/21 (FGIC) 2,021,269
2,700,000 Orange County Financing Auth.
Tax Allocation Rev., Series
1992 A, 6.25%, 9/1/14 (MBIA) 2,903,202
1,950,000 Ramona Municipal Water District
Certificates of Participation,
7.20%, 10/1/10 (AMBAC) 2,134,139
1,100,000 Redlands Unified School District
Certificates of Participation,
6.00%, 9/1/12 (FSA) 1,139,809
17,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 17,299,975
2,505,000 Sacramento Redevelopment
Agency Tax Allocation Rev.,
(Merged Downtown
Redevelopment Project), 6.50%,
11/1/13 (MBIA) 2,701,066
3,000,000 Saddleback Community College
District Certificates of
Participation, 7.00%, 8/1/19
(BIGI) 3,201,900
1,345,000 San Diego Community College
District Lease Rev. Certificates
of Participation, 6.125%,
12/1/16 (MBIA) 1,432,156
7,000,000 San Diego County Certificates of
Participation, 5.625%,
9/1/12 (AMBAC) 7,314,580
5,250,000 San Francisco Bay Area Rapid
Transportation District Sales Tax
Rev., 6.75%, 7/1/09 (AMBAC) 5,665,328
10,000,000 San Francisco City and County
International Airport Rev.,
(Second Series Issue 2), 6.75%,
5/1/20 (MBIA) 11,147,300
3,535,000 San Mateo County Joint Powers
Financing Auth. Lease Rev.
Certificates of Participation,
(Capital Projects Program),
6.50%, 7/1/15 (MBIA) 4,071,472
See Notes to Financial Statements
ANNUAL REPORT CALIFORNIA INSURED TAX-FREE 35
SCHEDULE OF INVESTMENTS
CALIFORNIA INSURED TAX-FREE
AUGUST 31, 1997
Principal Amount Value
- -------------------------------------------------------------------------------------------
$ 1,000,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/18 (MBIA) $ 991,180
1,000,000 San Ysidro School District GO,
6.125%, 8/1/21 (AMBAC) 1,085,290
3,000,000 Santa Clara Electric Rev., Series
1991 A, 6.25%, 7/1/19 (MBIA) 3,219,240
2,000,000 Santa Margarita-Dana Point Auth.
Rev., Series 1994 B,
(Improvement Districts 3, 3A, 4,
4A), 7.25%, 8/1/14 (MBIA) 2,474,360
3,685,000 Simi Valley Unified School District
GO, 5.00%, 8/1/15 (FGIC) 3,545,560
2,500,000 South Coast Air Quality
Management District Building
GO, (Installment Sale
Headquarters), 6.00%, 8/1/11
(AMBAC) 2,767,050
45,000 Thousand Oaks Redevelopment
Agency Rev., (Single Family
Residential Mortgage Rev.),
7.90%, 1/1/16 (AMBAC) 45,798
2,500,000 Ukiah Electric Rev., 6.25%,
6/1/18 (MBIA) 2,803,325
1,445,000 Walnut Valley Unified School
District GO, Series 1992 B,
6.00%, 8/1/10 (AMBAC)(2) 1,595,049
4,525,000 Woodland Certificates of
Participation, (Wastewater
System Reference Project),
5.75%, 3/1/12 (AMBAC) 4,821,523
--------------------
TOTAL MUNICIPAL SECURITIES--96.9% 180,109,894
--------------------
(Cost $169,539,561)
MUNICIPAL DERIVATIVES(3)
2,000,000 East Bay Municipal Utility District
Wastewater Treatment System
Rev., Yield Curve Notes, Inverse
Floater, 6.82%, 6/1/13
(AMBAC) 2,015,000
1,000,000 San Diego County Water Auth.
Certificates of Participation,
(Reg Rites), Yield Curve Notes,
Inverse Floater, 7.25%, 5/1/09
(FGIC) 1,123,750
$ 2,750,000 Southern California Public Power
Auth. Rev., Yield Curve Notes,
Inverse Floater, 6.62%, 7/1/17
(FGIC) $ 2,629,687
--------------------
TOTAL MUNICIPAL DERIVATIVES--3.1% 5,768,437
--------------------
(Cost $5,853,341)
TOTAL INVESTMENT SECURITIES--100.0% $185,878,331
====================
(Cost $175,392,902)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Indemnity Corporation
BIGI = Bond Investor's Guaranty Inc.
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance
GO = General Obligation
MBIA = MBIA Insurance Company
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is
effective August 31, 1997.
(1) This security is a zero-coupon municipal bond. The yield to maturity at
August 31, 1997 is indicated instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity. On May 1, 2000, rate becomes fixed at 5.75%.
(2) Escrowed in U.S. Government Securities.
(3) Inverse floaters have interest rates that move inversely to market
interest rates. Inverse floaters typically have durations longer than
long-term bonds, which may cause their value to be more volatile than
long-term bonds when interest rates change.
</TABLE>
See Notes to Financial Statements
36 CALIFORNIA INSURED TAX-FREE AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
TAX-FREE MUNICIPAL HIGH-YIELD INSURED
AUGUST 31, 1997 MONEY MARKET MONEY MARKET MUNICIPAL TAX-FREE
ASSETS
<S> <C> <C> <C> <C> <C>
Investment securities, at value (amortized cost
for Tax-Free Money Market and
Municipal Money Market; identified
cost of $181,097,319 and $175,392,902,
respectively) (Note 3) ....................... $416,124,602 $169,592,317 $189,981,517 $185,878,331
Investment in affiliated money
market fund (Note 2) ........................ -- -- 4,257 1,141
Cash ........................................... 1,825,527 381,397 74,451 775,294
Interest receivable ............................ 2,064,219 897,506 3,247,663 3,040,200
-------------- -------------- ------------ -------------
420,014,348 170,871,220 193,307,888 189,694,966
-------------- -------------- ------------ -------------
LIABILITIES
Disbursements in excess of demand
deposit cash ................................. 588,355 23,248 8,471 144,376
Payable for investments purchased .............. 1,187,202 -- -- --
Payable for capital shares redeemed ............ 185,737 260,156 295,919 266,961
Accrued management fees (Note 2) ............... 175,943 72,001 88,054 82,496
Dividends payable .............................. 67,835 27,480 80,620 53,224
Accrued expenses and other liabilities ......... 25,218 10,991 3,533 3,201
-------------- -------------- ------------ -------------
2,230,290 393,876 476,597 550,258
-------------- -------------- ------------ -------------
Net Assets Applicable to
Outstanding Shares ........................... $417,784,058 $170,477,344 $192,831,291 $189,144,708
============== ============== ============ =============
CAPITAL SHARES
Outstanding (Unlimited number of
shares authorized) ........................... 417,784,475 170,519,185 19,919,066 18,241,002
============== ============== ============ =============
Net Asset Value Per Share ...................... $1.00 $1.00 $9.68 $10.37
============== ============== ============ =============
NET ASSETS CONSIST OF:
Capital paid in ................................ $417,784,475 $170,519,185 $181,962,571 $176,640,135
Undistributed net investment income ............ 397,834 116,765 -- --
Accumulated net realized gain (loss) on
investment transactions ...................... (398,251) (158,606) 1,984,522 2,019,144
Net unrealized appreciation on
investments (Note 3) ........................ -- -- 8,884,198 10,485,429
-------------- -------------- ------------ -------------
$417,784,058 $170,477,344 $192,831,291 $189,144,708
============== ============== ============ =============
See Notes to Financial Statements
</TABLE>
ANNUAL REPORT STATEMENTS OF ASSETS AND LIABILITIES 37
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
TAX-FREE MUNICIPAL HIGH-YIELD INSURED
YEAR ENDED AUGUST 31, 1997 MONEY MARKET MONEY MARKET MUNICIPAL TAX-FREE
INVESTMENT INCOME
Income:
<S> <C> <C> <C> <C>
Interest ................................. $15,326,753 $6,675,265 $10,535,071 $10,842,942
-------------- -------------- ------------ -------------
Expenses (Note 2):
Investment advisory fees ................. 1,309,574 564,212 527,834 584,652
Administrative fees ...................... 368,680 160,175 142,879 163,254
Transfer agency fees ..................... 190,056 112,925 70,935 78,485
Printing and postage ..................... 87,452 42,312 27,747 28,882
Custodian fees ........................... 52,180 34,444 18,761 17,621
Auditing and legal fees .................. 33,798 16,301 13,979 15,830
Telephone expenses ....................... 11,863 6,070 5,513 3,095
Trustees' fees and expenses .............. 10,447 7,618 7,298 7,610
Registration and filing fees ............. 1,188 1,817 1,881 890
Other operating expenses ................. 20,579 11,226 25,111 19,791
-------------- -------------- ------------ -------------
2,085,817 957,100 841,938 920,110
-------------- -------------- ------------ -------------
Net investment income .................... 13,240,936 5,718,165 9,693,133 9,922,832
-------------- -------------- ------------ -------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ......... -- -- 2,344 2,673,486
Change in net unrealized
appreciation on investments .............. -- -- 5,003,597 4,232,221
-------------- -------------- ------------ -------------
Net realized and unrealized
gain on investments ...................... -- -- 7,347,779 6,905,707
-------------- -------------- ------------ -------------
Net Increase in Net Assets
Resulting from Operations ................ $13,240,936 $5,718,165 $17,040,912 $16,828,539
============== ============== ============ =============
See Notes to Financial Statements
</TABLE>
38 STATEMENTS OF OPERATIONS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED AUGUST 31, 1997 TAX-FREE MUNICIPAL HIGH-YIELD INSURED
AND AUGUST 31, 1996 MONEY MARKET MONEY MARKET MUNICIPAL TAX-FREE
Increase (Decrease) in Net Assets 1997 1996 1997 1996
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income .................... $ 13,240,936 $ 13,288,453 $ 5,718,165 $ 6,182,773
Net realized gain on investments ......... -- 5,024 -- 3,762
Change in net unrealized
appreciation on investments ............ -- -- -- --
-------------- -------------- ------------ -------------
Net increase in net assets
resulting from operations .............. 13,240,936 13,293,477 5,718,165 6,186,535
-------------- -------------- ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............... (13,314,031) (13,076,367) (5,716,498) (6,134,579)
-------------- -------------- ------------ -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ................ 419,433,691 417,665,171 161,382,680 221,042,487
Proceeds from reinvestment
of distributions ....................... 12,569,974 12,497,339 5,431,054 5,897,189
Payments for shares redeemed ............. (439,992,918) (418,632,419) (192,858,059) (222,193,970)
. -------------- -------------- ------------ -------------
Net increase (decrease) in
net assets from capital share
transactions ........................... (7,989,253) 11,530,091 (26,044,325) 4,745,706
-------------- -------------- ------------ -------------
Net increase (decrease)
in net assets .......................... (8,062,348) 11,747,201 (26,042,658) 4,797,662
NET ASSETS
Beginning of year ........................ 425,846,406 414,099,205 196,520,002 191,722,340
-------------- -------------- ------------ -------------
End of year .............................. $417,784,058 $425,846,406 $170,477,344 $196,520,002
============== ============== ============ =============
Undistributed net
investment income ...................... $397,834 $470,929 $116,765 $115,098
============== ============== ============ =============
TRANSACTIONS IN SHARES OF THE FUNDS
Sold ..................................... 419,433,691 417,665,171 161,382,680 221,042,487
Issued in reinvestment of
distributions .......................... 12,569,974 12,497,339 5,431,054 5,897,189
Redeemed ................................. (439,992,918) (418,632,419) (192,858,059) (222,193,970)
-------------- -------------- ------------ -------------
Net increase (decrease) .................. (7,989,253) 11,530,091 (26,044,325) 4,745,706
============== ============== ============ =============
See Notes to Financial Statements
</TABLE>
ANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS 39
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31, 1997 TAX-FREE MUNICIPAL HIGH-YIELD INSURED
AND AUGUST 31, 1996 MONEY MARKET MONEY MARKET MUNICIPAL TAX-FREE
Increase (Decrease) in Net Assets 1997 1996 1997 1996
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ................... $ 9,693,133 $ 7,834,261 $ 9,922,832 $ 9,926,196
Net realized gain on investments ........ 2,344,182 1,514,159 2,673,486 576,436
Change in net unrealized
appreciation on investments ........... 5,003,597 798,655 4,232,221 1,358,411
-------------- -------------- ------------ -------------
Net increase in net assets
resulting from operations ............. 17,040,912 10,147,075 16,828,539 11,861,043
-------------- -------------- ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .............. (9,698,539) (7,832,946) (9,927,378) (9,925,479)
-------------- -------------- ------------ -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............... 139,322,252 69,487,545 56,168,346 65,937,524
Proceeds from reinvestment of
distributions ......................... 6,931,665 5,609,354 7,003,430 6,845,811
Payments for shares redeemed ............ (105,440,242) (48,901,653) (72,739,195) (61,820,496)
-------------- -------------- ------------ -------------
Net increase (decrease) in
net assets
from capital share
transactions .......................... 40,813,675 26,195,246 (9,567,419) 10,962,839
-------------- -------------- ------------ -------------
Net increase (decrease)
in net assets ......................... 48,156,048 28,509,375 (2,666,258) 12,898,403
NET ASSETS
Beginning of year ....................... 144,675,243 116,165,868 191,810,966 178,912,563
-------------- -------------- ------------ -------------
End of year ............................. $192,831,291 $144,675,243 $189,144,708 $191,810,966
============== ============== ============ =============
Undistributed net investment
income ................................ -- $ 5,406 -- $ 4,546
============== ============== ============ =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold .................................... 14,692,971 7,510,749 5,525,997 6,546,262
Issued in reinvestment of
distributions ......................... 729,711 604,403 666,648 678,581
Redeemed ................................ (11,108,238) (5,267,312) (7,128,973) (6,132,458)
-------------- -------------- ------------ -------------
Net increase (decrease) ................. 4,314,444 2,847,840 (936,328) 1,092,385
============== ============== ============ =============
See Notes to Financial Statements
</TABLE>
40 STATEMENTS OF CHANGES IN NET ASSETS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--American Century California Tax-Free and Municipal Funds (the
Trust) is registered under the Investment Company Act of 1940 as an open-end
management investment company. American Century - Benham California Tax-Free
Money Market Fund (Tax-Free Money Market), American Century - Benham California
Municipal Money Market Fund (Municipal Money Market), American Century - Benham
California High-Yield Municipal Fund (High-Yield), and American Century - Benham
California Insured Tax-Free Fund (Insured) (the "Funds") are four of the seven
funds issued by the Trust. With the exception of Municipal Money Market, each
Fund is diversified under the 1940 Act. The Funds seek income which is exempt
from federal and California income taxes. Tax-Free Money Market and Municipal
Money Market (collectively "Money Market Funds") seek to obtain as high a level
of interest income as is consistent with prudent investment management and
conservation of shareholders' capital. High-Yield seeks to provide as high a
level of current income as is consistent with its investment policies, which
permit investment in lower-rated and unrated municipal securities. Insured seeks
to provide as high a level of current income as is consistent with safety of
principal through investment in insured California municipal securities. The
Funds concentrate their investments in a single state and therefore may have
more exposure to credit risk related to the state of California than a fund with
a broader geographical diversification. The following significant accounting
policies, related to the Funds, are in accordance with accounting policies
generally accepted in the investment company industry.
SECURITY VALUATIONS--Securities held by the Money Market Funds are valued at
amortized cost, which approximates current market value. Securities held by
High-Yield and Insured are valued through valuations obtained from a commercial
pricing service or at the mean of the most recent bid and asked prices. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Trustees.
SECURITY TRANSACTIONS--Security transactions are accounted for on the date
purchased or sold. Net realized gains and losses are determined on the
identified cost basis, which is also used for federal income tax purposes.
INVESTMENT INCOME--Interest income is recorded on the accrual basis and
includes amortization of premiums and discounts. Premiums and original issue
discounts are amortized daily using the effective interest rate method for
High-Yield and Insured. Market discounts are recognized as income upon the sale
or maturity of securities for High-Yield and Insured. Premiums and discounts are
amortized daily on a straight-line basis for securities held by the Money Market
Funds.
INCOME TAX STATUS--It is the Funds' policy to distribute all net investment
income and net realized capital gains to shareholders and to otherwise qualify
as a regulated investment company under the provisions of the Internal Revenue
Code. Accordingly, no provision has been made for federal or state taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are
declared daily and distributed monthly. The Money Market Funds do not expect to
realize any long-term capital gains, and accordingly, do not expect to pay any
capital gains distributions. Distributions from net realized gains for
High-Yield and Insured are declared and paid annually.
At August 31, 1997, accumulated net realized capital loss carryovers for
Tax-Free Money Market of $298,915 (expiring 1999 through 2004) and for Municipal
Money Market of $158,606 (expiring 2003 through 2004) may be used to offset
future taxable gains.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences are due to differences in the
recognition of income and expense items for financial statement and tax
purposes.
FUTURES CONTRACTS--High-Yield and Insured may buy and sell interest rate
futures contracts relating to debt securities. Each Fund may use futures
transactions to maintain cash reserves while remaining fully invested, to
facilitate trading, to reduce transaction costs, or to pursue higher investment
returns when a futures contract is priced more attractively than its underlying
security or index. One of the risks of entering into futures contracts may
include the possibility that the changes in value of the contract may not
correlate with the changes in value of the underlying securities. Upon entering
into a futures contract, the Funds are required to deposit either cash or
securities in an amount equal to a certain percentage of the contract value
(initial margin). Subsequent payments (variation margin) are made or received
daily, in cash, by the Funds. The variation margin is equal to the daily change
in the contract value and is recorded as an unrealized gain or loss. The Fund
recognizes a realized gain or loss when the contract is closed or expires. Net
realized and unrealized gains or losses occurring during the holding period of
futures contracts are a component of realized gain (loss) on investments and
unrealized appreciation (depreciation) on investments, respectively. There were
no open futures contracts at August 31, 1997.
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 41
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
SUPPLEMENTARY INFORMATION--Certain officers and trustees of the Trust are
also officers and/or directors, and, as a group, controlling stockholders of
American Century Companies, Inc., the parent of the Trust's investment manager,
American Century Investment Management, Inc. (ACIM), the Trust's distributor,
American Century Investment Services, Inc., and the Trust's transfer agent,
American Century Services Corporation (ACSC).
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the period. Actual results could differ from these
estimates.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The shareholders of the Funds approved a new management agreement with ACIM
on July 30, 1997, effective August 1, 1997, which replaced the previously
existing contracts between the Funds and Benham Management Corporation and ACSC
for advisory, administrative and transfer agency services. Under the agreement,
ACIM provides all services required by the fund in exchange for one "unified"
management fee. The annual rate at which this fee is assessed is determined
monthly in a two-step process: First, a fee rate schedule is applied to the
assets of all of the funds in the Fund's investment category which are managed
by ACIM (the "Investment Category Fee"). The overall investment objective of
each Fund determines its Investment Category. The three investment categories
are: the Money Market Fund Category, the Bond Fund Category and the Equity Fund
Category. Tax-Free Money Market and Municipal Money Market are included in the
Money Market Fund Category and High-Yield and Insured are included in the Bond
Fund Category. Second, a separate fee rate schedule is applied to the assets of
all of the funds managed by ACIM (the "Complex Fee"). The Investment Category
Fee and the Complex Fee are then added to determine the unified management fee
rate. The management fee is paid monthly by each Fund based on each Fund's
aggregate average daily net assets during the previous month multiplied by the
monthly management fee rate. The annualized Investment Category Fee schedule for
each Fund is as follows:
Tax-Free Money Market and Municipal Money Market:
0.2700% of the first $1 billion
0.2270% of the next $1 billion
0.1860% of the next $3 billion
0.1690% of the next $5 billion
0.1580% of the next $15 billion
0.1575% of the next $25 billion
0.1570% of the average daily net assets over $50 billion
High-Yield:
0.3100% of the first $1 billion
0.2580% of the next $1 billion
0.2280% of the next $3 billion
0.2080% of the next $5 billion
0.1950% of the next $15 billion
0.1930% of the next $25 billion
0.1925% of the average daily net assets over $50 billion
Insured:
0.2800% of the first $1 billion
0.2280% of the next $1 billion
0.1980% of the next $3 billion
0.1780% of the next $5 billion
0.1650% of the next $15 billion
0.1630% of the next $25 billion
0.1625% of the average daily net assets over $50 billion
The annualized Complex Fee (for all Funds) schedule is as follows:
0.3100% of the first $2.5 billion
0.3000% of the next $7.5 billion
0.2985% of the next $15 billion
0.2970% of the next $25 billion
0.2960% of the next $50 billion
0.2950% of the next $100 billion
0.2940% of the next $100 billion
0.2930% of the next $200 billion
0.2920% of the next $250 billion
0.2910% of the next $500 billion
0.2900% of the average daily net assets over $1,250 billion
42 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
The following total expenses, incurred under the new management agreement, are
included in Investment Advisory Fees in the Statements of Operations:
TAX-FREE MUNICIPAL
MONEY MONEY
MARKET MARKET HIGH-YIELD INSURED
- --------------------------------------------------------------------------------
175,943 $ 72,001 $ 88,054 $ 82,49
Total expenses and the ratio of operating expenses to average net assets,
under the previous agreement, for the eleven months ended July 31, 1997 were as
follows:
TAX-FREE MUNICIPAL
MONEY MONEY
MARKET MARKET HIGH-YIELD INSURED
- --------------------------------------------------------------------------------
Total expenses .......$1,909,874 $885,099 $753,884 $837,614
Ratio of operating
expenses to average
net assets ........... 0.49% 0.52% 0.50% 0.48%
As of August 31, 1997, High-Yield had invested $4,257 in shares of Municipal
Money Market and Insured had invested $1,141 in shares of Tax-Free Money Market.
The terms of such transactions were identical to those with non-related entities
except that, to avoid duplicative management fees, High-Yield and Insured did
not pay ACIM management fees with respect to assets invested in Municipal Money
Market and Tax-Free Money Market.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of securities, excluding short-term investments, for High-Yield
and Insured totaled $113,120,496 and $86,968,311, respectively. Sales of
securities, excluding short-term investments, for High-Yield and Insured totaled
$75,579,758 and $93,059,630, respectively.
As of August 31, 1997, accumulated net unrealized appreciation for
High-Yield and Insured was $8,884,198 and $10,485,429, respectively, consisting
of unrealized appreciation of $9,074,857 and $10,628,292, respectively, and
unrealized depreciation of $190,659 and $142,863, respectively. The aggregate
cost of investments for federal income tax purposes was the same as the cost for
financial reporting purposes.
ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 43
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA TAX-FREE MONEY MARKET
For a Share Outstanding Throughout the Years Ended August 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year ..................... $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ............... 0.03 0.03 0.03 0.02 0.02
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......... (0.03) (0.03) (0.03) (0.02) (0.02)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Year .......... $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ==========
Total Return(1) ..................... 3.17% 3.12% 3.31% 2.09% 2.13%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 0.49% 0.49% 0.52% 0.50% 0.51%
Ratio of Net Investment Income
to Average Net Assets ................. 3.10% 3.12% 3.28% 2.07% 2.09%
Net Assets, End
of Year (in thousands) ................ $417,784 $425,846 $414,099 $371,074 $338,731
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
44 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA MUNICIPAL MONEY MARKET
For a Share Outstanding Throughout the Years Ended August 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year .................... $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income .............. 0.03 0.03 0.03 0.02 0.02
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ......... (0.03) (0.03) (0.03) (0.02) (0.02)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Year ......... $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ==========
Total Return(1) .................... 3.15% 3.23% 3.35% 2.15% 2.25%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.52% 0.53% 0.53% 0.51% 0.46%
Ratio of Net Investment Income
to Average Net Assets ................ 3.10% 3.20% 3.31% 2.13% 2.21%
Net Assets, End
of Year (in thousands) ............... $170,477 $196,520 $191,722 $243,701 $247,621
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
ANNUAL REPORT FINANCIAL HIGHLIGHTS 45
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA HIGH-YIELD MUNICIPAL
For a Share Outstanding Throughout the Years Ended August 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year ..................... $9.27 $9.11 $9.06 $9.66 $9.12
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ............... 0.55 0.56 0.56 0.56 0.57
Net Realized and Unrealized
Gain (Loss)
on Investment Transactions .......... 0.41 0.16 0.05 (0.48) 0.54
---------- ---------- ---------- ---------- ----------
Total From Investment Operations .... 0.96 0.72 0.61 0.08 1.11
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......... (0.55) (0.56) (0.56) (0.56) (0.57)
From Net Realized Capital Gains ..... -- -- -- (0.12) --
---------- ---------- ---------- ---------- ----------
Total Distributions ................. (0.55) (0.56) (0.56) (0.68) (0.57)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Year .......... $9.68 $9.27 $9.11 $9.06 $9.66
========== ========== ========== ========== ==========
Total Return(1) ..................... 10.61% 8.02% 7.09% 0.87% 12.61%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 0.50% 0.51% 0.51% 0.51% 0.55%
Ratio of Net Investment Income
to Average Net Assets ................. 5.77% 5.99% 6.30% 6.02% 6.14%
Portfolio Turnover Rate ............... 46% 36% 40% 43% 27%
Net Assets, End
of Year (in thousands) ................ $192,831 $144,675 $116,166 $116,000 $114,564
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
46 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA INSURED TAX-FREE
For a Share Outstanding Throughout the Years Ended August 31
1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Year ..................... $10.00 $9.89 $9.67 $10.64 $9.97
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net Investment Income ............... 0.53 0.53 0.53 0.53 0.55
Net Realized and Unrealized
Gain (Loss)
on Investment Transactions .......... 0.37 0.11 0.22 (0.69) 0.76
---------- ---------- ---------- ---------- ----------
Total From
Investment Operations ............... 0.90 0.64 0.75 (0.16) 1.31
---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income .......... (0.53) (0.53) (0.53) (0.53) (0.55)
From Net Realized Capital Gains ..... -- -- -- (0.21) (0.09)
In Excess of Net Realized Gains ..... -- -- -- (0.07) --
---------- ---------- ---------- ---------- ----------
Total Distributions ................. (0.53) (0.53) (0.53) (0.81) (0.64)
---------- ---------- ---------- ---------- ----------
Net Asset Value,
End of Year ........................... $10.37 $10.00 $9.89 $9.67 $10.64
========== ========== ========== ========== ==========
Total Return(1) ..................... 9.25% 6.60% 8.09% (1.68)% 13.74%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................. 0.48% 0.49% 0.50% 0.49% 0.52%
Ratio of Net Investment Income
to Average Net Assets ................. 5.23% 5.30% 5.54% 5.20% 5.37%
Portfolio Turnover Rate ............... 46% 43% 40% 47% 61%
Net Assets, End
of Year (in thousands) ................ $189,145 $191,811 $178,913 $189,439 $223,440
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
</TABLE>
See Notes to Financial Statements
ANNUAL REPORT FINANCIAL HIGHLIGHTS 47
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
American Century California Tax-Free and Municipal Funds
We have audited the accompanying statements of assets and liabilities,
including the schedules of investment securities, of American Century - Benham
California Tax-Free Money Market Fund, American Century - Benham California
Municipal Money Market Fund, American Century - Benham California High-Yield
Municipal Fund and American Century - Benham California Insured Tax-Free Fund
(four of the series issued by American Century California Tax-Free and Municipal
Funds) (the Funds) as of August 31, 1997, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Funds as of August 31, 1997, the results of their operations,
the changes in their net assets and the financial highlights for the periods
indicated above in conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
October 3, 1997
48 INDEPENDENT AUDITORS' REPORT AMERICAN CENTURY INVESTMENTS
PROXY VOTING RESULTS
An annual meeting of shareholders was held on July 30, 1997, to vote on the
following proposals. All of the proposals received the required majority of
votes and were adopted.
A summary of voting results is listed below each proposal.
PROPOSAL 1:
To vote on the selection by the Board of Directors of Coopers & Lybrand LLP
as independent auditors for the Trust.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 241,656,635 112,322,442
Withheld: 6,410,023 2,904,734
Abstain: 2,485,441 998,875
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 10,856,154 11,518,249
Withheld: 166,594 267,239
Abstain: 128,887 164,667
PROPOSAL 2:
To vote on the approval of a Management Agreement with American Century
Investment Management, Inc.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 229,047,338 106,710,052
Against: 18,494,895 8,360,590
Abstain: 3,009,866 1,155,409
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,402,325 10,762,211
Against: 838,500 866,737
Abstain: 220,973 213,680
Broker Non-Vote: 689,837 107,527
PROPOSAL 3:
To vote on the adoption of standardized investment limitations for the
following items:
* Amend the fundamental investment limitation concerning the issuance of
senior securities.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 221,002,847 105,552,176
Against: 22,798,299 8,141,215
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,081,212 10,267,347
Against: 1,152,973 1,210,996
Abstain: 227,613 364,285
Broker Non-Vote: 689,837 107,527
* Amend the fundamental investment limitation concerning borrowing.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 221,084,256 103,613,020
Against: 22,716,890 10,080,371
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,039,560 10,293,494
Against: 1,197,015 1,222,471
Abstain: 225,223 326,663
Broker Non-Vote: 689,837 107,527
ANNUAL REPORT PROXY VOTING RESULTS 49
PROXY VOTING RESULTS
* Amend the fundamental investment limitation concerning lending.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 220,858,725 101,432,833
Against: 22,942,421 12,260,558
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,025,790 10,310,471
Against: 1,208,378 1,201,778
Abstain: 227,630 330,379
Broker Non-Vote: 689,837 107,527
* Amend the fundamental investment limitation concerning concentration of
investments in a particular industry.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 220,852,822 101,398,835
Against: 22,948,324 12,294,556
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,019,416 10,307,243
Against: 1,208,324 1,203,062
Abstain: 234,058 332,323
Broker Non-Vote: 689,837 107,527
* Eliminate the fundamental investment limitation regarding investments in
illiquid securities.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 220,791,156 103,573,882
Against: 23,009,990 10,119,509
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 8,993,331 10,284,325
Against: 1,227,138 1,211,960
Abstain: 241,329 346,343
Broker Non-Vote: 689,837 107,527
* Eliminate the fundamental limitation concerning investment in other
investment companies.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 220,977,620 101,387,158
Against: 22,823,526 12,306,233
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,004,171 10,267,530
Against: 1,222,840 1,227,105
Abstain: 234,787 347,993
Broker Non-Vote: 689,837 107,527
50 PROXY VOTING RESULTS AMERICAN CENTURY INVESTMENTS
PROXY VOTING RESULTS
* Amend the fundamental investment limitation concerning investments in real
estate.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 221,005,943 101,419,840
Against: 22,795,203 12,273,551
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,035,227 10,323,443
Against: 1,192,503 1,192,927
Abstain: 234,068 326,258
Broker Non-Vote: 689,837 107,527
* Amend the fundamental investment limitation concerning underwriting.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 220,849,983 101,411,170
Against: 22,951,163 12,282,221
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,015,823 10,311,781
Against: 1,199,201 1,199,437
Abstain: 246,774 331,410
Broker Non-Vote: 689,837 107,527
* Amend the fundamental investment limitation concerning commodities.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 221,022,087 103,613,020
Against: 22,779,059 10,080,371
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 8,994,356 10,284,761
Against: 1,219,863 1,230,404
Abstain: 247,579 327,463
Broker Non-Vote: 689,837 107,527
* Eliminate the fundamental limitation concerning short sales.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 221,013,879 103,449,742
Against: 22,787,267 10,243,649
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,023,529 10,291,880
Against: 1,208,596 1,220,251
Abstain: 229,673 330,497
Broker Non-Vote: 689,837 107,527
ANNUAL REPORT PROXY VOTING RESULTS 51
PROXY VOTING RESULTS
* Eliminate the fundamental investment limitation concerning margin purchases
of securities.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 221,543,957 105,548,619
Against: 22,257,189 8,144,772
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,023,981 10,319,788
Against: 1,193,808 1,190,901
Abstain: 244,009 331,939
Broker Non-Vote: 689,837 107,527
* Eliminate the fundamental investment limitation concerning warrants.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 220,892,215 103,829,466
Against: 22,908,931 9,863,925
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,029,106 10,248,149
Against: 1,193,692 1,226,131
Abstain: 239,000 368,348
Broker Non-Vote: 689,837 107,527
* Eliminate the fundamental investment limitation concerning investments in
oil, gas and mineral exploration development programs.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 220,508,031 103,350,731
Against: 23,293,115 10,342,660
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,019,933 10,276,150
Against: 1,207,621 1,235,173
Abstain: 234,244 331,305
Broker Non-Vote: 689,837 107,527
* Eliminate the fundamental investment limitations concerning investments in
securities owned by officers and directors.
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
For: 220,939,154 103,419,382
Against: 22,861,992 10,274,009
Abstain: 6,750,953 2,532,660
Broker Non-Vote: 0 0
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
For: 9,029,927 10,237,515
Against: 1,212,924 1,239,362
Abstain: 218,947 365,751
Broker Non-Vote: 689,837 107,527
52 PROXY VOTING RESULTS AMERICAN CENTURY INVESTMENTS
NOTES
ANNUAL REPORT NOTES 53
NOTES
54 NOTES AMERICAN CENTURY INVESTMENTS
NOTES
ANNUAL REPORT NOTES 55
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY & POLICIES
The Benham Group offers 38 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
CALIFORNIA TAX-FREE MONEY MARKET and CALIFORNIA MUNICIPAL MONEY MARKET seek
to provide interest income exempt from both federal and California state income
taxes while maintaining a stable share price by investing in high-quality
California municipal money market securities with remaining maturities of 13
months or less. There can be no assurance that these funds will be able to
maintain a stable net asset value per share.
CALIFORNIA HIGH-YIELD MUNICIPAL seeks to provide a high level of interest
income exempt from both federal and California state income taxes by investing
in California municipal securities. The fund typically invests a portion of its
assets in lower-quality and unrated securities. The fund is managed to maintain
an average maturity of 10 years or more.
CALIFORNIA INSURED TAX-FREE seeks to provide a high level of interest income
exempt from both federal and California state income taxes by investing in
insured California municipal securities. The fund is managed to maintain an
average maturity of 10 years or more.
COMPARATIVE INDICES
The following index is used in the report for fund performance comparisons.
It is not an investment product available for purchase.
THE LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of more than
2,800 municipal bonds with maturities greater than 22 years. The average credit
rating of the securities in the index is AA2/AA3. The average maturity of the
index is approximately 27 years.
LIPPER RANKINGS
LIPPER ANALYTICAL SERVICES, INC. is an independent mutual fund ranking
service that groups funds according to their investment objectives. Rankings are
based on average annual returns for each fund in a given category for the
periods indicated. Rankings are not included for periods less than one year.
The Lipper categories for the California Tax-Free and Municipal funds are:
CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS (Tax-Free Money Market and
Municipal Money Market)--funds that invest in high-quality California municipal
obligations with dollar-weighted average maturities of less than 90 days.
CALIFORNIA MUNICIPAL DEBT FUNDS (High-Yield Municipal)--funds that invest at
least 65% of assets in securities that are exempt from taxation in California.
CALIFORNIA INSURED MUNICIPAL DEBT FUNDS (Insured Tax-Free)--funds that
invest at least 65% of assets in securities that are exempt from taxation in
California and insured as to timely payment of interest and repayment of
principal.
INVESTMENT TEAM LEADERS
Portfolio Managers Dave MacEwen
Todd Pardula
Portfolio Manager and
Credit Research Director Steven Permut
56 BACKGROUND INFORMATION AMERICAN CENTURY INVESTMENTS
GLOSSARY
RETURNS
* TOTAL RETURN figures show the overall percentage change in the value of a
hypothetical investment in the fund and assume that all of the fund's
distributions are reinvested.
* AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would
have produced the fund's cumulative total returns if the fund's performance had
been constant over the entire period. Average annual returns smooth out
variations in a fund's return; they are not the same as fiscal year-by-year
results. For fiscal year-by-year returns, please refer to the "Financial
Highlights" on pages 44-47.
YIELDS
* 7-DAY CURRENT YIELD is calculated based on the income generated by an
investment in the fund over a seven-day period and is expressed as an annual
percentage rate.
* 7-DAY EFFECTIVE YIELD is calculated similarly, although this figure is
slightly higher than the fund's 7-Day Current Yield because of the effects of
compounding. The 7-Day Effective Yield assumes that income earned from the
fund's investments is reinvested and generating additional income.
* 30-DAY SEC YIELD represents net investment income earned by the fund over a
30-day period, expressed as an annual percentage rate based on the fund's share
price at the end of the 30-day period. The SEC yield should be regarded as an
estimate of the fund's rate of investment income, and it may not equal the
fund's actual income distribution rate, the income paid to a shareholder's
account, or the income reported in the fund's financial statements.
* TAX-EQUIVALENT YIELDS show the taxable yields that investors in a combined
California and federal income tax bracket would have to earn before taxes to
equal the fund's tax-free yield.
INVESTMENT TERMS
* BASIS POINT--a basis point equals one one-hundredth of a percentage point (or
0.01%). Therefore, 100 basis points equal one percentage point (or 1%).
* COUPON--the stated interest rate of a security.
* YIELD CURVE--a graphic representation of the relationship between maturity and
yield for fixed-income securities. Yield curve graphs plot lengthening
maturities along the horizontal axis and rising yields along the vertical axis.
STATISTICAL TERMINOLOGY
* NUMBER OF SECURITIES--the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM)--a measurement of the sensitivity of a
fixed-income portfolio to interest rate changes. WAM indicates the average time
until the securities in the portfolio mature, weighted by dollar amount.
* AVERAGE DURATION-- another measure of the sensitivity of a fixed-income
portfolio to interest rate changes. Duration is a time-weighted average of the
interest and principal payments of the securities in a portfolio.
* EXPENSE RATIO--the operating expenses of the fund, expressed as a percentage
of average net assets.
TYPES OF MUNICIPAL SECURITIES
* AMT PAPER--instruments with income subject to the federal alternative minimum
tax.
* COMMERCIAL PAPER (CP)--high-grade short-term securities backed by a line of
credit from a bank.
* COPS (CERTIFICATES OF PARTICIPATION)/LEASES--securities issued to finance
public property improvements (such as city halls and police stations) and
equipment purchases. Certificates of participation represent long-term debt
obligations, but leases have a higher risk profile because they require annual
appropriation.
* GO BONDS--general obligation securities backed by the taxing power of the
issuer.
* LAND-SECURED BONDS--securities such as Mello-Roos bonds and 1915 Act bonds
that are issued to finance real estate development projects.
* MUNICIPAL NOTES--securities with maturities of two years or less.
* PREREFUNDED/ETM BONDS--securities refinanced or escrowed to maturity by the
issuer because of their premium coupons (higher-than-market interest rates).
These bonds tend to have higher credit ratings because they are backed by
Treasury securities.
* REVENUE BONDS--securities backed by revenues from sales taxes or from a
specific project, system or facility (such as a hospital, electric utility or
water system).
* TAX-ALLOCATION BONDS--securities issued to finance improvements in
redevelopment areas (such as urban neighborhoods).
* VRDNS--variable rate demand notes that track market interest rates and
stabilize their market values using periodic (daily or weekly) interest rate
adjustments.
ANNUAL REPORT GLOSSARY 57
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American
Century(reg.sm)
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
INVESTOR SERVICES:
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE:
1-800-345-8765
TELECOMMUNICATIONS DEVICE FOR THE DEAF:
1-800-634-4113 OR 816-444-3485
FAX: 816-340-7962
INTERNET: www.americancentury.com
AMERICAN CENTURY CALIFORNIA TAX-FREE &
MUNICIPAL FUNDS
INVESTMENT MANAGER
AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
THIS REPORT AND THE STATEMENTS IT
CONTAINS ARE SUBMITTED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THE
REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
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