SEMIANNUAL
REPORT
[american century logo(reg.sm)]
American
Century(reg.tm)
FEBRUARY 28, 1998
BENHAM
GROUP
California Tax-Free Money Market
California Municipal Money Market
TABLE OF CONTENTS
Report Highlights ......................................................... 1
Our Message to You ........................................................ 2
Services Update ........................................................... 3
California Tax-Free Money Market
Performance & Portfolio Information ............................ 4
Management Q & A ............................................... 5
Schedule of Investments ........................................ 7
Financial Highlights ........................................... 23
California Municipal Money Market
Performance & Portfolio Information ............................ 12
Management Q & A ............................................... 13
Schedule of Investments ........................................ 15
Financial Highlights ........................................... 24
Statements of Assets and Liabilities ...................................... 18
Statements of Operations .................................................. 19
Statements of Changes in Net Assets ....................................... 20
Notes to Financial Statements ............................................. 21
Background Information
Investment Philosophy & Policies ............................... 28
Lipper Rankings ................................................ 28
Investment Team Leaders ........................................ 28
Glossary .................................................................. 29
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, based on investment style
and objectives, to help simplify your fund decisions. These groups appear below
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- -------------------------------------------------------------------------------
Benham American Century Twentieth Century
Group 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
We welcome your comments or questions about this report. See the back cover for
ways to contact us by mail, phone or e-mail.
American Century and Benham Group are registered marks of American Century
Services Corporation.
AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
TAX-FREE MONEY MARKET
* The fund's 1.56% return for the six months ended February 28, 1998, beat the
1.46% return of the average California money market fund.
* We extended the fund's average maturity aggressively in October, when
tax-exempt yields became relatively attractive.
* We maintained a fairly short average maturity for the remainder of the
six-month period.
* As the Asian economic crisis developed, we further tightened our already
stringent internal restrictions for investing in municipal securities backed
by Japanese banks.
* We expect short-term interest rates to remain relatively stable in the
coming months, so we plan to maintain the fund's current average maturity.
* We may look to extend the fund's maturity in June and July, when heavy
issuance typically makes one-year municipal notes more attractive.
MUNICIPAL MONEY MARKET
* The fund's 1.60% return for the six months ended February 28, 1998, beat the
1.46% return of the average California money market fund.
* Although we maintained a relatively short average maturity for much of the
period, we extended in February when we found an attractive one-year note.
* As the Asian economic crisis developed, we further tightened our already
stringent internal restrictions for investing in municipal securities backed
by Japanese banks.
* We expect short-term interest rates to remain relatively stable in the
coming months, so we plan to maintain the fund's current average maturity.
* We may look to extend the fund's maturity in June and July, when heavy
issuance typically makes one-year municipal notes more attractive.
TAX-FREE
MONEY MARKET
TOTAL RETURNS: AS OF 2/28/98
6 Months 1.56%*
1 Year 3.19%
7-DAY CURRENT YIELD: 2.88%
NET ASSETS: $457.4 million
(AS OF 2/28/98)
INCEPTION DATE: 11/9/83
TICKER SYMBOL: BCTXX
MUNICIPAL
MONEY MARKET
TOTAL RETURNS: AS OF 2/28/98
6 Months 1.60%*
1 Year 3.24%
7-DAY CURRENT YIELD: 3.03%
NET ASSETS: $168.0 million
(AS OF 2/28/98)
INCEPTION DATE: 12/31/90
TICKER SYMBOL: BNCXX
* Not annualized.
Money market funds are neither insured nor guaranteed by the U.S. government.
Yields will fluctuate, and there can be no assurance that the funds will be able
to maintain a stable $1.00 share price.
Many of the investment terms in this report are defined in the Glossary on page
29.
SEMIANNUAL REPORT REPORT HIGHLIGHTS 1
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
The Benham California money market funds performed well during the six
months ended February 28, 1998, delivering returns that outpaced the average
California tax-free money market fund. And as the performance tables on pages 4
and 12 illustrate, the funds have also consistently provided more tax-free
income than the average California money market fund over the long term.
On the corporate front, this has been an eventful six months. American
Century gained a powerful business partner in January, when J.P. Morgan became a
substantial minority shareholder. J.P. Morgan has been in business over 150
years, serving institutions, governments and individuals with complex financial
needs. The new partnership is very exciting and will allow both companies to
offer investors a highly diverse menu of investment options and services.
As you may be aware, Jim Benham, founder of the Benham Group, retired in
December. With the integration of Benham and Twentieth Century successfully
completed, Jim felt it was time to step back from the business. Much of the
Benham culture has become a part of American Century, including the educational
investor seminar program Jim created. Two of his sons, Jim A. Benham and Tim
Benham, remain with the company to carry on the Benham tradition.
We would also like to let you know what we're doing about the year 2000
issue, which refers to the possible inability of computer systems to distinguish
between the years 1900 and 2000. Like other financial companies, a significant
percentage of our computer operations involves some type of date comparison or
date calculation. Although much of our system is already year 2000 compliant, we
are aggressively addressing the problem and anticipate the project should be
completed by November 1998.
In closing, we are proud to note that 1998 marks the 40th year since
American Century launched its first mutual funds. Not many fund companies can
claim a 40-year track record, or a fund family that includes nearly 70 stock,
bond, money market and blended (stock and bond) funds that provide investors
with such a wide range of choice and flexibility. We believe American Century
has an outstanding lineup of funds to help you reach your financial goals.
Thank you for your investment.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
2 OUR MESSAGE TO YOU AMERICAN CENTURY INVESTMENTS
SERVICES UPDATE
We get many questions from money market investors about our services. Here
are answers to several frequently asked questions.
IS THERE A FEE FOR WRITING CHECKS AGAINST MY MONEY MARKET FUND?
No. You can write as many checks as you want at no charge, as long as each
one is for $100 or more.
BESIDES WRITING A CHECK, HOW ELSE CAN I ACCESS MY MONEY?
There are a couple of easy ways. First, we can send a check directly to you
at your address of record. All you need to do is give us a call or write us a
letter requesting the check, and we'll send it right out to you.
We can also make automatic deposits from your money market fund to your bank
account. Just make sure we have all of your bank information on file, and then
give us a call to request a direct transfer to your bank account.
IS THERE A LIMIT TO THE NUMBER OF EXCHANGES I CAN MAKE OUT OF MY MONEY MARKET
FUND?
No. Exchanges involve moving money from one American Century fund to
another. Although there is a limit of six exchanges per calendar year out of our
bond and stock funds, there is no limit for money market funds.
Exchanges can be made by calling an Investor Services representative,
dialing into our Automated Information Line, writing us a letter, or connecting
to our Web site. You can also make exchanges through our Automatic Exchange plan
or Open Order service.
HOW DO OPEN ORDERS WORK?
Open Orders enable you to buy or sell shares in a mutual fund automatically
at a price you designate. Here's how it works:
* TO BUY--select a fund in which you wish to invest and specify a price at
which you'd like to buy shares. Because the object is to buy low, the price
you specify must be at or below the fund's last closing price. If the fund's
price closes at or below your specified price, we will automatically move
the amount you designated from your money market fund into an account in the
fund you selected.
* TO SELL--select a fund in which you own shares and specify a price at which
you'd like to sell them. Because the object is to sell high, the price you
specify must be at or above the fund's last closing price (we can't place
stop-loss orders). If the fund's price closes at or above your specified
price, we'll sell the number of shares you designated and move the proceeds
into your money market fund.
Some other notes about Open Orders:
* Open Orders last for a maximum of 90 days and may be canceled or extended
whenever you choose.
* Once you've placed, canceled, or modified your Open Order, we'll send a
letter confirming your decision to your address of record.
IF YOU HAVE ANY QUESTIONS ABOUT OUR SERVICES, CALL US TOLL-FREE AT
1-800-345-2021 OR E-MAIL US AT OUR WEB SITE (WWW.AMERICANCENTURY.COM).
SEMIANNUAL REPORT SERVICES UPDATE 3
<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 FEBRUARY 28, 1998
California
Tax-Free
<S> <C> <C> <C> <C> <C> <C>
Money Market 2.88% 2.92% 4.41% 4.60% 4.96% 5.26%
Yields are defined in the Glossary on page 29.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10
YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1998(1)
California Tax-Free Money Market ................. 1.56% 3.19% 3.20% 2.86% 3.57%
Average California
Tax-Exempt
Money Market Fund(2) ............................. 1.46% 2.99% 3.03% 2.76% 3.59%
Fund's Ranking Among
California
Tax-Exempt Money Market Funds(2) ................. -- 11 out of 54 13 out of 48 12 out of 42 6 out of 14
- ----------
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services.
</TABLE>
See pages 28-29 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
2/28/98 8/31/97
Number of Securities 84 86
Weighted Average Maturity 36 days 36 days
Expense Ratio 0.50%* 0.49%
* Annualized.
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.
4 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 Money Market fund investment team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED FEBRUARY 28, 1998?
The fund performed very well, providing a higher level of tax-exempt income
than the average California tax-free money market fund. For the six-month
period, the fund produced a total return of 1.56%, compared with the 1.46%
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.)
WHAT FACTORS HAD THE BIGGEST IMPACT ON THE CALIFORNIA MONEY MARKET?
It was a fairly quiet period for the market. The Federal Reserve kept
short-term interest rates steady, and California money market yields followed
suit, except for some modest seasonal fluctuations.
One of the most unusual events affecting the California market occurred
across the Pacific Ocean--the financial meltdown in Asia. The Asian crisis had a
negative impact on Japanese banks, many of which provide letters of credit
(LOCs) for California tax-exempt money market securities. These banks, which
already had significant credit problems due to deflated Japanese real estate
values, are major lenders to companies in Southeast Asia.
HOW DID THIS SITUATION AFFECT THE FUND?
We've been cutting back on our exposure to Japanese banks over the past few
years. By mid-1997, our internal restrictions limited the fund's investment in
securities backed by Japanese banks to just 5% of fund assets--much less than
the average California money market fund. As the Asian crisis developed, we
decided to go a step further and eliminate all Japanese LOCs from the portfolio.
In their place, we purchased securities backed by U.S. and European LOC
providers, boosting the fund's credit quality (see the charts on page 6).
Second, the Asian turmoil changed expectations about U.S. economic growth
and the direction of interest rates. After the extent of the Asian crisis became
evident, the consensus among economists was that the U.S. economy would likely
slow down. Many investors expected the Fed to lower short-term interest rates as
a counteractive stimulus, perhaps as early as the second quarter of 1998.
However, we believed that the U.S. economy was still too strong for a Fed
action. As a result, we kept the portfolio's weighted average maturity a little
bit shorter than many other California tax-exempt money market funds. That
turned out to be an advantage when short-term interest rates rose in late
January. A shorter weighted average maturity is advantageous when interest rates
rise because assets can be reinvested more rapidly at the higher rates.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/98)
Variable-Rate Notes 71%
Municipal Notes 13%
Commercial Paper 7%
Put Bonds 5%
Bonds less than 1 Year 4%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
Variable-Rate Notes 77%
Municipal Notes 7%
Commercial Paper 7%
Bonds less than 1 Year 5%
Put Bonds 4%
SEMIANNUAL REPORT CALIFORNIA TAX-FREE MONEY MARKET 5
CALIFORNIA TAX-FREE MONEY MARKET
DID THE FUND HAVE A SHORTER-THAN-AVERAGE MATURITY FOR THE ENTIRE PERIOD?
No. In September, the fund was at 33 days, a little shorter than the average
California money market fund. We extended the fund's average maturity out to 65
days in late October because we believed that yields were very attractive
relative to U.S. Treasury bills. Extending the fund's maturity enabled us to
lock in these attractive yields for a longer period of time.
Tax-exempt yields became less attractive in January, so we allowed the
fund's average maturity to shorten. By the end of February, the fund's average
maturity was back down to 36 days.
ASIDE FROM MATURITY, WHY DO YOU THINK YOU OUTPERFORMED YOUR PEER GROUP?
A majority of the fund's assets are invested in variable-rate notes, known
as "floaters." The yields of these securities "float," resetting either daily or
weekly to reflect interest rate changes. Although short-term interest rates in
general were relatively stable during the period, yields on tax-free floaters
fluctuated significantly as supply and demand conditions changed.
These floaters are issued by municipalities and resold by agents who set
rates based on supply and demand in the marketplace. We try to develop
relationships with those agents who can offer us the best yields for these
securities. Our working relationships with these vendors can have as much
influence on performance as our decision on the portfolio's average maturity.
LOOKING AHEAD, WHAT'S IN STORE FOR THE CALIFORNIA MONEY MARKET IN THE COMING
MONTHS?
There are some seasonal factors to consider. We expect money fund assets to
decrease in April as shareholders withdraw funds to make income tax payments.
This can be an opportunity for us because it reduces demand and therefore boosts
the yields of short-term securities.
We'll also look to "note season," a period in June and July when the
majority of one-year California notes are issued, as the best opportunity to
extend the fund's maturity.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Despite the Asian crisis, the U.S. economy is still going strong. Right now,
the market expects the Fed to keep short-term interest rates steady. We'll
continue to keep the fund's average maturity close to neutral, perhaps extending
it if yields become more attractive. We might also extend the fund's maturity if
the U.S. economy shows signs of slowing down later in the year.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/98)
SP1+ 81%
SP1 19%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
SP1+ 64%
SP1 36%
"SP1+" and "SP1" are Standard & Poor's highest credit ratings for short-term
municipal securities.
6 CALIFORNIA TAX-FREE MONEY MARKET AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
$ 7,375,000 Agoura Hills Multifamily Housing
Rev., (Oakridge Apartments),
VRDN, 3.40%, 3/4/98 (LOC:
Continental Casualty Co.) $ 7,375,000
4,700,000 Anaheim Housing Auth. Rev.,
Series 1992 A, (Heritage Village
Apartments), VRDN, 3.00%,
3/5/98 (LOC: Barclays Bank
PLC) 4,700,000
2,000,000 Association of Bay Area
Governments Financing Auth.
Certificates of Participation,
(Bentley School), VRDN, 3.40%,
3/4/98 (LOC: Banque Nationale
de Paris S.A.) 2,000,000
12,080,000 Association of Bay Area
Governments Financing Auth.
for Nonprofit Corps. Rev.,
(University of California Project),
VRDN, 3.30%, 3/5/98 (LOC:
Union Bank of Switzerland) 12,080,000
10,615,000 Azusa Multifamily Housing Rev.,
(Pacific Glen Apartments
Project), VRDN, 3.50%, 3/5/98 (LOC:
Continental Casualty Co.) 10,615,000
5,000,000 Bassett Unified School District
Certificates of Participation,
(Capital Improvement Project),
VRDN, 3.60%, 3/5/98 (LOC:
Union Bank of California, N.A.) 5,000,000
4,500,000 California Educational Facilities
Auth. Rev., (Mount St. Mary's
College), VRDN, 3.35%, 3/4/98
(LOC: Allied Irish Banks, PLC) 4,500,000
1,500,000 California Educational Facilities
Auth. Rev., (University of
Southern California), 4.35%,
10/1/98 1,504,354
2,640,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(University of Southern
California), 4.125%, 10/1/98 2,643,751
5,000,000 California Health Facilities Auth.
Rev., (Episcopal Home Project),
VRDN, 3.95%, 3/2/98 (LOC:
Union Bank of California, N.A.) 5,000,000
Principal Amount Value
- ------------------------------------------------------------------------------
$ 1,175,000 California Health Facilities
Financing Auth. Rev.,
(Presbyterian Hospital), 4.50%,
5/1/98 (MBIA) $ 1,176,437
6,000,000 California Health Facilities
Financing Auth. Rev.,
Series 1985 B, (Scripps
Memorial Hospital), VRDN,
3.35%, 3/5/98 (MBIA)
(SBBPA: Morgan Guaranty Trust
Co. of New York) 6,000,000
1,000,000 California Health Facilities
Financing Auth. Rev.,
Series 1987 A, (Pooled Loan
Program), VRDN, 3.35%,
3/5/98 (LOC: Rabobank
Nederland) 1,000,000
2,200,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Pooled Project), VRDN,
3.35%, 3/4/98 (LOC:
Rabobank Nederland) 2,200,000
5,000,000 California Health Facilities
Financing Auth. Rev.,
Series 1993 A, (Kaiser
Permanente), VRDN, 3.50%,
3/4/98 5,000,000
14,500,000 California Health Facilities
Financing Auth. Rev.,
Series 1993 B, (Kaiser
Permanente), VRDN, 3.50%,
3/4/98 (Guaranteed: Kaiser
Permanente Medical Care
Program) 14,500,000
2,235,000 California Health Facilities
Financing Auth. Rev.,
Series 1997 C, (Sutter Health),
4.25%, 8/15/98 (FSA) 2,239,132
10,500,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA, Inc. Project), 4.00%,
5/15/98 (Guaranteed: Chevron
Corporation) 10,500,000
1,000,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA, Inc. Project), 3.85%,
11/15/98 (Guaranteed: Chevron
Corporation) 1,000,000
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA TAX-FREE MONEY MARKET 7
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- ------------------------------------------------------------------------------
$ 5,000,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, 3.75%,
3/16/98 (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) 19,055,845
5,000,000 California School Facilities
Financing Corp. Certificates of
Participation, Series 1998 A,
(Capital Improvement Financing
Projects), VRDN, 3.05%,
3/4/98 (LOC: Bayerische
Vareinsbank A.G.) 5,000,000
4,000,000 California State GO, 10.00%,
4/1/98 4,020,840
3,000,000 California State GO, 3.55%,
4/7/98 (Line of Credit: Credit
Suisse, First Boston, Inc., Morgan
Guaranty Trust Co. of New York,
Bayerische Landesbank
Girozentrale, Landesbank
Hessen-Thuringen Girozentrale,
Westdeutsche Landesbank
Girozentrale) 3,000,000
1,620,000 California State Public Works
Board Lease Rev., Series 1997 C,
(University of California Projects),
4.50%, 9/1/98 1,625,118
13,000,000 California State Revenue
Anticipation Notes, 4.50%,
6/30/98 13,027,225
19,000,000 California State Revenue
Anticipation Notes, Floating Rate
Trust Receipts, Series 1997-23,
3.90%, 3/2/98 (LOC: Bank of
New York)(1) 19,000,000
7,800,000 California Statewide Certificates of
Participation, (Covenant
Retirement Community), VRDN,
3.25%, 3/5/98 (LOC: LaSalle
National Bank) 7,800,000
5,000,000 California Statewide Communities
Apartment Development Auth.
Rev., (Whispering Winds
Apartments), VRDN, 3.40%,
3/4/98 (LOC: Continental
Casualty Co.) 5,000,000
Principal Amount Value
- ------------------------------------------------------------------------------
$ 2,385,000 Central Unified School District
Certificates of Participation,
VRDN, 3.60%, 3/4/98 (LOC:
Union Bank of California, N.A.) $ 2,385,000
2,700,000 Covina Redevelopment Agency Multifamily
Housing Rev., (Shadowhills Apartments),
VRDN, 3.50%, 3/5/98 (LOC:
Continental Casualty Co.) 2,700,000
2,130,000 Dinuba Financing Auth. Lease Rev.
Certificates of Participation,
Series 1996 A, (Wastewater
Treatment Plant), VRDN, 3.60%,
3/4/98 (LOC: Union Bank of
California, N.A.) 2,130,000
3,000,000 East Bay Municipal Utility District
Rev., 3.75%, 4/20/98 (LOC:
Westdeutsche Landesbank
Girozentrale) 3,000,000
2,000,000 Fremont Certificates of
Participation, (Family Resource
Center Financing), VRDN, 2.95%,
3/5/98 (LOC: Kredietbank N.V.) 2,000,000
2,000,000 Glendale Industrial Development
Auth. Rev., (Reliance
Development), VRDN, 3.45%,
3/13/98 (LOC: Barclays Bank
PLC) 2,000,000
1,320,000 Hanford Certificates of
Participation, (Public IMPC
Corp.), VRDN, 3.60%, 3/5/98
(LOC: Union Bank of California,
N.A.) 1,320,000
2,755,000 Hanford Sewer Rev.,
Series 1996 A, VRDN, 3.60%,
3/5/98 (LOC: Union Bank of
California, N.A.) 2,755,000
3,500,000 Hemet Multifamily Housing Auth.
Rev., (Sunwest Resort), VRDN,
3.15%, 3/5/98 (LOC: FHLB) 3,500,000
4,800,000 Hemet Multifamily Housing Auth.
Rev., (West Acacia), VRDN,
3.15%, 3/5/98 (LOC: FHLB) 4,800,000
15,100,000 Kern County Superintendent of
Schools Certificates of
Participation, VRDN, 3.40%,
3/5/98 (LOC: Anchor National
Life Insurance Company) 15,100,000
See Notes to Financial Statements
8 CALIFORNIA TAX-FREE MONEY MARKET AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- ------------------------------------------------------------------------------
$ 4,250,000 Lancaster Redevelopment Agency Rev.,
Series 1996 C, (20th Street
Apartment Project), VRDN, 3.25%,
3/5/98 (LOC:
FHLB) $ 4,250,000
2,100,000 Lemore Certificates of Participation,
(Golf Course Project), VRDN,
3.60%, 3/5/98 (LOC: Union
Bank of California, N.A.) 2,100,000
2,600,000 Livermore Certificates of
Participation, (Reverse Osmosis
Project), VRDN, 3.30%, 3/5/98
(LOC: National Westminster
Bank PLC) 2,600,000
3,000,000 Loma Linda Water Rev., VRDN,
3.60%, 3/4/98 (LOC: Union
Bank of California, N.A.) 3,000,000
5,000,000 Long Beach Multifamily Housing Rev.,
(Channel Point Apartments), VRDN,
3.30%, 3/4/98 (LOC:
Union Bank of California, N.A.) 5,000,000
4,000,000 Los Angeles Community
Redevelopment Agency Rev.,
(Grand Promenade), VRDN,
3.10%, 3/5/98 (LOC: Bank of
America N.T. & S.A.) 4,000,000
4,800,000 Los Angeles Community
Redevelopment Agency Rev.,
VRDN, 3.05%, 3/5/98 (LOC:
Barclays Bank PLC) 4,800,000
3,000,000 Los Angeles County Capital
Leasing Corp. Certificates of
Participation, 3.70%, 3/6/98
(LOC: Westdeutsche Landesbank
Girozentrale, Bayerische
Landesbank Girozentrale, Morgan
Guaranty Trust Co. of New York) 3,000,000
1,000,000 Los Angeles County Schools
Regionalized Business Services
Certificates of Participation,
Series 1997 C, (Local
Educational Agencies), 4.25%,
10/1/98 (FSA) 1,002,546
17,730,000 Los Angeles Multifamily Housing
Rev., Series 1985 K, VRDN,
3.15%, 3/3/98 (LOC: FHLB) 17,730,000
Principal Amount Value
- ------------------------------------------------------------------------------
$ 3,500,000 Los Angeles Wastewater Systems
Rev., 3.68%, 4/7/98 (LOC:
Morgan Guaranty Trust Co. of
New York, Union Bank of
Switzerland) $ 3,500,000
5,000,000 Los Angeles Wastewater Systems
Rev., 3.70%, 5/7/98 (LOC:
Morgan Guaranty Trust Co. of
New York, Union Bank of
Switzerland) 5,000,000
3,000,000 Los Angeles Wastewater Systems
Rev., 3.70%, 5/8/98 (LOC:
Morgan Guaranty Trust Co. of
New York, Union Bank of
Switzerland) 3,000,000
2,000,000 Modesto Multifamily Housing Rev.,
Series 1996 A, (Shadowbrook),
VRDN, 3.30%, 3/5/98 (LOC:
Bank of America N.T. & S.A.) 2,000,000
1,950,000 Moreno Valley Certificates of
Participation, (City Hall
Refinancing Project), VRDN,
3.60%, 3/5/98 (LOC: Union
Bank of California, N.A.) 1,950,000
9,500,000 Oceanside Multifamily Housing
Rev., (Lakeridge Apartments
Project), VRDN, 3.45%, 3/4/98
(LOC: Continental Casualty Co.) 9,500,000
4,600,000 Orange County Local
Transportation Auth. Rev., 3.40%,
6/12/98 (LOC: Union Bank of
Switzerland) 4,600,000
4,000,000 Orange County Multifamily Housing
Auth. Rev., (Lantern Pines),
VRDN, 3.20%, 3/4/98 (LOC:
Bank of America N.T. & S.A.) 4,000,000
700,000 Palm Springs Redevelopment
Agency Certificates of
Participation, VRDN, 3.15%,
3/4/98 (LOC: Citibank, N.A.) 700,000
2,720,000 Poway Unified School District
Special Tax Rev., (Community
Facilities District No. 1), 4.25%,
10/1/98 (MBIA) 2,730,107
9,740,000 Redlands Certificates of Participation,
(Sewer Treatment Facilities Project),
VRDN, 3.05%, 3/4/98 (FGIC) (SBBPA:
General Electric Capital Corp.) 9,740,000
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA TAX-FREE MONEY MARKET 9
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- ------------------------------------------------------------------------------
$ 9,045,000 Redlands Certificates of Participation,
(Water Treatment Facilities Project),
VRDN, 3.05%, 3/4/98 (FGIC)(SBBPA:
General Electric Capital Corp.) $ 9,045,000
2,500,000 Riverside County GO, 3.75%,
4/23/98 (LOC: Westdeutsche
Landesbank Girozentrale) 2,500,000
3,420,000 Riverside County Multifamily
Housing Rev., (Ambergate
Apartments), VRDN, 3.25%,
3/5/98 (LOC: Union Bank of
California, N.A.) 3,420,000
1,715,000 Rohnert Park Multifamily Housing
Rev., (Crossbrook Apartments),
VRDN, 3.05%, 3/4/98 (FNMA
Collateral Agreement) 1,715,000
5,990,000 Sacramento County Multifamily
Housing Rev., (River Oaks),
VRDN, 3.35%, 3/5/98 (LOC:
Chase Manhattan Bank) 5,990,000
3,400,000 Sacramento County Multifamily
Housing Rev., Series 1996 A,
VRDN, 3.10%, 3/4/98 (LOC:
California State Teachers'
Retirement System) 3,400,000
25,375,000 San Bernardino County Certificates
of Participation, VRDN, 3.46%,
3/5/98 (MBIA) (SBBPA: Merrill
Lynch & Co., Inc.) 25,375,000
3,350,000 San Bernardino County Multifamily
Housing Rev., Series 1992 A,
(Arrowview Park Apartments
Project), VRDN, 3.15%, 3/5/98
(LOC: FHLB) 3,350,000
1,800,000 San Bernardino County Multifamily
Housing Rev., Series 1993 A,
(Monterey Villas Apartments),
VRDN, 3.15%, 3/5/98 (LOC:
FHLB) 1,800,000
2,800,000 San Bernardino County Multifamily
Housing Rev., Series 1997 A,
(Mountain View), VRDN, 3.40%,
3/5/98 (LOC: FHLB) 2,800,000
12,625,000 San Diego County Tax and
Revenue Anticipation Notes,
4.50%, 9/30/98 (LOC: Bank of
Nova Scotia, Canadian Imperial
Bank, Commerzbank
Aktiengesellschaft) 12,672,384
Principal Amount Value
- ------------------------------------------------------------------------------
$ 4,300,000 San Diego Multifamily Housing
Rev., Series 1993 A, (Coral
Point Apartments), VRDN, 3.50%,
3/5/98 (LOC: Continental
Casualty Co.) $ 4,300,000
10,830,000 San Diego Public Facilities Sewer
Financing Auth. Rev., VRDN,
3.36%, 3/5/98 (FGIC) (SBBPA:
Merrill Lynch & Co., Inc.) 10,830,000
6,500,000 San Francisco City and County GO,
Series 1, 4.50%, 6/15/98
(FGIC) 6,512,488
5,150,000 San Francisco City and County
Redevelopment Financing
Auth. Rev., (Yerba Buena Garden),
VRDN, 3.25%, 3/4/98(LOC:
National Westminster Bank PLC) 5,150,000
3,000,000 Santa Barbara County Tax and
Revenue Anticipation Notes,
Series 1997 A, 4.50%,
10/1/98 3,010,529
10,000,000 South Coast County Local
Educational Agencies Tax and
Rev. Anticipation Notes, Series
1997 A, 4.50%, 6/30/98
(MBIA) 10,020,399
550,000 South San Francisco Certificates
of Participation, (Quality Control
Plant Project), VRDN, 3.30%,
3/5/98 (LOC: National
Westminster Bank PLC) 550,000
8,800,000 Southern California Public Power
Auth. Rev., VRDN, 3.00%,
3/4/98 (FSA) (SBBPA: Morgan
Guaranty Trust Co. of New York) 8,800,000
5,400,000 Three Valleys Municipal Water
District Certificates of
Participation, (Miramar Water
Treatment), VRDN, 3.30%,
3/4/98 (LOC: Barclays Bank
PLC) 5,400,000
1,500,000 Triunfo Sanitation District Rev.,
VRDN, 3.45%, 3/4/98
(LOC: Banque Nationale
de Paris S.A.) 1,500,000
5,000,000 Victor Valley Community College
Certificates of Participation,
VRDN, 3.05%, 3/5/98 (LOC:
Banque Nationale de Paris S.A.,
Union Bank of California, N.A.) 5,000,000
See Notes to Financial Statements
10 CALIFORNIA TAX-FREE MONEY MARKET AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA TAX-FREE MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- ------------------------------------------------------------------------------
$ 1,700,000 West Sacramento Financing Auth.
Special Tax Rev., Series 1996 C,
VRDN, 3.20%, 3/5/98 (LOC:
Wells Fargo Bank, N.A.) $ 1,700,000
2,000,000 Westminster Redevelopment
Agency Tax Allocation Rev.,
(Commercial Redevelopment
Project No. 1), 3.20%, 3/5/98
(AMBAC) (SBBPA: Landesbank
Hessen - Thuringen Girozentrale) 2,000,000
--------------------
TOTAL INVESTMENT SECURITIES--100.0% $454,296,155
====================
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FHLB = Federal Home Loan Bank
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
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 February 28, 1998.
(1) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1998.
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA TAX-FREE MONEY MARKET 11
<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 FEBRUARY 28, 1998
California Municipal
<S> <C> <C> <C> <C> <C> <C>
Money Market 3.03% 3.07% 4.64% 4.84% 5.22% 5.53%
Yields are defined in the Glossary on page 29.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS LIFE OF
FUND(2)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1998(1)
California Municipal Money Market ............... 1.60% 3.24% 3.25% 2.91% 3.13%
Average California
Tax-Exempt
Money Market Fund(3) ............................ 1.46% 2.99% 3.03% 2.76% 2.91%
Fund's Ranking Among
California
Tax-Exempt Money Market Funds(3) ................ -- 9 out of 54 10 out of 48 9 out of 42 6 out of 35
- ----------
(1) Returns for periods less than one year are not annualized.
(2) Inception date was December 31, 1990.
(3) According to Lipper Analytical Services.
</TABLE>
See pages 28-29 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
2/28/98 8/31/97
Number of Securities 50 57
Weighted Average Maturity 47 days 38 days
Expense Ratio 0.50%* 0.52%
* Annualized.
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.
12 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
Municipal Money Market fund investment team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED FEBRUARY 28, 1998?
The fund performed very well, providing a higher level of tax-exempt income
than the average California tax-free money market fund. For the sixmonth period,
the fund produced a total return of 1.60%, compared with the 1.46% 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.)
WHAT FACTORS HAD THE BIGGEST IMPACT ON THE CALIFORNIA MONEY MARKET?
It was a fairly quiet period for the market. The Federal Reserve kept
short-term interest rates steady, and California money market yields followed
suit, except for some modest seasonal fluctuations.
One of the most unusual events affecting the California market occurred
across the Pacific Ocean--the financial meltdown in Asia. The Asian crisis had a
negative impact on Japanese banks, many of which provide letters of credit
(LOCs) for California tax-exempt money market securities. These banks, which
already had significant credit problems due to deflated Japanese real estate
values, are major lenders to companies in Southeast Asia.
HOW DID THIS SITUATION AFFECT THE FUND?
We've been cutting back on our exposure to Japanese banks over the past few
years. By mid-1997, our internal restrictions limited the fund's investment in
securities backed by Japanese banks to just 5% of fund assets--much less than
the average California money market fund. As the Asian crisis developed, we went
a step further and eliminated all Japanese LOCs from the portfolio. In their
place, we purchased securities backed by U.S. and European LOCs.
Second, the Asian turmoil changed expectations about U.S. economic growth
and the direction of interest rates. After the extent of the Asian crisis became
evident, the consensus among economists was that the U.S. economy would likely
slow down. Many investors expected the Fed to lower short-term interest rates as
a counteractive stimulus, perhaps as early as the second quarter of 1998.
However, we believed that the U.S. economy was still too strong for a Fed
action. As a result, we kept the portfolio's average maturity shorter than many
other California money market funds. That turned out to be an advantage when
short-term interest rates rose in late January. A shorter average maturity is
advantageous when interest rates rise because assets can be reinvested more
rapidly at the higher rates.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/98)
Variable-Rate Notes 76%
Municipal Notes 9%
Put Bonds 8%
Bonds less than 1 Year 5%
Commercial Paper 2%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
Variable-Rate Notes 78%
Bonds less than 1 Year 12%
Put Bonds 4%
Commercial Paper 4%
Municipal Notes 2%
SEMIANNUAL REPORT CALIFORNIA MUNICIPAL MONEY MARKET 13
CALIFORNIA MUNICIPAL MONEY MARKET
DID THE FUND HAVE A SHORTER-THAN-AVERAGE MATURITY FOR THE ENTIRE PERIOD?
No. In September, the fund was at 38 days, shorter than the average
California money market fund. We extended the average maturity out to 60 days in
late October because yields looked very attractive relative to U.S. Treasury
bills. Extending the fund's maturity enabled us to lock in these attractive
yields for a longer period of time.
Tax-exempt yields became less attractive in January, so we allowed the
fund's average maturity to shorten. However, we purchased a one-year security in
mid-February, extending the fund's average maturity to 50 days.
ASIDE FROM MATURITY, WHY DO YOU THINK YOU OUTPERFORMED YOUR PEER GROUP?
A majority of the fund's assets are invested in variable-rate notes, known
as "floaters." The yields of these securities "float," resetting either daily or
weekly to reflect interest rate changes. Although short-term interest rates in
general were relatively stable during the period, yields on tax-free floaters
fluctuated significantly as supply and demand conditions changed.
These floaters are issued by municipalities and resold by agents who set
rates based on supply and demand in the marketplace. We try to develop
relationships with those agents who can offer us the best yields for these
securities. Our working relationships with these vendors can have as much
influence on performance as our decision on the portfolio's average maturity.
THE FUND INVESTS IN SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX (AMT). WHY
IS THAT SIGNIFICANT TO INVESTORS?
Interest from AMT securities can have tax implications for shareholders
subject to the alternative minimum tax. Because of this potential tax liability,
AMT securities usually offer slightly higher yields.
Investors subject to AMT should consider our California Tax-Free Money
Market Fund, which does not invest in AMT securities.
LOOKING AHEAD, WHAT'S IN STORE FOR THE CALIFORNIA MONEY MARKET IN THE COMING
MONTHS?
There are some seasonal factors to consider. We expect money fund assets to
decrease in April as shareholders withdraw funds to make income tax payments.
This can be an opportunity for us because it reduces demand and therefore boosts
the yields of short-term securities.
We'll also look at "note season," a period in June and July when the
majority of one-year California notes are issued, as the best opportunity to
extend the fund's maturity.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Despite the Asian crisis, the U.S. economy is still going strong. Right now,
the market expects the Fed to keep short-term interest rates steady. We'll keep
the fund's average maturity close to neutral, perhaps extending it if yields
become more attractive. We might also extend the fund's maturity if the U.S.
economy shows signs of slowing down later in the year.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/98)
SP1+ 66%
SP1 31%
SP2 3%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
SP1+ 59%
SP1 41%
"SP1+" and "SP1" are Standard & Poor's highest credit ratings for short-term
municipal securities.
14 CALIFORNIA MUNICIPAL MONEY MARKET AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA MUNICIPAL MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
$ 1,900,000 Alameda County Industrial
Development Auth. Rev.,
Series 1994 A, (Scientific
Technology Project), VRDN,
3.40%, 3/4/98 (LOC: Banque
National de Paris S.A.) $ 1,900,000
5,000,000 Alameda County Industrial
Development Auth. Rev.,
Series 1996 A, (Edward L.
Shimmon Inc.), VRDN, 3.40%,
3/5/98 (LOC: Banque Nationale
de Paris S.A.) 5,000,000
1,500,000 Alameda County Industrial
Development Auth. Rev.,
Series 1997 A, (Dicon Fiberoptics
Inc.), VRDN, 3.40%, 3/5/98
(LOC: Wells Fargo Bank, N.A.) 1,500,000
2,200,000 Association of Bay Area Governments
Multifamily Housing
Rev., Series 1997 A, (Mountain View
Apartments), VRDN,
3.50%, 3/5/98 (LOC:
Comerica Bank) 2,200,000
700,000 Berkeley Revenue Bonds,
(Berkeley YMCA), 4.80%,
6/1/98 (LOC: Banque Nationale
de Paris S.A.) 701,565
3,300,000 California Health Facilities Auth. Rev.,
(Episcopal Home Project),
VRDN, 3.95%, 3/2/98 (LOC:
Union Bank of California, N.A.) 3,300,000
3,625,000 California Housing Financing
Agency Mortgage Rev.,
Series 1996 J, Mandatory Put,
3.95%, 8/1/98 (Investment
Agreement: FGIC) 3,625,000
3,360,000 California Housing Financing
Agency Rev., VRDN, 3.41%,
3/5/98 (MBIA) (SBBPA: Credit
Suisse First Boston, Inc.) 3,360,000
7,770,000 California Housing Financing
Agency Rev., Series 1996 A,
Class A Certificates, VRDN,
3.61%, 3/5/98 (LOC: Caisse
Des Depots Et Consignations) 7,770,000
Principal Amount Value
- ------------------------------------------------------------------------------
$ 1,600,000 California Housing Financing
Agency Rev., Series 1997 B,
(Multifamily Housing III), VRDN,
3.50%, 3/4/98 (LOC: Credit
Suisse First Boston, Inc., Morgan
Guaranty Trust Co. of New York) $ 1,600,000
10,430,000 California Housing Financing
Agency Rev., Series 1997 C,
(Multifamily Housing III), VRDN,
3.50%, 3/4/98 (LOC: Credit
Suisse First Boston, Inc., Morgan
Guaranty Trust Co. of New York) 10,430,000
1,700,000 California Housing Financing
Agency Rev., Series 1998 C,
3.55%, 2/1/99 (Investment
Agreement: FGIC) 1,700,000
6,000,000 California Housing Financing
Agency Rev., Series 1998 E,
3.55%, 3/12/99 (Investment
Agreement: American
International Group, Inc.) 6,000,000
9,100,000 California Pollution Control Financing
Auth. Solid Waste
Disposal Rev., Series 1994 A,
(Western Waste Industries),
VRDN, 3.70%, 3/5/98 (LOC:
Union Bank of California, N.A.) 9,100,000
2,300,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, 3.75%,
3/16/98 (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) 4,011,674
1,200,000 California State Economic Development
Financing Auth. Industrial Rev.,
(CALCO Project), VRDN, 3.50%,
3/4/98 (LOC:
Wells Fargo Bank, N.A.) 1,200,000
3,040,000 California State Economic
Development Financing Auth.
Industrial Rev., (Vortech
Engineering Inc. Project), VRDN,
3.95%, 3/4/98 (LOC: Bank of
Hawaii) 3,040,000
6,000,000 California State Rev. Anticipation
Notes, 4.50%, 6/30/98 6,012,570
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA MUNICIPAL MONEY MARKET 15
SCHEDULE OF INVESTMENTS
CALIFORNIA MUNICIPAL MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- ------------------------------------------------------------------------------
$ 5,600,000 California State Rev. Anticipation
Notes, Floating Rate Trust
Receipts, Series 1997-23,
3.90%, 3/2/98 (LOC: Bank of
New York)(1) $ 5,600,000
5,000,000 California State Veterans GO,
VRDN, 3.41%, 3/5/98 (FSA)
(SBBPA: Merrill Lynch & Co., Inc.) 5,000,000
4,000,000 California Statewide Communities
Development Auth.
Multifamily Housing Rev.,
Series 1997 A, (Plaza Club
Apartments Project), VRDN,
3.50%, 3/4/98 (LOC:
Comerica Bank) 4,000,000
1,200,000 California Statewide Communities
Development Auth.
Multifamily Housing Rev.,
Series 1997 G, (Sunrise of
Moraga), VRDN, 3.35%, 3/5/98 (LOC:
Commerzbank A.G.) 1,200,000
1,365,000 California Statewide Communities
Development Auth. Rev.,
Series 1996 G, (Lansmont
Property), VRDN, 3.30%, 3/4/98
(LOC: Wells Fargo Bank, N.A.) 1,365,000
1,500,000 California Statewide Communities
Development Corp. Rev., (K.U.M.
Ltd. Project), VRDN, 3.65%,
3/4/98 (LOC: Union Bank of
California, N.A.) 1,500,000
3,615,000 Contra Costa County Certificates
of Participation, (Concord
Healthcare Center), VRDN,
3.40%, 3/4/98 (LOC:
NationsBank, N.A.) 3,615,000
1,800,000 Fowler Industrial Development
Auth. Rev., (Bee Sweet Citrus
Inc.), VRDN, 3.50%, 3/5/98
(LOC: Bank of America N.T. &
S.A.) 1,800,000
3,500,000 Hanford Sewer Rev., Series 1996 A,
VRDN, 3.60%, 3/5/98 (LOC:
Union Bank of California, N.A.) 3,500,000
1,000,000 Irvine Industrial Development Auth.
Rev., Series 1997 A, (Sabritec
Project), VRDN, 3.55%, 3/4/98
(LOC: Union Bank of California,
N.A.) 1,000,000
Principal Amount Value
- ------------------------------------------------------------------------------
$ 3,900,000 Kern County Superintendent of
Schools Certificates of
Participation, Series 1996 A,
VRDN, 3.40%, 3/5/98 (LOC:
Anchor National Life Insurance
Company) $ 3,900,000
2,300,000 Lassen Municipal Utility District Rev.,
Series 1996 A,
VRDN, 3.35%, 3/5/98 (FSA) (SBBPA:
Credit Local de France) 2,300,000
2,000,000 Los Angeles County Capital
Leasing Corp. Certificates of
Participation, 3.70%, 3/6/98
(LOC: Bayerische Landesbank
Girozentrale, Westdeutsche
Landesbank Girozentrale, Morgan
Guaranty Trust Co. of New York) 2,000,000
1,185,000 Los Angeles County Industrial
Development Auth. Rev.,
(Keystone Engineering Company
Project), VRDN, 3.55%, 3/4/98
(LOC: Bank of Hawaii) 1,185,000
1,800,000 Los Angeles County Industrial
Development Auth. Rev.,
Series 1989 A, (Tulip Corporation
Project), VRDN, 3.10%,
3/4/98 (LOC:
LaSalle National Bank) 1,800,000
1,500,000 Los Angeles County Wastewater
Rev., 3.68%, 4/7/98 (LOC:
Morgan Guaranty Trust Co. of
New York, Union Bank of
Switzerland) 1,500,000
3,900,000 Los Angeles Multifamily Housing
Rev., Series 1989 C, (Vermont
Knoll Apartments), VRDN,
3.50%, 3/4/98 (LOC: Wells
Fargo Bank, N.A.) 3,900,000
3,500,000 Los Angeles Multifamily Housing
Rev., Series 1997 D, (Mission
Village Terrace), VRDN, 3.30%,
3/5/98 (LOC: FHLB) 3,500,000
4,500,000 Oceanside Multifamily Housing
Rev., (Lakeridge Apartments
Project), VRDN, 3.45%, 3/4/98
(LOC: Continental Casualty Co.) 4,500,000
See Notes to Financial Statements
16 CALIFORNIA MUNICIPAL MONEY MARKET AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA MUNICIPAL MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- ------------------------------------------------------------------------------
$ 3,000,000 Orange County Industrial
Development Auth. Rev.,
Series 1997 A, (Control Air
Conditioning Project), VRDN,
3.50%, 3/4/98 (LOC: California
State Teachers' Retirement
System) $ 3,000,000
3,220,000 Orange County Public Financing
Auth. Waste Management
Systems Rev., 4.75%, 12/1/98
(AMBAC) 3,240,055
1,250,000 Petaluma Community Development
Multifamily Housing Rev.,
Series 1996 A, (Oakmont at
Petaluma), VRDN, 3.30%,
3/5/98 (LOC: U.S. Bank, N.A.) 1,250,000
2,660,000 Pleasant Hill Redevelopment
Agency Multifamily Housing Rev.,
Series 1996 A, (Chateau III
Project), VRDN, 3.30%, 3/5/98
(LOC: Commerzbank A.G.) 2,660,000
2,320,000 Riverside County Industrial
Development Auth. Rev., (Merrick
Engineering Inc.), VRDN, 3.50%,
3/4/98 (LOC: Wells Fargo Bank,
N.A.) 2,320,000
1,015,000 Riverside County Multifamily
Housing Rev., Series 1986 A,
(Tyler Village Project), VRDN,
3.10%, 3/4/98 (LOC: Chase
Manhattan Bank) 1,015,000
9,500,000 Sacramento County Housing Auth.
Rev., Issue 1992 A, (Shadowood
Apartments Projects), VRDN,
3.30%, 3/4/98 (LOC: General
Electric Capital Corp.) 9,500,000
3,500,000 San Diego County Tax and Rev.
Anticipation Notes, 4.50%,
9/30/98 (LOC: Bank of Nova
Scotia, Canadian Imperial Bank,
Commerzbank A.G.) 3,512,871
900,000 San Diego Industrial Development Rev.,
Series 1987 A,
(Kaiser Aerospace and Electricity),
VRDN, 3.40%, 3/5/98 (LOC:
ABN Amro Bank N.V.) 900,000
Principal Amount Value
- ------------------------------------------------------------------------------
$ 2,800,000 San Francisco City & County
Airport Rev., (Community
International Airport, SGA 50),
VRDN, 3.40%, 3/4/98 (MBIA)
(SBBPA: Societe Generale) $ 2,800,000
2,670,000 San Francisco City & County GO,
4.50%, 6/15/98 (FGIC) 2,675,130
1,500,000 Santa Barbara County Tax and
Rev. Anticipation Notes,
Series 1997 A, 4.50%, 10/1/98 1,505,215
--------------------
TOTAL INVESTMENT SECURITIES--100.0% $162,294,080
====================
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FHLB = Federal Home Loan Bank
FSA = Financial Security Assurance
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 February 28, 1998.
(1) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1998.
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA MUNICIPAL MONEY MARKET 17
STATEMENTS OF ASSETS AND LIABILITIES
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
FEBRUARY 28, 1998 (UNAUDITED)
ASSETS
Investment securities, at value
(amortized cost and cost for federal
income tax purposes)(Note 1) ................ $454,296,155 $162,294,080
Cash .......................................... 5,038,717 1,629,736
Receivable for investments sold ............... -- 3,200,000
Interest receivable ........................... 3,891,775 1,113,755
-------------- -------------
463,226,647 168,237,571
-------------- -------------
LIABILITIES
Disbursements in excess of
demand deposit cash ......................... 516,483 82,998
Payable for investments purchased ............. 5,000,479 --
Payable for capital shares redeemed ........... 82,912 57,808
Accrued management fees (Note 2) .............. 172,587 63,785
Dividends payable ............................. 36,663 13,486
Payable for trustees' fees and expenses ....... 429 429
-------------- -------------
5,809,553 218,506
-------------- -------------
Net Assets .................................... $457,417,094 $168,019,065
============== =============
CAPITAL SHARES
Outstanding (Unlimited number of
shares authorized) .......................... 457,417,373 168,055,490
============== =============
Net Asset Value Per Share ..................... $1.00 $1.00
============== =============
NET ASSETS CONSIST OF:
Capital paid in ............................... $457,417,373 $168,055,490
Undistributed net investment income ........... 397,647 122,185
Accumulated net realized loss on
investment transactions ..................... (397,926) (158,610)
-------------- -------------
$457,417,094 $168,019,065
============== =============
See Notes to Financial Statements
18 STATEMENTS OF ASSETS AND LIABILITIES AMERICAN CENTURY INVESTMENTS
STATEMENTS OF OPERATIONS
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
FOR THE SIX MONTHS ENDED
FEBRUARY 28, 1998 (UNAUDITED)
INVESTMENT INCOME
Income:
Interest ...................................... $7,585,815 $3,108,312
-------------- -------------
Expenses (Note 2):
Management fees ............................... 1,041,466 414,058
Trustees' fees and expenses ................... 7,837 4,709
-------------- -------------
1,049,303 418,767
-------------- -------------
Net investment income ......................... 6,536,512 2,689,545
-------------- -------------
NET REALIZED GAIN ON INVESTMENTS
Net realized gain on investments .............. 325 --
-------------- -------------
Net Increase in Net Assets
Resulting from Operations ..................... $6,536,837 $2,689,545
============== =============
See Notes to Financial Statements
SEMIANNUAL REPORT STATEMENTS OF OPERATIONS 19
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
SIX MONTHS ENDED FEBRUARY 28, 1998
(UNAUDITED) AND YEAR ENDED AUGUST 31, 1997
Increase (Decrease) in Net Assets 1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income .......................... $6,536,512 $13,240,936 $2,689,545 $5,718,165
Net realized gain on investments ............... 325 -- -- --
-------------- -------------- ------------- --------------
Net increase in net assets resulting
from operations ................................ 6,536,837 13,240,936 2,689,545 5,718,165
-------------- -------------- ------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ..................... (6,536,699) (13,314,031) (2,684,129) (5,716,498)
-------------- -------------- ------------- --------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ...................... 246,786,091 419,433,691 70,630,657 161,382,680
Proceeds from reinvestment of distributions .... 6,250,793 12,569,974 2,570,779 5,431,054
Payments for shares redeemed ................... (213,403,986) (439,992,918) (75,665,131) (192,858,059)
-------------- -------------- ------------- --------------
Net increase (decrease) in net assets
from capital share transactions ................ 39,632,898 (7,989,253) (2,463,695) (26,044,325)
-------------- -------------- ------------- --------------
Net increase (decrease) in net assets .......... 39,633,036 (8,062,348) (2,458,279) (26,042,658)
NET ASSETS
Beginning of period ............................ 417,784,058 425,846,406 170,477,344 196,520,002
-------------- -------------- ------------- --------------
End of period .................................. $457,417,094 $417,784,058 $168,019,065 $170,477,344
============== ============== ============= ==============
Undistributed net investment income ............ $397,647 $397,834 $122,185 $116,765
============== ============== ============= ==============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ........................................... 246,786,091 419,433,691 70,630,657 161,382,680
Issued in reinvestment of distributions ........ 6,250,793 12,569,974 2,570,779 5,431,054
Redeemed ....................................... (213,403,986) (439,992,918) (75,665,131) (192,858,059)
-------------- -------------- ------------- --------------
Net increase (decrease) ........................ 39,632,898 (7,989,253) (2,463,695) (26,044,325)
============== ============== ============= ==============
</TABLE>
See Notes to Financial Statements
20 STATEMENTS OF CHANGES IN NET ASSETS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
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) and American Century - Benham
California Municipal Money Market Fund (Municipal Money Market) (the Funds) are
two of the seven funds issued by the Trust. Tax-Free Money Market is diversified
and Municipal Money Market is non-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 seek to obtain as high a level of interest
income as is consistent with prudent investment management and conservation of
shareholders' capital. 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--Portfolio securities are valued at amortized cost,
which approximates current market value. 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 accretion of discounts and amortization of premiums.
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 income taxes
DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are
declared and credited daily and distributed monthly. The Funds do not expect to
realize any long-term capital gains, and accordingly, do not expect to pay any
capital gains distributions.
At August 31, 1997, accumulated net realized capital loss carryovers for
Tax-Free Money Market of approximately $298,900 (expiring 1999 through 2004) and
for Municipal Money Market of approximately $158,600 (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 reflect the differing character
of certain income items and net capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
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.
ADDITIONAL INFORMATION--Effective January 15, 1998, Funds Distributor, Inc.
(FDI) became the Trust's distributor. Certain officers of FDI are also officers
of the Trust.
SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 21
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
2. TRANSACTIONS WITH RELATED PARTIES
The Trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM) that provides each Fund with investment
advisory and management services in exchange for a single, unified management
fee. Expenses excluded from this agreement are brokerage, taxes, portfolio
insurance, interest, fees and expenses of the Trustees who are not considered
"interested persons" as defined in the Investment Company Act of 1940 (including
counsel fees) and extraordinary expenses. 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 net 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. The Funds are included in the Money
Market Fund Category. Second, a separate fee rate schedule is applied to the net
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:
0.2700% 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
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
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, ACIM, the Trust's
transfer agent, American Century Services Corporation, and the registered
broker-dealer, American Century Investment Services, Inc.
22 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA TAX-FREE MONEY MARKET
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
1998(1) 1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ----------
Income From
Investment Operations
Net Investment Income ............ 0.02 0.03 0.03 0.03 0.02 0.02
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ....... (0.02) (0.03) (0.03) (0.03) (0.02) (0.02)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ..... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ========== ==========
Total Return(2) .................. 1.56% 3.17% 3.12% 3.31% 2.09% 2.13%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............. 0.50%(3) 0.49% 0.49% 0.52% 0.50% 0.51%
Ratio of Net Investment Income
to Average Net Assets .............. 3.13%(3) 3.10% 3.12% 3.28% 2.07% 2.09%
Net Assets, End
of Period (in thousands) ........... $457,417 $417,784 $425,846 $414,099 $371,074 $338,731
- ----------
(1) Six months ended February 28, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
SEMIANNUAL REPORT FINANCIAL HIGHLIGHTS 23
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA MUNICIPAL MONEY MARKET
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
1998(1) 1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- ---------- ---------- ----------
Income From
Investment Operations
Net Investment Income ........... 0.02 0.03 0.03 0.03 0.02 0.02
---------- ---------- ---------- ---------- ---------- ----------
Distributions
From Net Investment Income ...... (0.02) (0.03) (0.03) (0.03) (0.02) (0.02)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ========== ==========
Total Return(2) ................. 1.60% 3.15% 3.23% 3.35% 2.15% 2.25%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.50%(3) 0.52% 0.53% 0.53% 0.51% 0.46%
Ratio of Net Investment Income
to Average Net Assets ............. 3.21%(3) 3.10% 3.20% 3.31% 2.13% 2.21%
Net Assets, End
of Period (in thousands) .......... $168,019 $170,477 $196,520 $191,722 $243,701 $247,621
- ----------
(1) Six months ended February 28, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
24 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
NOTES
SEMIANNUAL REPORT NOTES 25
NOTES
26 NOTES AMERICAN CENTURY INVESTMENTS
NOTES
SEMIANNUAL REPORT NOTES 27
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY & POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies:
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.
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 category for the California Tax-Free Money Market and Municipal
Money Market is:
CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS --funds that invest in high-quality
California municipal obligations with dollar-weighted average maturities of less
than 90 days.
- --------------------------------------------------------------------------------
INVESTMENT TEAM LEADERS
- --------------------------------------------------------------------------------
Portfolio Manager Todd Pardula
Credit Research Manager Steven Permut
- --------------------------------------------------------------------------------
28 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 23-24.
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.
* 7-DAY 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 7-Day Current 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%).
STATISTICAL TERMINOLOGY
* NUMBER OF SECURITIES--the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM)--a measure 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.
* 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
* AMT PAPER--instruments with income subject to the federal alternative minimum
tax.
* MUNICIPAL COMMERCIAL PAPER (CP)--high-grade short-term securities backed by a
line of credit from a bank.
* MUNICIPAL NOTES--securities with maturities of two years or less.
* PUT BONDS--long-term securities that can be "put back" (i.e., sold at face
value) to a specified buyer at a prearranged date.
* VARIABLE-RATE NOTES--securities that track market interest rates and stabilize
their market values using periodic (daily or weekly) interest rate adjustments.
SEMIANNUAL REPORT GLOSSARY 29
[american century logo(reg.sm)]
American
Century(reg.tm)
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 AND 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.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION
FUNDS DISTRIBUTOR, INC.
9804 [recycled logo]
SH-BKT-12009 Recycled
<PAGE>
SEMIANNUAL
REPORT
[american century logo(reg.sm)]
American
Century(reg.tm)
FEBRUARY 28, 1998
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
California Limited-Term Tax-Free
Performance & Portfolio Information ............................ 4
Management Q & A ............................................... 5
Schedule of Investments ........................................ 8
Financial Highlights ........................................... 37
California Intermediate-Term Tax-Free
Performance & Portfolio Information ............................ 12
Management Q & A ............................................... 13
Schedule of Investments ........................................ 16
Financial Highlights ........................................... 38
California Long-Term Tax-Free
Performance & Portfolio Information ............................ 23
Management Q & A ............................................... 24
Schedule of Investments ........................................ 27
Financial Highlights ........................................... 39
Statements of Assets and Liabilities ...................................... 31
Statements of Operations .................................................. 32
Statements of Changes in Net Assets ....................................... 33
Notes to Financial Statements ............................................. 34
Background Information
Investment Philosophy & Policies ............................... 40
Comparative Indices ............................................ 40
Lipper Rankings ................................................ 40
Investment Team Leaders ........................................ 40
Glossary .................................................................. 41
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, based on investment style
and objectives, to help simplify your fund decisions. These groups appear below
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- -------------------------------------------------------------------------------
Benham American Century Twentieth Century
Group 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.
American Century and Benham Group are registered marks of American Century
Services Corporation.
AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
MUNICIPAL MARKET OVERVIEW
* Municipal bond investors enjoyed favorable returns for the six months ended
February 28, 1998.
* Longer-term municipal securities outperformed shorter-term ones.
* Healthy economic growth helped the municipal market reach its highest level
of credit quality in nearly a decade.
* Improving credit conditions and higher municipal issuance caused the interest
rate difference between securities rated AAA and BBB to decrease.
* Municipal issuance in 1998 is expected to be greater than it has been the
previous few years.
LIMITED-TERM TAX-FREE
* The fund provided competitive returns compared with the average California
short-intermediate municipal fund, while offering an above-average yield.
(See total returns on page 4.)
* We favored securities at the short and long ends of the fund's maturity range
for most of the period.
* We will probably make only incremental average maturity adjustments to the
fund in the near term.
INTERMEDIATE-TERM TAX-FREE
* The fund performed well for the six months and provided a higher yield than
the average California intermediate municipal fund. (See total returns on
page 12.)
* We kept duration (a measurement of a portfolio's interest rate sensitivity)
neutral to slightly long to take advantage of generally falling interest
rates.
* We constantly monitored bonds that we felt had the potential to shorten
duration.
* We will probably keep the fund's duration slightly long going forward and
continue to focus on maintaining yield.
LONG-TERM TAX-FREE
* The fund's return was higher than the average California municipal fund,
according to Lipper Analytical Services. (See total returns on page 23.)
* In addition to producing a superior total return, the fund also had a
better-than-average yield.
* Central to the fund's solid long-term performance are our below-average
expenses and conservative approach to managing the fund's duration, structure
and security selection.
* Going forward, we'll likely maintain the same duration and structure that
helped the fund to such solid returns over the last six months.
CALIFORNIA LIMITED-TERM
TOTAL RETURNS: AS OF 2/28/98
6 Months 2.80%*
1 Year 5.40%
NET ASSETS: $130.4 million
(AS OF 2/28/98)
INCEPTION DATE: 6/1/92
TICKER SYMBOL: BCSTX
CALIFORNIA INTER.-TERM
TOTAL RETURNS: AS OF 2/28/98
6 Months 4.01%*
1 Year 7.60%
NET ASSETS: $448.2 million
(AS OF 2/28/98)
INCEPTION DATE: 11/9/83
TICKER SYMBOL: BCITX
CALIFORNIA LONG-TERM
TOTAL RETURNS: AS OF 2/28/98
6 Months 5.17%*
1 Year 9.67%
NET ASSETS: $317.0 million
(AS OF 2/28/98)
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
41.
SEMIANNUAL REPORT REPORT HIGHLIGHTS 1
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
Benham California Tax-Free bond funds produced solid returns during the six
months ended February 28, 1998. Municipal bonds in general performed well as
U.S. economic growth remained strong and inflation stayed out of sight.
On the corporate front, this has been an eventful six months. American
Century gained a powerful business partner in January, when J.P. Morgan became a
substantial minority shareholder. J.P. Morgan has been in business over 150
years, serving institutions, governments and individuals with complex financial
needs. The new partnership is very exciting and will allow both companies to
offer investors a highly diverse menu of investment options and services.
As you may be aware, Jim Benham, founder of the Benham Group, retired in
December. With the integration of Benham and Twentieth Century successfully
completed, Jim felt it was time to step back from the business. Much of the
Benham culture has become a part of American Century, including the educational
investor seminar program Jim created. Two of his sons, Jim A. Benham and Tim
Benham, remain with the company to carry on the Benham tradition.
We would also like to let you know what we're doing about the year 2000
issue, which refers to the possible inability of computer systems to distinguish
between the years 1900 and 2000. Like other financial companies, a significant
percentage of our computer operations involves some type of date comparison or
date calculation. Although much of our system is already year 2000 compliant, we
are aggressively addressing the problem and anticipate the project should be
completed by November 1998.
In closing, we are proud to note that 1998 marks the 40th year since
American Century launched its first mutual funds. Not many fund companies can
claim a 40-year track record, or a fund family that includes nearly 70 stock,
bond, money market and blended (stock and bond) funds that provide investors
with such a wide range of choice and flexibility. We believe American Century
has an outstanding lineup of funds to help you reach your financial goals.
Thank you for your investment.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
2 OUR MESSAGE TO YOU AMERICAN CENTURY INVESTMENTS
MARKET PERSPECTIVE
[line graph - data below]
CREDIT SPREADS: AAA INSURED VS. BBB BOND YIELDS
Bond Yields
AAA Insured 30-Year GO BBB 30-Year Revenue
09/01/97 5.300% 5.750%
09/05/97 5.260% 5.690%
09/12/97 5.230% 5.670%
09/19/97 5.150% 5.580%
09/26/97 5.150% 5.570%
10/03/97 5.130% 5.530%
10/10/97 5.210% 5.600%
10/17/97 5.250% 5.640%
10/24/97 5.200% 5.600%
10/31/97 5.120% 5.520%
11/07/97 5.150% 5.560%
11/14/97 5.140% 5.530%
11/21/97 5.150% 5.520%
11/28/97 5.170% 5.530%
12/05/98 5.110% 5.490%
12/12/98 5.010% 5.410%
12/19/98 4.980% 5.360%
12/26/98 4.980% 5.360%
01/02/98 4.960% 5.340%
01/09/98 4.870% 5.250%
01/16/98 4.830% 5.210%
01/23/98 4.930% 5.260%
01/30/98 4.920% 5.270%
02/06/98 4.930% 5.320%
02/13/98 4.890% 5.260%
02/20/98 4.890% 5.260%
02/27/98 4.960% 5.300%
Source: Bloomberg Financial Markets
FAVORABLE RETURNS
Municipal bond investors enjoyed favorable returns for the six months ended
February 28, 1998, thanks to a vibrant national economy and benign inflation
levels. As the accompanying graph demonstrates, interest rates headed generally
lower through the end of 1997 before stabilizing somewhat in early 1998.
The bond-friendly environment allowed the greater interest rate sensitivity
of longer-term municipals to outperform shorter-maturity issues. This
outperformance is reflected in the 6.19% return for the Lehman Long-Term
Municipal Index versus the 3.03% return of the Lehman 3-Year Municipal Index.
TIGHTENING CREDIT SPREADS
Strong job growth and an improving economy during the six months helped the
municipal bond market reach its highest level of credit quality in nearly a
decade. Economic prosperity translated into increased upgrades for
municipalities--according to Moody's Investors Service, an independent credit
rating organization, upgrades outnumbered downgrades by a whopping 17 to 1 in
1997.
Higher credit quality also led to an increase in insured municipal
securities as insurers lowered their premiums for new municipals. That means
that issuers have been able to raise the credit rating of their bonds by buying
insurance at a reduced cost. A higher credit rating on the bond allows the
municipality to offer a lower interest rate, saving them money in the long run.
While the supply of bonds with higher credit quality has been on the rise,
issuance of lower-rated municipals has declined, making the ones available even
more prized. This has caused already tight credit spreads--the differences
between the interest rates of higher-quality and lower-quality bonds--to narrow
further.
For example, the yield spread between a 30-year AAA insured municipal bond
and a 30-year BBB municipal bond started the period at 45 basis points. (A basis
point equals 0.01%). However, as interest rates headed lower during the six
months and a flood of newly insured bonds hit the market in early 1998, credit
spreads eroded further. By the end of February, the difference in yield between
the 30-year AAA bond and the 30-year BBB bond was 34 basis points.
INCREASING SUPPLY
With interest rates near their lowest levels in two decades, municipalities
have been rushing to the market during 1998 with new or refinanced securities.
Although municipal issuance between 1994 and 1997 was fairly low from a
historical standpoint, issuance this year is shaping up to be more historically
average. Projections for 1998 issuance fall around the $240 billion mark,
sizably above the $221 billion level seen in 1997.
CALIFORNIA
California's economy continued to flourish during the six months, adding
nearly 500,000 jobs in 1997, while the state's unemployment rate fell below 6%
in January 1998. The engine of growth in Northern California remains the
high-technology industry, while strength in technology, tourism and
entertainment all benefited Southern California. Going forward, California's
economic health should bode well for the state's municipal credit quality.
SEMIANNUAL REPORT MARKET PERSPECTIVE 3
<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 FEBRUARY 28, 1998
<S> <C> <C> <C> <C> <C>
California Limited-Term Tax-Free 3.43% 5.25% 5.48% 5.91% 6.26%
Yields are defined in the Glossary on page 41.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS LIFE OF
FUND(2)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1998(1)
California Limited-Term Tax-Free ............ 2.80% 5.40% 5.37% 4.19% 4.82%
Lehman 3-Year Municipal Bond Index .......... 3.03% 5.42% 5.89% 4.80% 5.24%(3)
Average California Short-Intermediate
Municipal Debt Fund(4) ...................... 2.82% 5.40% 5.37% 4.20% 4.76%(3)
Fund's Ranking Among California
Short-Intermediate Municipal Debt Funds(4) .. -- 3 out of 11 5 out of 10 3 out of 3 2 out of 2(3)
(1) Returns for periods less than one year are not annualized.
(2) Inception date was June 1, 1992.
(3) Since 6/30/92, the date nearest the fund's inception for which data are
available.
(4) According to Lipper Analytical Services.
</TABLE>
See pages 40-41 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 2/28/98
Limited-Term Lehman 3-Year
Tax-Free Municipal Index
Jun-92 $10,000 $10,000
Sep-92 $10,202 $10,232
Dec-92 $10,336 $10,325
Mar-93 $10,538 $10,534
Jun-93 $10,675 $10,692
Sep-93 $10,833 $10,844
Dec-93 $10,949 $10,966
Mar-94 $10,801 $10,819
Jun-94 $10,862 $10,937
Sep-94 $10,956 $11,040
Dec-94 $10,882 $11,041
Mar-95 $11,207 $11,350
Jun-95 $11,434 $11,591
Sep-95 $11,598 $11,838
Dec-95 $11,787 $12,020
Mar-96 $11,817 $12,087
Jun-96 $11,908 $12,185
Sep-96 $12,074 $12,346
Dec-96 $12,250 $12,555
Mar-97 $12,295 $12,605
Jun-97 $12,535 $12,838
Sep-97 $12,750 $13,058
Dec-97 $12,904 $13,243
Feb-98 $13,013 $13,358
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.
* 6/30/92 is the date nearest the fund's inception for which comparable
performance data exist. The fund's actual inception date is 6/1/92.
PORTFOLIO AT A GLANCE
2/28/97 8/31/97
Number of Securities 84 75
Weighted Average Maturity 3.6 years 3.5 years
Average Duration 3.1 years 2.9 years
Expense Ratio 0.52%* 0.49%
* Annualized.
4 CALIFORNIA LIMITED-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
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?
For the six months ended February 28, 1998, California Limited Term's total
return was 2.80%, compared with the 2.82% average return of the 12 "California
Short-Intermediate Municipal Debt Funds" tracked by Lipper Analytical Services
and the 3.03% return of its benchmark, the Lehman -Year General Obligation
Index. (See the Total Returns table on the previous page for other fund
performance comparisons.)
In addition, as of February 28, 1998, the fund's 30-day SEC yield of 3.43%
was notably higher than the average 3.13% yield of its peers.
HOW WAS THE FUND STRUCTURED?
We maintained a "barbell" structure for most of the period. This structure
overweights securities at the short and long ends of the fund's maturity range,
and underweights those in between. A barbell performs best when the interest
rate difference between longer- and shorter-term securities decreases, as we saw
during the last part of 1997.
Early in 1998, however, a large influx of new municipal issuance caused the
difference in yield between shorter- and longer-term securities
[bar chart - data below]
CALIFORNIA LIMITED-TERM TAX-FREE'S ONE-YEAR RETURNS
SINCE INCEPTION (Periods ended February 28)
Limited-Term Lehman 3-Year
Tax-Free Municipal Index
2/93* 5.95% 5.65%
2/94 2.93% 3.67%
2/95 2.00% 2.72%
2/96 6.82% 7.71%
2/97 3.90% 4.56%
2/98 5.40% 5.42%
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 41 for a definition of the index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
* Return from 6/30/92 (the date nearest the fund's inception for which index
data are available) to 2/28/93.
SEMIANNUAL REPORT CALIFORNIA LIMITED-TERM TAX-FREE 5
CALIFORNIA LIMITED-TERM TAX-FREE
to increase, leading to a steeper yield curve (a yield curve is a graphic
representation of the relationship between bond yields and maturities).
Anticipating the steepening curve, we moved the portfolio toward more of a
"bulleted" position. This emphasized securities maturing around the three-year
range, which provided optimum performance in this environment.
By the end of February, the yield curve was once again flattening, so we
began moving back to a barbell.
COULD MUNICIPAL YIELD SPREADS TIGHTEN FURTHER?
Yes. For this to happen, we would need more of the same environment going
forward--municipal credit quality would have to continue improving, while
interest rates fell and issuance of higher-rated municipals continued to outpace
the issuance of lower-rated ones.
However, please keep in mind that the interest rate difference between
higher- and lower-rated municipals is already at historic lows.
DOES THE FUND STILL HOLD PUERTO RICO MUNICIPALS?
No. During much of 1997, approximately 6% of the fund's assets were in
insured general obligation bonds from Puerto Rico. These securities, rated AAA,
provided double tax-free yield for the fund and had appreciated nicely since
they were purchased back in September 1996. We used the large influx of new
California municipals in February as an opportunity to sell the Puerto Rico
holdings and purchase California municipals with similar maturities, picking up
nearly 20 basis points in yield.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
We're fairly optimistic about municipal securities going forward for several
reasons. Inflation has remained uncharacteristically low in the U.S. despite
continued economic growth. For the twelve months ended February, consumer prices
rose at a mere 1.7%.
Improving credit conditions in California have fostered a recent surge in
municipal supply because many municipalities issued securities early this year
to take advantage of low interest rates. This could mean less issuance as 1998
progresses, which would help support prices.
Looking overseas, economic turmoil in Asia translates into a reduced chance
for inflation in the U.S. Slower overseas growth curtails business for U.S.
exporters and dampens U.S. economic growth. And a strong U.S. dollar and weak
Asian currencies means imported goods are cheaper, keeping overall prices in
check.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/98)
Revenue 45%
COPs/Leases 25%
Prerefunded/ETM 15%
GO 10%
Land-Secured 4%
Other 1%
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%
6 CALIFORNIA LIMITED-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
The shrinking federal budget deficit also boosts the Treasury market by
reducing the supply of available Treasury securities. Higher Treasury prices
help make municipal securities a better relative value, which attracts more
buyers and supports municipals.
On the downside, there is a chance that wage pressures will finally cause
too great a strain on the U.S. economy and lead to inflation and higher interest
rates. In addition, if new municipal issuance remains strong for a prolonged
period of time, the excess supply could put a lid on gains.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR IMMEDIATE PLANS?
We will probably continue making only incremental adjustments to the fund's
average maturity, keeping within a range around 3.5 years. We will use
structural changes to enhance returns while keeping an eye out for those few
lower-rated securities that we feel are attractively valued.
From a security standpoint, we may look to increase the fund's holdings of
land-based municipals since California's economy is healthy and land prices
continue to rise. General obligation municipals could also become more
attractive if California's credit strength continues to improve.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/98)
AAA 49%
AA 18%
A 29%
BBB 4%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 58%
AA 15%
A 23%
BBB 4%
Credit ratings given by Standard & Poor's.
SEMIANNUAL REPORT CALIFORNIA LIMITED-TERM TAX-FREE 7
SCHEDULE OF INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
$ 540,000 California Educational Facilities
Auth. Rev., (Los Angeles College
Chiropractic), 4.15%, 11/1/98 $ 540,988
565,000 California Educational Facilities
Auth. Rev., (Los Angeles College
Chiropractic), 4.45%, 11/1/99 568,390
590,000 California Educational Facilities
Auth. Rev., (Los Angeles College
Chiropractic), 4.60%, 11/1/00 594,549
1,000,000 California Educational Facilities
Auth. Rev., (University of San
Diego), 4.50%, 10/1/01
(AMBAC) 1,022,600
1,145,000 California Educational Facilities
Auth. Rev., (Pepperdine
University), 5.125%, 1/15/02
(AMBAC) 1,194,624
1,140,000 California Educational Facilities
Auth. Rev., Series 1995 A,
(University Project), 4.55%,
12/1/99 1,157,191
1,080,000 California Educational Facilities
Auth. Rev., Series 1995 A,
(Pooled College & University
Project), 4.95%, 12/1/02 1,121,407
1,710,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern California),
5.60%, 10/1/01 1,811,266
1,910,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern California),
5.60%, 10/1/03 2,066,735
395,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.45%, 4/1/02 414,213
420,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.55%, 4/1/03 444,856
440,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.65%, 4/1/04 470,435
Principal Amount Value
- --------------------------------------------------------------------------------
$ 465,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.75%, 4/1/05 $ 502,437
1,180,000 California Health Facilities Financing
Auth. Rev., (Valley Presbyterian
Hospital), 5.25%, 5/1/02 (MBIA) 1,236,628
1,400,000 California Health Facilities Financing
Auth. Rev., Series 1993 A, (St.
Francis Memorial Hospital),
5.00%, 11/1/98(1) 1,413,608
1,750,000 California Health Facilities Financing
Auth. Rev., Series 1993 A, (St.
Francis Memorial Hospital),
5.50%, 11/1/01(1) 1,842,820
700,000 California Health Facilities Financing
Auth. Rev., Series 1997 C,
(Sutter Health), 5.00%, 8/15/03
(FSA) 730,912
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) 2,220,620
1,600,000 California Public Works Board
Lease Rev., Series 1995 A,
(Department of Justice Building),
5.50%, 5/1/00 1,655,808
3,000,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Community Colleges),
5.00%, 4/1/02 3,111,000
1,065,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Science Center),
4.50%, 10/1/04 1,081,976
1,000,000 California State Department of
Water Resources Central Valley
Project Rev., Series 1998 T,
5.00%, 12/1/00 1,034,300
1,600,000 California State GO, 6.70%,
10/1/01 1,750,512
2,325,000 California State GO, 6.10%,
2/1/02 (AMBAC) 2,512,162
1,000,000 Central Valley Financing Auth.
Cogeneration Project Rev.,
5.00%, 7/1/98 1,004,560
3,175,000 City of Whittier Health Rev.,
(Presbyterian Intercommunity
Hospital), 5.50%, 6/1/02
(MBIA) 3,371,183
See Notes to Financial Statements
8 CALIFORNIA LIMITED-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,100,000 Clovis Unified School District
Certificates of Participation,
(Stadium & Relocatables
Financing), 4.375%, 7/1/04 $ 1,108,129
1,000,000 Contra Costa County Certificates of
Participation, (Merrithew Memorial
Hospital), 6.625%, 11/1/02,
Prerefunded at 102% of Par(1) 1,129,130
1,000,000 Encinitas Unified School District
Certificates of Participation,
5.00%, 9/1/01 1,031,290
1,000,000 Imperial Irrigation District
Certificates of Participation,
(Electrical Systems Project),
6.70%, 11/1/98 1,020,910
1,775,000 Irvine Unified School District
Special Tax, (Community Facilities
District No. 86-1), 5.25%,
11/1/01 (AMBAC) 1,861,230
1,400,000 Irvine Unified School District
Special Tax, (Community Facilities
District No. 86-1), 5.25%,
11/1/05 (AMBAC) 1,500,282
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) 3,646,755
955,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 5.30%,
5/1/01 991,939
1,000,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 4.90%,
5/1/03 1,035,040
5,000,000 Los Angeles Certificates of
Participation, (Equipment & Real
Estate Acquisition Project),
4.25%, 10/1/01 5,042,150
1,000,000 Los Angeles Certificates of
Participation, (Equipment & Real
Estate Acquisition Project),
4.50%, 10/1/04 1,013,920
1,800,000 Los Angeles Convention and
Exhibition Center Certificates of
Participation, 6.60%, 8/15/99
(AMBAC) 1,875,780
Principal Amount Value
- --------------------------------------------------------------------------------
$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) $ 1,065,550
1,265,000 Los Angeles County Capital Asset
Leasing Corporation Rev.,
5.625%, 12/1/03 (AMBAC) 1,363,683
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A, (Proposition
C), 5.90%, 7/1/02 (AMBAC) 1,080,400
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A, (Proposition
C), 5.90%, 7/1/05 (AMBAC) 1,109,750
2,645,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A, 5.50%,
7/1/02 (MBIA) 2,815,735
2,360,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1996 A, 6.00%, 9/1/04
(MBIA) 2,613,535
1,500,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1997 A, (Master
Reference Project), 4.50%,
3/1/05 (FSA) 1,529,820
2,000,000 Los Angeles County Public Works
Financing Auth. Rev., Series
1997 A, (Regional Park & Open
Space District), 5.00%, 10/1/01 2,068,980
1,015,000 Los Angeles County Schools
Regionalized Business Services
Certificates of Participation,
Series 1997 C, 4.35%,
10/1/04 (FSA) 1,024,237
1,000,000 Los Angeles County Transportation
Community Sales Tax Rev.,
Series 1991 A, 6.30%, 7/1/01 1,071,530
1,000,000 Los Angeles Rev. Certificates of
Participation, 6.50%, 11/1/98 1,019,380
3,100,000 Los Angeles Unified School
District GO, Series 1997 A,
5.00%, 7/1/04 (FGIC) 3,258,720
2,000,000 Los Angeles Waste Water System
Rev., 6.80%, 8/1/98,
Prerefunded at 102% of Par(1) 2,067,000
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA LIMITED-TERM TAX-FREE 9
SCHEDULE OF INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Los Angeles Waste Water System
Rev., 6.70%, 2/1/00 $ 1,052,520
1,250,000 Los Angeles Waste Water System
Rev., Series 1990 A, 6.80%,
2/1/01 1,336,250
1,000,000 Los Angeles Waste Water System
Rev., Series 1993 D, 4.75%,
11/1/05 (FGIC) 1,039,050
1,000,000 Los Angeles Waste Water System
Rev., Series 1996 A, 6.00%,
2/1/03 (FGIC) 1,090,950
2,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.10%, 7/1/99 2,065,460
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.375%, 7/1/02 1,095,240
2,000,000 Modesto, Stockton, Redding Public
Power Agency San Juan Project
Rev., Series 1997 G, 5.50%,
7/1/01 (MBIA) 2,104,440
1,365,000 Ontario Redevelopment Financing
Auth. Rev., (Center City Cimarron
Project), 5.70%, 8/1/01 (MBIA) 1,444,880
1,500,000 Orange County Transportation
Sales Tax Rev., 5.50%, 2/15/01
(AMBAC) 1,564,890
1,160,000 Oroville Hospital Rev.,
Series 1997 A, 4.75%, 12/1/04
(California Mortgage Insurance) 1,187,875
1,000,000 Riverside County Asset Leasing
Corporated Leasehold Rev.,
Series 1993 A, (Riverside County
Hospital Project), 5.90%, 6/1/02 1,063,420
1,000,000 Sacramento County Multifamily
Housing Rev., Issue 1985 B,
(Parcwood Apartments Project),
4.80%, 9/1/02 1,016,200
4,485,000 Sacramento Municipal Utility
District Electric Rev., Series
1993 D, 4.60%, 11/15/98 4,516,664
2,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 L, 5.00%, 7/1/01 (MBIA) 2,073,340
890,000 Sacramento Schools Insurance
Auth. Rev., Series 1993 C,
(Workers Compensation
Program), 5.75%, 6/1/03(1) 927,656
Principal Amount Value
- --------------------------------------------------------------------------------
$2,000,000 San Bernardino County Certificates
of Participation, Series 1995 A,
(Medical Center Project), 5.20%,
8/1/04 (MBIA) $ 2,112,740
1,000,000 San Diego County Regional
Transportation Commission Sales
Tax Rev., Series 1994 A, 6.25%,
4/1/02 (FGIC) 1,089,280
1,265,000 San Diego County Water Auth.
Rev. Certificates of Participation,
Series 1997 A, 4.30%, 5/1/05 1,269,592
2,000,000 San Diego Unified School District
Certificates of Participation,
Series 1997 A, (Capital Projects),
5.00%, 7/1/00 2,052,340
675,000 San Francisco Bay Area Rapid
Transit District Sales Tax Rev.,
5.50%, 7/1/05 730,364
1,085,000 San Francisco City and County GO,
6.00%, 6/15/98 (FGIC) 1,092,888
2,930,000 San Francisco Port Commission Rev.,
5.25%, 7/1/99 2,987,926
1,000,000 San Mateo Transportation District
Sales Tax Rev., Series 1990 A,
6.50%, 6/1/98 (MBIA) 1,027,310
1,085,000 Santa Barbara County Certificates
of Participation, 4.90%, 3/1/01 1,112,743
1,000,000 Southern California Public Power
Auth. Electric Rev., 6.75%,
7/1/99 1,039,780
1,000,000 Southern California Public Power
Auth. Project Rev., Series 1997 A,
(Palo Verde Project), 5.00%,
7/1/04 (FSA) 1,048,920
2,000,000 South Tahoe Joint Powers
Financing Auth. Rev., (South
Tahoe Redevelopment Project
Area 1-A), 7.20%, 10/1/02,
Prerefunded at 102% of Par(1) 2,300,800
1,075,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hospital Association), 4.80%,
12/1/02 1,094,608
1,570,000 Vallejo Unified School District GO,
6.00%, 8/1/00 (FGIC) 1,653,807
1,040,000 Victor Valley Joint Unified High
School District GO, 5.60%,
9/1/04 (MBIA) 1,129,398
See Notes to Financial Statements
10 CALIFORNIA LIMITED-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA LIMITED-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$2,000,000 West Basin Municipal Water
District Certificates of
Participation, 6.10%, 8/1/98
(AMBAC)(1) $ 2,021,700
------------------
TOTAL MUNICIPAL SECURITIES--95.8% 125,563,686
------------------
(Cost $123,244,401)
SHORT-TERM MUNICIPAL SECURITIES
3,500,000 California State Rev. Anticipation
Notes, Floating Rate Trust
Receipts, 3.90%, 3/2/98(2) 3,500,000
2,000,000 San Francisco City and County
Unified School District Tax & Rev.
Anticipation Notes, 4.50%,
10/30/98 2,012,340
------------------
TOTAL SHORT-TERM MUNICIPAL
SECURITIES--4.2% 5,512,340
------------------
(Cost $5,507,012)
TOTAL INVESTMENT SECURITIES--100.0% $131,076,026
==================
(Cost $128,751,413)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
(1) Escrowed to maturity in U.S. Government Securities.
(2) Interest rate reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1998.
See Notes to Financial Statements
SEMIANNUAL 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 FEBRUARY 28, 1998
<S> <C> <C> <C> <C> <C>
California Intermediate-Term Tax-Free 3.74% 5.73% 5.98% 6.44% 6.83%
Yields are defined in the Glossary on page 41.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10
YEARS
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1998(1)
California Intermediate-Term Tax-Free ..... 4.01% 7.60% 7.32% 5.43% 6.70%
Lehman 5-Year General Obligation Index .... 3.79% 6.50% 7.04% 5.33% 6.59%
Average California Intermediate
Municipal Debt Fund(2) .................... 3.99% 7.30% 7.03% 5.39% 6.70%
Fund's Ranking Among California
Intermediate Municipal Debt Funds(2) ...... -- 10 out of 30 9 out of 25 5 out of 11 1 out of 1
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services.
</TABLE>
See pages 40-41 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 2/28/88
Value on 2/28/98
Intermediate-Term Lehman 5-Year
Tax Free GO Index
Feb-88 $10,000 $10,000
Mar-88 $9,945 $9,962
Jun-88 $9,999 $10,004
Sep-88 $10,125 $10,118
Dec-88 $10,243 $10,179
Mar-89 $10,220 $10,151
Jun-89 $10,653 $10,628
Sep-89 $10,731 $10,746
Dec-89 $11,056 $10,981
Mar-90 $11,116 $11,034
Jun-90 $11,354 $11,281
Sep-90 $11,436 $11,400
Dec-90 $11,830 $11,779
Mar-91 $12,062 $12,032
Jun-91 $12,251 $12,243
Sep-91 $12,683 $12,678
Dec-91 $13,057 $13,103
Mar-92 $12,993 $13,093
Jun-92 $13,432 $13,518
Sep-92 $13,788 $13,855
Dec-92 $13,983 $14,075
Mar-93 $14,444 $14,432
Jun-93 $14,832 $14,773
Sep-93 $15,308 $15,092
Dec-93 $15,478 $15,277
Mar-94 $14,862 $14,795
Jun-94 $14,978 $14,994
Sep-94 $15,122 $15,116
Dec-94 $14,902 $15,066
Mar-95 $15,684 $15,677
Jun-95 $16,011 $16,076
Sep-95 $16,461 $16,515
Dec-95 $16,917 $16,818
Mar-96 $16,802 $16,870
Jun-96 $16,914 $16,944
Sep-96 $17,252 $17,220
Dec-96 $17,635 $17,595
Mar-97 $17,624 $17,567
Jun-97 $18,129 $18,004
Sep-97 $18,587 $18,396
Dec-97 $18,950 $18,735
Feb-98 $19,124 $18,922
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
2/28/98 8/31/97
Number of Securities 144 142
Weighted Average Maturity 8.9 years 7.7 years
Average Duration 5.7 years 5.2 years
Expense Ratio 0.52%* 0.48%
* Annualized.
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 produced solid returns. For the six-months ended February 28, 1998,
California Intermediate Term's total return was 4.01%, compared with the 3.99%
average return of the 30 "California Intermediate Municipal Debt Funds" tracked
by Lipper Analytical Services. The fund's return was higher than the 3.79%
return of its benchmark, the Lehman 5-Year General Obligation Index. (See the
Total Returns table on the previous page for other fund performance
comparisons.)
In addition, as of February 28, 1998, the fund's 30-day SEC yield was 3.74%,
compared with the 3.63% average yield of its peers.
WHAT WAS YOUR MAIN STRATEGY TO ENHANCE RETURNS?
Maintaining a high yield was one of our primary goals. For the most part, we
kept duration (a measurement of a portfolio's interest rate sensitivity)
slightly long compared with the average California intermediate municipal fund.
With interest rates generally falling in 1997 and remaining fairly stable in
1998, the longer duration allowed the fund to capture more yield, enhancing
returns.
[bar chart - data below]
CALIFORNIA INTERMEDIATE-TERM TAX-FREE'S ONE-YEAR RETURNS FOR THE PAST TEN YEARS
(Periods ended February 28)
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
2/89 2.67% 2.16%
2/90 8.58% 8.35%
2/91 8.56% 8.96%
2/92 7.66% 8.92%
2/93 12.66% 11.12%
2/94 4.01% 3.67%
2/95 1.36% 1.97%
2/96 10.23% 9.91%
2/97 4.21% 4.76%
2/98 7.60% 6.50%
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 41 for a definition of the index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
SEMIANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 13
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
HOW DID YOU MANAGE THE DURATION TO ACCOMPLISH THIS STRATEGY?
We lengthened the duration during two key periods. The first was August
through early October. During this period, we bought seven-year municipal
securities, which yielded nearly 40 basis points (a basis point equals 0.01%)
more than the three-year municipals we sold from the fund's portfolio. The
longer duration dampened returns when the market floundered in early October,
but it proved beneficial when bonds rallied in early November.
We also lengthened the duration in early 1998. In January, municipal prices
headed slightly lower due to concern that bond prices had risen too far and
because of a large influx of newly issued securities. Because we believed the
market decline was unjustified, we used the opportunity to pick up
higher-yielding, longer-maturity municipals at very attractive prices. This
shift boosted the fund's yield and caused its duration to be a bit longer than
the average California intermediate municipal fund by the end of February.
WERE THERE ANY PITFALLS IN YOUR EFFORTS TO MAINTAIN A LONGER DURATION FOR THE
FUND?
Yes. The potential shortening of the fund's duration caused by bonds
"trading to call" was a significant obstacle. Many municipal securities are
issued with call provisions, which means they can be paid off by the issuer
before maturity. When interest rates fall, municipalities often find it
financially rewarding to refinance the bonds they've issued. They can reduce
their interest payments by redeeming their outstanding, higher-yielding bonds
and issuing new ones at the prevailing lower rates.
As interest rates fall, the fixed interest rate of a bond may become higher
than prevailing rates. When this occurs, there is an increased chance that the
issuer will call the bond prior to maturity. As a result, the bond "trades to
call"--the market prices the bond as if it will mature on its call date rather
than at its scheduled maturity. If this happens to a large number of bonds in
the portfolio, the fund's duration can shorten at a time when it should ideally
be longer to take advantage of rising bond prices.
Therefore, when pursuing competitive yields for the fund, we need to balance
attractive bond yields with potential callability.
COULD MUNICIPAL YIELD SPREADS TIGHTEN FURTHER?
Yes. For this to happen, we would need more of the same environment going
forward--municipal credit quality would have to continue improving, while
interest rates fell and issuance of higher-rated municipals continued to outpace
the issuance of lower-rated ones.
However, please keep in mind that the interest rate difference between
higher- and lower-rated municipals is already at historic lows.
[pie chart]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/98)
Revenue 44%
COPs/Leases 29%
GO 11%
Prerefunded/ETM 10%
Land-Secured 5%
Other 1%
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%
14 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
We're fairly optimistic about municipal securities going forward for several
reasons. Inflation has remained uncharacteristically low in the U.S. despite
continued economic growth. For the twelve months ended February, consumer prices
rose at a mere 1.7%.
Improving credit conditions in California have fostered a recent surge in
municipal supply because many municipalities issued securities early this year
to take advantage of low interest rates. This could mean less issuance as 1998
progresses, which would help support prices.
Looking overseas, economic turmoil in Asia translates into a reduced chance
for inflation in the U.S. Slower overseas growth curtails business for U.S.
exporters and dampens U.S. economic growth. And a strong U.S. dollar and weak
Asian currencies mean imported goods are cheaper, keeping overall prices in
check.
The shrinking federal budget deficit also boosts the Treasury market by
reducing the supply of available Treasury securities. Higher Treasury prices
help make municipal securities a better relative value, which supports
municipals by attracting more buyers.
On the downside, there is a chance that wage pressures will finally cause
too great a strain on the U.S. economy and lead to inflation and higher interest
rates. In addition, if new municipal issuance remains strong for a prolonged
period of time, the excess supply could put a lid on gains.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR IMMEDIATE PLANS?
For now, we will probably keep the fund's duration slightly long compared
with the average California intermediate municipal fund. This should enhance
returns if municipal bond yields continue to decline.
In addition, we will continue to focus on maintaining yield while leveraging
our credit research team to look for under-valued municipal securities.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/98)
AAA 64%
AA 15%
A 20%
BBB 1%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 70%
AA 12%
A 17%
BBB 1%
Credit ratings given by Standard & Poor's.
SEMIANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 15
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
$11,845,000 Alameda County Certificates of
Participation, (Santa Rita Jail
Project), 5.375%, 6/1/09 (MBIA) $ 12,779,097
4,060,000 Burbank Redevelopment Agency
Tax Allocation, (West Olive
Project), 6.50%, 12/1/01
(AMBAC) 4,436,037
1,175,000 California Educational Facility Auth.
Rev., (Santa Clara University),
5.25%, 9/1/10 (MBIA) 1,239,084
2,145,000 California Educational Facility Auth.
Rev., (University of San Diego),
6.75%, 10/1/02 (MBIA) 2,341,825
5,000,000 California Educational Facility Auth.
Rev., Series 1997 M, (Stanford
University), 5.25%, 12/1/99 5,143,600
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) 1,607,535
1,045,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/03 (MBIA) 1,100,991
1,500,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
6.70%, 10/1/99 1,568,865
1,280,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.25%, 11/1/99 1,311,808
1,660,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.375%, 11/1/00 1,727,164
1,745,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.625%, 11/1/02 1,862,857
1,560,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.75%, 11/1/04 1,715,142
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,145,000 California Health Facilities
Financing Auth. Rev., Series
1995 A, (Insured Health Facility),
6.00%, 7/1/04 (AMBAC) $ 3,459,060
4,000,000 California Health Facilities
Financing Auth. Rev., Series
1997 C, (Sutter Health), 5.00%,
8/15/17 (FSA) 3,946,040
3,250,000 California Public Works Board
Energy-Efficiency Rev.
Certificates of Participation,
Series 1991 A, (Pooled Project),
6.00%, 9/1/99 3,359,590
3,000,000 California Public Works Board
Lease Rev., Series 1992 A,
(Various California State
University Projects), 5.70%,
10/1/99 3,095,010
3,700,000 California Public Works Board
Lease Rev., Series 1993 D,
(California State Prisons), 5.25%,
6/1/08 3,877,008
3,000,000 California Public Works Board
Lease Rev., Series 1994 A,
(Various University of California
Projects), 6.15%, 11/1/09 3,321,630
1,010,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Science Center),
4.60%, 10/1/05 1,031,392
2,000,000 California Public Works Board
Lease Rev. Certificates of
Participation, Series 1990 A,
(University of California), 6.90%,
9/1/00(2) 1,808,000
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) 1,098,450
4,520,000 California Public Works Board
Lease Rev. Certificates of
Participation, Series 1992 A,
(Archives Building Project),
6.20%, 12/1/05 (AMBAC) 5,122,697
2,500,000 California State Department of
Veteran's Affairs Rev., Series
1991 A, 6.20%, 8/1/98 2,522,775
See Notes to Financial Statements
16 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,795,000 California State Department Water
Resource Rev., (Central Valley
Project), Series 1992 J-2, (Water
System), 5.80%, 12/1/04 $ 5,272,966
3,710,000 California State Franchise Tax
Board Certificates of Participation,
6.90%, 10/1/99, Prerefunded at
102% of Par(1) 3,960,091
10,000,000 California State GO, 6.50%,
3/1/02 (AMBAC)(3) 10,964,500
3,000,000 California State GO, 5.00%,
10/1/02 3,136,200
2,400,000 California State GO, 6.00%,
9/1/03 (MBIA) 2,641,512
1,855,000 California State GO, 7.00%,
11/1/06 (FGIC) 2,224,831
4,000,000 California State GO, 4.75%,
9/1/18 (FSA) 3,823,160
3,000,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) 3,237,630
2,385,000 California Statewide Communities
Development Auth. Certificates
of Participation, (St. Joseph
Health System), 6.50%, 7/1/03 2,662,519
8,000,000 California Statewide Communities
Development Auth. Certificates
of Participation, (California
Lutheran Homes), 5.375%,
11/15/06 8,532,240
2,545,000 Capistrano Unified Public
Financing Auth. Special Tax Rev.,
Series 1996 A, (First Lien),
6.00%, 9/1/06 (AMBAC) 2,862,209
2,075,000 Chabot Las Positas Community
College District Certificates of
Participation, 5.50%, 12/1/10
(FSA) 2,288,434
1,465,000 City of Woodland Waste Water
System Refunding Certificates of
Participation, 6.00%, 3/1/06
(AMBAC) 1,642,807
2,500,000 Contra Costa County Public Facility
Certificates of Participation,
7.45%, 6/1/00 (BIGI) 2,658,800
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,065,000 Contra Costa County Water District Rev., Series
1990 A, 7.00%, 10/1/00, Prerefunded at 102%
of Par(1) $ 1,166,186
7,935,000 Contra Costa Transportation Auth.
Sales Tax Rev., Series 1993 A,
6.00%, 3/1/05 (FGIC) 8,820,070
1,220,000 Coronado Community Development
Agency Tax Allocation, 6.00%,
9/1/08 (FSA) 1,370,463
2,570,000 East Bay Municipal Utilities District
Water System Rev., 6.00%,
6/1/05 2,791,637
1,000,000 East Bay Municipal Utilities District
Water System Rev., 5.00%,
6/1/16 (FGIC) 1,003,110
2,000,000 Eastern Municipal Water District
Water and Sewer Rev.
Certificates of Participation,
4.75%, 7/1/23 (FGIC) 1,890,040
1,285,000 Garden Grove Agency Community
Development Tax Allocation,
(Garden Grove Community
Project), 5.30%, 10/1/02 1,339,638
6,850,000 Imperial Irrigation District
Certificates of Participation,
(Electrical System Project),
6.50%, 11/1/07 (MBIA) 8,056,011
1,225,000 Imperial Irrigation District
Certificates of Participation,
(Electrical System Project),
5.20%, 11/1/09 (AMBAC) 1,309,623
2,715,000 Irvine Unified School District
Special Tax, (Community Facilities
District No. 86-1), 5.50%,
11/1/10 (AMBAC) 2,954,191
1,750,000 Loma Linda Hospital Rev.,
(University Medical Center),
6.95%, 12/1/05 (AMBAC) 1,874,565
2,300,000 Los Angeles Airport Rev., Series
1995 A, 6.00%, 5/15/05
(FGIC) 2,556,795
4,000,000 Los Angeles Capital Asset Lease
Rev. Certificates of Participation,
5.875%, 12/1/05 (AMBAC) 4,428,400
4,315,000 Los Angeles Certificates of
Participation, (Equipment & Real
Estate Acquisition Program),
4.60%, 10/1/05 4,390,944
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 17
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,155,000 Los Angeles Convention and
Exhibition Center Auth. Lease
Rev. Certificates of Participation,
Series 1993 A, 6.00%,
8/15/10 (MBIA) $ 1,317,127
4,000,000 Los Angeles County Correctional
Facility Project Certificates of
Participation, 6.00%, 9/1/99
(MBIA)(1) 4,136,680
2,625,000 Los Angeles County Metropolitan
Transportation Auth. Rev., Series
1996 A, (Union Station), 5.10%,
7/1/10 (FSA) 2,739,949
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A, (Proposition
C), 5.90%, 7/1/06 (AMBAC) 1,118,560
6,175,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A, (Proposition
A), 5.25%, 7/1/12 (MBIA) 6,429,781
1,000,000 Los Angeles County Public
Properties Certificates of
Participation, 6.25%, 4/1/00
(BIGI) 1,051,310
5,000,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1997 A, (Master
Reference Project), 4.50%,
3/1/05 (FSA) 5,099,400
2,625,000 Los Angeles County Sanitation
Districts Financing Auth. Rev.,
Series 1993 A, (Capital Projects),
5.20%, 10/1/05 2,802,870
2,900,000 Los Angeles County Transportation
Commission Certificates of
Participation, Series 1992 B,
6.00%, 7/1/01 3,080,177
4,665,000 Los Angeles County Transportation
Commission Certificates of
Participation, Series 1992 B,
6.20%, 7/1/03 5,117,692
2,000,000 Los Angeles County Transportation
Commission Certificates of
Participation, Series 1992 B,
6.25%, 7/1/04 2,190,340
Principal Amount Value
- --------------------------------------------------------------------------------
$ 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) $ 2,735,900
3,515,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1992 A, (Proposition C),
6.20%, 7/1/04 3,891,421
3,765,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1992 A, (Proposition C),
6.40%, 7/1/06 4,291,234
1,000,000 Los Angeles County Wastewater
System Rev., Series 1990 B,
6.80%, 6/1/02 1,074,100
2,045,000 Los Angeles County Wastewater
System Rev., Series 1991 A,
6.60%, 2/1/00 (MBIA) 2,138,743
4,780,000 Los Angeles County Wastewater
System Rev., Series 1992 B,
6.20%, 6/1/06 (AMBAC) 5,229,177
1,000,000 Los Angeles Department of Water
and Power Electric Rev., 5.70%,
1/15/05 (MBIA) 1,083,270
1,000,000 Los Angeles Department of Water
and Power Water Works Rev.,
6.30%, 4/15/06 (FGIC) 1,092,030
4,685,000 Los Angeles Municipal
Improvement Corporation Rev.,
Series 1995 A, 6.00%, 2/1/03
(MBIA) 5,102,340
2,400,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/11 (FGIC) 2,738,592
1,000,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/15 (FGIC) 1,135,030
7,190,000 Metropolitan Water District of
Southern California Rev., 6.50%,
7/1/01, Prerefunded at 102%
of Par(1) 7,890,809
1,000,000 Metropolitan Water District of
Southern California Rev., 6.625%,
7/1/01, Prerefunded at 102%
of Par(1) 1,101,350
See Notes to Financial Statements
18 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,785,000 Metropolitan Water District of
Southern California Rev., 5.00%,
7/1/09 $ 2,910,604
1,100,000 Mojave California Water Agency
Improvement District GO,
(Morongo Basin), 5.40%,
9/1/08 (FGIC) 1,193,698
2,000,000 Monterey County Certificates of
Participation, Series 1998 E,
(Natividad Medical Center
Improvement), 4.75%, 8/1/16
(MBIA) 1,933,160
1,635,000 Monterey County Certificates of
Participation, Series 1998 E,
(Natividad Medical Center
Improvement), 4.75%, 8/1/17
(MBIA) 1,568,815
1,000,000 Morgan Hill Redevelopment
Agency Tax Allocation, (Ojo De
Agua Community Development
Project), 5.50%, 3/1/99 1,011,420
1,000,000 Oakland Pension Financing Auth.
Rev. Certificates of Participation,
7.20%, 8/1/00 (FGIC) 1,034,240
1,165,000 Ontario Redevelopment Financing
Auth. Local Agency Rev., Series
1995 A, 5.80%, 9/2/06 (FSA) 1,272,005
1,645,000 Orange County Transportation
Sales Tax Rev., 5.75%, 2/15/05 1,760,775
1,250,000 Orange County Water District
Certificates of Participation,
7.00%, 8/15/00, Prerefunded at
102% of Par(1) 1,367,187
6,000,000 Orange County Water District
Certificates of Participation,
Series 1997 A, 5.00%,
8/15/14 (MBIA) 6,041,580
1,330,000 Oxnard Harbor District Rev., 7.00%,
8/1/04 (FSA) 1,544,409
13,150,000 Puerto Rico Commonwealth GO,
(Public Improvement), 4.50%,
7/1/23 11,878,001
3,500,000 Puerto Rico Commonwealth
Infrastructure Financing Auth.
Special Tax Rev., Series 1998 A,
5.50%, 7/1/08 (AMBAC)(4) 3,830,365
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Puerto Rico Public Buildings Auth.
Rev., Series 1995 A, 6.25%,
7/1/08 (AMBAC) $ 1,160,930
2,590,000 Puerto Rico Public Buildings Auth.
Rev., Series 1995 A, 6.25%,
7/1/09 (AMBAC) 3,017,920
1,000,000 Ramona Municipal Water District
Certificates of Participation,
6.90%, 10/1/01 (AMBAC) 1,093,060
1,060,000 Redding Joint Powers Financing
Auth. Electric System Rev.,
Series 1996 A, 6.25%, 6/1/07
(MBIA) 1,220,823
1,010,000 Richmond Joint Powers Financing
Auth. Rev. Certificates of
Participation, Series 1995 A,
5.30%, 5/15/06 1,067,409
2,000,000 Riverside County Asset Leasing
Corporation Leasehold Rev.,
Series 1993 A, (Riverside
County Hospital), 5.90%,
6/1/02 2,126,840
2,080,000 Riverside County Public Financing
Auth. Special Tax Rev., Series
1995 A, 5.25%, 9/1/04 (MBIA) 2,217,550
1,225,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.60%, 6/1/05
(AMBAC) 1,335,287
1,025,000 Rocklin Unified School District
Community Facility Special Tax
Rev., No. 1, 5.20%, 9/1/09
(MBIA) 1,088,622
2,600,000 Sacramento County Multifamily
Housing Rev., Issue 1995 B,
(Parcwood Apartments Project),
4.80%, 9/1/02 2,642,120
5,710,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 C, 5.75%, 11/15/07
(MBIA) 6,173,481
3,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1994 H, 5.75%, 1/1/11 (MBIA) 3,753,925
4,230,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 L, 5.00%, 7/1/10
(AMBAC) 4,389,386
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 19
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,205,000 Saddleback Valley Unified School
District Public Financing Special
Tax Rev., 6.00%, 9/1/11 (FSA) $ 1,376,628
1,000,000 San Bernardino County Certificates
of Participation, (Medical Center
Project), 6.00%, 8/1/09 (MBIA) 1,125,690
5,000,000 San Bernardino County Certificates
of Participation, Series 1995 A,
(Medical Center Project), 5.75%,
8/1/07 (MBIA) 5,577,450
2,000,000 San Diego County Certificates of
Participation, (Central Jail),
5.00%, 10/1/10 (AMBAC) 2,062,100
1,500,000 San Diego County Regional
Transportation Commission Sales
Tax Rev., Series 1989 A, 7.75%,
4/1/99(1) 1,565,565
7,200,000 San Diego County Water Auth.
Certificates of Participation,
Series 1991 A, 6.125%, 5/1/03 7,747,416
4,400,000 San Diego County Water Auth.
Certificates of Participation,
Series 1991 A, 6.40%, 5/1/08 4,799,828
3,000,000 San Diego Public Facility Financing
Auth. Sewer Rev., 4.875%,
5/15/09 (FGIC) 3,088,470
3,505,000 San Diego Regional Transportation
Commission Sales Tax Rev.,
Series 1992 A, 5.50%, 4/1/04
(FGIC) 3,774,534
5,175,000 San Diego Regional Transportation
Commission Sales Tax Rev.,
Series 1992 A, 5.50%, 4/1/05
(FGIC) 5,600,333
4,000,000 San Diego Regional Transportation
Commission Sales Tax Rev.,
Series 1994 A, 6.00%, 4/1/04
(FGIC) 4,414,600
1,000,000 San Francisco Bay Area Rapid
Transit District Sales Tax Rev.,
5.35%, 7/1/07 (FGIC) 1,070,010
3,800,000 San Francisco Bay Area Rapid
Transit District Sales Tax Rev.,
4.75%, 7/1/23 (AMBAC) 3,596,244
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 15B, 4.875%,
5/1/18 (MBIA) $ 2,922,720
3,000,000 San Francisco City and County
Finance Corporation Lease Rev.,
Series 1998 I, (Citywide
Emergency Radio), 4.00%,
4/1/02 (FSA) 3,014,550
7,000,000 San Francisco City and County GO,
Series 1, 4.50%, 6/15/05
(FGIC) 7,152,530
1,605,000 San Francisco City and County
Public Utilities Commission
Water Rev., Series 1996 A,
5.00%, 11/1/11 1,649,250
3,405,000 San Francisco Port Commission
Rev., 5.625%, 7/1/02 3,603,273
3,950,000 San Jose Financing Auth. Rev.
Certificates of Participation,
(Convention Center), 6.00%,
9/1/05 4,249,449
4,580,000 San Jose Financing Auth. Rev.
Certificates of Participation,
Series 1993 A, (Convention
Center), 6.10%, 9/1/06 4,901,608
4,550,000 San Jose Redevelopment Agency
Tax Allocation, (Merged Area
Redevelopment Project), 6.00%,
8/1/09 (MBIA) 5,182,814
3,875,000 San Jose Redevelopment Agency
Tax Allocation, Series 1992 A,
(Merged Area Redevelopment
Project), 6.00%, 8/1/02
(MBIA)(1) 4,180,776
1,620,000 San Mateo County Joint Powers
Auth. Lease Rev., Series 1997
A, (Capital Projects), 4.875%,
7/15/11 (FSA) 1,641,740
4,585,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.00%, 6/1/11 (MBIA) 4,776,836
1,015,000 Santa Ana Police Administration
Certificates of Participation,
Series 1994 A, 5.50%, 7/1/07
(MBIA) 1,098,027
See Notes to Financial Statements
20 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Signal Hill Redevelopment Agency
Tax Allocation, Series 1990 B,
7.40%, 10/1/00, Prerefunded
at 100% of Par(1) $ 1,089,000
1,785,000 South Sutter Water District
Hydroelectric Refunding Rev.,
6.80%, 8/1/01 (FGIC) 1,892,118
2,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/00 2,127,080
3,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/01 3,235,590
3,090,000 Southern California Public Power
Auth. Rev., (Transmission Project),
5.625%, 7/1/03 (MBIA) 3,330,835
4,065,000 Southern California Rapid Transit
District Certificates of
Participation, (Workers
Compensation), 6.20%, 7/1/02
(MBIA) 4,404,062
5,000,000 Southern California Rapid Transit
District Certificates of
Participation, (Workers
Compensation), 6.40%, 7/1/04
(MBIA) 5,416,850
1,500,000 Southern California Rapid Transit
District Certificates of
Participation, (Workers
Compensation), 6.50%, 7/1/07
(MBIA) 1,629,045
2,000,000 Stanislaus County Certificates of
Participation, Series 1996 A,
(Capital Improvement Program),
5.50%, 5/1/06 (MBIA) 2,172,480
5,000,000 Stanislaus County Certificates of
Participation, Series 1998 A,
(Downtown Center), 5.00%,
9/1/18 4,961,950
1,150,000 Taft Public Financing Auth. Lease
Rev. Certificates of Participation,
Series 1997 A, (Community
Correctional Facility Project),
5.50%, 1/1/06 1,221,323
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,950,000 University of California Rev.,
(University of California Medical
Center), 5.60%, 7/1/09
(AMBAC) $ 2,115,438
2,435,000 University of California Rev.,
Series 1994 C, (Multiple Purpose
Projects), 4.75%, 9/1/16
(AMBAC) 2,353,476
2,510,000 Watsonville Hospital Insured Rev.,
Series 1996 A, (Watsonville
Community Hospital), 5.45%,
7/1/03 2,648,201
3,980,000 Whittier Health Facility Rev.,
(Presbyterian Intercommunity),
6.00%, 6/1/06 (MBIA) 4,463,610
------------------
TOTAL MUNICIPAL SECURITIES--97.9% 445,790,222
------------------
(Cost $423,673,144)
SHORT-TERM MUNICIPAL SECURITIES
2,500,000 California State Revenue
Anticipation Notes, 4.50%,
6/30/98 2,508,000
3,900,000 California State Revenue
Anticipation Notes, Floating Rate
Trust Receipts, 3.90%, 3/2/98(5) 3,900,000
3,000,000 San Francisco City and County
Unified School District Tax &
Rev. Anticipation Notes, 4.50%,
10/30/98 3,018,510
------------------
TOTAL SHORT-TERM MUNICIPAL
SECURITIES--2.1% 9,426,510
------------------
(Cost $9,415,903)
TOTAL INVESTMENT SECURITIES--100.0% $455,216,732
==================
(Cost $433,089,047)
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA INTERMEDIATE-TERM TAX-FREE 21
SCHEDULE OF INVESTMENTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
BIGI = Bond Investor's Guaranty, Inc.
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
(1) Escrowed to maturity in U.S. Government Securities.
(2) Security is a zero-coupon municipal bond. The yield to maturity at purchase
is indicated instead of a stated coupon rate. Zero-coupon securities are
purchased at a substantial discount from their value at maturity.
(3) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(4) When-issued security.
(5) Interest rate reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1998.
See Notes to Financial Statements
22 CALIFORNIA INTERMEDIATE-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
<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 FEBRUARY 28, 1998
<S> <C> <C> <C> <C> <C>
California Long-Term Tax-Free 4.37% 6.69% 6.98% 7.53% 7.98%
Yields are defined in the Glossary on page 41.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10
YEARS
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1998(1)
California Long-Term Tax-Free ............... 5.17% 9.67% 8.94% 6.64% 7.99%
Lehman Long-Term Municipal Bond Index ....... 6.19% 11.47% 10.04% 7.41% 9.36%
Average California Municipal Debt Fund(2) ... 5.06% 9.37% 8.16% 6.12% 7.69%
Fund's Ranking Among California
Municipal Debt Funds(2) ..................... -- 35 out of 102 17 out of 81 11 out of 53 7 out of 29
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services.
</TABLE>
See pages 40-41 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 2/28/88
Value on 2/28/98
Long-Term Lehman Long-Term
Tax-Free Municipal Index
Feb-88 $10,000 $10,000
Mar-88 $9,835 $9,857
Jun-88 $9,986 $10,139
Sep-88 $10,197 $10,479
Dec-88 $10,448 $10,787
Mar-89 $10,562 $10,895
Jun-89 $11,137 $11,649
Sep-89 $11,062 $11,588
Dec-89 $11,467 $12,079
Mar-90 $11,456 $12,104
Jun-90 $11,726 $12,415
Sep-90 $11,597 $12,315
Dec-90 $12,224 $12,951
Mar-91 $12,437 $13,249
Jun-91 $12,710 $13,587
Sep-91 $13,264 $14,199
Dec-91 $13,666 $14,707
Mar-92 $13,658 $14,758
Jun-92 $14,214 $15,409
Sep-92 $14,529 $15,830
Dec-92 $14,780 $16,211
Mar-93 $15,420 $16,918
Jun-93 $16,032 $17,617
Sep-93 $16,679 $18,322
Dec-93 $16,811 $18,602
Mar-94 $15,852 $17,110
Jun-94 $15,949 $17,233
Sep-94 $16,043 $17,304
Dec-94 $15,717 $16,909
Mar-95 $16,838 $18,594
Jun-95 $17,127 $19,019
Sep-95 $17,661 $19,539
Dec-95 $18,829 $20,848
Mar-96 $18,293 $20,304
Jun-96 $18,444 $20,543
Sep-96 $18,976 $21,180
Dec-96 $19,504 $21,769
Mar-97 $19,385 $21,582
Jun-97 $20,109 $22,544
Sep-97 $20,803 $23,383
Dec-97 $21,403 $24,229
Feb-98 $21,561 $24,476
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
2/28/98 8/31/97
Number of Securities 83 87
Weighted Average Maturity 19.7 years 19.8 years
Average Duration 8.3 years 8.0 years
Expense Ratio 0.52%* 0.48%
* Annualized.
SEMIANNUAL REPORT CALIFORNIA LONG-TERM TAX-FREE 23
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. For the six months ended February 28, 1998,
the fund returned 5.17%, compared with the 5.06% average return of the 109
"California Municipal Debt Funds" tracked by Lipper Analytical Services. The
fund's one-year return placed it in roughly the top third of its peer group,
while the fund's three-, five- and 10-year returns were in the top quarter. (See
the Total Returns table on the previous page.)
HOW DID THE FUND'S YIELD COMPARE?
The fund produced better-than-average yields, providing shareholders more
state and federal tax-free current income than the average California municipal
fund. As of February 28, the fund's 30-day SEC yield was 4.37%, compared with
the 3.88% average yield of its peers.
WHAT'S BEHIND THE FUND'S SOLID LONG-TERM PERFORMANCE?
Municipal bond fund returns are determined largely by a fund's duration,
structure, security selection and fees. Our management fee is below average, so
we have a competitive advantage over our peers. We think our California location
helps in credit analysis and security selection--our analysts frequently make
site visits and talk to a bond's issuer to estimate a security's value. We think
that helps us buy bonds at good prices before they're upgraded. Structure refers
to the way the fund's portfolio is put together. Different fund structures
perform better in different interest rate environments. That said, duration is
still probably the most important factor.
[bar chart - data below]
CALIFORNIA LONG-TERM TAX-FREE'S ONE-YEAR RETURNS FOR THE PAST TEN YEARS (Periods
ending February 28)
Long-Term Lehman Long-Term
Tax-Free Municipal Index
2/89 5.68% 8.86%
2/90 8.41% 11.08%
2/91 8.51% 9.30%
2/92 9.86% 11.37%
2/93 14.45% 16.33%
2/94 6.51% 6.27%
2/95 0.17% 0.96%
2/96 12.26% 12.56%
2/97 5.01% 6.18%
2/98 9.67% 11.47%
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 41 for a definition of the index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
24 CALIFORNIA LONG-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
CAN YOU DEFINE DURATION IN GENERAL AND EXPLAIN HOW YOU MANAGED THE FUND'S
DURATION SPECIFICALLY?
Duration measures a portfolio's sensitivity to changes in interest rates.
The longer a fund's duration, the more you gain when rates fall, and the more
you lose when rates rise. Conversely, a shorter duration means a bond
portfolio's price fluctuates less when rates change. So, ideally, you want to
lengthen duration when interest rates are falling and shorten duration when
rates are rising.
But keep in mind that it can be very difficult to accurately predict the
direction of interest rates over the short run. That's why we prefer a long-term
view of interest rates. As a result, we make only very modest adjustments to the
fund's duration over time, usually keeping it in a narrow range around eight
years. That conservative approach has been key to our long-term outperformance
of our peers. The last six months were typical--in late 1997, and so far in
1998, we kept our duration just slightly longer than the peer group average, at
around 8.3 years. That positioning helped the fund's performance as rates fell
late last year.
WHERE DOES PORTFOLIO STRUCTURE FIGURE IN?
Structure is important because it can help you achieve the degree of
interest rate sensitivity you want. We continued to use a "barbell" coupon
structure. We avoided buying securities with interest coupons near the going
market rate; instead, we bought discount bonds (which have interest coupons
below the prevailing interest rate) and premium bonds (which have coupons above
the market rate). We also held some non-callable securities.
WHY BUY A BOND WITH AN INTEREST COUPON BELOW THE MARKET RATE?
To help manage duration. Keep in mind that many municipal bonds have a call
feature, which means they can be paid off by the issuer before their maturity
date. Calling a bond is like refinancing the mortgage on your house--when
interest rates decline, you save by paying off the old loan with money borrowed
at the new, lower rate. That's exactly what municipal bond issuers do when rates
fall. In the same way that refinancing shortens the life of your original
mortgage, a call feature effectively shortens a bond's duration. And just as
you're more likely to refinance your mortgage the higher your payments, so too a
municipal bond issuer is more likely to call a bond the higher its interest
coupon.
Over the last six months, we bought bonds with coupons as low as 4.75%. If
rates continue to fall, these lower-coupon bonds have great potential to add to
the fund's returns because they're unlikely to be called anytime soon and their
prices have a lot of running room.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/98)
Revenue 52%
COPs/Leases 21%
Land-Secured 15%
Prerefunded/ETM 5%
GO 3%
Other 4%
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%
SEMIANNUAL REPORT CALIFORNIA LONG-TERM TAX-FREE 25
CALIFORNIA LONG-TERM TAX-FREE
DOESN'T BUYING THESE LOWER-COUPON BONDS AFFECT THE FUND'S YIELD?
No, not necessarily. Bond yields are a function of the security's price: the
lower the price, the higher the yield. We bought those 4.75% coupon bonds when
they were out of favor. Because we paid a low price, their yields were actually
higher than par bonds. The fund's yield did decline over the last six months,
from 4.55% last August to 4.23% at the end of February, but that's a reflection
of the market rally and lower rates overall.
MORE THAN HALF THE FUND IS IN REVENUE BONDS. WHAT'S THE ATTRACTION?
It's a case of the tail wagging the dog. We didn't go out with the intent of
making a sector play on revenue bonds, though we've done that in the past. And
it's true that sales-tax revenue bonds have done well as California's economy
has improved. But the main reason we bought those bonds was because they had
certain features we liked, such as their credit quality, coupons and call
features.
WHAT'S YOUR OUTLOOK FOR MUNICIPAL SECURITIES?
We think the outlook for the California municipal market is generally
positive. State and local credit quality is good and improving--steady economic
and job growth in the state should see to that. Inflation is virtually
nonexistent--prices rose at the slowest pace in a dozen years during 1997.
However, oil and commodities prices began to pick back up in late March, 1998,
after crude oil prices hit a nine-year low earlier in the month. And wage
pressures are still apparent, particularly in the service sector of the economy.
So the outlook is good, but not unconditionally so.
WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
We'll continue to use the same structure and duration strategy--if we lacked
conviction in that strategy we would have ended it some time ago. In particular,
we think the fund could perform very well relative to its peers if long-term
municipal rates rally down to below 5% or even 5.25%. That's because many
California municipal bonds with interest coupons at those levels have call
features. If those bonds were called in a market rally, we'd expect to
significantly outperform the competition. The other advantage to having good
structure to our portfolio is that we won't dramatically underperform our peers
if rates go the other way. We'll also continue to use the same conservative
approach that has helped the fund to such solid long-term performance.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/98)
AAA 53%
AA 11%
A 31%
BBB 5%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 48%
AA 15%
A 32%
BBB 5%
Credit ratings given by Standard & Poor's.
26 CALIFORNIA LONG-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
$ 2,300,000 Alameda County Certificates of
Participation, 6.80%, 6/15/17
(MBIA)(1) $ 850,747
2,700,000 Brea Public Financing Auth. Rev.,
(Project Area AB), 7.00%,
8/1/15 (MBIA) 2,979,342
1,220,000 Brea Redevelopment Agency Tax
Allocation (Project AB), 6.125%,
8/1/13 (MBIA) 1,334,265
1,300,000 California Educational Facility Auth.
Rev., Series 1989 I, (Stanford
University), 7.125%, 1/1/19 1,357,005
1,500,000 California Educational Facility Auth.
Rev., Series 1997 B, (Pooled
College and University Projects),
6.30%, 4/1/21 1,611,480
2,775,000 California Health Facilities
Financing Auth. Rev., (Episcopal
Homes), 7.80%, 7/1/15 2,863,828
4,000,000 California Health Facilities
Financing Auth. Rev., (Kaiser
Permanente), 7.00%, 10/1/18 4,255,280
1,500,000 California Health Facilities
Financing Auth. Rev., Series
1988 A, (H.M. Newhall Memorial
Hospital), 8.00%, 10/1/18 1,562,925
3,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/09(1) 1,740,750
1,730,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Gould Medical), 7.30%,
4/1/20(2) 1,932,254
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1991 B, (Adventist Health),
6.75%, 3/1/14 (MBIA) 2,706,375
2,000,000 California Health Facilities
Financing Auth. Rev., Series
1992 A, 6.75%, 3/1/20 2,176,120
1,290,000 California Health Facilities
Financing Auth. Rev., Series
1992 C, (AIDS Healthcare
Foundation), 6.25%, 9/1/17 1,376,830
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,165,000 California Health Facilities
Financing Auth. Rev., Series
1993 C, (St. Francis Memorial
Hospital), 5.875%, 11/1/23 $ 5,718,120
1,400,000 California Housing Finance Agency
Rev., (Multi-Unit Rental Housing),
6.75%, 2/1/09 1,411,871
1,290,000 California Housing Finance Agency
Rev., (Multi-Unit Rental Housing),
6.875%, 2/1/22 1,312,511
5,125,000 California Housing Finance Agency
Rev., Series 1994 G, (Home
Mortgage), 7.25%, 8/1/17 5,546,582
1,135,000 California Housing Finance Agency
Rev., Series 1995 C, (Home
Mortgage), 6.80%, 8/1/17 1,218,888
1,500,000 California Pollution Control
Financing Auth. Rev., Series
1987 D, (Southern California
Edison), 6.85%, 12/1/08 1,587,000
1,000,000 California State Franchise Tax
Board Certificates of
Participation, 6.90%, 10/1/99,
Prerefunded at 102% of Par(2) 1,067,410
3,000,000 California State GO, 6.125%,
10/1/11 (AMBAC) 3,466,710
1,410,000 California State GO, Series 1984 B,
(New Prison Construction),
10.00%, 8/1/03 1,813,458
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) 17,912,763
2,000,000 Campbell Certificates of
Participation, (Civic Center
Project), 5.25%, 10/1/28
(MBIA) 2,008,520
5,695,000 Capistrano School District Special
Tax, (Refunding Issue 1988-1),
6.50%, 9/1/14 (FSA) 6,479,657
1,000,000 Coachella Valley Water District #71
Certificates of Participation,
(Flood Control Project), 6.75%,
10/1/02, Prerefunded at 102%
of Par(2) 1,129,420
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA LONG-TERM TAX-FREE 27
SCHEDULE OF INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 8,000,000 Compton Redevelopment Agency
Tax Allocation, Series 1995 A,
6.50%, 8/1/13 (FSA) $ 9,093,600
2,580,000 Concord Joint Power Financing
Auth. Lease Rev. Certificates of
Participation, (Police Facilities
Project), 5.25%, 8/1/13 2,668,365
10,000,000 East Bay Municipal Utility District
Wastewater Treatment System
Rev., 4.75%, 6/1/21 (FGIC) 9,473,500
5,000,000 Irvine Ranch Water District Joint
Powers Agency Local Pool Rev.,
7.80%, 2/15/08 (FGIC) 5,012,550
1,900,000 Irvine Ranch Water District Joint
Powers Agency Local Pool Rev.,
7.875%, 2/15/23 1,904,864
1,815,000 Kern County High School District
GO, 7.15%, 8/1/14 (MBIA)(2) 2,294,650
1,305,000 Los Altos Association of Bay Area
Governments Certificates of
Participation, 5.90%, 5/1/27 1,375,770
3,475,000 Los Angeles Community
Redevelopment Agency Housing
Rev., Series 1994 A, 6.45%,
7/1/17 (AMBAC) 3,702,786
2,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1996 A, 6.00%,
7/1/23 (MBIA) 2,163,840
8,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1993 B, 4.75%,
7/1/18 (AMBAC) 7,628,080
3,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1987 A, 7.40%, 7/1/15 3,190,920
4,050,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1989 A, (Capital
Appreciation), 7.20%, 7/1/02
(MBIA)(1) 3,196,219
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) 1,060,510
1,000,000 Los Angeles Transportation Sales
Tax Rev., 6.50%, 7/1/13 (MBIA) 1,087,090
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,410,000 Los Angeles Waste Water System
Rev., Series 1991 C, 6.90%,
6/1/09 $ 2,536,790
3,050,000 Los Angeles Waste Water System
Rev., Series 1991 C, 7.10%,
6/1/18 3,217,872
1,865,000 Mendocino Coast District Health
Care Facility Rev., 5.875%,
2/1/20 1,961,570
8,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 5.75%, 8/10/18 8,762,240
5,150,000 Mid-Peninsula Regional Open
Space District GO, 7.00%,
9/1/14 5,877,643
5,830,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan
Project), 6.75%, 7/1/20 (MBIA) 6,912,398
4,835,000 Northern California Power Agency
Public Power Rev., Series 1985
E, (Hydroelectric Project #1),
7.15%, 7/1/24 4,979,180
3,000,000 Oakland Redevelopment Agency
Tax Allocation, (Central District
Redevelopment Tax), 5.50%,
2/1/14 (AMBAC) 3,235,320
1,855,000 Pacifica Financing Auth. Sewer
Rev., 6.20%, 8/1/26 1,896,274
1,000,000 Pasadena Certificates of
Participation, (Old Pasadena
Parking Facility Project), 6.25%,
1/1/18 1,142,400
4,475,000 Pittsburg Redevelopment Agency
Tax Allocation, 6.20%, 8/1/19 4,804,808
5,000,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development
Project), 6.25%, 8/1/26 5,369,300
2,700,000 Pittsburg Redevelopment Agency
Tax Allocation, Series 1993 B,
(Los Medanos Community
Development Project), 5.80%,
8/1/34 (FSA) 2,962,467
2,100,000 Pomona Public Financing Auth.
Rev., Series 1992 A, (Water
Treatment Project), 6.10%,
7/1/17 (AMBAC) 2,281,377
See Notes to Financial Statements
28 CALIFORNIA LONG-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,635,000 Rancho Water District Financing
Auth. Rev., 4.75%, 8/15/21
(AMBAC) $ 4,384,061
5,680,000 Riverside County Asset Leasing
Corporation Rev. Certificates of
Participation, Series 1997 B,
(Riverside County Hospital
Project), 5.00%, 6/1/19 (MBIA) 5,555,892
9,655,000 Sacramento Municipal Utility District
Electric Rev., Series 1993 G,
4.75%, 9/1/21 (MBIA) 9,131,892
8,500,000 Sacramento Municipal Utility District
Electric Rev., Series 1997 K,
5.25%, 7/1/24 (AMBAC) 8,796,055
1,000,000 Saddleback Valley Unified School
District Public Financing Auth.
Special Tax Rev., Series 1997 A,
6.00%, 9/1/16 (FSA) 1,132,860
7,425,000 San Bernardino County Certificates
of Participation, (Medical Center
Financing Project), 4.75%,
8/1/28 6,759,052
3,400,000 San Diego County Certificates of
Participation, 5.625%, 9/1/12
(AMBAC) 3,709,094
3,500,000 San Diego County Regional
Transportation Sales Tax Rev.,
Series 1991 A, 6.93%,
4/1/04(1)(2) 2,685,340
2,850,000 San Diego County Water Auth.
Rev. Certificates of Participation,
Series 1997 A, 4.75%, 5/1/20 2,682,164
6,405,000 San Francisco Bay Area Rapid
Transit District Sales Tax Rev.,
4.75%, 7/1/23 (AMBAC) 6,061,564
1,000,000 San Francisco City and County
Redevelopment Hotel Tax Rev.,
6.75%, 7/1/15 (FSA) 1,136,800
3,000,000 San Jose Financing Auth. Rev.
Certificates of Participation,
Series 1993 C, (Convention
Center Project), 6.375%, 9/1/13 3,205,800
7,575,000 San Jose Financing Auth. Rev.
Certificates of Participation, Series
1993 D, (Central Service Yard),
5.25%, 10/15/23 7,521,748
Principal Amount Value
- --------------------------------------------------------------------------------
$ 9,525,000 San Jose Redevelopment Agency
Tax Allocation, Series 1993 D,
(Merged Area Redevelopment
Project), 5.75%, 8/1/24 $ 9,880,187
3,475,000 San Mateo County Joint Powers
Finance Auth. Lease Rev.
Certificates of Participation,
(Capital Projects Program),
6.50%, 7/1/16 (MBIA) 4,116,763
4,000,000 San Mateo County Joint Powers
Finance Auth. Lease Rev.
Certificates of Participation,
(Capital Projects Program),
6.00%, 7/1/19 (MBIA) 4,509,560
3,500,000 Santa Ana Finance Auth. Lease
Rev. Certificates of Participation,
6.25%, 7/1/15 (MBIA) 4,074,490
4,830,000 Santa Monica Community College
District Certificates of
Participation, Series 1997 A,
5.90%, 2/1/27 5,146,268
1,425,000 Southern California Public Power
Auth. Rev., (Transportation Auth.),
7.00%, 7/1/09 (FGIC) 1,531,305
7,315,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/12
(FSA) 8,883,629
3,260,000 Southern California Public Power
Auth. Rev., 6.00%, 7/1/18 3,333,187
3,730,000 Southern California Public Power
Auth. Rev., (Multipurpose
Projects), 6.75%, 7/1/13 (FSA) 4,540,604
3,000,000 Southern California Public Power
Auth. Rev., Series 1989 A,
7.15%, 7/1/04 (AMBAC)(1) 2,290,320
2,000,000 Southern Orange County Finance
Auth. Special Tax Rev., Series
1994 A, 7.00%, 9/1/11 (MBIA) 2,480,160
800,000 Stockton Health Facilities Rev.,
Series 1997 A, (Dameron
Hospital Association), 5.70%,
12/1/14 818,168
2,000,000 Taft Public Financing Auth. Lease
Rev. Certificates of Participation,
Series 1997 A, (Community
Correctional Facility), 6.05%,
1/1/17 2,128,920
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA LONG-TERM TAX-FREE 29
SCHEDULE OF INVESTMENTS
CALIFORNIA LONG-TERM TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,020,000 Watsonville Insured Hospital Rev.,
Series 1996 A, (Watsonville
Community Hospital), 6.20%,
7/1/12 $ 3,385,994
------------------
TOTAL MUNICIPAL SECURITIES--95.7% 307,094,371
------------------
(Cost $286,119,204)
MUNICIPAL DERIVATIVES--1.3%
4,000,000 Northern California Transmission
Rev., Inverse Floater, 6.81%,
4/29/24 (MBIA)(3) 4,190,000
------------------
(Cost $3,963,920)
SHORT-TERM MUNICIPAL SECURITIES--3.0%
9,500,000 California State Revenue
Anticipation Notes, Floating Rate
Trust Receipts, 3.90%,
3/2/98(4) 9,500,000
------------------
(Cost $9,500,000)
TOTAL INVESTMENT SECURITIES--100.0% $320,784,371
==================
(Cost $299,583,124)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Company
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
(1) Securities are zero-coupon municipal bonds. The yield to maturity at
purchase is indicated instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity.
(2) Escrowed to maturity 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.
(4) Interest rate reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1998.
See Notes to Financial Statements
30 CALIFORNIA LONG-TERM TAX-FREE AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
INTERMEDIATE-
LIMITED-TERM TERM LONG-TERM
FEBRUARY 28, 1998 (UNAUDITED) TAX-FREE TAX-FREE TAX-FREE
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of $128,751,413,
$433,089,047, and $299,583,124,
respectively) (Note 3) .......... $ 131,076,026 $ 455,216,732 $ 320,784,371
Investment in affiliated money
market fund (Note 2) ............. 6,540 1,108,838 7,045
Receivable for investments sold .... 1,118,810 337,470 --
Interest receivable ................ 1,899,885 6,556,183 3,779,913
------------- ------------- -------------
134,101,261 463,219,223 324,571,329
------------- ------------- -------------
LIABILITIES
Disbursements in excess of
demand deposit cash .............. 1,680,346 2,147,510 946,093
Payable for investments purchased .. 1,761,255 12,193,163 6,062,406
Payable for capital shares
redeemed ......................... 187,622 413,874 438,041
Accrued management fees (Note 2) ... 51,005 174,349 123,167
Dividends payable .................. 32,676 89,242 51,357
Payable for trustees'
fees and expenses ................ 429 429 429
------------- ------------- -------------
3,713,333 15,018,567 7,621,493
------------- ------------- -------------
Net Assets ......................... $ 130,387,928 $ 448,200,656 $ 316,949,836
============= ============= =============
CAPITAL SHARES
Outstanding (Unlimited
number of shares authorized) ..... 12,559,875 39,622,288 27,382,509
============= ============= =============
Net Asset Value Per Share .......... $ 10.38 $ 11.31 $ 11.57
============= ============= =============
NET ASSETS CONSIST OF:
Capital paid in .................... $ 128,684,241 $ 424,367,909 $ 293,993,296
Accumulated undistributed
net realized gain (loss)
on investments ................... (620,926) 1,705,062 1,755,293
Net unrealized appreciation
on investments (Note 3) .......... 2,324,613 22,127,685 21,201,247
------------- ------------- -------------
$ 130,387,928 $ 448,200,656 $ 316,949,836
============= ============= =============
</TABLE>
See Notes to Financial Statements
SEMIANNUAL REPORT STATEMENTS OF ASSETS AND LIABILITIES 31
STATEMENTS OF OPERATIONS
INTERMEDIATE-
FOR THE SIX MONTHS ENDED LIMITED-TERM TERM LONG-TERM
FEBRUARY 28, 1998 (UNAUDITED) TAX-FREE TAX-FREE TAX-FREE
INVESTMENT INCOME
Income:
Interest .......................... $ 2,916,182 $11,093,946 $ 8,669,270
Expenses (Note 2):
Management fees ................... 331,055 1,111,283 791,092
Trustees' fees and expenses ....... 4,215 8,093 6,500
----------- ----------- -----------
335,270 1,119,376 797,592
----------- ----------- -----------
Net investment income ............. 2,580,912 9,974,570 7,871,678
----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments .. 212,731 3,017,521 3,054,935
Change in net unrealized
appreciation on investments ..... 788,984 4,076,384 4,831,923
----------- ----------- -----------
Net realized and unrealized
gain on investments ............... 1,001,715 7,093,905 7,886,858
----------- ----------- -----------
Net Increase in Net Assets
Resulting from Operations ......... $ 3,582,627 $17,068,475 $15,758,536
=========== =========== ===========
See Notes to Financial Statements
32 STATEMENTS OF OPERATIONS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED) AND YEAR ENDED AUGUST 31, 1997
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-FREE TAX-FREE TAX-FREE
Increase in Net Assets 1998 1997 1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ............. $ 2,580,912 $ 4,682,931 $ 9,974,570 $ 20,904,240 $ 7,871,678 $ 16,098,064
Net realized gain on investments .. 212,731 317,683 3,017,521 4,489,257 3,054,935 4,196,683
Change in net unrealized
appreciation on investments ..... 788,984 857,109 4,076,384 5,607,704 4,831,923 7,428,889
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ...... 3,582,627 5,857,723 17,068,475 31,001,201 15,758,536 27,723,636
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS
TO SHAREHOLDERS
From net investment income ........ (2,580,912) (4,696,464) (9,974,570) (20,910,599) (7,871,678) (16,104,213)
From net realized gains on
investment transactions ......... -- -- (5,651,244) (1,183,599) (5,354,293) (424,536)
------------- ------------- ------------- ------------- ------------- -------------
Decrease in net assets
from distributions .............. (2,580,912) (4,696,464) (15,625,814) (22,094,198) (13,225,971) (16,528,749)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares sold ......... 22,791,764 65,320,633 80,584,927 156,377,551 47,018,824 114,942,666
Proceeds from reinvestment
of distributions ................ 1,770,460 3,333,775 12,051,635 16,509,842 9,306,856 11,252,698
Payments for shares redeemed ...... (21,807,192) (46,891,310) (81,318,406) (177,304,237) (46,578,977) (120,742,069)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets
from capital share
transactions .................... 2,755,032 21,763,098 11,318,156 (4,416,844) 9,746,703 5,453,295
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets ........ 3,756,747 22,924,357 12,760,817 4,490,159 12,279,268 16,648,182
NET ASSETS
Beginning of period ............... 126,631,181 103,706,824 435,439,839 430,949,680 304,670,568 288,022,386
------------- ------------- ------------- ------------- ------------- -------------
End of period ..................... $ 130,387,928 $ 126,631,181 $ 448,200,656 $ 435,439,839 $ 316,949,836 $ 304,670,568
============= ============= ============= ============= ============= =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold .............................. 2,202,635 6,370,918 7,114,828 13,989,592 4,051,661 10,168,195
Issued in reinvestment
of distributions ................ 170,983 325,340 1,065,798 1,479,691 803,518 995,435
Redeemed .......................... (2,106,349) (4,577,218) (7,179,587) (15,865,262) (4,015,222) (10,670,666)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) ........... 267,269 2,119,040 1,001,039 (395,979) 839,957 492,964
============= ============= ============= ============= ============= =============
</TABLE>
See Notes to Financial Statements
SEMIANNUAL REPORT STATEMENTS OF CHANGES IN NET ASSETS 33
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
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--Portfolio 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 accretion of discounts and amortization of premiums.
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 income 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.
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 reflect the differing character
of certain income items and net capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
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 Funds recognize a realized gain or
loss when the contract is closed or expired. 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 February 28, 1998.
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.
ADDITIONAL INFORMATION--Effective January 15, 1998, Funds Distributor, Inc.
(FDI) became the Trust's distributor. Certain officers of FDI are also officers
of the Trust.
34 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
2. TRANSACTIONS WITH RELATED PARTIES
The Trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM) that provides each Fund with investment
advisory and management services in exchange for a single, unified management
fee. Expenses excluded from this agreement are brokerage, taxes, portfolio
insurance, interest, fees and expenses of the Trustees who are not considered
"interested persons" as defined in the Investment Company Act of 1940 (including
counsel fees) and extraordinary expenses. 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 net 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 net 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
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, ACIM, the Trust's
transfer agent, American Century Services Corporation, and the registered
broker-dealer, American Century Investment Services, Inc.
As of February 28, 1998, Limited-Term, Intermediate-Term, and Long-Term had
invested $6,540, $1,108,838, and $7,045, respectively, in shares of American
Century - Benham California Tax-Free Money Market Fund (Tax-Free Money Market).
The terms of such transactions were identical to those with non-related entities
except that, to avoid duplicative management fees, the Funds did not pay ACIM
management fees with respect to assets invested in Tax-Free Money Market.
SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 35
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, were as follows:
<TABLE>
<CAPTION>
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
PURCHASES
<S> <C> <C> <C>
Municipal Obligations ....... $36,042,033 $94,317,622 $79,760,520
PROCEEDS FROM SALES
Municipal Obligations ....... $36,821,614 $76,610,750 $76,061,043
On February 28, 1998, 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 ................ $2,324,712 $22,289,767 $21,334,312
Depreciation ................ (99) (162,082) (133,065)
------------ ------------- -------------
Net ......................... $2,324,613 $22,127,685 $21,201,247
============ ============= =============
</TABLE>
The aggregate cost of investments for federal income tax purposes was the same
as the cost for financial reporting purposes.
36 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA LIMITED-TERM TAX-FREE
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
1998(1) 1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............ $ 10.30 $ 10.19 $ 10.23 $ 10.12 $ 10.34 $ 10.12
----------- ----------- ----------- ----------- ----------- -----------
Income From
Investment Operations
Net Investment Income ........ 0.21 0.43 0.43 0.41 0.38 0.38
Net Realized and
Unrealized Gain (Loss)
on Investment Transactions ... 0.08 0.11 (0.04) 0.11 (0.18) 0.22
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations ................... 0.29 0.54 0.39 0.52 0.20 0.60
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment
Income ....................... (0.21) (0.43) (0.43) (0.41) (0.38) (0.38)
In Excess of Net
Realized Gains ............... -- -- -- -- (0.04) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions .......... (0.21) (0.43) (0.43) (0.41) (0.42) (0.38)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value,
End of Period .................. $ 10.38 $ 10.30 $ 10.19 $ 10.23 $ 10.12 $ 10.34
=========== =========== =========== =========== =========== ===========
Total Return(2) .............. 2.80% 5.42% 3.87% 5.33% 1.90% 6.15%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......... 0.52%(3) 0.49% 0.49% 0.51% 0.51% 0.36%
Ratio of Net Investment Income
to Average Net Assets .......... 4.02%(3) 4.20% 4.20% 4.10% 3.68% 3.76%
Portfolio Turnover Rate ........ 28% 47% 44% 50% 66% 54%
Net Assets, End
of Period (in thousands) ....... $ 130,388 $ 126,631 $ 103,707 $ 104,723 $ 120,627 $ 114,019
(1) Six months ended February 28, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
SEMIANNUAL REPORT FINANCIAL HIGHLIGHTS 37
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
1998(1) 1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............ $ 11.27 $ 11.05 $ 11.06 $ 10.86 $ 11.36 $ 10.85
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net Investment Income ........ 0.26 0.54 0.54 0.54 0.54 0.56
Net Realized and
Unrealized Gain (Loss)
on Investment Transactions ... 0.19 0.25 (0.01) 0.20 (0.41) 0.53
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations ................... 0.45 0.79 0.53 0.74 0.13 1.09
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment
Income ....................... (0.26) (0.54) (0.54) (0.54) (0.54) (0.56)
From Net Realized Gains
on Investment Transactions ... (0.15) (0.03) -- -- (0.08) (0.02)
In Excess of Net
Realized Gains ............... -- -- -- -- (0.01) --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions .......... (0.41) (0.57) (0.54) (0.54) (0.63) (0.58)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value,
End of Period .................. $ 11.31 $ 11.27 $ 11.05 $ 11.06 $ 10.86 $ 11.36
=========== =========== =========== =========== =========== ===========
Total Return(2) .............. 4.01% 7.39% 4.79% 7.09% 1.11% 10.42%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......... 0.52%(3) 0.48% 0.48% 0.48% 0.48% 0.50%
Ratio of Net Investment Income
to Average Net Assets .......... 4.60%(3) 4.81% 4.87% 5.02% 4.82% 5.05%
Portfolio Turnover Rate ........ 18% 42% 36% 25% 44% 27%
Net Assets, End
of Period (in thousands) ....... $ 448,201 $ 435,440 $ 430,950 $ 417,550 $ 448,293 $ 444,460
(1) Six months ended February 28, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
38 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA LONG-TERM TAX-FREE
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
1998(1) 1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............ $ 11.48 $ 11.06 $ 10.94 $ 10.88 $ 12.02 $ 11.44
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net Investment Income ........ 0.30 0.61 0.61 0.62 0.63 0.66
Net Realized and
Unrealized Gain (Loss)
on Investment Transactions ... 0.29 0.44 0.12 0.12 (0.71) 0.85
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations ................... 0.59 1.05 0.73 0.74 (0.08) 1.51
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment
Income ....................... (0.30) (0.61) (0.61) (0.62) (0.63) (0.66)
From Net Realized
Gains on Investment
Transactions ................. (0.20) (0.02) -- (0.06) (0.43) (0.27)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions .......... (0.50) (0.63) (0.61) (0.68) (1.06) (0.93)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value,
End of Period .................. $ 11.57 $ 11.48 $ 11.06 $ 10.94 $ 10.88 $ 12.02
=========== =========== =========== =========== =========== ===========
Total Return(2) .............. 5.17% 9.70% 6.77% 7.21% (0.78)% 14.02%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......... 0.52%(3) 0.48% 0.48% 0.49% 0.48% 0.49%
Ratio of Net Investment Income
to Average Net Assets .......... 5.12(3) 5.40% 5.48% 5.84% 5.51% 5.76%
Portfolio Turnover Rate ........ 25% 50% 42% 60% 62% 55%
Net Assets, End
of Period (in thousands) ....... $ 316,950 $ 304,671 $ 288,022 $ 276,085 $ 277,477 $ 338,075
(1) Six months ended February 28, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
SEMIANNUAL REPORT FINANCIAL HIGHLIGHTS 39
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY AND POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds. Each fund is managed to provide a "pure play" on
a specific sector of the fixed-income market. To ensure adherence to this
principle, the basic structure of each fund's portfolio is tied to a specific
market index. Fund managers attempt to add value by making modest portfolio
adjustments based on their analysis of prevailing market conditions. Investment
decisions are made by management teams, which meet regularly to discuss
investment strategies.
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 with maturities of
seven or more years 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 index's average maturity 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 index's average maturity
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 index's average maturity
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.
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
40 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.
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.
* BULLET STRUCTURE--a structure that clusters a portfolio's bond maturities
around a single maturity (usually an intermediate-term maturity). This structure
tends to perform best when the yield curve is moving from flat to steep
(long-term rates are rising faster that short-term rates, or short-term rates
are falling faster than long-term rates).
INVESTMENT TERMS
* BASIS POINT--one one-hundredth of a percentage point (or 0.01%). Therefore,
100 basis points equal one percentage point (or 1%).
* YIELD CURVE--a graphic representation of the relationship between maturity and
yield for fixed-income securities.
STATISTICAL TERMINOLOGY
* NUMBER OF SECURITIES--the number of different securities held by a fund on a
given date.
* WEIGHTED AVERAGE MATURITY (WAM)--a measure 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.
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).
SEMIANNUAL REPORT GLOSSARY 41
[american century logo(reg.sm)]
American
Century(reg.tm)
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 AND 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.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION FUNDS DISTRIBUTOR, INC.
9804 [recycled logo]
SH-BKT-12011 Recycled
<PAGE>
SEMIANNUAL
REPORT
[american century logo(reg.sm)]
American
Century(reg.tm)
FEBRUARY 28, 1998
BENHAM
GROUP
California High-Yield Municipal
California Insured Tax-Free
TABLE OF CONTENTS
Report Highlights .......................................................... 1
Our Message to You ......................................................... 2
Market Perspective ......................................................... 3
California High-Yield Municipal
Performance & Portfolio Information ............................. 4
Management Q & A ................................................ 5
Schedule of Investments ......................................... 8
Financial Highlights ............................................ 26
California Insured Tax-Free
Performance & Portfolio Information ............................. 13
Management Q & A ................................................ 14
Schedule of Investments ......................................... 17
Financial Highlights ............................................ 27
Statements of Assets and Liabilities ....................................... 20
Statements of Operations ................................................... 21
Statements of Changes in Net Assets ........................................ 22
Notes to Financial Statements .............................................. 23
Background Information
Investment Philosophy & Policies ................................ 28
Comparative Indices ............................................. 28
Lipper Rankings ................................................. 28
Investment Team Leaders ......................................... 28
Glossary ................................................................... 29
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, based on investment style
and objectives, to help simplify your fund decisions. These groups appear below.
AMERICAN CENTURY INVESTMENTS--FAMILY OF FUNDS
- -------------------------------------------------------------------------------
Benham American Century Twentieth Century
Group 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
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.
American Century and Benham Group are registered marks of American Century
Services Corporation.
AMERICAN CENTURY INVESTMENTS
REPORT HIGHLIGHTS
MUNICIPAL MARKET OVERVIEW
* Municipal bond investors enjoyed impressive returns for the six months ended
February 28, 1998.
* Longer-term municipal securities outperformed shorter-term ones, as is often
the case when interest rates decline.
* Healthy economic growth helped the municipal market reach its highest level
of credit quality in nearly a decade.
* With rates low, municipal issuance in 1998 is projected to be greater than
the previous few years.
* Improving credit conditions and higher municipal issuance caused the
difference in yield between securities rated AAA and BBB to decrease.
HIGH-YIELD MUNICIPAL
* The fund performed well over the last six months. Its longer-term returns
remained among the highest in its peer group (see the Total Returns table on
page 4).
* High-Yield Municipal continued to produce far more current income than the
average California municipal fund. As of February 28, the fund's 30-day SEC
yield was in the top 5% of its peer group.
* We kept the fund's duration neutral relative to the average California
municipal fund. Rather than make duration adjustments, we tried to add value
by focusing on credit analysis and individual security selection.
* Our analysts took a more active role in structuring private placements and
limited public offerings in an attempt to minimize risk and maximize yield
for our shareholders.
* Though we have an optimistic outlook for the California municipal market, we
caution investors that improving credit quality, declining high-yield
issuance and tightening credit spreads make it increasingly difficult to
match the fund's stellar returns of the last several years.
INSURED TAX-FREE
* The fund's total return for the last six months beat the return of the
average California insured fund, according to Lipper Analytical Services (see
the Total Returns table on page 13).
* In addition to producing a superior total return, Insured Tax-Free also had a
better-than-average yield.
* Central to the fund's solid long-term performance are our below-average
expenses and conservative approach to managing duration, structure and
security selection.
* We bought discount bonds (which have interest coupons below the market rate)
to help with the fund's duration and structure. We believe these securities
should perform well if the market continues to rally.
* Going forward, we'll likely maintain the same duration and structure that
helped the fund to solid returns over the last six months.
HIGH-YIELD
MUNICIPAL
TOTAL RETURNS: AS OF 2/28/98
6 Months 5.05%*
1 Year 10.62%
30-DAY SEC YIELD: 4.62%
NET ASSETS: $242.6 million
(AS OF 2/28/98)
INCEPTION DATE: 12/30/86
TICKER SYMBOL: BCHYX
INSURED
TAX-FREE
TOTAL RETURNS: AS OF 2/28/98
6 Months 5.02%*
1 Year 9.38%
30-DAY SEC YIELD: 4.23%
NET ASSETS: $203.2 million
(AS OF 2/28/98)
INCEPTION DATE: 12/30/86
TICKER SYMBOL: BCINX
* Not annualized.
Many of the investment terms in this report are defined in the Glossary on page
29.
SEMIANNUAL REPORT REPORT HIGHLIGHTS 1
OUR MESSAGE TO YOU
[photo of James E. Stowers, Jr. and James E. Stowers III]
Benham California High-Yield Municipal and Insured Tax-Free funds performed
well during the six months ended February 28, 1998. In general, municipal bonds
produced favorable returns, reflecting the decline in interest rates.
On the corporate front, this has been an eventful six months. American
Century gained a powerful business partner in January, when J.P. Morgan became a
substantial minority shareholder. J.P. Morgan has been in business over 150
years, serving institutions, governments and individuals with complex financial
needs. The new partnership is very exciting and will allow both companies to
offer investors a highly diverse menu of investment options and services.
As you may be aware, Jim Benham, founder of the Benham Group, retired in
December. With the integration of Benham and Twentieth Century successfully
completed, Jim felt it was time to step back from the business. Much of the
Benham culture has become a part of American Century, including the educational
investor seminar program Jim created. Two of his sons, Jim A. Benham and Tim
Benham, remain with the company to carry on the Benham tradition.
We would also like to let you know what we're doing about the year 2000
issue, which refers to the possible inability of computer systems to distinguish
between the years 1900 and 2000. Like other financial companies, a significant
percentage of our computer operations involves some type of date comparison or
date calculation. Although much of our system is already year 2000 compliant, we
are aggressively addressing the problem and anticipate the project should be
completed by November 1998.
In closing, we are proud to note that 1998 marks the 40th year since
American Century launched its first mutual funds. Not many fund companies can
claim a 40-year track record, or a fund family that includes nearly 70 stock,
bond, money market and blended (stock and bond) funds that provide investors
with such a wide range of choice and flexibility. We believe American Century
has an outstanding lineup of funds to help you reach your financial goals.
Thank you for your investment.
Sincerely,
/s/James E. Stowers, Jr. /s/James E. Stowers III
James E. Stowers, Jr. James E. Stowers III
Chairman of the Board and Founder Chief Executive Officer
2 OUR MESSAGE TO YOU AMERICAN CENTURY INVESTMENTS
MARKET PERSPECTIVE
[line chart - data below]
CREDIT SPREADS: AAA INSURED VS. BBB BOND YIELDS
Bond Yields
AAA Insured 30-Year GO BBB 30-Year Revenue
09/01/97 5.300% 5.750%
09/05/97 5.260% 5.690%
09/12/97 5.230% 5.670%
09/19/97 5.150% 5.580%
09/26/97 5.150% 5.570%
10/03/97 5.130% 5.530%
10/10/97 5.210% 5.600%
10/17/97 5.250% 5.640%
10/24/97 5.200% 5.600%
10/31/97 5.120% 5.520%
11/07/97 5.150% 5.560%
11/14/97 5.140% 5.530%
11/21/97 5.150% 5.520%
11/28/97 5.170% 5.530%
12/05/98 5.110% 5.490%
12/12/98 5.010% 5.410%
12/19/98 4.980% 5.360%
12/26/98 4.980% 5.360%
01/02/98 4.960% 5.340%
01/09/98 4.870% 5.250%
01/16/98 4.830% 5.210%
01/23/98 4.930% 5.260%
01/30/98 4.920% 5.270%
02/06/98 4.930% 5.320%
02/13/98 4.890% 5.260%
02/20/98 4.890% 5.260%
02/27/98 4.960% 5.300%
Source: Bloomberg Financial Markets
IMPRESSIVE RETURNS
Municipal bond investors enjoyed solid returns for the six months ended
February 28, 1998, thanks to a vibrant national economy and benign inflation. As
the accompanying graph demonstrates, interest rates generally headed lower
through the end of 1997 before stabilizing somewhat in early 1998.
The bond-friendly environment allowed longer-term municipals, which are more
sensitive to changes in interest rates, to outperform shorter-maturity issues.
This outperformance is reflected in the 6.19% return for the Lehman Long-Term
Municipal Index versus the 3.03% return of the Lehman 3-Year Municipal Index.
TIGHTENING CREDIT SPREADS
Strong job growth and an improving economy during the six months helped the
municipal bond market reach its highest level of credit quality in nearly a
decade. The economic prosperity translated into increased upgrades for
municipalities--according to Moody's Investors Service, an independent credit
rating organization, upgrades outnumbered downgrades by a whopping 17 to 1 in
1997.
The higher credit quality also led to an increase in insured municipal
securities as insurers lowered their premiums for new municipals. That means
issuers have been able to raise the credit rating of their bonds by buying
insurance at a lower cost. The higher a bond's credit rating, the lower its
interest rate, so municipalities save money in the long run by insuring their
bonds.
While the supply of bonds with higher credit quality has been on the rise,
issuance of lower-rated municipals has been on the decline, making the
relatively few bonds available even more prized. This has caused already tight
credit spreads--the differences between the interest rates of higher-quality and
lower-quality bonds--to narrow further.
As demonstrated by the accompanying graph, the yield spread between a
30-year AAA insured municipal bond and a 30-year BBB municipal bond started the
period at 45 basis points (a basis point equals 0.01%). However, as interest
rates headed lower and a flood of newly insured bonds hit the market in early
1998, credit spreads eroded further. By the end of February, the difference in
yield between a 30-year AAA bond and a 30-year BBB bond was down to 34 basis
points.
INCREASED SUPPLY
With interest rates near their lowest levels in two decades, municipalities
have been rushing to the market during 1998 with new or refinanced securities.
Although municipal issuance between 1994 and 1997 was fairly low from a
historical standpoint, issuance this year is shaping up to be closer to average.
Projections for 1998 issuance fall around the $240 billion mark, well above the
$221 billion brought to market in 1997.
CALIFORNIA
California's economy continued to flourish, adding nearly 500,000 jobs in
1997, while the state's unemployment rate fell below 6% in January 1998. The
engine of growth in Northern California remains the high-technology industry,
while strength in technology, tourism and entertainment all benefited Southern
California. Going forward, California's economic health should bode well for the
state's municipal credit quality.
SEMIANNUAL REPORT MARKET PERSPECTIVE 3
<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 FEBRUARY 28, 1998
<S> <C> <C> <C> <C> <C>
California High-Yield Municipal 4.62% 7.08% 7.38% 7.96% 8.43%
Yields are defined in the Glossary on page 29.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10
YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1998(1)
California High-Yield Municipal ................... 5.05% 10.62% 9.85% 7.51% 8.45%
Lehman Long-Term Municipal Bond Index ............. 6.19% 11.47% 10.04% 7.41% 9.36%
Average California Municipal Debt Fund(2) ......... 5.06% 9.37% 8.16% 6.12% 7.69%
Fund's Ranking Among
California
Municipal Debt Funds(2) ........................... -- 16 out of 102 4 out of 81 3 out of 53 4 out of 29
- ----------
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services.
</TABLE>
See pages 28-29 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 2/28/88
Value on 2/28/98
California
Hi-Yield Lehman Long-Term
Municipal Municipal Bond Index
Feb-88 $10,000 $10,000
Mar-88 $9,891 $9,857
Jun-88 $10,126 $10,139
Sep-88 $10,472 $10,479
Dec-88 $10,728 $10,787
Mar-89 $10,924 $10,895
Jun-89 $11,404 $11,649
Sep-89 $11,444 $11,588
Dec-89 $11,766 $12,079
Mar-90 $11,890 $12,104
Jun-90 $12,197 $12,415
Sep-90 $12,055 $12,315
Dec-90 $12,431 $12,951
Mar-91 $12,720 $13,249
Jun-91 $13,071 $13,587
Sep-91 $13,571 $14,199
Dec-91 $13,787 $14,707
Mar-92 $13,985 $14,758
Jun-92 $14,478 $15,409
Sep-92 $14,832 $15,830
Dec-92 $15,052 $16,211
Mar-93 $15,566 $16,918
Jun-93 $16,226 $17,617
Sep-93 $16,818 $18,322
Dec-93 $17,036 $18,602
Mar-94 $16,263 $17,110
Jun-94 $16,389 $17,233
Sep-94 $16,551 $17,304
Dec-94 $16,123 $16,909
Mar-95 $17,281 $18,594
Jun-95 $17,625 $19,019
Sep-95 $18,058 $19,539
Dec-95 $19,072 $20,848
Mar-96 $18,783 $20,304
Jun-96 $19,128 $20,543
Sep-96 $19,693 $21,180
Dec-96 $20,196 $21,769
Mar-97 $20,144 $21,582
Jun-97 $20,982 $22,544
Sep-97 $21,695 $23,383
Dec-97 $22,317 $24,229
Feb-98 $22,505 $24,476
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
2/28/98 8/31/97
Number of Securities 120 102
Weighted Average Maturity 21.1 years 20.3 years
Average Duration 7.7 years 7.5 years
Expense Ratio 0.55%* 0.50%
* Annualized.
4 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
MANAGEMENT Q & A
An interview with Steven Permut, a portfolio manager on the California
High-Yield Municipal fund investment team.
HOW DID THE FUND PERFORM?
The fund performed well. For the six months ended February 28, 1998, the
fund returned 5.05%, compared with the 5.06% average return of 109 "California
Municipal Debt Funds" tracked by Lipper Analytical Services. The fund's
longer-term returns continue to be among the best in its peer group. (See the
Total Returns table on the previous page.)
HOW DOES THE FUND'S YIELD COMPARE?
Shareholders continued to enjoy one of the highest California state and
federal tax-free yields available.(+) At the end of February, the fund's 30-day
SEC yield was 4.62%, compared with the 3.88% yield of the average California
municipal fund.
THE FUND PRODUCED MORE CURRENT INCOME THAN THE AVERAGE CALIFORNIA MUNICIPAL
FUND, BUT IT'S YIELD DECLINED SLIGHTLY. CAN YOU EXPLAIN WHY THAT HAPPENED?
It's because we're in a lower interest rate environment overall after the
bond market rally in late 1997. Lower rates also caused many of our premium
bonds (securities with interest coupons above the market rate) to be called away
from us. Many municipal bonds have a call feature that allows the issuer to pay
off a security before its maturity date. Bonds with high interest coupons are
likely to be called when rates fall because the issuer can save by refinancing
the debt at the new, lower interest rate.
(+) 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 chart - data below]
CALIFORNIA HIGH-YIELD MUNICIPAL'S ONE-YEAR RETURNS
FOR THE PAST TEN YEARS (Periods ended February 28)
California
High-Yield Lehman Long-Term
Municipal Municipal Bond Index
2/89 9.27% 8.86%
2/90 8.77% 11.08%
2/91 6.72% 9.30%
2/92 9.50% 11.37%
2/93 12.76% 16.33%
2/94 8.04% 6.27%
2/95 0.30% 0.96%
2/96 12.01% 12.56%
2/97 6.97% 6.18%
2/98 10.62% 11.47%
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 28 for a definition of the index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
SEMIANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 5
CALIFORNIA HIGH-YIELD MUNICIPAL
The other thing to keep in mind is that the fund grew by about 25% over the
last six months, from $192 million to $242 million. With rates so low, it's been
a challenge putting all that new cash to work in higher-yielding bonds.
HOW WAS THE FUND POSITIONED RELATIVE TO ITS PEERS?
We continued to keep the fund's duration neutral relative to its peers.
Duration measures a portfolio's sensitivity to changes in interest rates. The
longer a fund's duration, the more you gain when rates fall, and the more you
lose when rates rise. Conversely, a shorter duration means a bond portfolio's
price fluctuates less when rates change. So, ideally, you want to lengthen
duration when interest rates are falling and shorten duration when rates are
rising.
The fund ended the period with a duration of 7.7 years. That's only slightly
longer than the 7.5-year duration we maintained for most of 1997. Rather than
make substantial duration adjustments, we look to outperform our peers by using
our careful security selection process to find attractive bonds.
CAN YOU DESCRIBE A LITTLE MORE ABOUT HOW YOU PICK SECURITIES FOR THE FUND?
We rely heavily on our experienced team of credit analysts. Our analysts do
extensive financial and demographic analysis and frequently conduct site visits
to determine a security's value. We think this hands-on approach helps us buy
bonds at good prices. But because municipal high-yield issuance declined and
credit spreads narrowed over the last six months (see the Market Perspective on
page 3), it's been somewhat harder to find securities we think are good buys. As
a result, we've looked at other ways our analysts can add value for
shareholders.
CAN YOU GIVE AN EXAMPLE OF HOW THE CREDIT TEAM ADDS VALUE?
One thing we've done is get more involved in private placements and limited
public offerings (deals sold only to large, sophisticated investors, such as
mutual funds and insurance companies). We're able to work directly with the
issuers to help structure the deals. The key difference is that rather than
working solely in a passive, analytical role, we're actively working with
issuers to put together deals that minimize the risk for our shareholders but
maximize the security's yield.
An example of how our credit team and portfolio managers work together to
structure a deal is a security we started work on back in October 1997 and
purchased in March 1998. It's a bond issued to purchase an Oceanside,
California, mobile home park. We worked with the city, who issued the debt, and
the underwriter to help structure the bond to meet our rigorous credit
standards. We ended up with what we believe is a strong bond that also offers a
very attractive yield.
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/98)
Revenue 44%
Land-Secured 36%
COPs/Leases 11%
Prerefunded/ETM 4%
GO 4%
Other 1%
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%
6 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
YOU'VE TALKED A LOT ABOUT INDIVIDUAL SECURITIES. ARE THERE ANY SECTORS YOU LIKE
For some time now, we've kept about a third of the fund in land-secured
bonds. Land-based bonds are secured by property tax payments. The proceeds from
these securities are used to fund infrastructure for land development. We like
these bonds because they're well suited to benefit from California's economic
growth. They have performed very well because California property values
continue to rebound, particularly in the San Francisco Bay Area.
YOU MENTIONED THE STRENGTH OF CALIFORNIA'S ECONOMY. HOW HAS THAT AFFECTED CREDIT
QUALITY?
There is a direct correlation between economic strength and the recent
improvement of credit quality in California. As the economy grows, we've seen
credit rating upgrades at the local level. That's good for the fund because the
overall credit quality of the portfolio has improved and specific securities we
held that received upgrades experienced big price gains. But that's also
contributed to the tighter credit spreads we've been seeing.
DO YOU THINK ASIA'S ECONOMIC CRISIS WILL HAVE AN EFFECT ON CALIFORNIA?
The dramatic economic slowdown in Asia will affect California because it has
the highest dependence of any state on Pacific Rim trade. Slower Asian demand
for products made here may take the edge off California economic growth, but
right now there's just no way to quantify it.
WHAT'S YOUR OUTLOOK FOR THE CALIFORNIA MUNICIPAL MARKET?
We're positive on the market. Unemployment in California fell below 6% in
early 1998, and we expect economic and job growth to continue going forward.
That bodes well for credit quality. Inflation also remains low, despite rising
wages. And California municipal bonds are fairly attractively valued relative to
Treasury securities, so that should help demand. But while we have a generally
positive outlook for the California municipal market, we should caution
investors that matching the fund's stellar returns of the last five or more
years is going to be difficult. That's especially true if credit quality
continues to improve, high-yield issuance keeps declining, and credit spreads
continue to shrink, making it harder to find undervalued securities.
WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
We'll continue to focus on creating value for our shareholders through the
individual security selection process. In particular, we'll continue to target
about 30% or 40% of the fund for unrated bonds, assuming we can find these
securities at good prices. To help do that, we'll work to take a more active
role in structuring deals, such as in private placements and limited public
offerings.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/98)
AAA 26%
AA 15%
A 14%
BBB 14%
Unrated 31%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 28%
AA 9%
A 20%
BBB 10%
Unrated 33%
Credit ratings given by Standard & Poor's.
SEMIANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 7
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
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 $ 2,210,780
1,000,000 American Canyon Joint Powers
Financing Auth. Lease Rev.,
(Civic-Recreation Facilities),
6.40%, 6/1/22 1,055,140
1,690,000 Anaheim Public Financing Auth.
Lease Rev., Series 1997 C,
(Public Improvement Projects),
6.04%, 9/1/30 (FSA)(1) 309,607
700,000 Bishop, Escalon & Lemoore Cities
Certificates of Participation,
Series 1991 A, 7.70%, 5/1/11 754,516
1,000,000 Blythe Redevelopment Project No. 1
Tax Allocation, 5.80%, 5/1/28 1,026,280
3,000,000 Brawley Certificates of Participation,
(Water System Improvement
Project), 6.40%, 12/1/26 3,117,900
2,000,000 Brea Olinda Unified School District
Community Facilities District
Special Tax, No. 95-1, 5.75%,
9/1/28 1,971,660
1,540,000 Brisbane Certificates of
Participation, (Capital
Improvement Refinancing
Project), 6.00%, 4/1/18 1,614,643
1,000,000 Cabrillo Unified School District GO,
Series 1996 A, 5.95%, 8/1/17
(AMBAC)(1) 371,670
1,850,000 California Community College
Financing Auth. Lease Rev.,
Series 1998 A, 4.625%,
9/1/23 (MBIA) 1,715,413
1,000,000 California Educational Facilities
Auth. Rev., (Mills College),
6.875%, 9/1/02, Prerefunded at
102% of Par(2) 1,132,320
2,215,000 California Educational Facilities
Auth. Rev., (University of San
Diego), 4.75%, 10/1/15
(AMBAC) 2,168,352
500,000 California Educational Facilities
Auth. Rev., (California Lutheran
University), 7.375%, 12/1/16 540,695
Principal Amount Value
- --------------------------------------------------------------------------------
$2,000,000 California Educational Facilities
Auth. Rev., (Los Angeles College
Chiropractic), 5.60%, 11/1/17 $ 2,053,340
3,350,000 California Educational Facilities
Auth. Rev., (St. Mary's College),
4.75%, 10/1/20 (MBIA) 3,172,115
1,000,000 California Educational Facilities
Auth. Rev., Series 1993 B,
(Pooled College and University
Financing), 6.125%, 6/1/09 1,066,330
4,000,000 California Health Facilities
Financing Auth. Rev.,
Series 1989 A, (Kaiser
Permanente), 7.15%, 10/1/12
(AMBAC)(1) 1,931,760
160,000 California Housing Finance Agency
Home Mortgage Rev. Bonds,
Series 1988 B, 8.60%, 8/1/19 164,845
565,000 California Housing Finance Agency
Home Mortgage Rev. Bonds,
Series 1989 B, 8.00%, 8/1/29 588,402
415,000 California Housing Finance Agency
Home Mortgage Rev. Bonds,
Series 1990 C, 7.60%, 8/1/30 437,921
1,955,000 California Housing Finance Agency
Home Mortgage Rev. Bonds,
Series 1997 B, 6.10%, 2/1/28
(MBIA) 2,066,767
1,500,000 California Housing Finance Agency
Home Mortgage Rev. Bonds,
Series 1997 E, 6.10%, 8/1/29
(AMBAC) 1,588,605
1,750,000 California Housing Finance Agency
Home Mortgage Rev. Bonds,
Series 1998 B, 5.15%, 2/1/18 1,741,303
3,455,000 California Housing Finance Agency
Multifamily Mortgage Rev. Bonds,
Series 1997 A, 5.95%, 8/1/28
(MBIA) 3,575,510
3,500,000 California Housing Finance Agency
Multi-Unit Mortgage Rev. Bonds,
Series 1992 C, 6.875%, 8/1/24 3,707,655
2,500,000 California Housing Finance Agency
Single-Family Mortgage Rev.
Bonds, Series 1997 A-1, 5.95%,
8/1/16 2,635,500
3,000,000 California Housing Finance Agency
Single-Family Mortgage Rev.
Bonds, Series 1997 C-2, 5.65%,
2/1/25 3,089,010
See Notes to Financial Statements
8 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,500,000 California Maritime Infrastructure
Auth. Airport Rev., (San Diego
Unified Port District Airport),
5.00%, 11/1/20 (AMBAC) $ 1,452,450
400,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 A, (Pooled
Project), 8.50%, 3/1/18 409,388
485,000 California State Department of
Veterans Affairs Home Purchase
Rev., Series 1988 A, 8.30%,
8/1/19 504,201
6,400,000 California State Department of
Water Resource Rev., Series
1995 O, (Central Valley
Project), 5.00%, 12/1/22 6,231,104
3,160,000 California State Department of
Water Resource Rev.,
Series 1997 S, (Central Valley
Project), 5.00%, 12/1/19 3,102,204
3,665,000 California State GO, 6.75%,
9/1/09(1) 2,159,088
1,575,000 California State Local Government
Financing Auth. Rev., (Marin
Valley Mobile Home), 7.50%,
10/1/24 (Acquired 3/13/97,
Cost $1,575,000)(3) 1,664,507
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) 2,095,060
7,000,000 California Statewide Communities
Development Auth. Lease Rev.,
Series 1997 A, (United Airlines),
5.70%, 10/1/33 7,133,490
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) 1,034,700
5,000,000 California Statewide Communities
Development Auth. Special
Facilities Rev., (United Airlines),
5.625%, 10/1/34 5,082,800
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Camarillo Multifamily Housing Rev.,
(Park Glenn Apartments), 5.40%,
3/1/28 (FNMA) $ 1,000,760
425,000 Clayton Improvement Bond Act
1915 Special Assessment,
(Oakhurst Assessment District),
8.00%, 9/2/14 442,264
105,000 Clayton Improvement Bond Act
1915 Special Assessment,
Series 1988 A, (Oakhurst
Assessment District ), 8.40%,
9/2/10 109,480
4,500,000 Colton Public Financing Auth. Rev.,
(Electric System), 7.50%,
10/1/03, Prerefunded at 101%
of Par(2) 5,277,555
750,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev., Series 1992 A, 7.10%,
8/1/22 824,198
685,000 Corcoran Certificates of
Participation, 8.75%, 6/1/16
(Acquired 4/28/92, Cost
$685,000)(3) 746,739
4,000,000 Corona Community Facilities
District Special Tax, 4.70%,
9/1/20 (MBIA) 3,771,880
3,500,000 Culver City Redevelopment
Financing Auth. Rev. Tax
Allocation, 4.60%, 11/1/20
(AMBAC) 3,243,975
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) 1,177,090
1,500,000 Del Mar Race Track Auth. Rev.,
6.20%, 8/15/11 1,635,105
1,000,000 El Cerrito Redevelopment
Agency Tax Allocation,
Series 1997 A, 5.00%,
7/1/19 (MBIA) 984,460
1,000,000 Escondido Improvement Bond Act
1915 GO, (Assessment District
No. 86-1-R), 5.625%, 9/2/18 999,390
3,000,000 Folsom Public Financing Auth. Rev.,
Series 1997 A, 6.875%,
9/2/19 3,098,070
1,500,000 Folsom Special Tax, (Community
Facility District Number 7),
7.25%, 9/1/21 1,628,700
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 9
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$2,500,000 Fontana Redevelopment Agency
Tax Allocation, Series 1994 B,
(Jurupa Hills Project), 7.70%,
1/1/19 $ 2,797,225
1,040,000 Foothill-De Anza Community
College District Certificates of
Participation, (Campus Center
Project), 7.35%, 3/1/07 1,159,174
2,500,000 Foster City Redevelopment Agency
Tax Allocation, (Metro Center),
6.75%, 9/1/20 2,769,100
1,185,000 Gateway Improvement Auth. Rev.,
Series 1995 A, (Marin City
Community Facility), 7.75%,
9/1/25 1,343,387
2,000,000 Industry Urban Redevelopment
Agency Tax Allocation,
(Project 3), 6.90%, 11/1/16 2,187,860
985,000 Irvine Improvement Bond 1915
Special Assessment, Series
1992 A, (District Number 89-9),
7.40%, 9/2/17 1,017,781
1,000,000 Lake Elsinore School Financing
Auth. Rev., 6.125%, 9/1/19 1,056,740
1,000,000 Lake Elsinore Unified School
District Community Facilities
Special Tax, (Number 88-1),
8.25%, 9/1/16 1,095,010
3,590,000 Long Beach Water Rev.,
Series 1997 A, 5.00%,
5/1/24 (MBIA) 3,512,815
2,000,000 Los Angeles Community Facilities
District Special Tax, (Cascades
Business Park), 6.40%, 9/1/22 2,054,080
4,600,000 Los Angeles County Public Works
Financing Auth. Rev., Series
1997 A, (Regional Park and
Open Space District), 5.00%,
10/1/19 4,504,596
120,000 Los Angeles County Single Family
Mortgage Rev., (GNMA
Mortgage, Issue B), 9.00%,
12/1/20, Prerefunded at
100% of Par(2) 129,371
1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1991 B, 6.50%, 7/1/13 1,074,410
Principal Amount Value
- --------------------------------------------------------------------------------
$ 20,000 Los Angeles Home Mortgage Rev.
Bonds, 9.00%, 6/15/18 $ 20,171
2,150,000 Los Angeles State Building Auth.
Lease Rev. Certificates of
Participation, Series 1993 A,
5.625%, 5/1/11 2,348,660
2,000,000 Los Angeles Unified School
District GO, Series 1997 A,
5.00%, 7/1/21 (FGIC) 1,959,380
1,775,000 Los Angeles Wastewater System
Rev., Series 1993 D, 4.70%,
11/1/17 (FGIC) 1,691,575
4,000,000 Metropolitan Water District
Southern California Waterworks
Rev., Series 1997 A, 5.00%,
7/1/26 3,899,160
3,000,000 Milpitas Improvement Bond Act
1915 Special Assessment,
Series 1996 A, (District
Number 18), 6.75%, 9/2/16 3,091,710
1,500,000 Modesto Irrigation District
Financing Auth. Rev., Series
1998 D, (Domestic Water
Project), 4.75%, 9/1/22
(AMBAC) 1,420,980
4,885,000 Northern California Power Agency
Rev., Series 1985 E,
(Hydroelectric Project Number 1),
7.15%, 7/1/24 5,030,671
2,000,000 Novato Community Facility District
Number 1 Special Tax, (Vintage
Oaks Project), 7.20%, 8/1/15 2,186,200
1,000,000 Orange County Community
Facilities District Special Tax,
Series 1993 A, (Number 87-5E),
7.30%, 8/15/18 1,089,840
1,000,000 Pioneer Union Elementary School
District GO, 7.50%, 8/1/14 1,073,460
880,000 Pittsburg Assessment District 90-1
Special Assessment, (Oak Hills),
7.75%, 9/2/20 917,761
1,500,000 Pittsburg Assessment District 92-1
Special Assessment, (Village at
New York Landing), 8.00%,
9/2/22 1,566,255
3,500,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development Project),
6.25%, 8/1/26 3,758,510
See Notes to Financial Statements
10 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$5,000,000 Pomona Improvement Bond Act
1915, (Rio Rancho Assessment
District), 7.50%, 9/2/21 $ 5,231,650
1,500,000 Pomona Public Financing Auth. Rev.,
Series 1993 L, (Southwest
Pomona Redevelopment), 5.70%,
2/1/13 1,547,175
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) 2,531,318
1,815,000 Redondo Beach Public Financing
Auth. Rev., (South Bay Center
Redevelopment Project), 7.125%,
7/1/08 2,024,088
1,000,000 Richmond Joint Powers Financing
Auth. Rev. Certificates of
Participation, Series 1995 A,
5.25%, 5/15/13 1,018,530
2,165,000 Richmond Redevelopment Agency
Tax Allocation, Series 1998 A,
(Harbour Redevelopment Project),
4.75%, 7/1/23 (MBIA) 2,045,968
500,000 Roseville Community Facilities
District Number 2 Special Tax,
8.25%, 9/1/21 540,685
370,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.50%, 9/1/06 380,371
635,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.60%, 9/1/07 656,755
415,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.70%, 9/1/08 431,297
2,250,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.70%, 12/1/20 2,235,870
1,500,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 6.30%, 9/1/21 1,576,500
3,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1993 G, 4.75%, 9/1/21 (MBIA) 2,837,460
Principal Amount Value
- --------------------------------------------------------------------------------
$3,970,000 Sacramento Municipal Utility
District Electric Rev.,
Series 1997 K, 5.25%,
7/1/24 (AMBAC) $ 4,108,275
1,400,000 Salinas Certificates of Participation,
Series 1997 A, (Capital
Improvement Projects), 5.70%,
10/1/28 1,440,628
1,920,000 Salinas Improvement Bond Act
1915 Special Assessment,
(Harden Ranch Assessment
District 94-1), 6.875%, 9/2/11 2,036,275
750,000 Salinas Improvement Bond Act
1915 Special Assessment,
Series 1998 C, (Assessment
District 90-1), 5.45%, 9/2/13 744,878
1,000,000 Salinas Improvement Bond Act
1915 Special Assessment,
Series 1998 C, (Assessment
District 90-1), 5.50%, 9/2/14 991,960
1,000,000 San Diego Community Facilities
District Number 1 Special Tax,
Series 1995 B, 7.10%, 9/1/20 1,097,680
3,990,000 San Diego County Improvement
Bond Act 1915 GO, 6.25%,
9/2/12 4,118,438
1,500,000 San Francisco City & County
Airport Commission International
Airport Rev., 5.90%, 5/1/26 1,581,330
1,780,000 San Jose Finance Auth. Rev.
Certificates of Participation,
Series 1993 C, (Convention
Center), 6.30%, 9/1/09 1,917,648
1,540,000 San Mateo County Joint Powers
Auth. Lease Rev., Series 1997 A,
5.00%, 7/15/22 (FSA) 1,508,045
5,000,000 Santa Ana Certificates of
Participation, (City Hall Expansion
Project), 4.70%, 1/1/28 (FSA) 4,665,800
3,000,000 South Orange County Public
Financing Auth. Special Tax,
Series 1994 B, (Jr. Lien), 7.25%,
9/1/13 3,105,600
1,615,000 South San Francisco
Redevelopment Agency Tax
Allocation, 7.60%, 9/1/18 1,766,003
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA HIGH-YIELD MUNICIPAL 11
SCHEDULE OF INVESTMENTS
CALIFORNIA HIGH-YIELD MUNICIPAL
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 480,000 Southern California Housing
Finance Auth. Single Family
Mortgage Rev., Series 1991 A,
(GNMA & FNMA Mortgage-
Backed Securities), 7.35%,
9/1/24 $ 508,090
500,000 Southern California Public Power
Auth. Rev., (Pooled Project),
6.75%, 7/1/10 (FSA) 604,040
2,400,000 Southern California Public Power
Auth. Rev., (Transmission Project),
6.35%, 7/1/14 (MBIA)(1) 1,059,648
1,250,000 Southern California Public Power
Auth. Rev., (Transmission Project),
6.35%, 7/1/15 (MBIA)(1) 521,875
2,000,000 Stockton East Water District
Certificates of Participation,
Series 1997 A, 4.75%, 4/1/22
(AMBAC) 1,892,840
1,770,000 Tehama Community Certificates of
Participation, (Social Services
Building Project), 7.00%,
10/1/20 2,022,898
1,700,000 Torrance Hospital Rev., (Little
County of Mary Hospital),
6.875%, 7/1/15 1,853,867
2,260,000 Tracy Operating Partnership Joint
Powers Auth. Rev., (Jr. Lien
Assessment District 87-3),
6.375%, 9/2/11 2,329,382
1,565,000 Twentynine Palms Water District
Certificates of Participation,
7.10%, 8/1/22 1,699,621
2,250,000 Vacaville Improvement Bond Act
1915 Special Assessment,
(Northeast Sector Assessment
District A), 7.00%, 9/2/22 2,407,995
2,000,000 West Contra Costa Unified School
District Certificates of
Participation, 7.125%, 1/1/24 2,192,340
1,000,000 Whittier Redevelopment Agency
Tax Allocation, (Whittier
Boulevard), 5.70%, 11/1/19 999,910
1,520,000 Windsor Redevelopment Agency
Tax Allocation, 6.875%, 9/1/15 1,684,418
--------------------
TOTAL MUNICIPAL SECURITIES--94.2% 228,289,730
--------------------
(Cost $216,958,832)
SHORT-TERM MUNICIPAL SECURITIES
$6,000,000 California State Revenue
Anticipation Notes, 4.50%,
6/30/98 $ 6,019,200
8,000,000 California State Revenue
Anticipation Notes, Floating Rate
Trust Receipts, Series 1997-23,
3.90%, 3/2/98 (LOC: Bank of
New York)(4) 8,000,000
--------------------
TOTAL SHORT-TERM
MUNICIPAL SECURITIES--5.8% 14,019,200
--------------------
(Cost $14,012,718 )
TOTAL INVESTMENT SECURITIES-100.0% $242,308,930
====================
(Cost $230,971,550)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
MBIA = MBIA Insurance Corp.
(1) This security is a zero-coupon municipal bond. The yield to maturity at
purchase is indicated instead of a stated coupon rate. Zero-coupon
securities are purchased at a substantial discount from their value at
maturity.
(2) Escrowed to maturity in U.S. Government Securities.
(3) Private placement. Security may only be sold to qualified institutional
investors. The aggregate value of private placements at February 28, 1998,
was $2,411,246, which represented 1.0% of net assets.
(4) Interest rate reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1998.
See Notes to Financial Statements
12 CALIFORNIA HIGH-YIELD MUNICIPAL AMERICAN CENTURY INVESTMENTS
<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 FEBRUARY 28, 1998
<S> <C> <C> <C> <C> <C>
California Insured Tax-Free 4.23% 6.48% 6.76% 7.29% 7.72%
Yields are defined in the Glossary on page 29.
AVERAGE ANNUAL RETURNS
6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10
YEARS
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1998(1)
California Insured Tax-Free ............ 5.02% 9.38% 8.54% 6.28% 7.99%
Lehman Long-Term Municipal Bond Index .. 6.19% 11.47% 10.04% 7.41% 9.36%
Average California Insured
Municipal Debt Fund(2) ................. 4.89% 8.87% 7.93% 6.09% 7.96%
Fund's Ranking Among California
Insured Municipal Debt Funds(2) ........ -- 4 out of 25 3 out of 23 4 out of 11 3 out of 7
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Analytical Services.
</TABLE>
See pages 28-29 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 2/28/88
Value on 2/28/98
California Insured Lehman Long-Term
Tax-Free Municipal Bond Index
Feb-88 $10,000 $10,000
Mar-88 $9,710 $9,857
Jun-88 $9,954 $10,139
Sep-88 $10,226 $10,479
Dec-88 $10,459 $10,787
Mar-89 $10,599 $10,895
Jun-89 $11,277 $11,649
Sep-89 $11,150 $11,588
Dec-89 $11,537 $12,079
Mar-90 $11,521 $12,104
Jun-90 $11,787 $12,415
Sep-90 $11,628 $12,315
Dec-90 $12,317 $12,951
Mar-91 $12,470 $13,249
Jun-91 $12,715 $13,587
Sep-91 $13,265 $14,199
Dec-91 $13,705 $14,707
Mar-92 $13,668 $14,758
Jun-92 $14,287 $15,409
Sep-92 $14,621 $15,830
Dec-92 $14,964 $16,211
Mar-93 $15,621 $16,918
Jun-93 $16,167 $17,617
Sep-93 $16,812 $18,322
Dec-93 $16,977 $18,602
Mar-94 $15,842 $17,110
Jun-94 $15,960 $17,233
Sep-94 $16,061 $17,304
Dec-94 $15,865 $16,909
Mar-95 $16,975 $18,594
Jun-95 $17,308 $19,019
Sep-95 $17,793 $19,539
Dec-95 $18,883 $20,848
Mar-96 $18,357 $20,304
Jun-96 $18,490 $20,543
Sep-96 $19,062 $21,180
Dec-96 $19,582 $21,769
Mar-97 $19,375 $21,582
Jun-97 $20,101 $22,544
Sep-97 $20,833 $23,383
Dec-97 $21,411 $24,229
Feb-98 $21,561 $24,476
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
2/28/98 8/31/97
Number of Securities 66 63
Weighted Average Maturity 18.2 years 18.5 years
Average Duration 8.2 years 8.1 years
Expense Ratio 0.52%* 0.48%
* Annualized.
SEMIANNUAL REPORT CALIFORNIA INSURED TAX-FREE 13
CALIFORNIA INSURED TAX-FREE
MANAGEMENT Q & A
An interview with Dave MacEwen, a portfolio manager on the California
Insured Tax-Free fund investment team.
HOW DID THE FUND PERFORM?
The fund performed very well. For the six months ended February 28, 1998,
the fund returned 5.02%, compared with the 4.89% average return of the 26
"California Insured Municipal Debt Funds" tracked by Lipper Analytical Services.
The fund has consistently outperformed its peers over time, doing particularly
well over the one- and three-year periods ended February. (See the Total Returns
table on the previous page.)
Not only did the fund produce better-than-average returns, but it also
provided shareholders more state and federal tax-free current income than the
average California insured fund. As of February 28, the fund's 30-day SEC yield
was 4.23%, compared with the 3.67% average yield of its peers. Prudent
management and our below-average expenses are responsible for the fund's solid
performance.
CAN YOU EXPAND ON THAT IDEA?
In an insured fund, where credit quality is typically very high, some of the
key factors driving returns are a fund's duration, structure and fees. Our
management fee is below average, so we start out with a competitive advantage
over our peers.
[bar chart - data below]
CALIFORNIA INSURED TAX-FREE'S ONE-YEAR RETURNS
FOR THE PAST TEN YEARS (Periods ended February 28, 1998)
California Insured Lehman Long-Term
Tax-Free Municipal Bond Index
2/89 6.08% 8.86%
2/90 8.73% 11.08%
2/91 8.41% 9.30%
2/92 9.41% 11.37%
2/93 16.18% 16.33%
2/94 4.96% 6.27%
2/95 1.04% 0.96%
2/96 11.57% 12.56%
2/97 4.78% 6.18%
2/98 9.38% 11.47%
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 28 for a definition of the index.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and redemption value may be more or less than
original cost.
14 CALIFORNIA INSURED TAX-FREE AMERICAN CENTURY INVESTMENTS
CALIFORNIA INSURED TAX-FREE
Structure refers to the way the fund's portfolio is put together. Different
fund structures perform better in different interest rate environments. That
said, duration is still probably the most important factor.
CAN YOU DEFINE DURATION IN GENERAL AND EXPLAIN HOW YOU MANAGED THE FUND'S
DURATION SPECIFICALLY?
Duration measures a portfolio's sensitivity to changes in interest rates.
The longer a fund's duration, the more you gain when rates fall, and the more
you lose when rates rise. Conversely, a shorter duration means a bond
portfolio's price fluctuates less when rates change. So, ideally, you want to
lengthen duration when interest rates are falling and shorten duration when
rates are rising.
But keep in mind that it can be very difficult to accurately predict the
direction of interest rates over the short run. That's why we prefer a long-term
look at rates and take limited, well-thought-out steps. As a result, we make
only very modest adjustments to the fund's duration over time, usually keeping
it in a narrow range around eight years. That conservative approach has been key
to our long-term outperformance of our peers. The last six months were
typical--in late 1997 and so far in 1998, we kept our duration just slightly
longer than the peer group average, at around 8.2 years. That positioning helped
the fund's performance as rates fell late last year.
WHERE DOES PORTFOLIO STRUCTURE FIGURE IN?
Structure is important because it can help you achieve the degree of
interest rate sensitivity you want. We continued to use a "barbell" coupon
structure. We avoided buying securities with interest coupons near the going
market rate; instead, we bought discount bonds (which have interest coupons
below the prevailing interest rate) and premium bonds (which have coupons above
the market rate).
WHY BUY A BOND WITH AN INTEREST COUPON BELOW THE MARKET RATE?
To help manage duration. Keep in mind that many municipal bonds have a call
feature, which means they can be paid off by the issuer before their maturity
date. Calling a bond is like refinancing the mortgage on your house--when
interest rates decline, you save by paying off the old loan with money borrowed
at the new, lower rate. That's exactly what municipal bond issuers do when rates
fall. In the same way that refinancing shortens the life of your original
mortgage, a call feature effectively shortens a bond's duration. And just as
you're more likely to refinance your mortgage the higher your payments, so too a
municipal bond issuer is more likely to call a bond the higher its interest
coupon.
Over the last six months, we bought bonds with coupons as low as 4.75%. If
rates continue to fall, these lower-coupon bonds have
[pie charts]
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/98)
Revenue 53%
COPs/Leases 23%
Land-Secured 16%
GO 4%
Prerefunded/ETM 4%
PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/97)
Revenue 48%
COPs/Leases 24%
Land-Secured 13%
GO 11%
Prerefunded/ETM 4%
SEMIANNUAL REPORT CALIFORNIA INSURED TAX-FREE 15
CALIFORNIA INSURED TAX-FREE
great potential to add to the fund's returns because they're unlikely to be
called anytime soon and have a lot of running room. Another way we tried to help
the fund's duration and structure was holding a lot of non-callable securities.
DOESN'T BUYING LOWER-COUPON BONDS AFFECT THE FUND'S YIELD?
No, not necessarily. Bond yields are a function of the security's price: the
lower the price, the higher the yield. We bought those 4.75% coupon bonds when
they were out of favor. Because we paid a low price for those bonds, their
yields were actually higher than yields on some par bonds. The fund's yield did
decline over the last six months, from 4.55% last August to 4.23% at the end of
February, but that's a reflection of lower rates overall.
WHAT'S YOUR OUTLOOK FOR MUNICIPAL SECURITIES?
We think the outlook for the California municipal market is generally
positive. Steady economic and job growth in the state should contribute to
improving credit quality. Inflation is virtually nonexistent--prices rose at the
slowest pace in a dozen years during 1997. However, oil and commodities prices
began to pick back up in late March 1998 after crude oil prices hit a nine-year
low earlier in the month. And wage pressures are still apparent, particularly in
the service sector of the economy. So the outlook is good, but not
unconditionally so.
WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
We'll continue to use the same structure and duration position--if we lacked
conviction in that strategy we would have ended it some time ago. In particular,
we think the fund could perform very well relative to its peers if long-term
municipal rates fall below 5% or even 5.25%. That's because many California
municipal bonds with interest coupons at those levels have call features. If
those bonds were called in a market rally, we'd expect to significantly
outperform the competition. The other advantage to having what we consider good
structure to our portfolio is that we shouldn't dramatically underperform our
peers if rates go the other way. We'll also continue to use the same
conservative approach to managing duration that has helped the fund to its solid
long-term performance.
[pie charts]
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/98)
AAA 100%
PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/97)
AAA 100%
Credit ratings given by Standard & Poor's.
16 CALIFORNIA INSURED TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INSURED TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES
$1,000,000 Banning Certificates of
Participation, (Wastewater
System, Refunding and
Improvement Project), 8.00%,
1/1/19 (AMBAC) $ 1,360,590
1,000,000 Berkeley Certificates of
Participation, 7.50%, 6/1/19
(AMBAC) 1,029,060
900,000 Brea Redevelopment Agency Tax
Allocation, (Project AB), 6.125%,
8/1/13 (MBIA) 984,294
2,500,000 California Health Facilities
Financing Auth. Rev.,
Series 1989 A, (Sutter Hospital),
6.70%, 1/1/13 (AMBAC) 2,578,875
1,250,000 California Health Facilities
Financing Auth. Rev.,
Series 1991 A, (Adventist
Health), 7.00%, 3/1/13 (MBIA) 1,363,013
1,530,000 California Public Capital
Improvements Financing Auth.
Rev., (Pooled Project 1988 B),
8.10%, 3/1/18 (BIGI) 1,565,986
4,000,000 California State Public Works
Board Lease Rev. Certificates of
Participation, Series 1993 A,
(Department of Corrections State
Prisons), 5.00%, 12/1/19
(AMBAC) 3,999,680
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) 6,285,180
4,135,000 California State Universities and
Colleges Rev., 5.75%,
11/1/15 (FGIC) 4,462,532
3,925,000 California Statewide Communities
Development Auth. Rev.
Certificates of Participation,
(Gemological Institute), 6.75%,
5/1/10 (Connie Lee) 4,712,944
1,520,000 Castaic Lake Water Agency
Certificates of Participation,
Series 1994 A, (Water System
Improvement Project), 7.00%,
8/1/12 (MBIA) 1,877,793
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Contra Costa County Certificates of
Participation, 7.80%, 6/1/07
(BIGI) $ 1,067,780
1,200,000 Contra Costa Water District Rev.,
Series 1992 E, 6.25%, 10/1/12
(AMBAC) 1,398,948
7,080,000 Corona Community Facilities District
Special Tax, No. 90-1-A, 4.625%,
9/1/17 (MBIA) 6,717,717
1,000,000 East Valley Water District
Certificates of Participation,
(Treatment Plant Project), 6.60%,
12/1/14 (AMBAC) 1,108,830
2,000,000 Escondido Joint Powers Financing
Auth. Rev. Certificates of
Participation, 6.125%, 9/1/11
(AMBAC) 2,156,300
2,000,000 Fontana Unified School District GO,
Series 1997 D, 5.85%, 5/1/22
(FGIC)(1) 1,885,520
2,100,000 Foothill-De Anza Community
College District Certificates of
Participation, 6.25%, 9/1/13
(Connie Lee) 2,311,554
1,725,000 Fresno Sewer Rev.,
Series 1993 A-1, 6.25%,
9/1/14 (AMBAC) 2,012,282
1,240,000 Fresno Sewer Rev.,
Series 1993 A-1, 4.75%,
9/1/21 (AMBAC) 1,197,567
5,000,000 Glendale Hospital Rev., Series
1991 A, (Adventist Hospital),
6.75%, 3/1/13 (MBIA) 5,417,150
4,830,000 Glendale Unified School District
Certificates of Participation,
Series 1994 A, 6.50%, 3/1/12
(AMBAC) 5,369,849
1,340,000 Kern High School District GO,
Series 1993 C, 6.25%, 8/1/13
(MBIA)(2) 1,570,091
3,630,000 Kern High School District GO,
Series 1993 D, 7.00%,
8/1/17 (MBIA)(2) 4,183,139
2,000,000 La Quinta Financing Auth. Lease
Rev. Certificates of Participation,
(La Quinta City Hall Project),
5.55%, 10/1/18 (MBIA) 2,151,060
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA INSURED TAX-FREE 17
SCHEDULE OF INVESTMENTS
CALIFORNIA INSURED TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 790,000 Lake Elsinore Public Financing
Auth. Tax Allocation Rev.,
Series 1992 C, (Redevelopment
Projects), 6.625%, 2/1/17 (FGIC) $ 840,434
1,500,000 Lakewood Redevelopment Agency
Tax Allocation Rev., Series
1992 A, (Project No. 1), 6.50%,
9/1/17 (FSA) 1,657,470
890,000 Los Angeles Community
Redevelopment Agency Housing
Rev., Series 1994 C, 7.00%,
1/1/14 (AMBAC) 973,215
3,500,000 Los Angeles Community
Redevelopment Agency Tax
Allocation Rev., Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 3,920,840
4,000,000 Los Angeles Community
Redevelopment Agency Tax
Allocation Rev., Series 1993 H,
(Bunker Hill), 6.50%, 12/1/15
(FSA) 4,480,960
1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
6.50%, 7/1/13 (AMBAC) 1,087,090
2,000,000 Los Angeles Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1993 B, 4.75%,
7/1/18 (AMBAC) 1,907,020
1,100,000 Los Angeles Wastewater System
Rev., Series 1991 C, 7.00%,
6/1/11 (AMBAC) 1,162,117
1,785,000 Los Angeles Wastewater System
Rev., Series 1993 D, 4.70%,
11/1/19 (FGIC) 1,691,877
1,915,000 Midpeninsula Regional Open
Space District Financing Auth.
Rev., 5.90%, 9/1/14 (AMBAC) 2,088,403
5,000,000 Modesto, Stockton, Redding Public
Power Agency Rev., Series
1989 D, (San Juan Project),
6.75%, 7/1/20 (MBIA) 5,928,300
1,200,000 National City Joint Powers Auth.
Lease Rev. Certificates of
Participation, (Police Facilities
Project), 6.75%, 10/1/17
(AMBAC) 1,316,640
Principal Amount Value
- --------------------------------------------------------------------------------
$2,810,000 Oakland Redevelopment Agency
Tax Allocation, (Central District
Redevelopment Tax), 5.50%,
2/1/14 (AMBAC) $ 3,030,416
1,925,000 Oakland Refunding Pension
Financing Rev., Series 1988 A,
7.60%, 8/1/21 (FGIC) 1,994,204
2,700,000 Orange County Financing Auth. Tax
Allocation Rev., Series 1992 A,
6.25%, 9/1/14 (MBIA) 2,919,132
1,950,000 Ramona Municipal Water District
Certificates of Participation,
7.20%, 10/1/10 (AMBAC) 2,125,773
4,000,000 Rancho Water District Financing
Auth. Rev., 4.75%, 8/15/21
(AMBAC) 3,783,440
1,100,000 Redlands Unified School District
Certificates of Participation,
6.00%, 9/1/12 (FSA) 1,168,706
5,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1993 G, 4.75%, 9/1/21 (MBIA) 4,729,100
17,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 18,109,525
2,505,000 Sacramento Redevelopment Agency
Tax Allocation Rev., (Merged
Downtown Redevelopment
Project), 6.50%, 11/1/13 (MBIA) 2,699,438
3,000,000 Saddleback Community College
District Certificates of
Participation, 7.00%, 8/1/19
(BIGI) 3,175,950
1,345,000 San Diego Community College
District Lease Rev. Certificates of
Participation, 6.125%, 12/1/16
(MBIA) 1,497,698
7,000,000 San Diego County Certificates of
Participation, 5.625%, 9/1/12
(AMBAC) 7,636,370
5,250,000 San Francisco Bay Area Rapid
Transportation District Sales Tax
Rev., 6.75%, 7/1/09 (AMBAC) 5,673,990
10,000,000 San Francisco City and County
International Airport Rev.,
(Second Series Issue 2), 6.75%,
5/1/20 (MBIA) 11,201,800
See Notes to Financial Statements
18 CALIFORNIA INSURED TAX-FREE AMERICAN CENTURY INVESTMENTS
SCHEDULE OF INVESTMENTS
CALIFORNIA INSURED TAX-FREE
FEBRUARY 28, 1998 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$3,535,000 San Mateo County Joint Powers
Financing Auth. Lease Rev.
Certificates of Participation,
(Capital Projects Program), 6.50%,
7/1/15 (MBIA) $ 4,218,174
1,000,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/18 (MBIA) 1,036,720
1,000,000 San Ysidro School District GO,
6.125%, 8/1/21 (AMBAC) 1,129,260
3,000,000 Santa Clara Electric Rev.,
Series 1991 A, 6.25%, 7/1/19
(MBIA) 3,235,200
2,000,000 Santa Margarita-Dana Point Auth.
Rev., Series 1994 B,
(Improvement Districts 3, 3A, 4,
4A), 7.25%, 8/1/14 (MBIA) 2,552,400
2,500,000 South Coast Air Quality
Management District Building
GO, (Installment Sale
Headquarters), 6.00%, 8/1/11
(AMBAC) 2,854,375
2,040,000 Stockton East Water District
Certificates of Participation,
Series 1997 A, 4.75%, 4/1/22
(AMBAC) 1,930,697
45,000 Thousand Oaks Redevelopment
Agency Rev., (Single Family
Residential Mortgage Rev.),
7.90%, 1/1/16 (AMBAC) 45,643
2,500,000 Ukiah Electric Rev., 6.25%,
6/1/18 (MBIA) 2,907,950
1,445,000 Walnut Valley Unified School
District GO, Series 1992 B,
6.00%, 8/1/10 (AMBAC)(2) 1,659,221
4,525,000 Woodland Certificates of
Participation, (Wastewater
System Reference Project),
5.75%, 3/1/12 (AMBAC) 5,003,700
--------------------
TOTAL MUNICIPAL SECURITIES--95.2% 192,140,982
--------------------
(Cost $178,778,746)
MUNICIPAL DERIVATIVES(3)
2,000,000 East Bay Municipal Utility District
Wastewater Treatment System
Rev., Yield Curve Notes, Inverse
Floater, 6.77%, 6/1/13
(AMBAC) 2,152,500
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 San Diego County Water Auth.
Certificates of Participation,
(Reg Rites), Yield Curve Notes,
Inverse Floater, 7.59%, 4/22/09
(FGIC) $ 1,207,500
2,750,000 Southern California Public Power
Auth. Rev., Yield Curve Notes,
Inverse Floater, 6.62%, 7/1/17
(FGIC) 2,842,813
--------------------
TOTAL MUNICIPAL DERIVATIVES--3.1% 6,202,813
--------------------
(Cost $5,848,398)
SHORT-TERM MUNICIPAL SECURITIES--1.7%
3,500,000 California State Revenue
Anticipation Notes, Floating Rate
Trust Receipts, Series 1997-23,
3.90%, 3/2/98 (LOC: Bank of
New York)(4) 3,500,000
--------------------
(Cost $3,500,000)
TOTAL INVESTMENT SECURITIES--100.0% $201,843,795
====================
(Cost $188,127,144)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
BIGI = Bond Investor's Guaranty Inc.
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
(1) Step-coupon security. Yield to maturity at purchase is indicated. This
security becomes interest bearing at a predetermined rate and future date
and is purchased at a substantial discount from its value at maturity.
(2) Escrowed to maturity 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.
(4) Interest rate reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1998.
See Notes to Financial Statements
SEMIANNUAL REPORT CALIFORNIA INSURED TAX-FREE 19
STATEMENTS OF ASSETS AND LIABILITIES
HIGH-YIELD INSURED
FEBRUARY 28, 1998 (UNAUDITED) MUNICIPAL TAX-FREE
ASSETS
Investment securities, at value (identified
cost of $230,971,550 and $188,127,144,
respectively) (Note 3) ....................... $242,308,930 $201,843,795
Investment in affiliated money
market fund (Note 2) ......................... 507,898 8,564
Interest receivable ............................ 4,238,944 3,085,370
------------ ------------
247,055,772 204,937,729
------------ ------------
LIABILITIES
Disbursements in excess of
demand deposit cash .......................... 312,623 1,453,184
Payable for investments purchased .............. 3,714,355 --
Payable for capital shares redeemed ............ 318,290 207,770
Accrued management fees (Note 2) ............... 98,002 79,283
Dividends payable .............................. 51,839 33,490
Payable for trustees' fees and expenses ........ 429 429
------------ ------------
4,495,538 1,774,156
------------ ------------
Net Assets ..................................... $242,560,234 $203,163,573
============ ============
CAPITAL SHARES
Outstanding (Unlimited number
of shares authorized) ........................ 24,768,536 19,411,098
============ ============
Net Asset Value Per Share ...................... $ 9.79 $ 10.47
============ ============
NET ASSETS CONSIST OF:
Capital paid in ................................ $229,555,267 $188,920,874
Accumulated undistributed net realized
gain on investment transactions .............. 1,667,587 526,048
Net unrealized appreciation
on investments (Note 3) ...................... 11,337,380 13,716,651
------------ ------------
$242,560,234 $203,163,573
============ ============
See Notes to Financial Statements
20 STATEMENTS OF ASSETS AND LIABILITIES AMERICAN CENTURY INVESTMENTS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED HIGH-YIELD INSURED
FEBRUARY 28, 1998 (UNAUDITED) MUNICIPAL TAX-FREE
INVESTMENT INCOME
Income:
Interest ..................................... $ 6,290,397 $ 5,328,101
----------- -----------
Expenses (Note 2):
Management fees .............................. 584,466 499,714
Trustees' fees and expenses .................. 5,308 5,059
----------- -----------
589,774 504,773
----------- -----------
Net investment income ........................ 5,700,623 4,823,328
----------- -----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS (NOTE 3)
Net realized gain on investments ............. 2,228,718 1,428,167
Change in net unrealized
appreciation on investments ................ 2,453,182 3,231,222
----------- -----------
Net realized and unrealized
gain on investments ........................ 4,681,900 4,659,389
----------- -----------
Net Increase in Net Assets
Resulting from Operations .................... $10,382,523 $ 9,482,717
=========== ===========
See Notes to Financial Statements
SEMIANNUAL REPORT STATEMENTS OF OPERATIONS 21
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED) HIGH-YIELD INSURED
AND YEAR ENDED AUGUST 31, 1997 MUNICIPAL TAX-FREE
Increase (Decrease) in Net Assets 1998 1997 1998 1997
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ........................ $ 5,700,623 $ 9,693,133 $ 4,823,328 $ 9,922,832
Net realized gain on investments ............. 2,228,718 2,344,182 1,428,167 2,673,486
Change in net unrealized appreciation
on investments ............................. 2,453,182 5,003,597 3,231,222 4,232,221
------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations ............................ 10,382,523 17,040,912 9,482,717 16,828,539
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ................... (5,700,623) (9,698,539) (4,823,328) (9,927,378)
From net realized gains on
investment transactions .................... (2,545,653) -- (2,921,263) --
------------- ------------- ------------- -------------
Decrease in net assets from distributions .... (8,246,276) (9,698,539) (7,744,591) (9,927,378)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold .................... 79,826,785 139,322,252 33,841,738 56,168,346
Proceeds from reinvestment of distributions .. 6,213,122 6,931,665 5,539,692 7,003,430
Payments for shares redeemed ................. (38,447,211) (105,440,242) (27,100,691) (72,739,195)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets
from capital share transactions ............ 47,592,696 40,813,675 12,280,739 (9,567,419)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ........ 49,728,943 48,156,048 14,018,865 (2,666,258)
NET ASSETS
Beginning of period .......................... 192,831,291 144,675,243 189,144,708 191,810,966
------------- ------------- ------------- -------------
End of period ................................ $ 242,560,234 $ 192,831,291 $ 203,163,573 $ 189,144,708
============= ============= ============= =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ......................................... 8,140,646 14,692,971 3,227,342 5,525,997
Issued in reinvestment of distributions ...... 634,632 729,711 528,875 666,648
Redeemed ..................................... (3,925,808) (11,108,238) (2,586,121) (7,128,973)
------------- ------------- ------------- -------------
Net increase (decrease) ...................... 4,849,470 4,314,444 1,170,096 (936,328)
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements
22 STATEMENTS OF CHANGES IN NET ASSETS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
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 High-Yield
Municipal Fund (High-Yield) and American Century - Benham California Insured
Tax-Free Fund (Insured) (the Funds) are two of the seven funds issued by the
Trust. Each Fund is diversified under the 1940 Act. The Funds seek income which
is exempt from federal and California income taxes. 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--Portfolio 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 accretion of discounts and amortization of premiums.
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 income 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.
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 reflect the differing character
of certain income items and net capital gains and losses for financial statement
and tax purposes and may result in reclassification among certain capital
accounts.
FUTURES CONTRACTS --The Funds may buy and sell interest rate futures
contracts relating to debt securities. Futures transactions may be used 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 Funds recognize a realized gain or
loss when the contract is closed or expired. 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 February 28, 1998.
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.
ADDITIONAL INFORMATION--Effective January 15, 1998, Funds Distributor, Inc.
(FDI) became the Trust's distributor. Certain officers of FDI are also officers
of the Trust.
SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 23
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
2. TRANSACTIONS WITH RELATED PARTIES
The Trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM) that provides each Fund with investment
advisory and management services in exchange for a single, unified management
fee. Expenses excluded from this agreement are brokerage, taxes, portfolio
insurance, interest, fees and expenses of the Trustees who are not considered
"interested persons" as defined in the Investment Company Act of 1940 (including
counsel fees) and extraordinary expenses. 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 net 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. High-Yield and Insured are included in
the Bond Fund Category. Second, a separate fee rate schedule is applied to the
net 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:
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 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
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, ACIM, the Trust's
transfer agent, American Century Services Corporation, and the registered
broker-dealer, American Century Investment Services, Inc.
As of February 28, 1998, High-Yield had invested $507,898 in shares of
American Century - Benham California Municipal Money Market Fund (Municipal
Money Market) and Insured had invested $8,564 in shares of American Century -
Benham Tax-Free Money Market Fund (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.
24 NOTES TO FINANCIAL STATEMENTS AMERICAN CENTURY INVESTMENTS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 (UNAUDITED)
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
High-Yield and Insured totaled $90,760,685 and $47,923,692, respectively. Sales
of investment securities, excluding short-term investments, for High-Yield and
Insured totaled $51,833,875 and $40,007,262, respectively.
As of February 28, 1998, accumulated net unrealized appreciation for
High-Yield and Insured was $11,337,380 and $13,716,651, respectively, consisting
of unrealized appreciation of $11,794,485 and $13,902,685, respectively, and
unrealized depreciation of $457,105 and $186,034, respectively. The aggregate
cost of investments for federal income tax purposes was the same as the cost for
financial reporting purposes.
SEMIANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 25
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA HIGH-YIELD MUNICIPAL
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
1998(1) 1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............ $9.68 $9.27 $9.11 $9.06 $9.66 $9.12
--------- --------- --------- --------- --------- ---------
Income From
Investment Operations
Net Investment Income ........ 0.26 0.55 0.56 0.56 0.56 0.57
Net Realized and Unrealized
Gain (Loss)
on Investment Transactions ... 0.23 0.41 0.16 0.05 (0.48) 0.54
--------- --------- --------- --------- --------- ---------
Total From
Investment Operations ........ 0.49 0.96 0.72 0.61 0.08 1.11
--------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income ... (0.26) (0.55) (0.56) (0.56) (0.56) (0.57)
From Net Realized
Capital Gains ................ (0.12) -- -- -- (0.12) --
--------- --------- --------- --------- --------- ---------
Total Distributions .......... (0.38) (0.55) (0.56) (0.56) (0.68) (0.57)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period . $9.79 $9.68 $9.27 $9.11 $9.06 $9.66
========= ========= ========= ========= ========= =========
Total Return(2) .............. 5.05% 10.61% 8.02% 7.09% 0.87% 12.61%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......... 0.55%(3) 0.50% 0.51% 0.51% 0.51% 0.55%
Ratio of Net Investment Income
to Average Net Assets .......... 5.31%(3) 5.77% 5.99% 6.30% 6.02% 6.14%
Portfolio Turnover Rate ........ 25% 46% 36% 40% 43% 27%
Net Assets, End
of Period (in thousands) ....... $242,560 $192,831 $144,675 $116,166 $116,000 $114,564
- ----------
(1) Six months ended February 28, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
26 FINANCIAL HIGHLIGHTS AMERICAN CENTURY INVESTMENTS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
CALIFORNIA INSURED TAX-FREE
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
1998(1) 1997 1996 1995 1994 1993
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............ $10.37 $10.00 $ 9.89 $9.67 $10.64 $ 9.97
--------- --------- --------- --------- --------- ---------
Income From
Investment Operations
Net Investment Income ........ 0.26 0.53 0.53 0.53 0.53 0.55
Net Realized and Unrealized
Gain (Loss)
on Investment Transactions ... 0.26 0.37 0.11 0.22 (0.69) 0.76
--------- --------- --------- --------- --------- ---------
Total From
Investment Operations ........ 0.52 0.90 0.64 0.75 (0.16) 1.31
--------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income ... (0.26) (0.53) (0.53) (0.53) (0.53) (0.55)
From Net Realized
Capital Gains ................ (0.16) -- -- -- (0.21) (0.09)
In Excess of Net
Realized Gains ............... -- -- -- -- (0.07) --
--------- --------- --------- --------- --------- ---------
Total Distributions .......... (0.42) (0.53) (0.53) (0.53) (0.81) (0.64)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period . $10.47 $10.37 $10.00 $9.89 $ 9.67 $10.64
========= ========= ========= ========= ========= =========
Total Return(2) .............. 5.02% 9.25% 6.60% 8.09% (1.68)% 13.74%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .......... 0.52%(3) 0.48% 0.49% 0.50% 0.49% 0.52%
Ratio of Net Investment Income
to Average Net Assets .......... 4.96%(3) 5.23% 5.30% 5.54% 5.20% 5.37%
Portfolio Turnover Rate ........ 21% 46% 43% 40% 47% 61%
Net Assets, End
of Period (in thousands) ....... $203,164 $189,145 $191,811 $178,913 $189,439 $223,440
- ----------
(1) Six months ended February 28, 1998 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
</TABLE>
See Notes to Financial Statements
SEMIANNUAL REPORT FINANCIAL HIGHLIGHTS 27
BACKGROUND INFORMATION
INVESTMENT PHILOSOPHY & POLICIES
The Benham Group offers 39 fixed-income funds, ranging from money market
funds to long-term bond funds and including both taxable and tax-exempt funds.
Each fund is managed to provide a "pure play" on a specific sector of the
fixed-income market. To ensure adherence to this principle, the basic structure
of each fund's portfolio is tied to a specific market index. Fund managers
attempt to add value by making modest portfolio adjustments based on their
analysis of prevailing market conditions. Investment decisions are made by
management teams, which meet regularly to discuss market analysis and investment
strategies.
In addition to these principles, each fund has its own investment policies:
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, which are subject to increased
credit risk, default risk and liquidity risk. 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. Fund shares are not insured.
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 High-Yield Municipal and Insured
Tax-Free funds are:
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 Manager Dave MacEwen
Portfolio Manager and
Credit Research Manager Steven Permut
- --------------------------------------------------------------------------------
28 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 26-27.
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.
* 30-DAY 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 30-day SEC 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 measure 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. 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
* AMT PAPER--instruments with income subject to the federal alternative minimum
tax.
* 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).
SEMIANNUAL REPORT GLOSSARY 29
[american century logo(reg.sm)]
American
Century(reg.tm)
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 AND 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.
(c) 1998 AMERICAN CENTURY SERVICES CORPORATION FUNDS DISTRIBUTOR, INC.
9804 [recycled logo]
SH-BKT-12010 Recycled
