[front cover]
FEBRUARY 28, 1999
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
AMERICAN CENTURY
- ---------------------------------
CALIFORNIA TAX-FREE MONEY MARKET
CALIFORNIA MUNICIPAL MONEY MARKET
[american century logo(reg.sm)]
American
Century
[inside front cover]
AMERICAN CENTURY KEEPS WITH TRADITION
- --------------------------------------------------------------------------------
FOLLOWING BENHAM'S FOOTSTEPS
On March 1, we made it easier for you to do business with us. We simplified our
organizational structure by eliminating the venerable Benham and Twentieth
Century names, and putting all our funds under American Century. The name change
will not affect your funds' investment management--the proven Benham investment
philosophy, experienced portfolio management teams, and legacy of innovation and
high-quality performance remain.
CONSISTENT, SOLID PERFORMANCE--We'll continue to adhere to the investment
practices that have helped our fixed-income funds perform so well over the
years. In 1998, two-thirds of American Century bond funds beat their peer group
average, according to Lipper, Inc.
CONSISTENT INVESTMENT PHILOSOPHY--American Century fixed-income funds will
continue to offer a "pure play" on their sector of the market, as they did under
Benham.
CONTINUITY OF THE MANAGEMENT TEAM--The investment process is not all that
remains the same; we've retained our core team of experienced fixed-income
portfolio managers.
* Experience--The more than 35 fixed-income investment professionals at
American Century have an average of nine years of investment management
experience.
* Bigger and better--Since American Century was formed, we've doubled the
size of the original Benham management team in our Mountain View,
California office.
TRADITION OF INNOVATION--Like Benham before it, American Century is a leader in
fixed-income fund innovation. For example, we introduced a total of four new
fixed-income funds in the last three years, including the first no-load
inflation-adjusted bond fund.
We continue to run our fixed-income operation from our offices in Mountain View,
California, which is also home to our walk-in Investor Center.
We look forward to continuing to meet your fixed-income investment needs in the
Benham tradition.
WHAT'S NEW . . .
We now classify our funds in easy-to-remember categories based on objective
and risk. The four objective categories are: CAPITAL PRESERVATION, INCOME,
GROWTH AND INCOME, and GROWTH. The three risk categories are: CONSERVATIVE,
MODERATE, and AGGRESSIVE. This new classification system makes it easier for
investors to identify which funds are right for them.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
Past performance is no guarantee of future results.
[left margin]
CALIFORNIA TAX-FREE MONEY MARKET
(BCTXX)
- ----------------------------------
CALIFORNIA MUNICIPAL MONEY MARKET
(BNCXX)
- ----------------------------------
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
During the six-month period ended February 28, 1999, the financial markets
experienced a dramatic shift in expectations. Six months ago, the economic
outlook appeared grim--financial problems in Asia, Russia, and Latin America led
to expectations of an impending U.S. economic slowdown. That sent the domestic
stock market reeling and pushed U.S. bond yields to record lows.
But expectations began to change in the fourth quarter of 1998. The Federal
Reserve cut interest rates three times in six weeks, bolstering confidence in
the economy. That, in turn, brought greater stability to U.S. financial markets
and eventually produced a stock market rebound.
By early 1999, reports of the strongest quarterly economic surge in two
years caught investors by surprise. Bond yields rose reflexively amid higher
inflation expectations, but productivity gains and competitive pressures kept
inflation at its lowest level in a dozen years.
The resiliency of California's economy was especially surprising. With many
Asian economies--including six of the state's ten biggest export markets--at a
standstill, there were concerns that the economic stagnation would spread to
California. However, the state's economy hardly missed a beat and is now as
healthy as it has been in a decade.
This economic environment has been positive for California municipal bonds.
All seven of American Century's California municipal funds, ranging from money
market portfolios to long-term and high-yield bond funds, produced above-average
returns during the past six months, as well as over longer time periods
(according to Lipper Inc.). We've been investing in the California municipal
market for more than 15 years, and the consistent performance of our California
funds reflects that experience.
At American Century, we've recently made some changes that we hope will
make it easier for you to identify and select the funds that best meet your
investment needs. We reorganized our family of 71 funds based on investment
goals and risk level (see the front and back inside covers of this report for
more details).
In addition, California municipal fund shareholders were the first to
receive our new simplified prospectus. This document provides the fund
information you need in clear and straightforward language, and it includes
helpful tips and definitions of investment terms.
We want your experience with American Century to be rewarding, and we
appreciate your continued confidence in us.
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
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Frequently Asked Questions ............................................. 3
CALIFORNIA TAX-FREE MONEY MARKET
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio Composition
by Security Type .................................................... 5
Portfolio Composition
by Credit Rating .................................................... 6
Schedule of Investments ................................................ 7
CALIFORNIA MUNICIPAL MONEY MARKET
Performance Information ................................................ 12
Management Q&A ......................................................... 13
Portfolio Composition
by Security Type .................................................... 13
Portfolio Composition
by Credit Rating .................................................... 14
Schedule of Investments ................................................ 15
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 19
Statements of Operations ............................................... 20
Statements of Changes
in Net Assets ....................................................... 21
Notes to Financial
Statements .......................................................... 22
Financial Highlights ................................................... 24
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 26
Lipper Rankings ..................................................... 26
Credit Rating
Guidelines ....................................................... 26
Investment Team
Leaders .......................................................... 26
Glossary ............................................................... 27
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET
* The portfolio outperformed the average California tax-free money market fund
for the last six months, according to Lipper Inc.
* California Tax-Free Money Market's longer-term returns are also consistently
better than average.
* A major reason for the portfolio's solid relative returns was our
lower-than-average management fee. Other things being equal, lower expenses
mean higher yields and returns for our shareholders.
* We continue to be very conservative regarding credit decisions, keeping the
fund fully invested in first-tier municipal money market securities.
* Yields and returns on municipal money market funds declined over the six
months as a result of lower short-term interest rates, as well as less
supply and greater demand for tax-free money market securities.
* Looking ahead, we may increase the average maturity in April and May, if
seasonal supply and demand factors cause a temporary increase in yields.
CALIFORNIA MUNICIPAL MONEY MARKET
* California Municipal Money Market performed well, producing better returns
than the average California tax-free money market fund for the last six
months, according to Lipper Inc.
* California Municipal Money Market's longer-term returns are also
consistently better than average.
* Key reasons for the portfolio's solid relative performance were our
lower-than-average management fee and large percentage of higher-yielding
AMT securities.
* We continue to be very conservative regarding credit decisions, keeping the
fund fully invested in first-tier municipal money market securities.
* Yields and returns on municipal money market funds declined over the six
months as a result of lower short-term interest rates, as well as less
supply and greater demand for tax-free money market securities.
* Looking ahead, we may increase the average maturity in April and May, if
seasonal supply and demand factors cause a temporary increase in yields.
[left margin]
CALIFORNIA TAX-FREE MONEY MARKET
(BCTXX)
TOTAL RETURNS: AS OF 2/28/99
6 Months 1.29%*
1 Year 2.85%
NET ASSETS: $452.1 million
7-DAY CURRENT YIELD: 2.31%
INCEPTION DATE: 11/9/83
CALIFORNIA MUNICIPAL MONEY MARKET
(BNCXX)
TOTAL RETURNS: AS OF 2/28/99
6 Months 1.35%*
1 Year 2.95%
NET ASSETS: $177.0 million
7-DAY CURRENT YIELD: 2.41%
INCEPTION DATE: 12/31/90
* Not annualized.
See Total Returns on pages 4 and 12. Investment terms are defined in the
Glossary on page 27.
2 1-800-345-2021
Money Market Funds--Frequently Asked Questions
- --------------------------------------------------------------------------------
CAN I MAKE DIRECT DEPOSITS INTO MY MONEY MARKET FUND ACCOUNT?
Yes. You can arrange for direct deposit of your paycheck, Social Security
check, Treasury Direct interest payment, military allotment, or payments from
other government agencies. Give us a call, and we will send you the necessary
information to set it up.
WHAT IS THE HOLDING PERIOD ON NEW DEPOSITS INTO MY ACCOUNT?
Generally, there is an eight-business-day holding period for deposited
funds (initial investments in a new account are held for 15 calendar days).
There is a one-business-day holding period for U.S. Treasury checks, money
orders, and travelers' checks.
IS THERE A LIMIT ON THE NUMBER OF CHECKS I CAN WRITE ON MY MONEY MARKET ACCOUNT?
No. You can write as many checks as you like at no charge, as long as each
check is for $100 or more.
IS THERE AN EASY WAY TO MOVE MONEY FROM MY MONEY MARKET FUND INTO A STOCK OR
BOND FUND?
Yes. Moving money between funds is called an exchange, and there is no
limit on the number of exchanges you can make out of a money market fund
account. However, there is a limit of six exchanges per calendar year out of
stock and bond fund accounts.
Exchanges can be made by:
* visiting our Web site at www.americancentury.com*
* using our Automated Information Line (1-800-345-8765)*
* calling an Investor Relations Representative at 1-800-345-2021*
* writing us a letter
HOW DO I DECIDE WHETHER A TAXABLE MONEY MARKET FUND OR A TAX-FREE MONEY MARKET
FUND IS RIGHT FOR ME?
The most important factor to consider is your tax bracket. Tax-free money
market funds typically offer lower yields than taxable funds, but you pay no
federal income taxes on the income from a tax-free fund.
If you are in one of the higher federal income tax brackets, taxes will eat
up a big part of your income from a taxable money market fund, so a tax-free
investment may be better for you. If you're in a lower tax bracket, then you can
usually earn more in a taxable fund even after taxes are deducted.
We can help you figure it out. If you give us a call and tell us what tax
bracket you're in, we can tell you whether you're likely to earn more after-tax
income in a tax-free or a taxable money market fund.
IF YOU HAVE ANY QUESTIONS ABOUT OUR MONEY MARKET FUNDS, CALL US TOLL FREE AT
1-800-345-2021 OR E-MAIL US AT OUR WEB SITE, WWW.AMERICANCENTURY.COM.
* Before an investor can make an exchange via calling an Investor Relations
Representative, using our Automated Information Line, or via our Web site,
the shareholder must have first provided us with authorization, in writing,
to do so.
[right margin]
A FASTER AND EASIER WAY TO DEPOSIT MUTUAL FUND DISTRIBUTIONS
If you prefer to get your fund dividend or capital gains distributions sent to
you instead of reinvesting them, there are a couple of ways that you can get
access to this money faster than waiting for a check in the mail:
* YOU CAN HAVE DISTRIBUTIONS DEPOSITED DIRECTLY INTO YOUR MONEY MARKET
ACCOUNT. The money will be deposited the same day that the distributions
are paid.
* DISTRIBUTIONS CAN BE SENT ELECTRONICALLY TO YOUR BANK ACCOUNT. The money
will be available in your bank account within three days.
Contact our Investor Relations Representatives to set up either of these
options.
www.americancentury.com 3
California Tax-Free Money Market--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF FEBRUARY 28, 1999
CALIFORNIA TAX-FREE CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
<S> <C> <C> <C>
6 MONTHS(1) 1.29% 1.19% --
1 YEAR 2.85% 2.62% 10 OUT OF 55
===================================================================================
AVERAGE ANNUAL RETURNS
===================================================================================
3 YEARS 3.02% 2.82% 11 OUT OF 50
5 YEARS 3.03% 2.90% 10 OUT OF 43
10 YEARS 3.36% 3.34% 8 OUT OF 20
</TABLE>
The fund's inception date was 11/9/83.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 26-27 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
2/28/99 8/31/98
NUMBER OF SECURITIES 94 91
WEIGHTED AVERAGE
MATURITY 26 DAYS 34 DAYS
EXPENSE RATIO 0.50%* 0.50%
* Annualized.
YIELDS AS OF FEBRUARY 28, 1999
7-DAY CURRENT YIELD 2.31%
7-DAY EFFECTIVE YIELD 2.33%
7-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 3.54%
37.42% TAX BRACKET 3.69%
41.95% TAX BRACKET 3.98%
45.22% TAX BRACKET 4.22%
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund. The 7-day yield more closely reflects earnings of the fund than the total
return.
4 1-800-345-2021
California Tax-Free Money Market--Q&A
- --------------------------------------------------------------------------------
/photo of Todd Pardula/
An interview with Todd Pardula, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID CALIFORNIA TAX-FREE MONEY MARKET PERFORM DURING THE SIX MONTHS ENDED
FEBRUARY 28, 1999?
The portfolio performed well, producing a better return than the average
California tax-free money market fund, according to Lipper Inc. For the six
months, the portfolio's total return was 1.29%, compared with the 1.19% average
return of the 55 "California Tax-Exempt Money Market Funds" tracked by Lipper.
California Tax-Free Money Market's longer-term returns are similarly strong (see
the Total Returns table on the previous page for additional fund performance
comparisons).
WHY DID CALIFORNIA TAX-FREE MONEY MARKET OUTPERFORM ITS LIPPER GROUP?
A major reason for the fund's strong relative performance was our
lower-than-average management fee. Other things being equal, lower expenses mean
higher yields and returns for our shareholders.
Another reason we outperformed the Lipper group was our ability to purchase
the most attractively priced variable-rate notes, or "floaters." We work hard to
develop excellent relationships with dealers that offer the best rates on
floaters.
For the six-month period, floaters made up about 80% of the portfolio, so
if we can buy floaters with 10 additional basis points of yield (a basis point
equals 0.01%, so 10 basis points equals 0.10%), we can get an extra 8 basis
points of performance for the fund. That's a significant edge when total returns
are in the 2% range.
CALIFORNIA TAX-FREE MONEY MARKET'S RELATIVE PERFORMANCE WAS STRONG, BUT ITS
TOTAL RETURN SEEMS LOW. WHY?
The fund's total return is related to the general level of short-term
interest rates. In the second half of 1998, the Federal Reserve (the Fed)
lowered rates by 75 basis points (0.75%) because a series of global financial
crises threatened U.S. economic growth.
When interest rates are low, municipalities are inclined to lock in those
rates by issuing more long-term bonds than short-term notes. The supply of
short-term securities was also reduced by the excellent health of the California
economy, which has diminished municipal borrowing needs. While these factors
reduced supply, demand for short-term tax-free securities surged. The imbalance
between supply and demand sent yields on tax-free money market funds in February
to their lowest levels since 1994.
YOU REDUCED THE PORTFOLIO'S WEIGHTED AVERAGE MATURITY FROM 34 DAYS TO 26 DAYS.
WHY?
We allowed the average maturity to shorten because we didn't think yields
on one-year municipal securities were attractive enough to justify adding more
of them to the portfolio. Instead, we used new money and cash from
[right margin]
"The portfolio performed well, producing a better return than the average
California tax-free money market fund, according to Lipper Inc."
[pie charts - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF FEBRUARY 28, 1999
Variable-Rate Notes 79%
Put Bonds 9%
Municipal Notes 5%
Bonds less than 1 Year 4%
Commercial Paper 3%
AS OF AUGUST 31, 1998
Variable-Rate Notes 78%
Put Bonds 9%
Municipal Notes 6%
Bonds less than 1 Year 3%
Commercial Paper 4%
Security types are defined on page 27.
www.americancentury.com 5
California Tax-Free Money Market--Q&A
- --------------------------------------------------------------------------------
(Continued)
maturing securities to buy floaters, which have relatively short maturities. We
were content to hold floaters even in a declining interest rate environment
because their yields were virtually the same as those on one-year securities.
HOW DID YOU MANAGE THE FUND'S CREDIT QUALITY?
We continued to be very conservative regarding credit decisions, keeping
the fund fully invested in first-tier municipal money market securities.
First-tier obligations have generally received the highest credit rating from at
least two nationally recognized statistical rating organizations. For example,
the SP1 rating category (which includes SP1+) is Standard & Poor's highest
rating for short-term municipal debt. The SP2 rated securities shown in the
chart at left are considered first tier because they received top ratings from
Fitch and Moody's, two other ratings services.
Those SP2 securities are backed by Union Bank of California, whose majority
owner is Bank of Tokyo Mitsubishi. We also believe Union Bank of California is
worthy of a higher S&P rating because its operations are governed by U.S.
banking regulations and are primarily limited to California. These securities
offer an additional 40-50 basis points in yield over securities rated SP1+ at
what we believe is minimal additional credit risk.
WHAT IS YOUR OUTLOOK FOR INTEREST RATES?
The outlook for rates is uncertain. On the one hand, it seems unlikely the
United States can remain an oasis of prosperity amid the global economic
slowdown. That would argue for further Fed interest rate cuts. On the other
hand, despite global turmoil, the U.S. economy has so far continued to grow
rapidly. And although inflation is dormant now, oil prices have rebounded and
the unemployment rate remains very low. Those factors would seem to argue for
higher interest rates.
AND WHAT'S YOUR OUTLOOK FOR THE FUND?
We may increase the fund's average maturity in April and May, when seasonal
supply and demand factors typically affect the tax-exempt money market. That's
when many shareholders withdraw money from tax-free and municipal money market
funds to pay their income taxes. Those redemptions mean less demand for and
greater supply of tax-free money market securities. The net effect is often a
temporary increase in yields on one-year securities. Despite those seasonal
factors, yields and returns on tax-free money market funds are likely to remain
modest as long as inflation is nearly non-existent and interest rates are
historically low.
[left margin]
"We continued to be very conservative regarding credit decisions, keeping the
fund fully invested in first-tier municipal money market securities."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
2/28/99 8/31/98
SP1+ 79% 73%
SP1 11% 16%
SP2 10% 11%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 26
for more information.
"Yields and returns on tax-free money market funds are likely to remain modest
as long as inflation is nearly non-existent and interest rates are historically
low."
6 1-800-345-2021
Cal. Tax-Free Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITES
$ 2,912,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-17,
VRDN, 2.79%, 3/3/99 (FGIC)
(SBBPA: ABN Amro Bank
N.V.) (Acquired 11/18/98--
12/31/98, Cost $2,912,000)(1) $ 2,912,000
2,500,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-10,
VRDN, 2.79%, 3/3/99 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 8/19/98, Cost
$2,500,000)(1) 2,500,000
6,500,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-25,
VRDN, 3.10%, 6/2/99 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 12/2/98, Cost
$6,500,000)(1) 6,500,000
2,325,000 Agoura Hills Multifamily
Housing Rev., (Oakridge
Apartments), VRDN, 2.55%,
3/3/99 (LOC:
Commerzbank A.G.) 2,325,000
2,000,000 Association of Bay Area
Governments Financing Auth.
Rev. COP, (Bentley School),
VRDN, 2.70%, 3/3/99 (LOC:
Banque Nationale de Paris S.A.) 2,000,000
10,800,000 Avalon Community Improvement
Agency Tax Allocation Rev.,
(Community Improvement
Area), VRDN, 3.00%, 3/4/99 (LOC:
Union Bank of California, N.A.) 10,800,000
10,300,000 Azusa Multifamily Housing Rev.,
(Pacific Glen Apartments),
VRDN, 2.60%, 3/4/99 (FNMA
Collateral Agreement) 10,300,000
5,000,000 Bassett Unified School District
COP, (Capital Improvement),
VRDN, 3.20%, 3/4/99 (LOC:
Union Bank of California, N.A.) 5,000,000
6,400,000 California Economic Development
Financing Auth. Rev., Series
1998 C, VRDN, 3.50%,
3/1/99 (LOC: Bank of America
N.T. & S.A.) 6,400,000
4,400,000 California Educational Facilities
Auth. Rev., (Mount St. Marys
College), VRDN, 2.40%,
3/3/99 (LOC: Allied Irish
Banks, PLC) 4,400,000
3,500,000 California Educational Facilities
Auth. Rev., Series 1998 A,
(University Judaism), VRDN,
2.70%, 3/4/99 (LOC: Allied
Irish Banks, PLC) 3,500,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,700,000 California Health Facilities Auth.
Rev., (Episcopal Home), VRDN,
2.70%, 3/1/99 (LOC: Union
Bank of California, N.A.) $ 4,700,000
910,000 California Health Facilities
Financing Auth. Rev., (Little Co.
Mary Health Service), 3.50%,
10/1/99 (AMBAC) 911,550
490,000 California Health Facilities
Financing Auth. Rev.,
Series 1990 A, (Pooled Project),
VRDN, 2.10%, 3/3/99 (LOC:
Rabobank Nederland) 490,000
3,500,000 California Health Facilities
Financing Auth. Rev., Series
1995 C, (Catholic Healthcare
West), VRDN, 2.60%, 3/3/99
(MBIA) (SBBPA: Rabobank
Nederland) 3,500,000
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Catholic Healthcare
West), 4.50%, 7/1/99 2,510,688
3,290,000 California Housing Financing
Agency Rev., 3.60%, 4/8/99
(MBIA) (SBBPA: Credit Suisse
First Boston, Inc.) (Acquired
8/7/98, Cost $3,290,000)(1) 3,290,000
10,500,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA Inc.), 3.65%, 5/15/99
(Guaranteed: Chevron Corp.) 10,500,000
1,000,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA Inc.), 3.10%, 11/15/99
(Guaranteed: Chevron Corp.) 1,000,000
3,000,000 California Pollution Control
Financing Auth. Rev., Series
1986 B, (Southern California
Edison), VRDN, 3.55%, 3/1/99
(Guaranteed: Southern
California Edison Company) 3,000,000
1,700,000 California Pollution Control
Financing Auth. Rev., Series
1986 C, (Southern California
Edison), VRDN, 3.55%, 3/1/99
(Guaranteed: Southern
California Edison Company) 1,700,000
5,000,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, VRDN,
3.10%, 3/15/99 (LOC:
National Westminster Bank
PLC) 5,000,000
4,000,000 California Rev. Anticipation Notes,
4.00%, 6/30/99 4,010,873
See Notes to Financial Statements
www.americancentury.com 7
Cal. Tax-Free Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$10,000,000 California School Cash Reserve
Program Auth. Rev., Series
1998 A, 4.50%, 7/2/99 (GIC:
Trinity Funding Corporation) $ 10,024,667
5,000,000 California Statewide Communities
Apartment Development Auth.
Rev., (Whispering Winds
Apartments), VRDN, 2.70%,
3/3/99 (LOC: Continental
Casualty Co.) 5,000,000
1,905,000 California Statewide Communities
Development Auth. COP, 4.25%,
4/1/99 (MBIA) 1,905,621
22,000,000 California Statewide Community
Development Auth. Rev., Floating
Rate Trust Receipts, 2.95%,
3/3/99 (FSA) (SBBPA: Bank
of New York) (Acquired
7/2/98--8/12/98, Cost
$22,000,000)(1)(2) 22,000,000
7,700,000 California Statewide COP,
(Covenant Retirement
Community), VRDN, 2.75%,
3/4/99 (LOC: LaSalle National
Bank) 7,700,000
2,500,000 Covina Redevelopment Agency
Multifamily Housing Rev.,
(Shadowhills Apartments),
VRDN, 2.60%, 3/4/99 (FNMA
Collateral Agreement) 2,500,000
6,500,000 East Bay Municipal Utility District
Commercial Paper, 3.00%,
3/9/99 (SBBPA: Westdeutsche
Landesbank Girozentrale) 6,500,000
2,990,000 Fillmore Public Financing Auth.
Tax Allocation, Series 1998 B,
(Central City Redevelopment),
VRDN, 2.45%, 3/4/99 (LOC:
California State Teachers'
Retirement System) 2,990,000
990,000 Fontana Special Tax, (Community
Facilities District No. 2-A),
4.00%, 9/1/99 (MBIA) 991,941
2,000,000 Fremont COP, (Family Resource
Center Financing), VRDN,
2.45%, 3/4/99 (LOC: KBC
Bank N.V.) 2,000,000
1,000,000 Fremont Unified High School
District Santa Clara County GO,
Series 1998 A, 7.00%, 9/1/99
(FGIC) 1,019,661
2,000,000 Glendale Industrial Development
Auth. Rev., (Reliance
Development), VRDN, 2.95%,
3/15/99 (LOC: Lloyds Bank
PLC) 2,000,000
1,215,000 Hanford COP, (Public IMPC Corp.),
VRDN, 3.00%, 3/4/99 (LOC:
Union Bank of California, N.A.) 1,215,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 6,155,000 Hanford Sewer Rev., Series
1996 A, VRDN, 3.00%,
3/4/99 (LOC: Union Bank of
California, N.A.) $ 6,155,000
3,500,000 Hemet Multifamily Housing Auth.
Rev., (Sunwest Resort), VRDN,
2.60%, 3/4/99 (LOC: FHLB) 3,500,000
4,200,000 Hemet Multifamily Housing Auth.
Rev., (West Acacia), VRDN,
2.55%, 3/4/99 (LOC: FHLB) 4,200,000
2,200,000 Irvine Improvement Bond Act
1915, (Assessment District
No. 94-15), VRDN, 3.10%,
3/1/99 (LOC: Canadian
Imperial Bank of Commerce) 2,200,000
4,200,000 Irvine Improvement Bond Act
1915, (Assessment District
No. 97-17), VRDN, 3.10%,
3/1/99 (LOC: Bayerische
Hypo-Und Vereinsbank A.G.) 4,200,000
1,000,000 Irvine Ranch Water District GO,
Series 1988 A, (Improvement
District No. 284), VRDN, 3.00%,
3/3/99 (LOC: Landesbank
Hessen-Thuringen Girozentrale) 1,000,000
1,700,000 Irvine Ranch Water District Rev.,
(Consolidated Bonds), VRDN,
3.10%, 3/3/99 (LOC:
Landesbank Hessen-Thuringen
Girozentrale) 1,700,000
3,400,000 Irvine Ranch Water District Rev.,
Series 1993 A, VRDN, 3.00%,
3/3/99 (LOC: Bank of America
N.T. & S.A.) 3,400,000
18,900,000 Kern County Superintendent of
Schools COP, Series 1996 A,
VRDN, 2.75%, 3/4/99 (LOC:
Anchor National Life Insurance
Company) 18,900,000
4,250,000 Lancaster Redevelopment Agency
Rev., Series 1996 C, (20th
Street Apartments), VRDN,
2.55%, 3/4/99 (LOC: FHLB) 4,250,000
2,100,000 Lemore COP, (Golf Course),
VRDN, 3.30%, 3/4/99 (LOC:
Union Bank of California, N.A.) 2,100,000
3,000,000 Loma Linda Water Rev., VRDN,
2.85%, 3/3/99 (LOC: Union
Bank of California, N.A.) 3,000,000
4,680,000 Los Angeles Community
Redevelopment Agency Rev.,
VRDN, 2.60%, 3/4/99 (LOC:
Barclays Bank PLC) 4,680,000
2,000,000 Los Angeles Convention and
Exhibition Center Auth. COP,
Series 1989 A, 7.00%,
8/15/99, Prerefunded at
101.5% of Par(3) 2,066,036
See Notes to Financial Statements
8 1-800-345-2021
Cal. Tax-Free Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Los Angeles COP, (Municipal
Improvement Corp., Project H),
3.00%, 11/1/99 (AMBAC) $ 1,000,000
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., (Proposition A-2nd Tier),
5.50%, 7/1/99 (MBIA) 1,008,291
9,600,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1993 A,
(Proposition C, Second Series),
VRDN, 2.60%, 3/4/99 (MBIA)
(SBBPA: Credit Locale de
France) 9,600,000
4,500,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Floating Rate Trust Receipts,
Series 1998 A47, 3.35%,
3/1/99 (AMBAC) (Acquired
9/23/98--1/26/99, Cost
$4,500,000)(1)(2) 4,500,000
23,100,000 Los Angeles Multifamily Housing
Rev., Series 1985 K, VRDN,
2.40%, 3/2/99 (LOC: FHLB) 23,100,000
3,000,000 Metropolitan Water District
Southern California Waterworks
Rev., Series 1998 C, VRDN,
2.40%, 3/4/99 (LOC: Bank of
America N.T. & S.A.) 3,000,000
1,835,000 Modesto Irrigation District COP,
Series 1999 A,
4.25%, 7/1/99
(AMBAC) 1,842,599
2,000,000 Modesto Multifamily Housing Rev.,
Series 1996 A, (Shadowbrook),
VRDN, 2.80%, 3/4/99 (LOC:
Bank of America N.T. & S.A.) 2,000,000
2,025,000 Modesto Special Tax, (Community
Facilities District No. 98-1,
VRDN, 2.70%, 3/4/99 (LOC:
Wells Fargo Bank, N.A.) 2,025,000
1,880,000 Moreno Valley COP, (City Hall
Refinancing), VRDN, 3.00%,
3/4/99 (LOC: Union Bank of
California, N.A.) 1,880,000
1,500,000 Oakland Economic Development
Rev., Series 1997 A, (Allen
Temple Family Life), VRDN,
2.60%, 3/4/99 (LOC: Wells
Fargo Bank, N.A.) 1,500,000
14,000,000 Oceanside Multifamily Housing
Rev., (Lakeridge Apartments),
VRDN, 3.20%, 3/3/99 (LOC:
Continental Casualty Co.) 14,000,000
8,380,000 Orange County Apartment
Development Rev., Series
1992 B, (Aliso Creek), VRDN,
3.00%, 3/4/99 (LOC: WFC
Holdings Corp.) 8,380,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,000,000 Rancho Water District Financing
Auth. Rev., Series 1998 A,
VRDN, 2.60%, 3/3/99 (FGIC)
(SBBPA: General Electric
Capital Corp.) $ 5,000,000
9,445,000 Redlands COP, (Sewer Treatment
Facilities), VRDN, 2.55%,
3/3/99 (FGIC) (SBBPA:
General Electric Capital Corp.) 9,445,000
8,720,000 Redlands COP, (Water Treatment
Facilities), VRDN, 2.55%,
3/3/99 (FGIC) (SBBPA:
General Electric Capital Corp.) 8,720,000
2,500,000 Redwood City COP, (City Hall),
VRDN, 2.70%, 3/4/99 (LOC:
KBC Bank N.V.) 2,500,000
5,065,000 Rialto Public Financing Auth. Tax
Allocation, Series 1998 A,
(Agua Mansa & Industrial),
VRDN, 3.00%, 3/4/99 (LOC:
Union Bank of California, N.A.) 5,065,000
3,580,000 Riverside County Asset Leasing
Corp. Leasehold Rev., Series
1989 A, (Riverside County
Hospital), 7.40%, 6/1/99,
Prerefunded at 102% of Par(3) 3,690,238
3,420,000 Riverside County Multifamily
Housing Rev., (Ambergate
Apartments), VRDN, 2.55%,
3/4/99 (LOC: Union Bank of
California, N.A.) 3,420,000
4,500,000 Riverside County Teeter Notes
Commercial Paper, 3.10%,
4/7/99 (LOC: Westdeutsche
Landesbank Girozentrale) 4,500,000
1,715,000 Rohnert Park Multifamily Housing
Rev., (Crossbrook Apartments),
VRDN, 2.60%, 3/3/99 (FNMA
Collateral Agreement) 1,715,000
5,920,000 Sacramento County Multifamily
Housing Rev., (River
Oaks), VRDN, 2.70%, 3/4/99 (LOC:
Chase Manhattan Bank) 5,920,000
3,400,000 Sacramento County Multifamily
Housing Rev., Series 1996 A,
VRDN, 2.65%, 3/3/99 (LOC:
California State Teachers'
Retirement System) 3,400,000
2,000,000 San Bernardino County COP,
(Medical Center Financing),
VRDN, 2.50%, 3/3/99 (MBIA)
(SBBPA: Landesbank
Hessen-Thuringen Girozentrale) 2,000,000
22,875,000 San Bernardino County COP,
VRDN, 2.75%, 3/4/99 (MBIA)
(SBBPA: Merrill Lynch & Co.,
Inc.) (Acquired 6/28/95--
2/4/98, Cost $22,875,000)(1) 22,875,000
See Notes to Financial Statements
www.americancentury.com 9
Cal. Tax-Free Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 15,000,000 San Bernardino County Multifamily
Housing Auth. Rev., 5.45%,
5/1/99 (Put Agreement:
National Westminster Bank
PLC) (Acquired 5/8/98, Cost
$15,206,100)(1) $ 15,037,673
3,350,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1992 A, (Arrowview Park
Apartments), VRDN, 2.55%,
3/4/99 (LOC: FHLB) 3,350,000
1,800,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1993 A, (Monterey Villas
Apartments), VRDN, 2.55%,
3/4/99 (LOC: FHLB) 1,800,000
2,800,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1997 A, (Mountain View),
VRDN, 2.55%, 3/4/99 (LOC:
FHLB) 2,800,000
4,200,000 San Diego Multifamily Housing
Rev., Series 1993 A,
(Coral Point Apartments),
VRDN, 3.20%, 3/4/99 (LOC:
Continental Casualty Co.) 4,200,000
5,000,000 San Francisco City and County
Redevelopment Agency
Multifamily Housing Rev., Series
1985 B, (Bayside Village),
VRDN, 2.40%, 3/4/99 (LOC:
Bank One Arizona, N.A.) 5,000,000
3,285,000 San Francisco City and County
Redevelopment Financing Auth.
Rev., (Yerba Buena Garden),
VRDN, 2.55%, 3/3/99 (LOC:
National Westminster Bank
PLC) 3,285,000
1,000,000 San Francisco City and County
Sewer Rev., 6.50%, 10/1/99,
Prerefunded at 102% of Par(3) 1,039,843
2,400,000 San Francisco City and County
Unified School District Tax &
Rev. Anticipation Notes, 4.50%,
9/22/99 2,414,437
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,945,000 San Jose Financing Auth. Rev.,
Series 1998 B, (Hayes Mansion
Improvement), VRDN, 2.55%,
3/3/99 (AMBAC) (SBBPA:
Bank of Nova Scotia) $ 2,945,000
13,400,000 Santa Paula Public Financing
Auth. Lease Rev., (Water System
Acquisition), VRDN, 2.25%,
3/3/99 (LOC: California State
Teachers' Retirement System) 13,400,000
2,575,000 Simi Valley Multifamily Housing
Rev., Series 1993 A, VRDN,
2.60%, 3/4/99 (LOC: FHLMC) 2,575,000
5,000,000 South Coast Local Education
Agencies Tax & Rev. Anticipation
Notes, Series 1998 A, 4.50%,
6/30/99 (MBIA) 5,020,882
525,000 South San Francisco COP,
(Quality Control Plant), VRDN,
2.55%, 3/4/99 (LOC: National
Westminster Bank PLC) 525,000
1,500,000 Triunfo Sanitation District Rev.,
VRDN, 2.20%, 3/3/99 (LOC:
Banque Nationale de Paris S.A.) 1,500,000
1,900,000 West Hollywood COP, VRDN,
3.00%, 3/4/99 (LOC: Union
Bank of California, N.A.) 1,900,000
4,500,000 Westminster COP, Series 1998 A,
(Civic Center), VRDN, 2.70%,
3/4/99 (AMBAC) (SBBPA:
First Union National Bank) 4,500,000
1,900,000 Westminster Redevelopment
Agency Tax Allocation Rev.,
(Commercial Redevelopment
Project No. 1), VRDN, 2.70%,
3/4/99 (AMBAC) (SBBPA:
Landesbank Hessen-Thuringen
Girozentrale) 1,900,000
------------
TOTAL INVESTMENT SECURITIES--100.0% $449,727,000
============
See Notes to Financial Statements
10 1-800-345-2021
Cal. Tax-Free Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corp.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GIC = Guaranteed Investment Contract
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
February 28, 1999.
(1) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of these securities at February 28, 1999, was $79,614,673,
which represented 17.6% of net assets. None of these securities are
considered to be illiquid.
(2) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1999.
(3) Escrowed to maturity in U.S. government securities or state and local
government securities.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the amortized cost of each investment
See Notes to Financial Statements
www.americancentury.com 11
California Municipal Money Market--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1999
<TABLE>
CALIFORNIA MUNICIPAL CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
<S> <C> <C> <C>
6 MONTHS(1) 1.35% 1.19% --
1 YEAR 2.95% 2.62% 5 OUT OF 55
=================================================================================
AVERAGE ANNUAL RETURNS
=================================================================================
3 YEARS 3.08% 2.82% 8 OUT OF 50
5 YEARS 3.08% 2.90% 7 OUT OF 43
LIFE OF FUND(3) 3.11% 2.88% 6 OUT OF 35
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) The fund's inception date was 12/31/90.
See pages 26-27 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
2/28/99 8/31/98
NUMBER OF SECURITIES 59 58
WEIGHTED AVERAGE
MATURITY 15 DAYS 40 DAYS
EXPENSE RATIO 0.50%* 0.50%
* Annualized.
YIELDS AS OF FEBRUARY 28, 1999
7-DAY CURRENT YIELD 2.41%
7-DAY EFFECTIVE YIELD 2.43%
7-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 3.69%
37.42% TAX BRACKET 3.85%
41.95% TAX BRACKET 4.15%
45.22% TAX BRACKET 4.40%
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund. The 7-day yield more closely reflects earnings of the fund than the total
return.
12 1-800-345-2021
California Municipal Money Market--Q&A
- --------------------------------------------------------------------------------
An interview with Todd Pardula (pictured on page 5), a portfolio manager on
the California Tax-Free and Municipal funds investment team.
HOW DID CALIFORNIA MUNICIPAL MONEY MARKET PERFORM DURING THE SIX MONTHS ENDED
FEBRUARY 28, 1999?
The fund performed well, producing a better return than the average
California tax-free money market fund, according to Lipper Inc. For the six
months, the portfolio's total return was 1.35%, compared with the 1.19% average
return of the 55 "California Tax-Exempt Money Market Funds" tracked by Lipper.
California Municipal Money Market's longer-term returns are also quite strong,
consistently placing in the top 20% of the Lipper group (see the Total Returns
table on the previous page for additional fund performance comparisons.)
WHAT LED CALIFORNIA MUNICIPAL MONEY MARKET TO SUCH SOLID PERFORMANCE?
A major reason for the fund's strong relative performance was our
lower-than-average management fee. Other things being equal, lower expenses mean
higher yields and returns for our shareholders.
In addition, California Municipal Money Market typically holds a greater
percentage of securities subject to the federal alternative minimum tax (AMT)
than the other funds in the Lipper group. AMT securities typically offer higher
yields than non-AMT notes because of their potential tax liability.
Another reason we outperformed the Lipper group was our ability to purchase
the most attractively priced variable-rate notes, or "floaters." We work hard to
develop excellent relationships with dealers that offer the best rates on
floaters.
At the end of February, floaters made up about 90% of the portfolio, so if
we can buy floaters with 10 additional basis points of yield (a basis point
equals 0.01%, so 10 basis points equals 0.10%), we can get an extra 9 basis
points of performance for the fund. That's a significant edge when total returns
are in the 2% range.
YOUR RELATIVE PERFORMANCE WAS STRONG, BUT THE FUND'S TOTAL RETURN SEEMS LOW.
WHY?
The fund's total return is related to the general level of short-term
interest rates. In the second half of 1998, the Federal Reserve (the Fed)
lowered rates by 75 basis points (0.75%) because a series of global financial
crises threatened U.S. economic growth.
When interest rates are low, municipalities are inclined to lock in those
rates by issuing more long-term bonds than short-term notes. The supply of
short-term securities was also reduced by the excellent health of the California
economy, which has diminished municipal borrowing needs. While these factors
reduced supply, demand for short-term tax-free securities surged. The imbalance
between supply and demand sent yields on tax-free money market funds in February
to their lowest levels since 1994.
[right margin]
"The fund performed well, producing a better return than the average California
tax-free money market fund, according to Lipper Inc."
[pie charts - data below]
PORTFOLIO COMPOSITION BY SECURITY TYPE
AS OF FEBRUARY 28, 1999
Variable-Rate Notes 89%
Put Bonds 11%
AS OF AUGUST 31, 1998
Variable-Rate Notes 79%
Put Bonds 15%
Bonds less than 1 Year 3%
Municipal Notes 3%
Security types are defined on page 27.
www.americancentury.com 13
California Municipal Money Market--Q&A
- --------------------------------------------------------------------------------
(Continued)
YOU REDUCED THE PORTFOLIO'S WEIGHTED AVERAGE MATURITY FROM 40 DAYS TO 15 DAYS.
WHY?
We allowed the average maturity to shorten because we didn't think yields
on one-year municipal securities were attractive enough to justify adding more
of them to the portfolio. Additionally, it was particularly hard to find
attractive one-year AMT paper. As a result, we used any new money and cash from
maturing securities to buy floaters subject to AMT. We were content to hold
floaters even in a declining interest rate environment because their yields were
virtually the same as those on one-year securities.
HOW DID YOU MANAGE THE FUND'S CREDIT QUALITY?
We continued to be very conservative regarding credit decisions, keeping
the fund fully invested in first-tier municipal money market securities.
First-tier obligations have generally received the highest credit rating from at
least two nationally recognized statistical rating organizations. For example,
the SP1 rating category (which includes SP1+) is Standard and Poor's highest
rating for short-term municipal debt. The SP2 rated securities shown in the
chart at left are considered first tier because they received top ratings from
Fitch & Moody's, two other rating services.
However, at the end of February, 14% of assets were in securities rated SP2
by Standard & Poor's. Those SP2 securities are primarily backed by Union Bank of
California, whose majority owner is Bank of Tokyo Mitsubishi. We also believe
Union Bank of California is worthy of a higher S&P rating because its operations
are governed by U.S. banking regulations and are primarily limited to
California. These securities offer an additional 40-50 basis points in yield
over securities rated SP1+ at what we believe is minimal additional credit risk
WHAT IS YOUR OUTLOOK FOR INTEREST RATES?
The outlook for rates is uncertain. On the one hand, it seems unlikely the
United States can remain an oasis of prosperity amid the global economic
slowdown. That would argue for further Fed interest rate cuts. On the other
hand, despite global turmoil, the U.S. economy has so far continued to grow
rapidly. And although inflation is dormant now, oil prices have rebounded and
the unemployment rate remains very low. Those factors would seem to suggest
interest rates could go higher.
AND WHAT'S YOUR OUTLOOK FOR THE FUND?
We may increase the fund's average maturity in April and May, when seasonal
supply and demand factors typically affect the tax-exempt money market. That's
when many shareholders withdraw money from tax-free and municipal money market
funds to pay their income taxes. Those redemptions mean less demand for and
greater supply of tax-free money market securities. The net effect is often a
temporary increase in yields on one-year securities. Despite those seasonal
factors, yields and returns on tax-free money market funds are likely to remain
modest as long as inflation is nearly non-existent and interest rates are
historically low.
[left margin]
"We continued to be very conservative regarding credit decisions, keeping the
fund fully invested in first-tier municipal money market securities."
PORTFOLIO COMPOSITION BY CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
2/28/99 8/31/98
SP1+ 72% 71%
SP1 14% 15%
SP2 14% 14%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 26
for more information.
"Yields and returns on tax-free money market funds are likely to remain modest
as long as inflation is nearly non-existent and interest rates are historically
low."
14 1-800-345-2021
Cal. Municipal Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
$1,000,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-17,
VRDN, 2.79%, 3/3/99 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 11/18/98, Cost
$1,000,000)(1) $ 1,000,000
4,500,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-10,
VRDN, 2.79%, 3/3/99 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 8/19/98--1/6/99,
Cost $4,500,000)(1) 4,500,000
2,500,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-25,
3.10%, 6/2/99 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 12/2/98, Cost
$2,500,000)(1) 2,500,000
3,000,000 Alameda County Industrial
Development Auth. Rev., (Bat
Properties), VRDN, 2.60%,
3/4/99 (LOC: Wells Fargo
Bank, N.A.) 3,000,000
1,800,000 Alameda County Industrial
Development Auth. Rev., Series
1994 A, (Scientific Technology),
VRDN, 2.75%, 3/3/99 (LOC:
Banque Nationale de Paris
S.A.) 1,800,000
700,000 Alameda County Industrial
Development Auth. Rev., Series
1996 A, (Edward L. Shimmon
Inc.), VRDN, 2.80%, 3/4/99
(LOC: Banque Nationale de
Paris S.A.) 700,000
1,685,000 Alameda County Industrial
Development Auth. Rev., Series
1997 A, (Adeline Association),
VRDN, 2.80%, 3/4/99 (LOC:
Wells Fargo Bank, N.A.) 1,685,000
1,350,000 Alameda County Industrial
Development Auth. Rev., Series
1997 A, (Plyproperties), VRDN,
2.80%, 3/4/99 (LOC: Wells
Fargo Bank, N.A.) 1,350,000
2,200,000 Association of Bay Area
Governments Multifamily
Housing Rev., Series 1997
A, (Mountain View Apartments),
VRDN, 2.95%, 3/4/99 (LOC:
Comerica Bank, N.A.) 2,200,000
2,000,000 California Economic Development
Financing Auth. Industrial
Development Rev., (Provena
Foods Inc.), VRDN, 2.75%,
3/3/99 (LOC: Comerica
Bank-CA) 2,000,000
Principal Amount Value
- --------------------------------------------------------------------------------
$3,100,000 California Health Facilities Auth.
Rev., (Episcopal Home), VRDN,
2.70%, 3/1/99 (LOC: Union
Bank of California, N.A.) $ 3,100,000
6,100,000 California Housing Financing
Agency Rev., Series 1996 A,
Class A, VRDN, 2.77%,
3/4/99 (LOC: Caisse Des
Depots et Consignations)
(Acquired 2/4/98, Cost
$6,100,000)(1) 6,100,000
900,000 California Housing Financing
Agency Rev., Series 1998 E,
3.55%, 3/12/99 900,000
2,500,000 California Pollution Control
Financing Auth. Rev., Series
1986 A, (Southern California
Edison), VRDN, 3.55%, 3/1/99
(Guaranteed: Southern
California Edison Company) 2,500,000
1,200,000 California Pollution Control
Financing Auth. Rev., Series
1986 B, (Southern California
Edison), VRDN, 3.55%, 3/1/99
(Guaranteed: Southern
California Edison Company) 1,200,000
2,800,000 California Pollution Control
Financing Auth. Rev., Series
1986 D, (Southern California
Edison), VRDN, 3.55%, 3/1/99
(Guaranteed: Southern
California Edison Company) 2,800,000
7,000,000 California Pollution Control
Financing Auth. Solid Waste
Disposal Rev., Series 1994 A,
(Western Waste Industries),
VRDN, 2.90%, 3/4/99 (LOC:
Union Bank of California, N.A.) 7,000,000
2,300,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, 3.10%,
3/15/99 (LOC: National
Westminster Bank PLC) 2,300,000
6,100,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Applied Aerospace), VRDN,
2.75%, 3/3/99 (LOC:
American National Bank and
Trust Company of Chicago) 6,100,000
1,200,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(CALCO), VRDN, 3.05%,
3/3/99 (LOC: Wells Fargo
Bank, N.A.) 1,200,000
See Notes to Financial Statements
www.americancentury.com 15
Cal. Municipal Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$3,750,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Coast Grain Co.), VRDN,
2.70%, 3/4/99 (LOC: Bank of
America N.T. & S.A.) $ 3,750,000
2,000,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(River Ranch Fresh Foods),
VRDN, 2.70%, 3/4/99 (LOC:
NationsBank, N.A.) 2,000,000
2,400,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Scientific Specialties), VRDN,
2.75%, 3/3/99 (LOC: Bank of
America N.T. & S.A.) 2,400,000
3,040,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Vortech Engineering Inc.),
VRDN, 3.30%, 3/3/99 (LOC:
Bank of Hawaii) 3,040,000
1,468,364 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Wesflex Pipe Manufacturing),
VRDN, 2.95%, 3/4/99 (LOC:
Wells Fargo Bank, N.A.) 1,468,364
3,000,000 California State GO, Series 1997
BJ, 4.125%, 6/1/99 3,000,176
5,000,000 California State Veterans GO,
VRDN, 2.77%, 3/4/99 (FSA)
(SBBPA: Merrill Lynch & Co.,
Inc.) (Acquired 12/30/97, Cost
$5,000,000)(1) 5,000,000
1,000,000 California Statewide Communities
Development Auth. Industrial
Rev., Series 1998 C, (Nichols
Pistachio), VRDN, 2.70%,
3/4/99 (LOC: Bank of America
N.T. & S.A.) 1,000,000
8,500,000 California Statewide Communities
Development Auth. Lease Rev.,
Floating Rate Trust Receipts,
3.00%, 3/4/99 (LOC: Merrill
Lynch & Co., Inc.) (Acquired
2/16/99, Cost $8,500,000)(1)(2) 8,500,000
5,900,000 California Statewide Communities
Development Auth. Multifamily
Housing Rev., Series 1997 A,
(Plaza Club Apartments), VRDN,
3.00%, 3/3/99 (LOC:
Comerica Bank, N.A.) 5,900,000
1,200,000 California Statewide Communities
Development Auth. Multifamily
Housing Rev., Series 1997 G,
(Sunrise of Moraga), VRDN,
2.85%, 3/4/99 (LOC:
Commerzbank A.G.) 1,200,000
$1,225,000 California Statewide Communities
Development Auth. Rev., Series
1996 G, (Lansmont Property),
VRDN, 2.70%, 3/3/99 (LOC:
Wells Fargo Bank, N.A.) $ 1,225,000
1,600,000 California Statewide Communities
Development Corp. Rev., (Tri H
Foods), VRDN, 3.75%, 3/3/99
(LOC: Union Bank of California,
N.A.) 1,600,000
5,560,000 California Statewide Communities
Development Corp. Rev., Series
1998 B, (DIX Metals), VRDN,
2.70%, 3/3/99 (LOC:
California State Teachers'
Retirement System) 5,560,000
3,465,000 Contra Costa County COP,
(Concord Healthcare Center),
VRDN, 2.35%, 3/3/99 (LOC:
NationsBank, N.A.) 3,465,000
1,600,000 Fowler Industrial Development
Auth. Rev., (Bee Sweet Citrus
Inc.), VRDN, 2.85%, 3/4/99
(LOC: Bank of America N.T. &
S.A.) 1,600,000
1,700,000 Irvine Ranch Water District GO,
Series 1988 A, (Improvement
District No. 284), VRDN, 3.00%,
3/3/99 (LOC: Landesbank
Hessen-Thuringen Girozentrale) 1,700,000
2,500,000 Kern County Superintendent of
Schools COP, Series 1996 A,
VRDN, 2.75%, 3/4/99 (LOC:
Anchor National Life Insurance
Company) 2,500,000
3,000,000 La Verne Industrial Development
Auth. Rev., Series 1998 A,
VRDN, 2.65%, 3/4/99 (LOC:
Fleet Bank, N.A.) (Acquired
12/21/98, Cost $3,000,000)(1) 3,000,000
2,200,000 Lassen Municipal Utility District
Rev., Series 1996 A, VRDN, 3.00%,
3/4/99 (FSA) (SBBPA:
Credit Local de France) 2,200,000
3,340,000 Los Angeles County Industrial
Development Auth. Rev., (Caitac
& Jae Co., Inc.), VRDN, 3.75%,
3/3/99 (LOC: Union Bank of
California, N.A.) 3,340,000
1,450,000 Los Angeles Industrial
Development Auth. Rev.,
(Firstclass Foods-Trojan), VRDN,
2.75%, 3/3/99 (LOC: California
State Teachers' Retirement
System) 1,450,000
2,065,000 Los Angeles Industrial
Development Auth. Rev., (Kairak
Inc.), VRDN, 3.25%, 3/3/99
(LOC: Bank of Hawaii) 2,065,000
See Notes to Financial Statements
16 1-800-345-2021
Cal. Municipal Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,260,000 Los Angeles Industrial
Development Auth. Rev.,
(Keystone Engineering
Company), VRDN, 3.25%,
3/3/99 (LOC: Bank of Hawaii) $ 1,260,000
3,500,000 Los Angeles Multifamily Housing
Rev., Series 1997 D, (Mission
Village Terrace), VRDN, 2.70%,
3/4/99 (LOC: FHLB) 3,500,000
3,600,000 Oxnard Industrial Development
Auth. Rev., (Western Saw
Manufacturers), VRDN, 2.75%,
3/3/99 (LOC: California State
Teachers' Retirement System) 3,600,000
2,500,000 Oxnard Industrial Development
Financing Auth. Rev., (Accurate
Engineering), VRDN, 2.75%,
3/3/99 (LOC: California State
Teachers' Retirement System) 2,500,000
2,400,000 Pinole Redevelopment Agency,
Series 1998 A, (East Bluff
Apartments), VRDN, 2.95%,
3/4/99 (LOC: Comerica
Bank-CA) 2,400,000
2,565,000 Pleasant Hill Redevelopment
Agency Multifamily Housing
Rev., Series 1996 A,
(Chateau III), VRDN, 2.85%,
3/4/99 (LOC: Commerzbank
A.G.) 2,565,000
3,000,000 Rialto Public Financing Auth. Tax
Allocation, Series 1998 A,
(Agua Mansa & Industrial), VRDN,
3.00%, 3/4/99 (LOC:
Union Bank of California, N.A.) 3,000,000
2,205,000 Riverside County Industrial
Development Auth. Rev.,
(Merrick Engineering Inc.),
VRDN, 3.05%, 3/3/99 (LOC:
Wells Fargo Bank, N.A.)
(Acquired 3/14/97, Cost
$2,205,000)(1) 2,205,000
Principal Amount Value
- --------------------------------------------------------------------------------
$9,500,000 Sacramento County Housing
Auth. Rev., Issue 1992 A,
(Shadowood Apartments),
VRDN, 2.80%, 3/3/99 (LOC:
General Electric Capital Corp.) $ 9,500,000
3,400,000 Sacramento County Multifamily
Housing Rev., Series 1996 A,
VRDN, 2.65%, 3/3/99 (LOC:
California State Teachers'
Retirement System) 3,400,000
2,500,000 Sacramento County Special
Facilities Airport Rev., (Cessna
Aircraft Co.), VRDN, 2.75%,
3/4/99 (LOC: Bank of America
N.T. & S.A.) 2,500,000
1,600,000 San Bernardino County Industrial
Development Auth. Rev., (Master
Halco Inc.), VRDN, 2.30%,
3/2/99 (LOC: California State
Teachers' Retirement System) 1,600,000
9,840,000 San Bernardino County Single
Family Mortgage Rev., Series
1998 A, 4.00%, 5/1/99 (GIC:
Transamerica Life Insurance and
Annuity Company) 9,840,000
900,000 San Diego Industrial Development
Rev., Series 1987
A, (Kaiser Aerospace and Electricity), VRDN,
2.75%, 3/4/99 (LOC:
ABN Amro Bank N.V.) 900,000
2,800,000 San Francisco City & County
Airport Rev., (Community
International Airport, SGA 50),
VRDN, 2.85%, 3/3/99 (MBIA)
(SBBPA: Societe Generale)
(Acquired 7/8/97, Cost
$2,800,000)(1) 2,800,000
3,000,000 San Jose Multifamily Housing
Rev., Series 1998 A, (Carlton
Plaza), VRDN, 2.80%, 3/4/99
(LOC: Commerzbank A.G.) 3,000,000
--------------
TOTAL INVESTMENT SECURITIES--100.0% $175,468,540
==============
See Notes to Financial Statements
www.americancentury.com 17
Cal. Municipal Money Market--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FHLB = Federal Home Loan Bank
FSA = Financial Security Assurance Inc.
GIC = Guaranteed Investment Contract
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
February 28, 1999.
(1) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement, and unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of these securities at February 28, 1999, was $35,605,000,
which represented 20.1% of net assets. None of these securities are
considered to be illiquid.
(2) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1999.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the amortized cost of each investment
See Notes to Financial Statements
18 1-800-345-2021
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
ASSETS
Investment securities, at value
(amortized cost and cost
for federal income tax purposes) ......... $ 449,727,000 $ 175,468,540
Cash ....................................... 366,394 1,046,488
Interest receivable ........................ 2,888,382 603,504
------------- -------------
452,981,776 177,118,532
------------- -------------
LIABILITIES
Disbursements in excess of
demand deposit cash ...................... 566,225 --
Payable for capital shares redeemed ........ 120,137 8,238
Accrued management fees (Note 2) ........... 171,374 66,740
Payable for trustees' fees and expenses .... 1,046 407
Dividends payable .......................... 56,707 23,242
------------- -------------
915,489 98,627
------------- -------------
Net Assets ................................. $ 452,066,287 $ 177,019,905
============= =============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................... 452,066,287 177,056,747
============= =============
Net Asset Value Per Share .................. $ 1.00 $ 1.00
============= =============
NET ASSETS CONSIST OF:
Capital paid in ............................ $ 452,066,287 $ 177,056,747
Undistributed net investment income ........ 299,123 122,436
Accumulated net realized loss
on investment transactions ............... (299,123) (159,278)
------------- -------------
$ 452,066,287 $ 177,019,905
============= =============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of fund shares outstanding gives you the price of an individual share, or the
net asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
investment income not yet paid to shareholders or net investment losses; and net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses). This breakdown tells you the
value of net assets that are performance-related, such as investment gains or
losses, and the value of net assets that are not related to performance, such as
shareholder investments and redemptions.
See Notes to Financial Statements
www.americancentury.com 19
Statements of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
INVESTMENT INCOME
Income:
Interest ................................. $7,037,083 $2,797,839
---------- ----------
Expenses (Note 2):
Management fees .......................... 1,122,231 430,088
Trustees' fees and expenses .............. 7,605 3,554
---------- ----------
1,129,836 433,642
---------- ----------
Net investment income .................... $5,907,247 $2,364,197
========== ==========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF OPERATIONS--This statement breaks down how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments
* management fees and other expenses
See Notes to Financial Statements
20 1-800-345-2021
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND YEAR ENDED AUGUST 31, 1998
TAX-FREE MUNICIPAL
MONEY MARKET MONEY MARKET
Increase (Decrease) in Net Assets 1999 1998 1999 1998
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............. $ 5,907,247 $ 13,370,351 $ 2,364,197 $ 5,404,285
Net realized loss on investments .. -- (580) -- (669)
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ....... 5,907,247 13,369,771 2,364,197 5,403,616
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ........ (5,907,244) (13,369,357) (2,364,200) (5,398,614)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ......... 152,776,889 434,812,626 73,054,594 153,582,331
Proceeds from reinvestment
of distributions ................ 5,611,276 12,745,632 2,231,655 5,174,073
Payments for shares redeemed ...... (162,315,441) (409,349,170) (70,857,963) (156,647,128)
------------- ------------- ------------- -------------
Net increase (decrease) in
net assets from capital
share transactions .............. (3,927,276) 38,209,088 4,428,286 2,109,276
------------- ------------- ------------- -------------
Net increase (decrease)
in net assets ................... (3,927,273) 38,209,502 4,428,283 2,114,278
NET ASSETS
Beginning of period ............... 455,993,560 417,784,058 172,591,622 170,477,344
------------- ------------- ------------- -------------
End of period ..................... $ 452,066,287 $ 455,993,560 $ 177,019,905 $ 172,591,622
============= ============= ============= =============
Undistributed net investment
income .......................... $ 299,123 $ 299,086 $ 122,436 $ 122,436
============= ============= ============= =============
TRANSACTIONS IN SHARES OF THE FUNDS
Sold .............................. 152,776,889 434,812,626 73,054,594 153,582,331
Issued in reinvestment
of distributions ................ 5,611,276 12,745,632 2,231,655 5,174,073
Redeemed .......................... (162,315,441) (409,349,170) (70,857,963) (156,647,128)
------------- ------------- ------------- -------------
Net increase (decrease) ........... (3,927,276) 38,209,088 4,428,286 2,109,276
============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
each fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 21
Notes to Financial Statements
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (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. California Tax-Free Money Market Fund
(Tax-Free Money Market) and 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 that 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 are in accordance with generally accepted accounting principles; these
principles may require the use of estimates by fund management.
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 as of the
trade date. 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 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, 1998, accumulated net realized capital loss carryovers for
Tax-Free Money Market of approximately $289,123 (expiring in 1999 through 2006)
and for Municipal Money Market of approximately $159,278 (expiring in 2003
through 2006) 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.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
22 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (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 fee is calculated daily and paid
monthly. It consists of an Investment Category Fee based on the average net
assets of the funds in a specific fund's investment category and a Complex Fee
based on the average net assets of all the funds managed by ACIM. The rates for
the Investment Category Fee range from 0.1570% to 0.2700% and the rates for the
Complex Fee range from 0.2900% to 0.3100%. For the six months ended February 28,
1999, the effective annual management fee for both funds was 0.50%.
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, and the
trust's transfer agent, American Century Services Corporation.
- --------------------------------------------------------------------------------
3. SUBSEQUENT EVENTS
The following name changes became effective March 1, 1999:
==================================================================
NEW NAME FORMER NAME
==================================================================
FUND: California Tax-Free American Century - Benham California
Money Market Fund Tax-Free Money Market Fund
FUND: California Municipal American Century - Benham California
Money Market Fund Municipal Money Market Fund
www.americancentury.com 23
<TABLE>
<CAPTION>
Cal. Tax-Free Money Market--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
1999(1) 1998 1997 1996 1995 1994
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 ...... 0.01 0.03 0.03 0.03 0.03 0.02
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income . (0.01) (0.03) (0.03) (0.03) (0.03) (0.02)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ===========
Total Return(2) ............ 1.29% 3.12% 3.17% 3.12% 3.31% 2.09%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........ 0.50%(3) 0.50% 0.49% 0.49% 0.52% 0.50%
Ratio of Net Investment Income
to Average Net Assets ........ 2.59%(3) 3.07% 3.10% 3.12% 3.28% 2.07%
Net Assets, End of Period
(in thousands) ............... $ 452,066 $ 455,994 $ 417,784 $ 425,846 $ 414,099 $ 371,074
</TABLE>
(1) Six months ended February 28, 1999 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income
* income paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
See Notes to Financial Statements
24 1-800-345-2021
<TABLE>
<CAPTION>
Cal. Municipal Money Market--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
1999(1) 1998 1997 1996 1995 1994
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 ......... 0.01 0.03 0.03 0.03 0.03 0.02
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .... (0.01) (0.03) (0.03) (0.03) (0.03) (0.02)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ..$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== ===========
Total Return(2) ............... 1.35% 3.20% 3.15% 3.23% 3.35% 2.15%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ........... 0.50%(3) 0.50% 0.52% 0.53% 0.53% 0.51%
Ratio of Net Investment Income
to Average Net Assets ........... 2.71%(3) 3.16% 3.10% 3.20% 3.31% 2.13%
Net Assets, End of Period
(in thousands) ..................$ 177,020 $ 172,592 $ 170,477 $ 196,520 $ 191,722 $ 243,701
</TABLE>
(1) Six months ended February 28, 1999 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income
* income paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
See Notes to Financial Statements
www.americancentury.com 25
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each 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 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. The funds invest in high-quality
California municipal money market securities with remaining maturities of 13
months or less.
An investment in these funds is neither insured nor guaranteed by the FDIC
or any other government agency. Yields will fluctuate, and although the funds
seek to preserve the value of your investment at $1 per share, it is possible to
lose money by investing in the funds.
LIPPER RANKINGS
LIPPER 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.
CREDIT RATING GUIDELINES
Credit quality (the issuer's financial strength and the likelihood of
timely payment of interest and principal) is a key factor in fixed-income
investment analysis. Credit ratings issued by independent rating and research
companies such as Standard & Poor's help quantify credit quality--the stronger
the issuer, the higher the credit rating. In turn, credit quality and ratings
greatly influence bond prices and yields--high ratings mean higher prices and
less current income (yield) as compensation for risk.
But credit ratings are subjective. They reflect the opinions of the rating
agencies that issue them and are not absolute standards of quality. Furthermore,
high credit ratings do not guarantee good investment performance. They do not
reflect the price stability of a municipal security when economic or market
conditions change.
[left margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGER
TODD PARDULA
CREDIT RESEARCH MANAGER
STEVEN PERMUT
26 1-800-345-2021
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 24-25.
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 entities that issued 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.
www.americancentury.com 27
Glossary
- --------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
* CAPITAL PRESERVATION--Offers taxable and tax-free money market funds for
relative stability of principal and liquidity, allowing maximum portfolio
diversification.
* INCOME--Offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME--Offers funds that emphasize both growth and income,
diversification, varying capitalization sizes, and different investment styles
and strategies.
* GROWTH--Offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that the fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
* CONSERVATIVE--these funds generally provide lower return potential with either
low or minimal price fluctuation risk.
* MODERATE-- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE-- these funds generally provide high return potential with
corresponding high price fluctuation risk.
28 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call for a prospectus or profile on any American Century fund. These
documents contain important information including charges and expenses, and you
should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
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.
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9904 Funds Distributor, Inc.
SH-BKT-15978 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
FEBRUARY 28, 1999
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
AMERICAN CENTURY
- ---------------------------------
CALIFORNIA LIMITED-TERM TAX-FREE
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
CALIFORNIA LONG-TERM TAX-FREE
[american century logo(reg.sm)]
American
Century
[inside front cover]
AMERICAN CENTURY KEEPS WITH TRADITION
- --------------------------------------------------------------------------------
FOLLOWING BENHAM'S FOOTSTEPS
On March 1, we made it easier for you to do business with us. We simplified our
organizational structure by eliminating the venerable Benham and Twentieth
Century names, and putting all our funds under American Century. The name change
will not affect your funds' investment management--the proven Benham investment
philosophy, experienced portfolio management teams, and legacy of innovation and
high-quality performance remain.
CONSISTENT, SOLID PERFORMANCE--We'll continue to adhere to the investment
practices that have helped our fixed-income funds perform so well over the
years. In 1998, two-thirds of American Century bond funds beat their peer group
average, according to Lipper, Inc.
CONSISTENT INVESTMENT PHILOSOPHY--American Century fixed-income funds will
continue to offer a "pure play" on their sector of the market, as they did under
Benham.
CONTINUITY OF THE MANAGEMENT TEAM--The investment process is not all that
remains the same; we've retained our core team of experienced fixed-income
portfolio managers.
* Experience--The more than 35 fixed-income investment professionals at
American Century have an average of nine years of investment management
experience.
* Bigger and better--Since American Century was formed, we've doubled the
size of the original Benham management team in our Mountain View,
California office.
TRADITION OF INNOVATION--Like Benham before it, American Century is a leader in
fixed-income fund innovation. For example, we introduced a total of four new
fixed-income funds in the last three years, including the first no-load
inflation-adjusted bond fund.
We continue to run our fixed-income operation from our offices in Mountain View,
California, which is also home to our walk-in Investor Center.
We look forward to continuing to meet your fixed-income investment needs in the
Benham tradition.
WHAT'S NEW . . .
We now classify our funds in easy-to-remember categories based on objective
and risk. The four objective categories are: CAPITAL PRESERVATION, INCOME,
GROWTH AND INCOME, and GROWTH. The three risk categories are: CONSERVATIVE,
MODERATE, and AGGRESSIVE. This new classification system makes it easier for
investors to identify which funds are right for them.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
Past performance is no guarantee of future results.
[left margin]
CALIFORNIA LIMITED-TERM TAX-FREE
(BCSTX)
- --------------------------------------
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
(BCITX)
- --------------------------------------
CALIFORNIA LONG-TERM TAX-FREE
(BCLTX)
- --------------------------------------
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
During the six-month period ended February 28, 1999, the financial markets
experienced a dramatic shift in expectations. Six months ago, the economic
outlook appeared grim--financial problems in Asia, Russia, and Latin America led
to expectations of an impending U.S. economic slowdown. That sent the domestic
stock market reeling and pushed U.S. bond yields to record lows.
But expectations began to change in the fourth quarter of 1998. The Federal
Reserve cut interest rates three times in six weeks, bolstering confidence in
the economy. That, in turn, brought greater stability to U.S. financial markets
and eventually produced a stock market rebound.
By early 1999, reports of the strongest quarterly economic surge in two
years caught investors by surprise. Bond yields rose reflexively amid higher
inflation expectations, but productivity gains and competitive pressures kept
inflation at its lowest level in a dozen years.
The resiliency of California's economy was especially surprising. With many
Asian economies--including six of the state's ten biggest export markets--at a
standstill, there were concerns that the economic stagnation would spread to
California. However, the state's economy hardly missed a beat and is now as
healthy as it has been in a decade.
This economic environment has been positive for California municipal bonds.
All seven of American Century's California municipal funds, ranging from money
market funds to long-term and high-yield bond funds, produced above-average
returns during the past six months, as well as over longer time periods
(according to Lipper Inc.). We've been investing in the California municipal
market for more than 15 years, and the consistent performance of our California
funds reflects that experience.
At American Century, we've recently made some changes that we hope will
make it easier for you to identify and select the funds that best meet your
investment needs. We reorganized our family of 71 funds based on investment
goals and risk level (see the front and back inside covers of this report for
more details).
In addition, California municipal fund shareholders were the first to
receive our new simplified prospectus. This document provides the fund
information you need in clear and straightforward language, and it includes
helpful tips and definitions of investment terms.
We want your experience with American Century to be rewarding, and we
appreciate your continued confidence in us.
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
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
CALIFORNIA LIMITED-TERM TAX-FREE
Performance Information ................................................ 4
Management Q&A ......................................................... 5
Portfolio at a Glance .................................................. 5
Schedule of Investments ................................................ 8
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
Performance Information ................................................ 12
Management Q&A ......................................................... 13
Portfolio at a Glance .................................................. 13
Schedule of Investments ................................................ 16
CALIFORNIA LONG-TERM TAX-FREE
Performance Information ................................................ 22
Management Q&A ......................................................... 23
Portfolio at a Glance .................................................. 23
Schedule of Investments ................................................ 26
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 30
Statements of Operations ............................................... 31
Statements of Changes
in Net Assets ....................................................... 32
Notes to Financial
Statements .......................................................... 33
Financial Highlights ................................................... 36
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 39
Comparative Indices ................................................. 39
Lipper Rankings ..................................................... 39
Investment Team
Leaders .......................................................... 39
Credit Rating
Guidelines ....................................................... 39
Glossary ............................................................... 40
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Municipal bonds posted modestly positive returns during the six months ended
February 28, 1999.
* Short- and intermediate-term municipal bonds produced modest price gains as
their yields fell slightly. They outperformed long-term municipals, whose
yields rose a little.
* Bond yields fell and prices rose in the fourth quarter of 1998 as the
Federal Reserve cut short-term interest rates three times, but yields rose
in early 1999 as the U.S. economy surged.
* Municipal bonds outperformed Treasury securities thanks to improving supply
and demand conditions. However, municipal yields are still attractive
relative to Treasury yields.
CALIFORNIA LIMITED-TERM TAX-FREE
* The fund outperformed the average California short-intermediate fund while
offering a significantly higher yield.
* A longer-than-average duration and the addition of several higher-yielding,
out-of-favor bonds helped boost fund performance.
* The credit quality of the portfolio improved as we reduced the fund's
exposure to lower-rated bonds.
* The healthy economic environment in California is favorable for the state's
municipal bonds, so we expect to maintain our longer duration and current
positioning.
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
* The fund outperformed the average California intermediate fund while
offering an attractive yield.
* We lengthened the fund's duration by buying long-term Puerto Rico municipal
bonds, which provide tax-exempt income in all states.
* We added yield to the portfolio by taking advantage of differences among
short-term municipal bonds.
* The portfolio's credit quality remained high, reflecting our belief that
higher-quality bonds will outperform lower-rated bonds going forward.
* We're optimistic about the outlook for longer-term municipal bonds, so we
plan to maintain the fund's longer duration in the coming months.
CALIFORNIA LONG-TERM TAX-FREE
* The fund outperformed the average California municipal debt fund while
offering a higher yield.
* Because of our expectations for lower interest rates, the portfolio had a
longer-than-average duration and focused on discount bonds (bonds with
lower-than-prevailing interest rates).
* We invested mainly in high-quality bonds because we were getting very little
extra yield for lower- quality bonds.
* Market conditions remain favorable for municipal bonds, so we plan to
maintain the fund's current positioning going forward.
[left margin]
CALIFORNIA LIMITED-TERM
TAX-FREE (BCSTX)
TOTAL RETURNS: AS OF 2/28/99
6 Months 2.27%*
1 Year 4.86%
NET ASSETS: $151.0 million
30-DAY SEC YIELD: 3.03%
INCEPTION DATE: 6/1/92
CALIFORNIA INTERMEDIATE-TERM
TAX-FREE (BCITX)
TOTAL RETURNS: AS OF 2/28/99
6 Months 2.51%*
1 Year 5.46%
NET ASSETS: $490.1 million
30-DAY SEC YIELD: 3.46%
INCEPTION DATE: 11/9/83
CALIFORNIA LONG-TERM
TAX-FREE (BCLTX)
TOTAL RETURNS: AS OF 2/28/99
6 Months 2.20%*
1 Year 6.17%
NET ASSETS: $348.1 million
30-DAY SEC YIELD: 4.17%
INCEPTION DATE: 11/9/83
* Not annualized.
See Total Returns on pages 4, 12, and 22. Investment terms are defined in the
Glossary on pages 40-41.
2 1-800-345-2021
Market Perspective from Randall W. Merk
- --------------------------------------------------------------------------------
/photo of Randall W. Merk/
Randall W. Merk, chief investment officer of fixed income
MUNICIPAL BOND PERFORMANCE
Amid several powerful shifts in market sentiment, municipal securities
posted modestly positive returns during the six months ended February 28, 1999.
Their performance was primarily dictated by changing interest rates. Rates fell
in September and October but crept higher during much of the remainder of the
period.
Short- and intermediate-term municipal bonds outperformed long-term
municipals during the period (see the accompanying table). Short- and
intermediate-term yields fell slightly overall, producing modest price gains in
these sectors of the market. In contrast, long-term municipal yields actually
rose a little.
STRONGER-THAN-EXPECTED ECONOMIC CONDITIONS
Despite initial fears to the contrary, the U.S. economy continued to grow
at a healthy pace during the past six months. At the start of the period, bond
investors were optimistic because they felt that the Federal Reserve (the Fed)
would need to lower interest rates to stimulate U.S. economic growth and combat
a slowing global economy. Those expectations, and the three Fed interest rate
cuts that followed, supported a bond market rally that lasted through
mid-October.
By November, however, the factors that had driven the bond rally began to
unwind. The Fed's actions helped restore confidence in the U.S. stock market,
and investors began to gravitate away from bonds. In early 1999, bond investors
worried that the U.S. economy's impressive growth--which climbed to a 6% annual
rate during the final three months of 1998--could ignite inflation and prompt
the Fed to reverse course.
MUNICIPALS GAIN GROUND
In 1998, municipal bonds underperformed Treasury bonds, primarily because
of supply and demand factors. In the municipal market, demand was sporadic,
while supply increased as many issuers took advantage of the low interest rate
environment. In contrast, Treasurys benefited from strong demand amid a global
flight to safety, and supply shrank as the federal budget surplus reduced the
government's borrowing needs. By October, municipal and Treasury yields were as
tight as they had been in a decade (see the chart at right).
In the first two months of this year, however, the tide turned in favor of
municipal bonds, thanks to diminished supply and firmer demand. Meanwhile,
flight-to-quality demand in the Treasury market began to dry up. As the chart
illustrates, Treasury and municipal yields widened out quite a bit at the end of
the period.
Even after outperforming Treasurys in recent months, municipal bonds still
offer attractive yields on a tax-equivalent basis. As of February 28, an
investor in the highest federal tax bracket (39.6%) could earn a tax-adjusted
yield of nearly 7% on a AAA-rated 10-year municipal bond, well above the 5.24%
yield on a 10-year U.S. Treasury bond.
[right margin]
"EVEN AFTER OUTPERFORMING TREASURYS IN RECENT MONTHS, MUNICIPAL BONDS STILL
OFFER ATTRACTIVE YIELDS ON A TAX-EQUIVALENT BASIS."
MUNICIPAL BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999
LEHMAN THREE-YEAR
MUNICIPAL INDEX 2.53%
LEHMAN FIVE-YEAR GENERAL
OBLIGATION INDEX 2.72%
LEHMAN LONG-TERM
MUNICIPAL INDEX 2.24%
Source: Lipper Inc., Frank Russell Co.
[line graph - data below]
10-YEAR TREASURY YIELDS VS.
10-YEAR AAA MUNICIPAL YIELDS
10-Year 10-Year
AAA Municipal Treasury
8/31/98 4.27% 4.96%
9/15/98 4.23% 4.84%
9/30/98 4.14% 4.37%
10/15/98 4.02% 4.32%
10/31/98 4.10% 4.54%
11/15/98 4.22% 4.80%
11/30/98 4.16% 4.71%
12/15/98 4.10% 4.62%
12/31/98 4.14% 4.63%
1/15/99 4.15% 4.68%
1/31/99 4.05% 4.63%
2/15/99 4.08% 5.05%
2/28/99 4.15% 5.24%
Source: Bloomberg Financial Markets
www.americancentury.com 3
California Limited-Term Tax-Free--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF FEBRUARY 28, 1999
CALIFORNIA LIMITED- LEHMAN 3-YEAR CALIF. SHORT-INTERM. MUNICIPAL DEBT FUNDS(2)
TERM TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
<S> <C> <C> <C> <C>
6 MONTHS(1) 2.27% 2.53% 2.16% --
1 YEAR 4.86% 5.24% 4.41% 5 OUT OF 13
=================================================================================================
AVERAGE ANNUAL RETURNS
=================================================================================================
3 YEARS 4.72% 5.08% 4.31% 4 OUT OF 10
5 YEARS 4.59% 5.12% 4.58% 4 OUT OF 6
LIFE OF FUND(3) 4.83% 5.36% 5.04%(4) 2 OUT OF 2(4)
</TABLE>
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) The fund's inception date was 6/1/92.
(4) Since 6/30/92, the date nearest the fund's inception for which data are
available.
See pages 39-40 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND Value on 2/28/99 Lehman 3-Year Municipal
Index $14,163 California Limited-Term Tax-Free $13,747
California
Limited-Term Lehman 3-Year
Tax-Free Municipal Index
DATE VALUE VALUE
6/1/92 $10,000 $10,000
6/30/92 $10,074 $10,122
9/30/92 $10,277 $10,357
12/31/92 $10,413 $10,451
3/31/93 $10,616 $10,662
6/30/93 $10,754 $10,822
9/30/93 $10,913 $10,976
12/31/93 $11,029 $11,100
3/31/94 $10,880 $10,951
6/30/94 $10,941 $11,070
9/30/94 $11,036 $11,175
12/31/94 $10,961 $11,176
3/31/95 $11,289 $11,489
6/30/95 $11,517 $11,732
9/30/95 $11,682 $11,982
12/31/95 $11,872 $12,167
3/31/96 $11,902 $12,235
6/30/96 $11,993 $12,334
9/30/96 $12,161 $12,497
12/31/96 $12,339 $12,708
3/31/97 $12,383 $12,759
6/30/97 $12,626 $12,995
9/30/97 $12,842 $13,217
12/31/97 $12,997 $13,405
3/31/98 $13,127 $13,543
6/30/98 $13,247 $13,696
9/30/98 $13,573 $13,967
12/31/98 $13,636 $14,035
2/28/99 $13,747 $14,163
$10,000 investment made 6/1/92
The graph at left shows the growth of a $10,000 investment over the life of the
fund, while the graph below shows the fund's year-by-year performance. The
Lehman 3-Year Municipal Bond Index is provided for comparison in each graph.
California Limited-Term Tax-Free's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not. 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED FEBRUARY 28)
California
Limited-Term Lehman 3-Year
Tax-Free Municipal Index
DATE RETURN RETURN
2/28/93* 6.73% 6.94%
2/28/94 2.93% 3.67%
2/28/95 2.00% 2.72%
2/29/96 6.82% 7.71%
2/28/97 3.90% 4.56%
2/28/98 5.40% 5.42%
2/28/99 4.86% 5.24%
* From 6/1/92 (the fund's inception date) to 2/28/93.
4 1-800-345-2021
California Limited-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
/photo of Joel Silva/
An interview with Joel Silva, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID CALIFORNIA LIMITED-TERM TAX-FREE PERFORM DURING THE SIX MONTHS ENDED
FEBRUARY 28, 1999?
The fund continued to outperform its peers. For the six-month period,
California Limited-Term Tax-Free returned 2.27%, compared with the 2.16% average
return of the 13 "California Short-Intermediate Municipal Debt Funds" tracked by
Lipper Inc.
The fund's longer-term returns also consistently beat the average
California short-intermediate municipal fund. (See the previous page for other
fund performance comparisons.)
WHAT WAS BEHIND THE FUND'S OUTPERFORMANCE?
One reason is that we were better positioned to benefit from falling
interest rates than our peers were. We extended California Limited-Term
Tax-Free's duration from 3.0 years to 3.3 years during the six-month period.
(Duration measures the portfolio's sensitivity to changes in interest rates. The
longer the fund's duration, the greater the share price fluctuates when interest
rates change.) As short-term municipal bond yields fell, our longer duration
helped the fund generate more gains on its bonds.
Another important factor was our focus on adding yield, which resulted in a
fund yield that was well above average. As of February 28, California
Limited-Term Tax-Free's 30-day SEC yield was 3.03%, compared with the 2.77%
yield of the average California short-intermediate municipal fund (according to
Lipper).
WHY IS YIELD IMPORTANT?
For one thing, we try to provide shareholders with as much tax-free income
as we can, within our investment constraints. But yield is also important
because, in shorter-term funds like this, interest income makes up a significant
portion of the total return. So, we're always looking to maximize our yield
whenever possible.
WHAT DID YOU DO TO BOOST THE FUND'S YIELD?
We purchased some put bonds, which are longer-term municipal securities
that can be "put back"--that is, sold at face value to a specific dealer at a
prearranged date. These bonds gave us an extra 10-40 basis points (0.10% to
0.40%--a basis point equals 0.01%) in yield, even though they were high-quality
bonds. The only drawback is that they are a little less liquid (harder to sell),
but that's not really a problem for us because we have plenty of liquid bonds in
the portfolio.
We also took advantage of types of bonds that were out of favor with the
retail sector of the market.
WHO MAKES UP THE RETAIL SECTOR?
It's basically individual investors, as opposed to mutual funds or other
institutions. Individuals make up a big part of the municipal market, and they
tend to invest in bonds with specific characteristics--shorter-term bonds
[right margin]
"YIELD IS IMPORTANT BECAUSE, IN SHORTER-TERM FUNDS LIKE THIS, INTEREST INCOME
MAKES UP A SIGNIFICANT PORTION OF THE TOTAL RETURN."
YIELDS AS OF FEBRUARY 28, 1999
30-DAY SEC YIELD 3.03%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 4.64%
37.42% TAX BRACKET 4.84%
41.95% TAX BRACKET 5.22%
45.22% TAX BRACKET 5.53%
PORTFOLIO AT A GLANCE
2/28/99 8/31/98
NUMBER OF SECURITIES 90 86
WEIGHTED AVERAGE
MATURITY 4.0 YRS 3.6 YRS
AVERAGE DURATION 3.3 YRS 3.0 YRS
EXPENSE RATIO 0.51%* 0.52%
* Annualized.
Investment terms are defined in the Glossary on page 40.
www.americancentury.com 5
California Limited-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
that are non-callable (meaning they can't be paid off early) and that they can
buy at par (a price equal to the face value).
Retail investors typically buy newly issued bonds, but new issuance in
California has been very limited so far in 1999. Instead, individuals have been
buying existing bonds, and that demand has brought down the yields of
non-callable par bonds.
As a result, we sold some of our par bonds at a profit and replaced them
with bonds that individual investors were avoiding, like callable bonds and
non-par bonds. And the best part about these trades is that we were able to pick
up a little yield while improving the fund's overall credit quality.
DOES THAT EXPLAIN WHY THE FUND OWNS MORE AAA-RATED BONDS THAN IT DID SIX MONTHS
AGO (SEE THE TABLE AT LEFT)?
That's part of it. Most of the bonds we bought for yield were rated AA or
better.
But we also made a conscious choice to trade up in credit quality. By
November, credit spreads--the differences in yield between municipal bonds with
different credit ratings--had narrowed considerably, largely because of
increased credit upgrades and wider use of bond insurance.
We felt that credit spreads had gotten about as narrow as they would get,
so we reduced our exposure to lower-rated bonds. Right now, more than two-thirds
of the portfolio is rated AA or AAA. If credit spreads widen back out to more
normal levels, our higher-rated bonds would likely outperform lower-quality
ones.
HAVE YOU SEEN ANY EVIDENCE OF WIDENING CREDIT SPREADS?
Yes. One prominent municipal bond insurer recently indicated that it will
be more selective about the bonds it insures going forward. This is a change
from the past couple of years, when it seemed like insurers were willing to
insure almost any municipal bond.
As a result, we could see more bonds coming to market with lower-quality
ratings. And a greater supply of lower-rated bonds means wider credit spreads.
But it's too early to tell whether this is an isolated case or the
beginning of a trend among bond insurers. The California economy remains very
healthy, and that's generally positive for credit quality.
WHAT EFFECT DOES THE STRONG STATE ECONOMY HAVE ON CALIFORNIA MUNICIPAL BOND
YIELDS?
In general, a strong economy tends to bring municipal yields down. It's
partly because of improving credit quality--increased economic growth leads to
higher tax revenues, which strengthen the ability of municipalities to pay off
their debt. Credit quality goes up, and yields come down correspondingly.
In California, one side effect of the robust economy has been less new
issuance of municipal bonds. Budget surpluses at most municipalities reduced
their need to borrow, so they've issued less debt. As I mentioned before, the
lack of new supply had a significant impact on the California municipal market
during the past six months and helped bring short-term yields down.
[left margin]
"WE FELT THAT CREDIT SPREADS HAD GOTTEN ABOUT AS NARROW AS THEY WOULD GET, SO WE
REDUCED OUR EXPOSURE TO LOWER-RATED BONDS. RIGHT NOW, MORE THAN TWO-THIRDS OF
THE PORTFOLIO IS RATED AA OR AAA."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
2/28/99 8/31/98
AAA 53% 43%
AA 15% 14%
A 27% 36%
BBB 5% 7%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 39
for more information.
6 1-800-345-2021
California Limited-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
DO YOU EXPECT LOWER MUNICIPAL YIELDS GOING FORWARD?
We think California municipal yields are in a "trading range," meaning that
we expect yields to fluctuate within a fairly narrow range for the foreseeable
future. Right now, yields are near the top of the range, so we may see yields
decline in the coming months.
We also expect to see the economy slow down a bit in 1999. In the last
couple of years, there's been a pattern in the U.S. economy--unsustainably
strong growth in the fourth quarter, and then slower growth as the consumer
takes a breather in the first part of the following year. We anticipate the same
modest slowing pattern in the first half of this year, which would be favorable
for bonds in general.
It's worth noting that short-term municipal yields are still attractive
compared with short-term Treasury yields, so municipal bonds could also get a
boost from increased investor demand.
WHAT ARE YOUR PLANS FOR CALIFORNIA LIMITED-TERM TAX-FREE OVER THE NEXT SIX
MONTHS?
For now, we'll maintain the fund's longer-than-average duration, which will
enhance returns if short-term municipal yields fall. In addition, we intend to
stick with higher-quality bonds until we see wider credit spreads.
We're also positioning the fund to take advantage of a narrowing trend
among short-term municipal yields. During the past six months, the difference
between the yields of one- and five-year municipal bonds widened out from about
45 basis points to 75 basis points (0.45% to 0.75%). That's about as wide as we
think that gap will get, so we're in the process of repositioning the portfolio
to benefit if that gap shrinks.
[right margin]
"SHORT-TERM MUNICIPAL YIELDS ARE STILL ATTRACTIVE COMPARED WITH SHORT-TERM
TREASURY YIELDS, SO MUNICIPAL BONDS COULD ALSO GET A BOOST FROM INCREASED
INVESTOR DEMAND."
TOP FIVE SECTORS (AS OF 2/28/99)
% OF FUND INVESTMENTS
COPS/LEASES 34%
HOSPITAL REVENUE 13%
GO 10%
ELECTRIC REVENUE 9%
SALES TAX REVENUE 7%
TOP FIVE SECTORS (AS OF 8/31/98)
% OF FUND INVESTMENTS
COPS/LEASES 27%
HOSPITAL REVENUE 12%
ELECTRIC REVENUE 11%
HOUSING REVENUE 9%
GO 9%
Security types are defined on pages 40-41.
www.americancentury.com 7
Cal. Limited-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--99.5%
CALIFORNIA--98.1%
$1,235,000 Association of Bay Area
Governments Finance Auth.
COP, (Episcopal Homes
Foundation), 4.50%, 7/1/03 $ 1,264,060
2,450,000 Association of Bay Area
Governments Finance Auth.
Rev. COP, (Episcopal Homes
Foundation), 4.80%, 7/1/06 2,536,485
1,245,000 Association of Bay Area
Governments Finance Auth.
COP, (Rhoda Haas Goldman
Plaza), 5.00%, 5/15/07
(California Mortgage Insurance) 1,309,566
565,000 California Educational Facilities
Auth. Rev., (Los Angeles
College Chiropractic), 4.45%,
11/1/99 569,819
590,000 California Educational Facilities
Auth. Rev., (Los Angeles
College Chiropractic), 4.60%,
11/1/00 598,797
1,145,000 California Educational Facilities
Auth. Rev., (Pepperdine
University), 5.125%, 1/15/02
(AMBAC) 1,195,769
1,080,000 California Educational Facilities
Auth. Rev., Series 1995 A,
(Pooled College & University
Project), 4.95%, 12/1/02 1,129,486
395,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.45%, 4/1/02 414,154
420,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.55%, 4/1/03 446,401
440,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.65%, 4/1/04 473,686
465,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.75%, 4/1/05 506,655
1,140,000 California Educational Facilities
Auth. Rev., Series 1995 A,
(University Project), 4.55%,
12/1/99 1,153,418
1,710,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern
California), 5.60%, 10/1/01 1,807,282
Principal Amount Value
- --------------------------------------------------------------------------------
$1,910,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern
California), 5.60%, 10/1/03 $ 2,072,560
1,445,000 California Health Facilities
Financing Auth. Rev., (Little Co.
Mary Health Service), 4.25%,
10/1/03 (AMBAC) 1,476,125
1,000,000 California Health Facilities
Financing Auth. Rev., (Sisters
Providence), 5.25%, 10/1/01 1,044,700
1,180,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/02 (MBIA) 1,239,590
1,750,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.50%, 11/1/01(1) 1,848,595
1,000,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Casa De Las
Campanas), 5.00%, 8/1/04
(California Mortgage Insurance) 1,053,590
1,245,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Kaiser Permanente),
5.00%, 6/1/06 (FSA) 1,316,700
1,600,000 California Public Works Board
Lease Rev., Series 1995 A,
(Department of Justice
Building), 5.50%, 5/1/00 1,644,576
3,000,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Community Colleges),
5.00%, 4/1/02 3,125,970
1,065,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Science Center),
4.50%, 10/1/04 1,104,139
1,025,000 California Special Districts
Association Finance Corp. COP,
Series 1998 GG, (Special
Districts Financing), 4.25%,
9/1/02 (FSA) 1,053,454
1,000,000 California State GO, 5.00%,
10/1/06 1,067,960
2,325,000 California State GO, 6.10%,
2/1/02 (AMBAC) 2,493,586
1,500,000 California State GO, 6.25%,
9/1/04 1,687,215
1,600,000 California State GO, 6.70%,
10/1/01 1,731,744
1,965,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.00%,
7/1/06 2,065,294
See Notes to Financial Statements
8 1-800-345-2021
Cal. Limited-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 California Statewide Community
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/05 (AMBAC and
California Mortgage Insurance) $ 1,062,300
4,825,000 Central Valley Financing Auth.
Cogeneration Project Rev.,
(Carson Ice General), 4.50%,
7/1/01 (MBIA) 4,951,801
3,000,000 Central Valley Schools Financing
Auth. Tax and Rev. Anticipation
Notes, 3.50%, 1/27/00 3,015,630
3,175,000 City of Whittier Health Rev.,
(Presbyterian Intercommunity
Hospital), 5.50%, 6/1/02
(MBIA) 3,363,532
1,100,000 Clovis Unified School District
COP, (Stadium & Relocatables
Financing), 4.375%, 7/1/04 1,128,424
1,270,000 Contra Costa County Public Lease
Financing Rev., Series 1999 A,
4.00%, 6/1/03 (MBIA) 1,290,104
1,000,000 Encinitas Unified School District
COP, 5.00%, 9/1/01 1,035,350
1,775,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.25%, 11/1/01 (AMBAC) 1,863,253
1,400,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.25%, 11/1/05 (AMBAC) 1,519,126
2,955,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 5.30%,
5/1/01 3,072,018
1,000,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 4.90%,
5/1/03 1,044,650
1,600,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 5.60%,
5/1/04 1,731,440
1,230,000 Los Angeles Community
Redevelopment Agency
Financing Auth. Rev., Series
1998 E, (Pooled Financing-
Monterey), 4.50%, 9/1/02
(FSA) 1,268,487
2,100,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1997 I,
(Central Business District),
5.00%, 11/15/01 2,165,499
1,800,000 Los Angeles Convention and
Exhibition Center COP, 6.60%,
8/15/99 (AMBAC) 1,831,374
5,000,000 Los Angeles COP, (Equipment &
Real Estate Acquisition Program
AC), 4.25%, 10/1/01 5,097,150
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Los Angeles COP, (Equipment &
Real Estate Acquisition Program
AC), 4.50%, 10/1/04 $ 1,033,180
2,500,000 Los Angeles COP, (Equipment and
Real Property Acquisition
Program AE), 4.00%, 12/1/03
(AMBAC) 2,529,650
1,750,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1998 B, 4.00%, 12/1/00 1,762,023
1,265,000 Los Angeles County Capital Asset
Leasing Corp. Rev., 5.625%,
12/1/03 (AMBAC) 1,368,376
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/02
(AMBAC) 1,076,210
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/05
(AMBAC) 1,117,450
2,645,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A, (Proposition
A), 5.50%, 7/1/02
(MBIA) 2,813,592
2,360,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1996 A, 6.00%, 9/1/04
(MBIA) 2,625,382
1,500,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1997 A, (Master
Reference), 4.50%, 3/1/05
(FSA) 1,553,925
5,000,000 Los Angeles County Public Works
Financing Auth. Rev., Series
1997 A, (Regional Park &
Open Space District), 5.00%,
10/1/01 5,206,600
1,950,000 Los Angeles County Public Works
Financing Auth. Rev., Series
1997 A, (Regional Park and
Open Space District), 6.00%,
10/1/02 2,113,020
1,015,000 Los Angeles County Schools
Regionalized Business Services
COP, Series 1997 C, 4.35%,
10/1/04 (FSA) 1,041,075
3,000,000 Los Angeles GO, Series 1994 A,
5.40%, 9/1/03 (MBIA) 3,226,350
3,100,000 Los Angeles Unified School
District GO, Series 1997 A,
5.00%, 7/1/04 (FGIC) 3,291,425
1,000,000 Los Angeles Wastewater System
Rev., 6.70%, 2/1/00 1,031,740
See Notes to Financial Statements
www.americancentury.com 9
Cal. Limited-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,250,000 Los Angeles Wastewater System
Rev., Series 1990 A, 6.80%,
2/1/01 $ 1,311,250
1,000,000 Los Angeles Wastewater System
Rev., Series 1996 A, 6.00%,
2/1/03 (FGIC) 1,087,780
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.375%, 7/1/02 1,083,100
2,000,000 Modesto, Stockton, Redding
Public Power Agency San Juan
Project Rev., Series 1997 G,
5.50%, 7/1/01 (MBIA) 2,098,740
4,000,000 Northern California Power Agency
Public Power Rev., Series
1998 A, (Geothermal Project
No. 3), 4.75%, 7/1/03
(AMBAC) 4,182,600
1,365,000 Ontario Redevelopment Financing
Auth. Rev., (Center City
Cimarron), 5.70%, 8/1/01
(MBIA) 1,440,061
1,500,000 Orange County Transportation
Sales Tax Rev., 5.50%, 2/15/01
(AMBAC) 1,562,265
1,160,000 Oroville Hospital Rev., Series
1997 A, (Oroville Hospital),
4.75%, 12/1/04 (California
Mortgage Insurance) 1,213,743
1,000,000 Riverside County Asset Leasing
Corporation Leasehold Rev.,
Series 1993 A, (Riverside
County Hospital), 5.90%,
6/1/02 1,066,960
1,185,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.30%, 6/1/02
(AMBAC) 1,251,490
2,000,000 Riverside Unified School District
COP, (School Facility Boarding
Refunding Program), 3.85%,
9/1/01 (FSA) (SBBPA: First
Union National Bank) 2,016,560
1,000,000 Sacramento County Multifamily
Housing Rev., Issue 1985 B,
(Parcwood Apartments), 4.80%,
9/1/02 (Guarantee:
Connecticut General Life
Insurance) 1,020,720
1,000,000 Sacramento Redevelopment
Agency Tax Allocation, Series
1998 A, (Merged Downtown
Redevelopment), 4.40%,
11/1/07 (FSA) 1,025,280
1,360,000 Sacramento Schools Insurance
Auth. Rev., Series 1993 C,
(Workers Compensation
Program), 5.75%, 6/1/03(1) 1,422,886
Principal Amount Value
- --------------------------------------------------------------------------------
$2,450,000 San Bernardino County COP,
(Medical Center Financing),
5.25%, 8/1/05 (MBIA) $ 2,647,299
2,000,000 San Bernardino County COP,
Series 1995 A, (Medical Center
Financing), 5.20%, 8/1/04
(MBIA) 2,134,660
1,600,000 San Bernardino County
Transportation Auth. Sales Tax
Rev., Series 1993 A, 5.10%,
3/1/05 (MBIA) 1,695,328
2,000,000 San Diego Unified School District
COP, Series 1997 A, (Capital),
5.00%, 7/1/00 2,048,740
1,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 4, 5.625%,
5/1/05 (MBIA) 1,087,160
2,930,000 San Francisco Port Commission
Rev., 5.25%, 7/1/99 2,953,294
1,000,000 San Jacinto Unified School
District COP, (School Facilities
Bridge Funding), 3.875%,
10/1/02 (FSA) (SBBPA: First
Union National Bank) 1,000,310
1,085,000 Santa Barbara County COP,
4.90%, 3/1/01 1,116,584
800,000 South San Francisco Capital
Improvements Financing Auth.
Rev., Series 1999 A, 4.10%,
9/1/05 (ACA) 797,736
1,000,000 Southern California Public Power
Auth. Electric Rev., 6.75%,
7/1/99 1,012,970
1,000,000 Southern California Public Power
Auth. Power Project Rev., Series
1997 A, (Palo Verde), 5.00%,
7/1/04 (FSA) 1,061,750
1,075,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hopital Association), 4.80%,
12/1/02 1,099,875
1,040,000 Victor Valley Joint Union High
School District GO, 5.60%,
9/1/04 (MBIA) 1,138,550
-------------
148,239,203
-------------
PUERTO RICO--0.7%
1,000,000 Puerto Rico Commonwealth
Highway and Transportation
Auth. Rev., Series 1996 Y,
6.00%, 7/1/03 (MBIA) 1,093,830
-------------
VIRGIN ISLANDS--0.7%
1,000,000 Virgin Islands Water and Power
Auth. Electric System Rev.,
5.00%, 7/1/02 1,034,630
-------------
TOTAL MUNICIPAL SECURITIES 150,367,663
-------------
(Cost $147,046,249)
See Notes to Financial Statements
10 1-800-345-2021
Cal. Limited-Term Tax-Free--Sch. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES--0.5%
$ 800,000 California State Economic
Development Financing Auth.
Rev., Series 1998 C, VRDN,
3.50%, 3/1/99 (LOC: Bank of
America N.T. & S.A.) $ 800,000
-------------
(Cost $800,000)
TOTAL INVESTMENT SECURITIES--100.0% $151,167,663
=============
(Cost $147,846,249)
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access Financial Guaranty Corp.
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
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, 1999.
(1) Escrowed to maturity in U.S. Government or state and local government
securities.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 11
California Int.-Term Tax-Free--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF FEBRUARY 28, 1999
CALIFORNIA INT.-TERM LEHMAN 5-YEAR CALIF. INTERMEDIATE MUNICIPAL DEBT FUNDS(2)
TAX-FREE GO INDEX AVERAGE RETURN FUND'S RANKING
<S> <C> <C> <C> <C>
6 MONTHS(1) 2.51% 2.72% 2.37% --
1 YEAR 5.46% 5.72% 5.16% 15 OUT OF 29
================================================================================================
AVERAGE ANNUAL RETURNS
================================================================================================
3 YEARS 5.75% 5.66% 5.62% 9 OUT OF 21
5 YEARS 5.73% 5.74% 5.56% 6 OUT OF 15
10 YEARS 6.98% 7.04% 6.98% 1 OUT OF 1
</TABLE>
The fund's inception date was 11/9/83.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 39-40 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 2/28/99
Lehman 5-Year GO Index $19,739
California Intermediate-Term Tax-Free $19,643
California
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
DATE VALUE VALUE
2/28/89 $10,000 $10,000
2/28/90 $10,858 $10,921
2/28/91 $11,787 $11,898
2/29/92 $12,690 $12,961
2/28/93 $14,297 $14,405
2/28/94 $14,870 $14,932
2/28/95 $15,073 $15,226
2/29/96 $16,614 $16,735
2/28/97 $17,314 $17,532
2/28/98 $18,630 $18,671
2/28/99 $19,643 $19,739
$10,000 investment made 2/28/89
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
Lehman 5-Year General Obligation Index is provided for comparison in each graph.
California Intermediate-Term Tax-Free's total returns include operating expenses
(such as transaction costs and management fees) that reduce returns, while the
total returns of the index do not. 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED FEBRUARY 28)
California
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
DATE RETURN RETURN
2/28/90 8.58% 8.35%
2/28/91 8.56% 8.96%
2/29/92 7.66% 8.92%
2/28/93 12.66% 11.12%
2/28/94 4.01% 3.67%
2/28/95 1.36% 1.97%
2/29/96 10.23% 9.91%
2/28/97 4.21% 4.76%
2/28/98 7.60% 6.50%
2/28/99 5.46% 5.72%
12 1-800-345-2021
California Intermediate-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
/photo of Colleen Denzler/
An interview with Colleen Denzler, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID CALIFORNIA INTERMEDIATE-TERM TAX-FREE PERFORM DURING THE SIX MONTHS
ENDED FEBRUARY 28, 1999?
The fund continued to outperform its peers. For the six-month period,
California Intermediate-Term Tax-Free returned 2.51%, compared with the 2.37%
average return of the 29 "California Intermediate Municipal Debt Funds" tracked
by Lipper Inc.
The fund's longer-term returns also consistently beat the average
California intermediate municipal fund. (See the previous page for other fund
performance comparisons.)
WHY DID THE FUND OUTPERFORM ITS PEER GROUP AVERAGE?
We had a longer duration than many of our peers, which meant we were better
positioned to benefit from falling interest rates. (Duration measures the
portfolio's sensitivity to changes in interest rates. The longer the fund's
duration, the greater the share price fluctuates when interest rates change.)
Municipal yields were fairly volatile over the past six months, so our
longer duration helped when yields fell and hurt when they rose. Overall,
though, intermediate-term municipal yields declined, so the fund generated more
gains on its bonds.
California Intermediate-Term Tax-Free's duration lengthened from 5.6 years
to 6.0 years during the six-month period. We accomplished this by adding some
bonds with maturities of 15-20 years to the portfolio, including several Puerto
Rico bonds.
DO PUERTO RICO BONDS HAVE TAX-EXEMPT STATUS IN CALIFORNIA?
Yes. Municipal bonds issued by United States territories--including Puerto
Rico, Guam, and the Virgin Islands--have the unique distinction of providing
federal and state tax-free income for investors in all 50 states. That
distinction makes them very desirable investments, especially for investors in
high-tax states like California and New York. Heavy demand from around the
country means that Puerto Rico municipal yields are typically 5-10 basis points
(0.05% to 0.10%--a basis point equals 0.01%) lower than California municipal
yields.
WHY DID YOU BUY THESE PUERTO RICO BONDS?
They just happened to fit our needs at the time. We were looking to extend
the fund's duration by buying some bonds in the 15- to 20-year maturity range,
but the limited supply available in California depressed yields and made those
bonds very expensive.
[right margin]
"THE FUND'S LONGER-TERM RETURNS CONSISTENTLY BEAT THE AVERAGE CALIFORNIA
INTERMEDIATE MUNICIPAL FUND."
YIELDS AS OF FEBRUARY 28, 1999
30-DAY SEC YIELD 3.46%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 5.30%
37.42% TAX BRACKET 5.53%
41.95% TAX BRACKET 5.96%
45.22% TAX BRACKET 6.31%
PORTFOLIO AT A GLANCE
2/28/99 8/31/98
NUMBER OF SECURITIES 145 151
WEIGHTED AVERAGE
MATURITY 9.1 YRS 8.6 YRS
AVERAGE DURATION 6.0 YRS 5.6 YRS
EXPENSE RATIO 0.51%* 0.51%
* Annualized.
Investment terms are defined in the Glossary on page 40.
www.americancentury.com 13
California Intermediate-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
Instead, we found what we were looking for in Puerto Rico. We were able to
get insured, AAA-rated Puerto Rico bonds in the maturity range we wanted while
picking up a few basis points in yield over comparable California securities.
This was a key theme to the changes we made to the portfolio over the past
six months--trying to add yield whenever possible while maintaining a
longer-than-average duration.
WHAT ELSE DID YOU DO TO BOOST CALIFORNIA INTERMEDIATE-TERM TAX-FREE'S YIELD?
We were able to trade up in yield among the fund's short-term securities.
We own a number of shorter-term bonds because they help balance out the duration
of the longer-term bonds we added.
During the past six months, short-term California municipal yields spread
out quite a bit--you could pick up an extra 75-100 basis points in yield by
moving from a one-year to a four-year security, compared with maybe 35 basis
points six months ago.
So we sold some securities maturing in less than a year and replaced them
with three- and four-year bonds. This gave us a nice yield pick-up while having
little effect on the fund's duration or overall positioning.
We also got some extra yield by investing in premium callable bonds.
WHAT ARE THOSE?
Premium bonds trade at a price above face value, mainly because their
interest coupons are higher than prevailing market rates.
Callable bonds allow the municipality that issued them to pay back the
principal early, kind of like a homeowner does when refinancing a mortgage.
Typically, the issuer can only "refinance" the bonds on a specific call date.
The municipality usually issues new bonds at a lower rate and uses the proceeds
to pay off the older bonds.
As you might expect, the higher interest rates of premium bonds means they
are more likely to be called.
HOW DID THESE SECURITIES PROVIDE EXTRA YIELD?
Instead of buying ordinary 10-year municipal bonds, we bought longer-term
premium callable bonds. Although these bonds had maturities of 15-20 years, they
had call dates of around 10 years.
Because of their high interest coupons, the premium callable bonds were
priced in the marketplace as if they would be called in 10 years. As a result,
we got the price volatility of a 10-year bond, but with the higher yield of a
15- to 20-year bond.
The risk of this approach is that interest rates will rise to the point
where these premium bonds begin to trade based on their maturity date rather
than their call date. That would lead to greater price volatility at a time when
bond prices are falling. However, yields would have had to rise substantially to
affect the bonds we held.
[left margin]
"INSURED BONDS STILL MAKE UP TWO-THIRDS OF THE PORTFOLIO, AND MORE THAN 80% OF
THE FUND'S BONDS ARE RATED AA OR AAA. THIS REFLECTS OUR BELIEF THAT CREDIT
SPREADS--THE DIFFERENCES IN YIELD BETWEEN MUNICIPAL BONDS WITH DIFFERENT CREDIT
RATINGS --ARE ABOUT AS NARROW AS THEY'RE GOING TO GET."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
2/28/99 8/31/98
AAA 65% 64%
AA 17% 14%
A 17% 21%
BBB 1% 1%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 39
for more information.
14 1-800-345-2021
California Intermediate-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
DID THE PORTFOLIO'S CREDIT QUALITY CHANGE AT ALL?
No. Insured bonds still make up two-thirds of the portfolio, and more than
80% of the fund's bonds are rated AA or AAA.
This reflects our belief that credit spreads--the differences in yield
between municipal bonds with different credit ratings--are about as narrow as
they're going to get. We expect to see credit spreads widen back out at some
point going forward. If that happens, our higher-rated bonds will more than
likely outperform lower-quality ones.
But it may be a while before that happens. The California economy is in
excellent shape, and that's usually good news for municipal credit quality.
DOES THAT ALSO MEAN GOOD NEWS FOR THE CALIFORNIA MUNICIPAL BOND MARKET GOING
FORWARD?
The resiliency of the California economy is definitely positive for the
state's municipal bonds. Six months ago, there were fears that the recession in
many Asian economies would have a negative impact on California because the
state does a lot of business with that region.
But the Asian slowdown had virtually no effect on the California economy.
Continued healthy economic growth leads to higher tax revenues, which strengthen
the ability of municipalities to pay off their debt. Credit quality goes up, and
so do bond prices as yields come down correspondingly.
In addition to the favorable economic conditions, longer-term municipal
bonds are still fairly attractive, especially relative to Treasury bonds. For
much of 1998, municipal bond yields were very high compared with Treasury
yields. In recent months, short- and intermediate-term municipal yields have
fallen, but longer-term yields remained relatively high.
We think this represents the best value in the municipal market right now,
and that's one reason why we've added longer-term municipal bonds to California
Intermediate-Term Tax-Free's portfolio over the past six months.
DO YOU PLAN TO MAINTAIN THIS POSITION GOING FORWARD?
For the time being. If longer-term municipal yields fall in the coming
months, we may look to trim our duration back toward a neutral position. Other
than that, though, we're pretty comfortable with our current position.
We'll continue to look for opportunities to boost the level of tax-free
income in the portfolio, and we also intend to stick with higher-quality bonds
until we see wider credit spreads.
[right margin]
"LONGER-TERM MUNICIPAL BONDS ARE STILL FAIRLY ATTRACTIVE, ESPECIALLY RELATIVE TO
TREASURY BONDS. WE THINK THIS REPRESENTS THE BEST VALUE IN THE MUNICIPAL MARKET
RIGHT NOW."
TOP FIVE SECTORS (AS OF 2/28/99)
% OF FUND INVESTMENTS
COPS/LEASES 26%
GO 20%
SALES TAX REVENUE 12%
WATER AND SEWER REVENUE 11%
ELECTRIC REVENUE 8%
TOP FIVE SECTORS (AS OF 8/31/98)
% OF FUND INVESTMENTS
COPS/LEASES 27%
SALES TAX REVENUE 13%
GO 13%
WATER AND SEWER REVENUE 11%
PREREFUNDED/ETM 11%
Security types are defined on pages 40-41.
www.americancentury.com 15
Cal. Int.-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--99.0%
CALIFORNIA--90.0%
$ 8,845,000 Alameda County COP, (Santa Rita
Jail), 5.375%, 6/1/09 (MBIA) $ 9,607,616
2,450,000 Association of Bay Area
Governments Financing Auth.
COP, (Episcopal Homes
Foundation), 4.80%, 7/1/06 2,536,485
4,060,000 Burbank Redevelopment Agency
Tax Allocation, (West Olive),
6.50%, 12/1/01 (AMBAC) 4,398,563
1,335,000 California Community College
Financing Auth. Lease Rev.,
Series 1999 A, 4.20%,
10/1/10 (MBIA) 1,316,030
1,210,000 California Community College
Financing Auth. Lease Rev.,
Series 1999 A, 4.30%,
10/1/11 (MBIA) 1,190,652
1,175,000 California Educational Facility
Auth. Rev., (Santa Clara
University), 5.25%, 9/1/10
(MBIA) 1,249,131
2,145,000 California Educational Facility Auth.
Rev., (University of San Diego),
6.75%, 10/1/00,
Prerefunded at 102% of Par
(MBIA)(1) 2,308,964
1,045,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/03 (MBIA) 1,108,609
1,500,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
6.70%, 10/1/99 1,532,865
1,745,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.625%, 11/1/02(1) 1,871,600
1,560,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.75%, 11/1/03,
Prerefunded at 102% of Par(1) 1,729,244
3,145,000 California Health Facilities
Financing Auth. Rev., Series
1995 A, (Insured Health
Facility), 6.00%, 7/1/04
(AMBAC) 3,467,992
1,000,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Casa De Las
Campanas), 5.50%, 8/1/12
(California Mortgage Insurance) 1,059,950
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,250,000 California Public Works Board
Energy Efficiency Rev., Series
1991 A, (Pooled Project),
6.00%, 9/1/99 $ 3,301,480
1,320,000 California Public Works Board
Energy Efficiency Rev., Series
1998 A, 5.00%, 10/1/11
(AMBAC) 1,388,508
2,000,000 California Public Works Board
Lease Rev. COP, Series
1990 A, (University of
California), 6.90%, 9/1/00(2) 1,901,280
4,520,000 California Public Works Board
Lease Rev. COP, Series
1992 A, (Archives Building
Project), 6.20%, 12/1/05
(AMBAC) 5,148,370
1,000,000 California Public Works Board
Lease Rev. COP, Series
1992 A, (Various University of
California Projects), 5.90%,
12/1/03 (AMBAC) 1,097,450
3,700,000 California Public Works Board
Lease Rev. COP, Series
1993 D, (California State
Prisons), 5.25%, 6/1/08 3,917,190
3,000,000 California Public Works Board
Lease Rev. COP, Series
1994 A, (Various University of
California Projects), 6.15%,
11/1/04, Prerefunded at 102%
of Par(1) 3,427,800
1,010,000 California Public Works Board
Lease Rev. COP, Series
1997 A, (California Science
Center), 4.60%, 10/1/05 1,052,238
1,000,000 California Public Works Board
Lease Rev. COP, Series
1997 D, (Department of
Corrections), 5.75%, 9/1/06
(MBIA) 1,115,690
1,470,000 California Public Works Board
Lease Rev. COP, Series
1996 C, (Department of
Corrections), 5.125%, 9/1/11
(MBIA) 1,555,157
4,795,000 California State Department Water
Resource Rev., (Central Valley
Project), Series 1992 J-2,
(Water System), 5.80%,
12/1/04 5,317,032
7,000,000 California State GO, 4.50%,
12/1/21 (FGIC) 6,531,490
5,925,000 California State GO, 4.75%,
9/1/11 6,137,352
5,250,000 California State GO, 5.00%,
10/1/06 5,606,790
6,460,000 California State GO, 5.00%,
10/1/07 6,899,151
See Notes to Financial Statements
16 1-800-345-2021
Cal. Int.-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,700,000 California State GO, 5.00%,
10/1/11 $ 4,930,535
5,860,000 California State GO, 5.75%,
10/1/08 6,608,146
4,270,000 California State GO, 6.30%,
9/1/08 (MBIA) 4,998,377
2,500,000 California State GO, 6.50%,
10/1/05 2,883,425
10,000,000 California State GO, 6.50%,
3/1/02 (AMBAC) 10,855,500
1,855,000 California State GO, 7.00%,
11/1/06 (FGIC) 2,219,062
3,000,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) 3,254,130
8,000,000 California Statewide Communities
Development Auth. COP,
(California Lutheran Homes),
5.375%, 11/15/06 8,682,400
2,500,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.25%,
7/1/11 2,629,750
2,385,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System), 6.50%,
7/1/03(1) 2,664,450
2,545,000 Capistrano Unified Public
Financing Auth. Special Tax
Rev., Series 1996 A, (First
Lien), 6.00%, 9/1/06
(AMBAC) 2,876,919
2,075,000 Chabot Las Positas Community
College District COP, 5.50%,
12/1/10 (FSA) 2,310,990
1,065,000 Contra Costa County Water
District Rev., Series 1990 A,
7.00%, 10/1/00, Prerefunded
at 102% of Par(1) 1,148,432
7,935,000 Contra Costa Transportation Auth.
Sales Tax Rev., Series 1993 A,
6.00%, 3/1/05 (FGIC) 8,858,872
1,220,000 Coronado Community
Development Agency Tax
Allocation, 6.00%, 9/1/08
(FSA) 1,374,306
2,570,000 East Bay Municipal Utility District
Water System Rev., 6.00%,
6/1/05 2,803,330
3,590,000 East Bay Municipal Utility District
Water System Rev., 4.50%,
6/1/12 3,594,488
3,000,000 Fremont Unified School District
Alameda County GO, 5.25%,
9/1/16 (MBIA) 3,126,780
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,230,000 Fresno Special Tax, (Community
Facilities District No. 3), 4.75%,
9/1/05 (LOC: Rabobank
International) $ 4,315,446
1,285,000 Garden Grove Agency Community
Development Tax Allocation,
(Garden Grove Community),
5.30%, 10/1/02 1,346,988
7,350,000 Imperial Irrigation District COP,
(Electrical System), 6.50%,
11/1/07 (MBIA) 8,659,329
1,225,000 Imperial Irrigation District COP,
(Electrical System), 5.20%,
11/1/09 (AMBAC) 1,331,134
2,715,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.50%, 11/1/10 (AMBAC) 2,999,885
1,750,000 Loma Linda Hospital Rev.,
(University Medical Center),
6.95%, 12/1/05 (AMBAC) 1,836,118
2,300,000 Los Angeles Airport Rev., Series
1995 A, 6.00%, 5/15/05
(FGIC) 2,571,699
4,000,000 Los Angeles Capital Asset Lease
Rev. COP, 5.875%, 12/1/05
(AMBAC) 4,454,120
1,155,000 Los Angeles Convention and
Exhibition Center Auth. Lease
Rev. COP, Series 1993 A,
6.00%, 8/15/10 (MBIA) 1,335,261
4,315,000 Los Angeles COP, (Equipment &
Real Estate Acquisition
Program), 4.60%, 10/1/05 4,480,178
2,625,000 Los Angeles County Metropolitan
Transportation Auth. Rev., Series
1996 A, (Union Station), 5.10%,
7/1/10 (FSA) 2,779,403
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/06
(AMBAC) 1,124,670
6,175,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A,
(Proposition A), 5.25%, 7/1/12
(MBIA) 6,551,428
1,000,000 Los Angeles County Public
Properties COP, 6.25%,
4/1/00 (BIGI) 1,034,620
3,500,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1997 B, (Multiple Capital
Facilities), 5.125%, 12/1/17
(AMBAC) 3,570,000
2,625,000 Los Angeles County Sanitation
Districts Financing Auth. Rev.,
Series 1993 A, (Capital),
5.20%, 10/1/05 2,823,319
See Notes to Financial Statements
www.americancentury.com 17
Cal. Int.-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,900,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.00%,
7/1/01 $ 3,063,531
4,665,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.20%,
7/1/03 5,101,504
2,000,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.25%,
7/1/04 2,193,780
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) 2,724,900
3,515,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
(Proposition C), 6.20%, 7/1/04 3,908,223
3,765,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
(Proposition C), 6.40%, 7/1/06 4,315,744
4,780,000 Los Angeles County Wastewater
System Rev., Series 1992 B,
6.20%, 6/1/02, Prerefunded at
102% of Par (AMBAC)(1) 5,271,575
1,000,000 Los Angeles Department of Water
and Power Waterworks Rev.,
6.30%, 4/15/06 (FGIC) 1,085,540
8,490,000 Los Angeles Department of Water
and Power Waterworks Rev.,
5.00%, 10/15/14 (FGIC) 8,697,241
1,000,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/10 (FGIC) 1,151,810
2,900,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/11 (FGIC) 3,345,701
1,000,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/15 (FGIC) 1,145,240
4,150,000 Los Gatos-Saratoga Joint Unified
School District, Series 1998 A,
4.375%, 10/1/18 3,825,719
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.625%, 7/1/01,
Prerefunded at 102% of Par(1) 1,094,290
5,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1996 C, 5.00%,
7/1/10 5,288,600
1,100,000 Mojave Water Agency
Improvement District GO,
(Morongo Basin), 5.40%,
9/1/08 (FGIC) 1,206,007
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Morgan Hill Redevelopment
Agency Tax Allocation, (Ojo De
Agua Community Development),
5.50%, 3/1/99 $ 1,000,350
1,130,000 Ontario Redevelopment Financing
Auth. Local Agency Rev., Series
1995 A, 5.80%, 9/2/06 (FSA) 1,234,389
3,000,000 Orange County Water District
COP, Series 1997 A, 5.00%,
8/15/14 (MBIA) 3,072,450
1,330,000 Oxnard Harbor District Rev.,
7.00%, 8/1/04 (FSA) 1,534,554
1,000,000 Ramona Municipal Water District
COP, 6.90%, 10/1/01
(AMBAC) 1,073,540
1,060,000 Redding Joint Powers Financing
Auth. Electric System Rev.,
Series 1996 A, 6.25%, 6/1/07
(MBIA) 1,222,721
1,010,000 Richmond Joint Powers Financing
Auth. Rev. COP, Series 1995 A,
5.30%, 5/15/06 1,079,478
2,080,000 Riverside County Public Financing
Auth. Special Tax Rev., Series
1995 A, 5.25%, 9/1/04 (MBIA) 2,241,075
1,225,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.60%, 6/1/05
(AMBAC) 1,347,169
2,900,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.70%, 6/1/06
(AMBAC) 3,222,393
1,025,000 Rocklin Unified School District
Community Facility Special Tax
Rev., (No. 1), 5.20%, 9/1/09
(MBIA) 1,105,955
2,600,000 Sacramento County Multifamily
Housing Rev., Issue 1985 B,
(Parcwood Apartments), 4.80%,
9/1/02 (Guaranteed:
Connecticut General Life
Insurance) 2,653,872
1,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 A, 6.25%, 8/15/10
(MBIA) 1,178,560
5,710,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 C, 5.75%, 11/15/07
(MBIA) 6,220,931
3,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1994 H, 5.75%, 1/1/11
(MBIA) 3,831,520
4,230,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 L, 5.00%, 7/1/10
(AMBAC) 4,484,054
See Notes to Financial Statements
18 1-800-345-2021
Cal. Int.-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,205,000 Saddleback Valley Unified School
District Public Financing Special
Tax Rev., 6.00%, 9/1/11 (FSA) $ 1,395,944
5,000,000 San Bernardino County COP,
Series 1995 A, (Medical
Center), 5.75%, 8/1/07 (MBIA) 5,611,300
2,000,000 San Diego County COP, (Central
Jail), 5.00%, 10/1/10
(AMBAC) 2,096,360
7,200,000 San Diego County Water Auth.
Rev. COP, Series 1991 A,
6.125%, 5/1/03 7,734,456
2,000,000 San Diego County Water Auth.
Rev. COP, Series 1998 A,
4.50%, 5/1/24 (FGIC) 1,856,200
3,505,000 San Diego Regional
Transportation Commission
Sales Tax Rev., Series 1992 A,
5.50%, 4/1/04 (FGIC) 3,798,053
5,175,000 San Diego Regional
Transportation Commission
Sales Tax Rev., Series 1992 A,
5.50%, 4/1/05 (FGIC) 5,651,048
4,000,000 San Diego Regional
Transportation Commission
Sales Tax Rev., Series 1994 A,
6.00%, 4/1/04 (FGIC) 4,424,640
1,000,000 San Francisco Bay Area Rapid
Transit District Sales Tax Rev.,
5.35%, 7/1/07 (FGIC) 1,074,880
2,200,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/17 (MBIA) 2,098,580
3,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/19 (MBIA) 2,823,270
7,000,000 San Francisco City and County GO,
Series 1, 4.50%, 6/15/05
(FGIC) 7,273,980
1,605,000 San Francisco City and County
Public Utilities Commission
Water Rev., Series 1996 A,
5.00%, 11/1/11 1,683,372
3,405,000 San Francisco Port Commission
Rev., 5.625%, 7/1/02 3,614,373
1,000,000 San Jacinto Unified School
District COP, 3.875%, 10/1/02
(FSA) (SBBPA: First Union
National Bank) 998,010
3,950,000 San Jose Financing Auth. Rev.
COP, (Convention Center),
6.00%, 9/1/05 4,248,107
4,580,000 San Jose Financing Auth. Rev.
COP, Series 1993 A,
(Convention Center), 6.10%,
9/1/06 4,936,553
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,875,000 San Jose Redevelopment Agency
Tax Allocation, Series 1992 A,
(Merged Area Redevelopment),
6.00%, 8/1/02 (MBIA)(1) $ 4,158,108
1,620,000 San Mateo County Joint Powers
Auth. Lease Rev., Series
1997 A, 4.875%, 7/15/11
(FSA) 1,683,115
4,585,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.00%, 6/1/11 (MBIA) 4,867,895
1,750,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/15 (MBIA) 1,857,433
1,015,000 Santa Ana Police Administration
COP, Series 1994 A, 5.50%,
7/1/07 (MBIA) 1,101,194
3,610,000 Santa Clara County Financing
Auth. Lease Rev., Series
1994 A, (VMC Facility
Replacement), 6.75%,
11/15/04, Prerefunded at
102% of Par (AMBAC)(1) 4,246,551
1,510,000 Santa Clara County Financing
Auth. Lease Rev., Series
1997 A, 6.00%, 11/15/12
(AMBAC) 1,752,506
4,000,000 Santa Clara County Financing
Auth. Lease Rev., Series
1998 A, (Multiple Facilities),
4.125%, 5/15/07 (AMBAC) 4,030,360
3,440,000 Santa Clara County Financing
Auth. Lease Rev., Series
1998 A, (Multiple Facilities),
4.30%, 5/15/09 (AMBAC) 3,474,710
5,255,000 Santa Clara County Financing
Auth. Lease Rev., Series
1998 A, (Multiple Facilities),
4.50%, 5/15/11 (AMBAC) 5,303,136
1,785,000 South Sutter Water District
Hydroelectric Rev., 6.80%,
8/1/01 (FGIC) 1,849,563
3,090,000 Southern California Public Power
Auth. Rev., (Transmission),
5.625%, 7/1/03 (MBIA) 3,338,930
2,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/00 2,090,760
3,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/01 3,183,270
4,065,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.20%, 7/1/02
(MBIA) 4,354,387
5,000,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.40%, 7/1/04
(MBIA) 5,379,800
See Notes to Financial Statements
www.americancentury.com 19
Cal. Int.-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,500,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.50%, 7/1/07
(MBIA) $ 1,616,595
2,000,000 Stanislaus County COP, 5.50%,
5/1/06 (MBIA) 2,191,400
1,150,000 Taft Public Financing Auth. Lease
Rev. COP, Series 1997 A,
(Community Correctional
Facility), 5.50%, 1/1/06 1,235,261
1,510,000 Tulare County COP, 5.00%,
8/15/10 (MBIA) 1,597,172
1,950,000 University of California Rev.,
(University of California Medical
Center), 5.60%, 7/1/09
(AMBAC) 2,128,191
2,510,000 Watsonville Hospital Insured Rev.,
Series 1996 A, (Watsonville
Community Hospital), 5.45%,
7/1/03 (California Mortgage
Insurance)(1) 2,688,411
3,980,000 Whittier Health Facility Rev.,
(Presbyterian Intercommunity),
6.00%, 6/1/06 (MBIA) 4,470,535
1,465,000 Woodland Wastewater System
COP, 6.00%, 3/1/06 (AMBAC) 1,647,891
-------------
436,296,885
-------------
PUERTO RICO--9.0%
14,150,000 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 13,019,132
3,655,000 Puerto Rico Commonwealth GO,
6.00%, 7/1/16 (MBIA) 4,202,300
3,000,000 Puerto Rico Commonwealth
Highway and Transportation
Auth. Rev., Series 1993 X,
5.10%, 7/1/03 (MBIA) 3,176,370
3,500,000 Puerto Rico Commonwealth
Infrastructure Financing Auth.
Special Tax Rev., Series
1998 A, 5.50%, 7/1/08
(AMBAC) 3,884,265
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,000,000 Puerto Rico Electric Power Auth.
Rev., Series 1995 W, 6.00%,
7/1/03 (MBIA) $ 5,462,850
5,790,000 Puerto Rico Electric Power Auth.
Rev., Series 1998 DD, 4.50%,
7/1/19 (FSA) 5,518,623
3,090,000 Puerto Rico Public Buildings Auth.
Rev., Series 1995 A, 6.25%,
7/1/09 (AMBAC) 3,629,760
4,500,000 Puerto Rico Public Finance Corp.,
Series 1998 A, 5.375%,
6/1/11 (AMBAC) 4,927,770
-------------
43,821,070
-------------
TOTAL MUNICIPAL SECURITIES 480,117,955
-------------
(Cost $458,492,713)
SHORT--TERM MUNICIPAL SECURITIES--1.0%
1,600,000 California State Economic
Development Financing Auth.
Rev., Series 1998 C, VRDN,
3.50%, 3/1/99 (LOC: Bank of
America N.T. & S.A.) 1,600,000
3,100,000 California Statewide Community
Development Auth. Rev.,
Floating Rate Trust Receipts,
2.95%, 3/3/99 (FSA) (SBBPA:
Bank of New York) (Acquired
2/16/99, Cost $3,100,000)(3)(4) 3,100,000
-------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 4,700,000
-------------
(Cost $4,700,000)
TOTAL INVESTMENT SECURITIES--100.0% $484,817,955
=============
(Cost $463,192,713)
See Notes to Financial Statements
20 1-800-345-2021
Cal. Int.-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
BIGI = Bond Investor's Guaranty Inc.
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
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, 1999.
(1) Escrowed to maturity in U.S. Government securities or state and local
government securities.
(2) Security is a zero-coupon municipal bond. The yield to maturity at purchase
is indicated. Zero-coupon securities are purchased at a substantial
discount from their value at maturity.
(3) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement, and unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
value of the security at February 28, 1999 was $3,100,000, which
represented 0.6% of net assets.
(4) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1999.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 21
California Long-Term Tax-Free--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF FEBRUARY 28, 1999
CALIFORNIA LONG-TERM LEHMAN LONG-TERM CALIFORNIA MUNICIPAL DEBT FUNDS(2)
TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
<S> <C> <C> <C> <C>
6 MONTHS(1) 2.20% 2.24% 2.09% --
1 YEAR 6.17% 6.40% 5.43% 10 OUT OF 107
==========================================================================================
AVERAGE ANNUAL RETURNS
==========================================================================================
3 YEARS 6.93% 7.99% 6.49% 28 OUT OF 91
5 YEARS 6.58% 7.43% 6.04% 13 OUT OF 65
10 YEARS 8.04% 9.11% 7.58% 7 OUT OF 33
</TABLE>
The fund's inception date was 11/9/83.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 39-40 for more information about returns, the comparative index, and
Lipper fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 2/28/99
Lehman Long-Term Municipal Index $23,922
California Long-Term Tax-Free $21,621
California
Long-Term Lehman Long-Term
Tax-Free Municipal Index
DATE VALUE VALUE
2/28/89 $10,000 $10,000
2/28/90 $10,841 $11,108
2/28/91 $11,764 $12,141
2/29/92 $12,923 $13,521
2/28/93 $14,791 $15,730
2/28/94 $15,754 $16,716
2/28/95 $15,781 $16,876
2/29/96 $17,715 $18,996
2/28/97 $18,603 $20,170
2/28/98 $20,402 $22,483
2/28/99 $21,621 $23,922
$10,000 investment made 2/28/89
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
Lehman Long-Term Municipal Bond Index is provided for comparison in each graph.
California Long-Term Tax-Free's total returns include operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
returns of the index do not. 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED FEBRUARY 28)
California
Long-Term Lehman Long-Term
Tax-Free Municipal Index
DATE RETURN RETURN
2/28/90 8.41% 11.08%
2/28/91 8.51% 9.30%
2/29/92 9.86% 11.37%
2/28/93 14.45% 16.33%
2/28/94 6.51% 6.27%
2/28/95 0.17% 0.96%
2/29/96 12.26% 12.56%
2/28/97 5.01% 6.18%
2/28/98 9.67% 11.47%
2/28/99 6.17% 6.40%
22 1-800-345-2021
California Long-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
/photo of Dave MacEwen/
An interview with Dave MacEwen, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED FEBRUARY 28, 1999?
California Long-Term Tax-Free posted a total return of 2.20%, which was
better than the 2.09% average total return of its peer group--108 "California
Municipal Debt Funds" tracked by Lipper Inc. (See the previous page for other
fund performance comparisons.)
The fund also produced more tax-free income than its peers did. The
fund's 30-day SEC yield as of February 28 was 4.17%, compared with the 3.75%
yield of the average California municipal fund, according to Lipper.
WHAT WAS YOUR INVESTMENT APPROACH DURING THE PERIOD?
Given our view that interest rates would decline due to global economic
weakness, we kept California Long-Term Tax-Free's duration a bit longer than the
average duration of its benchmark (a group of funds with similar investment
objectives). Duration measures how sensitive a fund's share price is to changes
in interest rates. (The longer a fund's duration, the more the share price will
rise or fall when rates change.)
Having a slightly longer-than-average duration was a plus for the fund's
performance during periods when interest rates declined--such as last autumn and
in January--but detracted from performance when rates were on the upswing, like
they were in February. Although we make small adjustments to duration based on
our interest rate expectations, we generally keep the fund's duration within a
year of the duration of California Long-Term Tax-Free's benchmark.
Our expectations of lower interest rates also led us to emphasize discount
bonds--bonds that trade below their face value.
WHY DO FALLING INTEREST RATES FAVOR DISCOUNT BONDS?
Discount bonds typically perform best when rates are falling because
municipal bond issuers often "call" outstanding bonds. Calling essentially means
that municipalities refinance their debt at lower rates, similar to what occurs
when homeowners refinance home mortgages. Because the coupons--the interest
rates issuers promise to pay --on discount bonds are below prevailing rates,
there is less incentive for issuers to refinance them. As a result, the
durations of discount bonds remain long, so they generate more price gains when
rates fall.
Conversely, rising interest rates tend to hurt discount bonds. Investors
become less worried that bonds will be called and are less willing to pay more
for the call protection that discount bonds provide. The focus on discount bonds
served us well during periods when rates were falling but detracted from fund
performance when rates rose. Because of unexpectedly strong economic growth,
there was more of the latter than we expected.
[right margin]
"WE KEPT CALIFORNIA LONG-TERM TAX-FREE'S DURATION A BIT LONGER THAN THE AVERAGE
DURATION OF ITS BENCHMARK."
YIELDS AS OF FEBRUARY 28, 1999
30-DAY SEC YIELD 4.17%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 6.39%
37.42% TAX BRACKET 6.66%
41.95% TAX BRACKET 7.18%
45.22% TAX BRACKET 7.61%
PORTFOLIO AT A GLANCE
2/28/99 8/31/98
NUMBER OF SECURITIES 84 83
WEIGHTED AVERAGE
MATURITY 20.0 YRS 19.5 YRS
AVERAGE DURATION 8.7 YRS 8.7 YRS
EXPENSE RATIO 0.51%* 0.51%
* Annualized.
Investment terms are defined in the Glossary on page 40.
www.americancentury.com 23
California Long-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
THE DIFFERENCE IN YIELD--OR THE "SPREAD" --BETWEEN SECURITIES WITH HIGHER AND
LOWER CREDIT QUALITY REMAINED HISTORICALLY NARROW DURING THE PAST SIX MONTHS.
HOW DID THAT AFFECT YOUR INVESTMENT APPROACH?
Narrow yield spreads between bonds with higher and lower credit quality
justified our focus on relatively high-quality securities. By the end of the
period, 60% of the fund's assets were invested in the highest-quality AAA
bonds--many of them insured--with the remainder invested in bonds with ratings
of BBB or higher. History tells us that under normal conditions, investors tend
to be rewarded with anywhere from 30 to 80 basis points (0.30-0.80%--a basis
point equals 0.01%) more yield for owning a BBB California municipal security
instead of a AAA security. That extra yield is compensation for the added risk
that the issuer will be unable to make timely interest and principal payments.
Throughout much of the period, however, BBB securities offered only about
35 basis points more yield than AAA insured bonds. Even in the highest-quality
tiers of the California municipal market, spreads were very tight. At one point,
for example, the yield difference between an insured bond and an uninsured bond
from the same issuer was just 1 basis point.
The narrow spreads were a direct result of diminished supply of lower-rated
bonds and strong demand for securities with higher yields. As municipal bond
insurance became more prevalent, there were fewer lower-quality bonds available.
Also curtailing supply were credit upgrades resulting from the strong fiscal and
economic condition of many California issuers. In light of the state's ongoing
economic strength, investors didn't demand much more yield from lower-quality
bonds because they felt the additional risks of owning them were minimal.
From a demand standpoint, investors increasingly sought lower-quality
securities for additional yield in a falling rate environment. Reduced supply
and firm demand caused lower-quality municipal bonds to outperform
higher-quality securities throughout the period. In our minds, however, the
small incremental yield lower-quality securities offered wasn't adequate to
override their added credit risk.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
In our view, interest rates could resume their decline this year, although
we wouldn't be surprised to see them temporarily drift higher as investors
digest news about strong growth and low unemployment. While the U.S. economy
grew much faster than expected in the fourth quarter of last year and
unemployment hit 29-year lows, inflation remained in check.
Continued low inflation owed much to slowing economies in the rest of the
world. Many Asian countries are struggling through recessions, with some
teetering toward depression. Parts of Latin America have also come under
pressure as they deal with high inflation, unstable currencies, and slowing
economies. In addition, Europe shows signs of slowing down in reaction to
problems encountered with the introduction of the continent's unified currency,
the euro.
[left margin]
"NARROW YIELD SPREADS BETWEEN BONDS WITH HIGHER AND LOWER CREDIT QUALITY
JUSTIFIED OUR FOCUS ON RELATIVELY HIGH-QUALITY SECURITIES. BY THE END OF THE
PERIOD, 60% OF THE FUND'S ASSETS WERE INVESTED IN THE HIGHEST-QUALITY AAA
BONDS."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
2/28/99 8/31/98
AAA 60% 53%
AA 9% 11%
A 26% 30%
BBB 5% 6%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 39
for more information.
24 1-800-345-2021
California Long-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
With such anemic growth overseas, we're likely to see excess global
capacity for all types of goods and services, and practically no pricing
pressures as a result. Combine that with increasing productivity due to
technological improvements, and it appears unlikely that inflation will be a
problem any time soon.
WHAT DOES THAT OUTLOOK MEAN FOR THE MUNICIPAL MARKET?
Continued low inflation and declining interest rates would certainly help
boost the market. But supply and demand will also influence the performance of
municipal bonds. Municipals underperformed Treasurys when interest rates
declined last year, mainly because of the surge in demand for Treasurys from
overseas investors, while municipals languished from too much supply. So far in
1999, however, we've already seen signs that the supply of California municipals
is tapering off and demand has firmed, which we believe could set the stage for
lower municipal yields. On the demand side, the relative cheapness of municipals
compared with Treasurys may attract investors who want tax-free income.
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR CALIFORNIA LONG-TERM
TAX-FREE?
We will probably keep the portfolio's duration a bit long compared with the
average California municipal fund as long as we believe that interest rates are
poised to move lower. That should be positive for fund returns if municipal bond
yields decline, as we expect they will.
We'll also continue to focus on high-quality bonds. This reflects our
belief that credit spreads are about as narrow as they're going to get. We
expect to see credit spreads widen back out at some point going forward. If that
happens, our higher-rated bonds will more than likely outperform lower-quality
ones.
In addition, we'll continue to emphasize call-protected securities--such as
discount bonds and non-callable bonds --because we believe that unwanted calls
continue to be an important concern.
And, finally, we will continue to monitor the California municipal market
to uncover securities that we believe offer good relative values and attractive
yields.
[right margin]
"WE'VE ALREADY SEEN SIGNS THAT THE SUPPLY OF CALIFORNIA MUNICIPALS IS TAPERING
OFF AND DEMAND HAS FIRMED, WHICH WE BELIEVE COULD SET THE STAGE FOR LOWER
MUNICIPAL YIELDS."
TOP FIVE SECTORS (AS OF 2/28/99)
% OF FUND INVESTMENTS
COPS/LEASES 21%
TAX ALLOCATION REVENUE 14%
GO 11%
HIGHER EDUCATION 7%
HOSPITAL REVENUE 7%
TOP FIVE SECTORS (AS OF 8/31/98)
% OF FUND INVESTMENTS
COPS/LEASES 23%
WATER AND SEWER REVENUE 12%
TAX ALLOCATION REVENUE 12%
ELECTRIC REVENUE 10%
HOSPITAL REVENUE 8%
Security types are defined on pages 40-41.
www.americancentury.com 25
Cal. Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--98.4%
CALIFORNIA--95.8%
$ 2,300,000 Alameda County COP, 6.80%,
6/15/17 (MBIA)(1) $ 917,447
2,700,000 Brea Public Financing Auth. Rev.,
(Project Area AB), 7.00%,
8/1/15 (MBIA) 2,955,582
1,220,000 Brea Redevelopment Agency Tax
Allocation, (Project AB),
6.125%, 8/1/13 (MBIA) 1,343,952
5,000,000 California Educational Facilities
Auth. Rev., (California Institute
of Technology), 4.25%,
10/1/28 4,406,150
9,000,000 California Educational Facilities
Auth. Rev., (California Institute
of Technology), 4.50%,
10/1/27 8,286,750
1,500,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College and University
Projects), 6.30%, 4/1/21 1,625,025
7,000,000 California Educational Facilities
Auth. Rev., Series 1997 M,
(Stanford University), 5.25%,
12/1/26 7,114,380
7,000,000 California Educational Facilities
Auth. Rev., Series 1997 N,
(Stanford University), 5.20%,
12/1/27 7,130,970
4,000,000 California Health Facilities
Financing Auth. Rev., (Kaiser
Permanente), 7.00%, 10/1/99,
Prerefunded at 102% of Par(2) 4,176,360
3,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/09(1) 1,887,630
1,500,000 California Health Facilities
Financing Auth. Rev., Series
1988 A, (H.M. Newhall
Memorial Hospital), 8.00%,
10/1/18 (California Mortgage
Insurance) 1,535,520
1,730,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Gould Medical),
7.30%, 4/1/20(2) 1,845,374
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1991 B, (Adventist Health),
6.75%, 3/1/14 (MBIA) 2,693,450
2,000,000 California Health Facilities
Financing Auth. Rev., Series
1992 A, 6.75%, 3/1/20
(California Mortgage Insurance) 2,170,820
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,290,000 California Health Facilities
Financing Auth. Rev., Series
1992 C, (AIDS Healthcare
Foundation), 6.25%, 9/1/17
(California Mortgage Insurance) $ 1,369,632
5,165,000 California Health Facilities
Financing Auth. Rev., Series
1993 C, (St. Francis Memorial
Hospital), 5.875%, 11/1/23(2) 5,765,070
1,290,000 California Housing Finance
Agency Rev., (Multi-Unit Rental
Housing), 6.875%, 2/1/22 1,320,638
5,125,000 California Housing Finance
Agency Rev., Series 1994 G,
(Home Mortgage), 7.25%,
8/1/17 5,544,276
1,125,000 California Housing Finance
Agency Rev., Series 1995 C,
(Home Mortgage), 6.80%,
8/1/17 1,213,819
1,500,000 California Pollution Control
Financing Auth. Rev., Series
1987 D, (Southern California
Edison), 6.85%, 12/1/08 1,553,670
3,000,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Science Center),
5.25%, 10/1/22 3,037,560
1,000,000 California State Franchise Tax
Board COP, 6.90%, 10/1/99,
Prerefunded at 102% of Par(2) 1,043,500
8,000,000 California State GO, 4.25%,
10/1/26 (MBIA) 7,112,240
4,655,000 California State GO, 4.50%,
12/1/24 (FGIC) 4,322,773
3,000,000 California State GO, 6.125%,
10/1/11 (AMBAC) 3,513,720
1,410,000 California State GO, Series
1984 B, (New Prison
Construction), 10.00%, 8/1/03 1,768,887
17,100,000 California State Public Works
Board Lease Rev. COP, Series
1993 D, (Department of
Corrections State Prisons),
5.25%, 6/1/15 (FSA) 18,149,769
9,000,000 California Statewide Community
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/22 (AMBAC,
California Mortgage Insurance) 9,080,370
5,695,000 Capistrano School District Special
Tax, (Refunding Issue 1988-1),
6.50%, 9/1/14 (FSA) 6,553,066
1,000,000 Coachella Valley Water
District #71 COP, (Flood
Control), 6.75%, 10/1/02,
Prerefunded at 102% of Par(2) 1,126,380
See Notes to Financial Statements
26 1-800-345-2021
Cal. Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,320,000 Coalinga Public Financing Auth.
Local Obligation Rev., Series
1998 A, 6.375%, 9/15/21
(AMBAC) $ 1,584,964
13,500,000 Compton Redevelopment Agency
Tax Allocation, Series 1995 A,
6.50%, 8/1/13 (FSA) 15,493,680
2,580,000 Concord Joint Power Financing
Auth. Lease Rev. COP, (Police
Facilities), 5.25%, 8/1/13 2,737,122
3,605,000 Inglewood Redevelopment
Agency Tax Allocation, Series
1998 A, (Merged
Redevelopment), 5.25%,
5/1/23 (AMBAC) 3,758,825
1,815,000 Kern County High School District
GO, 7.15%, 8/1/14 (MBIA)(2) 2,303,435
1,305,000 Los Altos Association of Bay Area
Governments COP, 5.90%,
5/1/27 1,378,641
3,475,000 Los Angeles Community
Redevelopment Agency
Housing Rev., Series 1994 A,
6.45%, 7/1/17 (AMBAC) 3,707,860
2,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1996 A, 6.00%,
7/1/23 (MBIA) 2,175,980
3,000,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1987 A,
7.40%, 7/1/15 3,103,920
4,050,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1989 A,
(Capital Appreciation), 7.20%,
7/1/02 (MBIA)(1) 3,335,540
3,340,000 Los Angeles Department of Water
and Power Waterworks Rev.,
4.50%, 10/15/24 3,084,123
1,000,000 Los Angeles Transportation
Commission Sales Tax Rev.,
6.50%, 7/1/13 (MBIA) 1,082,460
2,410,000 Los Angeles Wastewater System
Rev., Series 1991 C,
6.90%, 6/1/99, Prerefunded at 102%
of Par(2) 2,483,409
3,050,000 Los Angeles Wastewater System
Rev., Series 1991 C, 7.10%,
6/1/99, Prerefunded at 102%
of Par(2) 3,144,459
1,865,000 Mendocino Coast District Health
Care Facility Rev., 5.875%,
2/1/20 (California Mortgage
Insurance) 1,982,010
Principal Amount Value
- --------------------------------------------------------------------------------
$ 8,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 5.75%, 8/10/18 $ 8,899,360
5,150,000 Mid-Peninsula Regional Open
Space District GO, 7.00%,
9/1/14 5,930,946
5,830,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan),
6.75%, 7/1/20 (MBIA) 7,098,491
3,000,000 Oakland Redevelopment Agency
Tax Allocation, (Central District
Redevelopment Tax), 5.50%,
2/1/14 (AMBAC) 3,280,680
1,855,000 Pacifica Financing Auth. Sewer
Rev., 6.20%, 8/1/26 1,913,284
2,950,000 Pasadena COP, (Old Pasadena
Parking Facility), 6.25%,
1/1/18 3,405,156
5,000,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.25%, 8/1/26 5,467,850
4,475,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.20%, 8/1/19 4,881,733
2,700,000 Pittsburg Redevelopment Agency
Tax Allocation, Series 1993 B,
(Los Medanos Community
Development), 5.80%, 8/1/34
(FSA) 2,980,017
2,100,000 Pomona Public Financing Auth.
Rev., Series 1992 A, (Water
Treatment), 6.10%, 7/1/17
(AMBAC) 2,282,175
5,680,000 Riverside County Asset Leasing
Corporation Rev. COP, Series
1997 B, (Riverside County
Hospital), 5.00%, 6/1/19
(MBIA) 5,604,797
8,705,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 9,111,524
1,000,000 Saddleback Valley Unified School
District Public Financing Auth.
Special Tax Rev., Series 1997 A,
6.00%, 9/1/16 (FSA) 1,144,270
2,000,000 San Diego County COP,
(Downtown Courthouse), 4.50%,
5/1/23 (AMBAC) 1,859,140
3,400,000 San Diego County COP, 5.625%,
9/1/12 (AMBAC) 3,772,810
3,500,000 San Diego County Regional
Transportation Sales Tax Rev.,
Series 1991 A, 6.93%,
4/1/04(1)(2) 2,883,160
See Notes to Financial Statements
www.americancentury.com 27
Cal. Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$10,450,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 20, 4.50%, 5/1/26
(MBIA) $ 9,684,642
1,000,000 San Francisco City and County
Redevelopment Hotel Tax Rev.,
6.75%, 7/1/04, Prerefunded
at 102% of Par (FSA)(2) 1,167,110
3,000,000 San Jose Financing Auth. Rev.
COP, Series 1993 C,
(Convention Center), 6.375%,
9/1/13 3,185,550
7,575,000 San Jose Financing Auth. Rev.
COP, Series 1993 D, (Central
Service Yard), 5.25%,
10/15/23 7,665,446
9,525,000 San Jose Redevelopment
Agency Tax Allocation, Series
1993 D, (Merged Area
Redevelopment), 5.75%,
8/1/24 10,078,688
5,000,000 San Marino Unified School
District GO, Series 1998 B,
5.00%, 6/1/23 5,038,250
3,475,000 San Mateo County Joint Powers
Finance Auth. Lease Rev. COP,
(Capital Projects Program),
6.50%, 7/1/16 (MBIA) 4,176,394
4,000,000 San Mateo County Joint Powers
Finance Auth. Lease Rev. COP,
(Capital Projects Program),
6.00%, 7/1/19 (MBIA) 4,581,960
3,500,000 Santa Ana Finance Auth. Lease
Rev. COP, 6.25%, 7/1/15
(MBIA) 4,111,660
4,830,000 Santa Monica Community
College District COP, Series
1997 A, 5.90%, 2/1/27 5,180,465
3,730,000 Southern California Public Power
Auth. Rev., (Multipurpose),
6.75%, 7/1/13 (FSA) 4,589,652
1,425,000 Southern California Public Power
Auth. Rev., (Transportation
Auth.), 7.00%, 7/1/09 1,516,798
3,260,000 Southern California Public Power
Auth. Rev., 6.00%, 7/1/18 3,325,362
7,315,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/12
(FSA) 8,998,181
3,000,000 Southern California Public Power
Auth. Rev., Series 1989 A,
7.15%, 7/1/04 (AMBAC)(1) 2,438,280
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,000,000 Southern Orange County Finance
Auth. Special Tax Rev., Series
1994 A, 7.00%, 9/1/11
(MBIA) $ 2,508,400
800,000 Stockton Health Facilities Rev.,
Series 1997 A, (Dameron
Hospital Association), 5.70%,
12/1/14 815,400
2,000,000 Taft Public Financing Auth. Lease
Rev. COP, Series 1997 A,
(Community Correctional
Facility), 6.05%, 1/1/17 2,126,260
1,400,000 Torrance Redevelopment Agency
Rev., Series 1998 A,
(Downtown Redevelopment),
5.60%, 9/1/28 1,408,847
3,020,000 Watsonville Insured Hospital Rev.,
Series 1996 A, (Watsonville
Community Hospital), 6.20%,
7/1/12 (California Mortgage
Insurance) 3,501,176
-------------
328,535,122
-------------
PUERTO RICO--2.6%
9,750,000 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 8,970,780
-------------
TOTAL MUNICIPAL SECURITIES 337,505,902
-------------
(Cost $315,005,970)
MUNICIPAL DERIVATIVES--1.2%
4,000,000 Northern California Transmission
Rev., Inverse Floater, 6.78%,
4/29/24 (MBIA)(3) 4,250,000
-------------
(Cost $3,963,920)
SHORT--TERM MUNICIPAL SECURITIES--0.4%
1,200,000 California State Economic
Development Financing Auth.
Rev., Series 1998 B, (California
Independent System), VRDN,
3.00%, 3/1/99 (LOC: Bank of
America N.T. & S.A.) 1,200,000
-------------
(Cost $1,200,000)
TOTAL INVESTMENT SECURITIES--100.0% $342,955,902
=============
(Cost $320,169,890)
See Notes to Financial Statements
28 1-800-345-2021
Cal. Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
February 28, 1999.
(1) Security is a zero-coupon municipal bond. The yield to maturity at purchase
is indicated. Zero-coupon securities are purchased at a substantial
discount from their value at maturity.
(2) Escrowed to maturity in U.S. Government securities or state and local
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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 29
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-FREE TAX-FREE TAX-FREE
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of $147,846,249,
$463,192,713 and $320,169,890,
respectively) (Note 3) .................$ 151,167,663 $ 484,817,955 $ 342,955,902
Cash ..................................... 178,935 1,925,660 905,300
Investment in affiliated money
market fund (Note 2) ................... 7,751 10,117 7,247
Receivable for investments sold .......... -- -- 2,392,375
Interest receivable ...................... 2,041,623 7,350,653 4,213,937
------------- ------------- -------------
153,395,972 494,104,385 350,474,761
------------- ------------- -------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................. 4,691 174,193 193,606
Payable for investments purchased ........ 2,090,411 3,101,135 1,357,077
Payable for capital shares redeemed ...... 192,870 349,354 577,788
Accrued management fees (Note 2) ......... 58,938 189,546 134,787
Dividends payable ........................ 45,802 152,556 115,757
Payable for trustees' fees and expenses .. 351 1,129 803
------------- ------------- -------------
2,393,063 3,967,913 2,379,818
------------- ------------- -------------
Net Assets ...............................$ 151,002,909 $ 490,136,472 $ 348,094,943
============= ============= =============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................. 14,417,441 43,428,999 30,011,032
============= ============= =============
Net Asset Value Per Share ................$ 10.47 $ 11.29 $ 11.60
============= ============= =============
NET ASSETS CONSIST OF:
Capital paid in ..........................$ 148,083,551 $ 467,628,350 $ 324,712,514
Accumulated undistributed net
realized gain (loss) on investments .... (402,056) 882,880 596,417
Net unrealized appreciation
on investments (Note 3) ................ 3,321,414 21,625,242 22,786,012
------------- ------------- -------------
$ 151,002,909 $ 490,136,472 $ 348,094,943
============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
30 1-800-345-2021
<TABLE>
<CAPTION>
Statements of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
LIMITED-TERM INTERMEDIATE- LONG-TERM
TAX-FREE TERM TAX-FREE TAX-FREE
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ............................ $ 3,186,794 $ 11,605,811 $ 8,998,028
------------ ------------ ------------
Expenses (Note 2):
Management fees ..................... 376,544 1,195,017 849,802
Trustees' fees and expenses ......... 3,301 8,276 6,170
------------ ------------ ------------
379,845 1,203,293 855,972
------------ ------------ ------------
Net investment income ............... 2,806,949 10,402,518 8,142,056
------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(NOTE 3)
Net realized gain on investments .... 178,503 3,132,169 1,681,833
Change in net unrealized
appreciation on investments ....... 483,135 (2,058,696) (2,512,870)
------------ ------------ ------------
Net realized and unrealized
gain (loss) on investments ........ 661,638 1,073,473 (831,037)
------------ ------------ ------------
Net Increase in Net Assets
Resulting from Operations ......... $ 3,468,587 $ 11,475,991 $ 7,311,019
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF OPERATIONS--This statement breaks down how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
www.americancentury.com 31
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND YEAR ENDED AUGUST 31, 1998
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-FREE TAX-FREE TAX-FREE
Increase in Net Assets 1999 1998 1999 1998 1999 1998
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ........$ 2,806,949 $ 5,160,591 $ 10,402,518 $ 20,402,484 $ 8,142,056 $ 15,874,999
Net realized gain
on investments ............. 178,503 253,098 3,132,169 3,919,772 1,681,833 2,963,978
Change in net unrealized
appreciation on
investments ................ 483,135 1,302,650 (2,058,696) 5,632,637 (2,512,870) 8,929,558
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations .. 3,468,587 6,716,339 11,475,991 29,954,893 7,311,019 27,768,535
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ... (2,806,949) (5,160,591) (10,410,538) (20,402,484) (8,151,089) (15,874,999)
From net realized gains on
investment transactions .... -- -- (4,848,583) (5,651,243) (2,740,719) (5,354,293)
------------- ------------- ------------- ------------- ------------- -------------
Decrease in net assets
from distributions ......... (2,806,949) (5,160,591) (15,259,121) (26,053,727) (10,891,808) (21,229,292)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares sold .... 43,745,487 43,612,098 85,940,777 155,826,396 72,766,847 98,878,179
Proceeds from reinvestment
of distributions ........... 1,818,189 3,439,775 11,516,286 19,653,179 7,590,445 14,613,846
Payments for shares
redeemed ................... (25,358,992) (45,102,215) (64,141,300) (154,216,741) (53,875,216) (99,508,180)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets
from capital share
transactions ............... 20,204,684 1,949,658 33,315,763 21,262,834 26,482,076 13,983,845
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets ... 20,866,322 3,505,406 29,532,633 25,164,000 22,901,287 20,523,088
NET ASSETS
Beginning of period .......... 130,136,587 126,631,181 460,603,839 435,439,839 325,193,656 304,670,568
------------- ------------- ------------- ------------- ------------- -------------
End of period ................$ 151,002,909 $ 130,136,587 $ 490,136,472 $ 460,603,839 $ 348,094,943 $ 325,193,656
============= ============= ============= ============= ============= =============
Undistributed net
investment income .......... -- -- -- $ 8,020 -- $ 9,033
============= ============= ============= ============= ============= =============
TRANSACTIONS IN
SHARES OF THE FUNDS
Sold ......................... 4,183,233 4,214,707 7,542,848 13,806,443 6,217,969 8,544,372
Issued in reinvestment
of distributions ........... 173,605 332,197 1,012,547 1,741,245 648,056 1,262,693
Redeemed ..................... (2,420,920) (4,357,987) (5,632,838) (13,662,495) (4,597,761) (8,606,849)
------------- ------------- ------------- ------------- ------------- -------------
Net increase ................. 1,935,918 188,917 2,922,557 1,885,193 2,268,264 1,200,216
============= ============= ============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
each fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
32 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (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. California Limited-Term Tax-Free Fund
(Limited-Term), California Intermediate-Term Tax-Free Fund (Intermediate-Term),
and 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 are in accordance with generally accepted accounting principles; these
principles may require the use of estimates by fund management.
SECURITY VALUATIONS -- Portfolio securities are valued through 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 as of the
trade date. 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 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, 1998, accumulated net realized capital loss carryovers of
$580,559 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 expires. Net realized and unrealized gains
or losses occurring during the holding period of futures contracts are a
component of realized gain (loss) on investments and unrealized appreciation
(depreciation) on investments, respectively. There were no open futures
contracts at February 28, 1999.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
www.americancentury.com 33
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (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 fee is calculated daily and paid
monthly. It consists of an Investment Category Fee based on the average net
assets of the funds in a specific fund's investment category and a Complex Fee
based on the average net assets of all the funds managed by ACIM. The rates for
the Investment Category Fee range from 0.1625% to 0.2800% and the rates for the
Complex Fee range from 0.2900% to 0.3100%. For the six months ended February 28,
1999, the effective annual management fee was 0.51% for Limited-Term,
Intermediate-Term, and Long-Term.
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, and the
trust's transfer agent, American Century Services Corporation.
As of February 28, 1999, Limited-Term, Intermediate-Term, and Long-Term had
invested $7,751, $10,117, and $7,247, respectively, in shares of California
Tax-Free Money Market Fund, which is also managed by ACIM. 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 California Tax-Free Money Market.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, were as follows:
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-FREE TAX-FREE TAX FREE
PURCHASES
Municipal Obligations .. $53,825,479 $145,027,842 $128,883,986
PROCEEDS FROM SALES
Municipal Obligations .. $35,096,054 $123,570,116 $103,126,976
On February 28, 1999, 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
TAX-FREE TAX-FREE TAX FREE
Appreciation ........... $3,326,093 $22,143,865 $23,239,160
Depreciation ........... (4,679) (518,623) (453,148)
-------------- -------------- --------------
Net .................... $3,321,414 $21,625,242 $22,786,012
============== ============== ==============
The aggregate cost of investments for federal income tax purposes was the
same as the cost for financial reporting purposes.
34 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
4. BANK LOANS
Effective December 18, 1998, the funds, along with other funds managed by
ACIM, entered into an unsecured $570,000,000 bank line of credit agreement with
Chase Manhattan Bank. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.40%. The funds may borrow money for temporary or
emergency purposes to fund shareholder redemptions. The funds did not borrow
from the line during the period December 18, 1998 through February 28, 1999.
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
The following name changes became effective March 1, 1999:
=====================================================================
NEW NAME FORMER NAME
=====================================================================
FUND: California Limited-Term American Century - Benham
Tax-Free Fund California Limited-Term Tax-Free Fund
FUND: California American Century - Benham
Intermediate-Term California Intermediate-Term
Tax-Free Fund Tax-Free Fund
FUND: California Long-Term American Century - Benham
Tax-Free Fund California Long-Term Tax-Free Fund
www.americancentury.com 35
Cal. Limited-Term Tax-Free--Financial Highlights
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
1999(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .................$ 10.43 $ 10.30 $ 10.19 $ 10.23 $ 10.12 $ 10.34
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............. 0.20 0.42 0.43 0.43 0.41 0.38
Net Realized and Unrealized Gain
(Loss) on Investment Transactions . 0.04 0.13 0.11 (0.04) 0.11 (0.18)
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations .. 0.24 0.55 0.54 0.39 0.52 0.20
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........ (0.20) (0.42) (0.43) (0.43) (0.41) (0.38)
In Excess of Net Realized Gains ... -- -- -- -- -- (0.04)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ............... (0.20) (0.42) (0.43) (0.43) (0.41) (0.42)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ......$ 10.47 $ 10.43 $ 10.30 $ 10.19 $ 10.23 $ 10.12
=========== =========== =========== =========== =========== ===========
Total Return(2) ................... 2.27% 5.40% 5.42% 3.87% 5.33% 1.90%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.51%(3) 0.52% 0.49% 0.49% 0.51% 0.51%
Ratio of Net Investment Income
to Average Net Assets ............... 3.76%(3) 4.02% 4.20% 4.20% 4.10% 3.68%
Portfolio Turnover Rate ............. 24% 44% 47% 44% 50% 66%
Net Assets, End of Period
(in thousands) ......................$ 151,003 $ 130,137 $ 126,631 $ 103,707 $ 104,723 $ 120,627
</TABLE>
(1) Six months ended February 28, 1999 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
36 1-800-345-2021
<TABLE>
<CAPTION>
Cal. Int.-Term Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
1999(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .................... $11.37 $11.27 $11.05 $11.06 $10.86 $11.36
---------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ................ 0.25 0.52 0.54 0.54 0.54 0.54
Net Realized and Unrealized Gain
(Loss) on Investment Transactions .... 0.03 0.25 0.25 (0.01) 0.20 (0.41)
---------- --------- --------- --------- --------- ---------
Total From Investment Operations ..... 0.28 0.77 0.79 0.53 0.74 0.13
---------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income ........... (0.25) (0.52) (0.54) (0.54) (0.54) (0.54)
From Net Realized Gains on
Investment Transactions .............. (0.11) (0.15) (0.03) -- -- (0.08)
In Excess of Net Realized Gains ...... -- -- -- -- -- (0.01)
---------- --------- --------- --------- --------- ---------
Total Distributions .................. (0.36) (0.67) (0.57) (0.54) (0.54) (0.63)
---------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period ......... $11.29 $11.37 $11.27 $11.05 $11.06 $10.86
========== ========= ========= ========= ========= =========
Total Return(2) ...................... 2.51% 7.00% 7.39% 4.79% 7.09% 1.11%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .................. 0.51%(3) 0.51% 0.48% 0.48% 0.48% 0.48%
Ratio of Net Investment Income
to Average Net Assets .................. 4.40%(3) 4.60% 4.81% 4.87% 5.02% 4.82%
Portfolio Turnover Rate ................ 26% 28% 42% 36% 25% 44%
Net Assets, End of
Period (in thousands) .................. $490,136 $460,604 $435,440 $430,950 $417,550 $448,293
</TABLE>
(1) Six months ended February 28, 1999 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 37
<TABLE>
<CAPTION>
Cal. Long-Term Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
1999(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ..................... $11.72 $11.48 $11.06 $10.94 $10.88 $12.02
---------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net Investment Income ................. 0.28 0.59 0.61 0.61 0.62 0.63
Net Realized and Unrealized Gain
(Loss) on Investment Transactions ..... (0.02) 0.44 0.44 0.12 0.12 (0.71)
---------- --------- --------- --------- --------- ---------
Total From Investment Operations ...... 0.26 1.03 1.05 0.73 0.74 (0.08)
---------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income ............ (0.28) (0.59) (0.61) (0.61) (0.62) (0.63)
From Net Realized Gains on
Investment Transactions ............... (0.10) (0.20) (0.02) -- (0.06) (0.43)
---------- --------- --------- --------- --------- ---------
Total Distributions ................... (0.38) (0.79) (0.63) (0.61) (0.68) (1.06)
---------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period .......... $11.60 $11.72 $11.48 $11.06 $10.94 $10.88
========== ========= ========= ========= ========= =========
Total Return(2) ....................... 2.20% 9.25% 9.70% 6.77% 7.21% (0.78)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................... 0.51%(3) 0.51% 0.48% 0.48% 0.49% 0.48%
Ratio of Net Investment Income
to Average Net Assets ................... 4.84%(3) 5.07% 5.40% 5.48% 5.84% 5.51%
Portfolio Turnover Rate ................. 31% 36% 50% 42% 60% 62%
Net Assets, End of Period
(in thousands) .......................... $348,095 $325,194 $304,671 $288,022 $276,085 $277,477
</TABLE>
(1) Six months ended February 28, 1999 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
38 1-800-345-2021
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each 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 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 LIMITED-TERM TAX-FREE seeks to provide interest income exempt
from both federal and California state income taxes. The fund invests primarily
in California municipal securities and maintains a weighted average maturity of
five years or less.
CALIFORNIA INTERMEDIATE-TERM TAX-FREE seeks to provide interest income
exempt from both federal and California state income taxes. The fund invests
primarily in California municipal securities and maintains a weighted average
maturity of 5-10 years.
CALIFORNIA LONG-TERM TAX-FREE seeks to provide interest income exempt from
federal and California state income taxes. The fund invests primarily in
California municipal securities and maintains a weighted average maturity of 10
years or more.
COMPARATIVE INDICES
The following indices are used in the report to serve as 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 2-4 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 4-6 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 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
1-5 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
5-10 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.
[right margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS
DAVE MACEWEN
COLLEEN DENZLER
JOEL SILVA
CREDIT RESEARCH DIRECTOR
STEVEN PERMUT
CREDIT RATING GUIDELINES
CREDIT RATINGS ARE ISSUED BY INDEPENDENT RESEARCH COMPANIES SUCH AS
STANDARD & POOR'S AND MOODY'S. THEY ARE BASED ON AN ISSUER'S FINANCIAL STRENGTH
AND ABILITY TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.
SECURITIES RATED AAA, AA, A, OR BBB ARE CONSIDERED "INVESTMENT-GRADE"
SECURITIES, MEANING THEY ARE RELATIVELY SAFE FROM DEFAULT. HERE ARE THE MOST
COMMON CREDIT RATINGS AND THEIR DEFINITIONS:
* AAA--EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* AA--VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* A--STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BBB--GOOD ABILITY TO MEET FINANCIAL OBLIGATIONS.
IT'S IMPORTANT TO NOTE THAT CREDIT RATINGS ARE SUBJECTIVE, REFLECTING THE
OPINIONS OF THE RATING AGENCIES; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY.
www.americancentury.com 39
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.
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. (See Note 2 in the
Notes to Financial Statements.)
TYPES OF MUNICIPAL SECURITIES
* COPS (CERTIFICATES OF PARTICIPATION)/ LEASES--securities issued to finance
public property improvements (such as city halls and police stations) and
equipment purchases. Certificates of participation represent long-term debt
obligations, but leases have a higher risk profile because they require annual
appropriation.
* GO (GENERAL OBLIGATION) BONDS--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.
40 1-800-345-2021
Glossary
- --------------------------------------------------------------------------------
(Continued)
* 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).
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
* CAPITAL PRESERVATION--Offers taxable and tax-free money market funds for
relative stability of principal and liquidity, allowing maximum portfolio
diversification.
* INCOME--Offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME--Offers funds that emphasize both growth and income,
diversification, varying capitalization sizes, and different investment styles
and strategies.
* GROWTH--Offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that the fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
* CONSERVATIVE--these funds generally provide lower return potential with either
low or minimal price fluctuation risk.
* MODERATE-- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE-- these funds generally provide high return potential with
corresponding high price fluctuation risk.
www.americancentury.com 41
Notes
- --------------------------------------------------------------------------------
42 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 43
Notes
- --------------------------------------------------------------------------------
44 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call for a prospectus or profile on any American Century fund. These
documents contain important information including charges and expenses, and you
should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
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.
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9904 Funds Distributor, Inc.
SH-BKT-15980 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
FEBRUARY 28, 1999
SEMIANNUAL REPORT
- -----------------
AMERICAN CENTURY
[graphic of stairs]
AMERICAN CENTURY
- ---------------------------------
CALIFORNIA HIGH-YIELD MUNICIPAL
CALIFORNIA INSURED TAX-FREE
[american century logo(reg.sm)]
American
Century
[inside front cover]
AMERICAN CENTURY KEEPS WITH TRADITION
- --------------------------------------------------------------------------------
FOLLOWING BENHAM'S FOOTSTEPS
On March 1, we made it easier for you to do business with us. We simplified our
organizational structure by eliminating the venerable Benham and Twentieth
Century names, and putting all our funds under American Century. The name change
will not affect your funds' investment management--the proven Benham investment
philosophy, experienced portfolio management teams, and legacy of innovation and
high-quality performance remain.
CONSISTENT, SOLID PERFORMANCE--We'll continue to adhere to the investment
practices that have helped our fixed-income funds perform so well over the
years. In 1998, two-thirds of American Century bond funds beat their peer group
average, according to Lipper, Inc.
CONSISTENT INVESTMENT PHILOSOPHY--American Century fixed-income funds will
continue to offer a "pure play" on their sector of the market, as they did under
Benham.
CONTINUITY OF THE MANAGEMENT TEAM--The investment process is not all that
remains the same; we've retained our core team of experienced fixed-income
portfolio managers.
* Experience--The more than 35 fixed-income investment professionals at
American Century have an average of nine years of investment management
experience.
* Bigger and better--Since American Century was formed, we've doubled the
size of the original Benham management team in our Mountain View,
California office.
TRADITION OF INNOVATION--Like Benham before it, American Century is a leader in
fixed-income fund innovation. For example, we introduced a total of four new
fixed-income funds in the last three years, including the first no-load
inflation-adjusted bond fund.
We continue to run our fixed-income operation from our offices in Mountain View,
California, which is also home to our walk-in Investor Center.
We look forward to continuing to meet your fixed-income investment needs in the
Benham tradition.
WHAT'S NEW . . .
We now classify our funds in easy-to-remember categories based on objective
and risk. The four objective categories are: CAPITAL PRESERVATION, INCOME,
GROWTH AND INCOME, and GROWTH. The three risk categories are: CONSERVATIVE,
MODERATE, and AGGRESSIVE. This new classification system makes it easier for
investors to identify which funds are right for them.
Turn to the inside back cover of this report to see a list of the funds
classified by objective and risk. For definitions of the fund categories, see
the Glossary.
Past performance is no guarantee of future results.
[left margin]
CALIFORNIA HIGH-YIELD MUNICIPAL
(BCHYX)
- --------------------------------------
CALIFORNIA INSURED TAX-FREE
(BCINX)
- --------------------------------------
Our Message to You
- --------------------------------------------------------------------------------
/photo of James E. Stowers III and James E. Stowers, Jr./
James E. Stowers III, seated, with James E. Stowers, Jr.
During the six-month period ended February 28, 1999, the financial markets
experienced a dramatic shift in expectations. Six months ago, the economic
outlook appeared grim--financial problems in Asia, Russia, and Latin America led
to expectations of an impending U.S. economic slowdown. That sent the domestic
stock market reeling and pushed U.S. bond yields to record lows.
But expectations began to change in the fourth quarter of 1998. The Federal
Reserve cut interest rates three times in six weeks, bolstering confidence in
the economy. That, in turn, brought greater stability to U.S. financial markets
and eventually produced a stock market rebound.
By early 1999, reports of the strongest quarterly economic surge in two
years caught investors by surprise. Bond yields rose reflexively amid higher
inflation expectations, but productivity gains and competitive pressures kept
inflation at its lowest level in a dozen years.
The resiliency of California's economy was especially surprising. With many
Asian economies--including six of the state's ten biggest export markets--at a
standstill, there were concerns that the economic stagnation would spread to
California. However, the state's economy hardly missed a beat and is now as
healthy as it has been in a decade.
This economic environment has been positive for California municipal bonds.
All seven of American Century's California municipal funds, ranging from money
market portfolios to long-term and high-yield bond funds, produced above-average
returns during the past six months, as well as over longer time periods
(according to Lipper Inc.). We've been investing in the California municipal
market for more than 15 years, and the consistent performance of our California
funds reflects that experience.
At American Century, we've recently made some changes in the way we
classify our funds that we hope will make it easier for you to identify and
select the funds that best meet your investment needs. We reorganized our family
of 71 funds based on investment goals and risk level (see the front and back
inside covers of this report for more details).
In addition, California municipal fund shareholders were the first to
receive our new simplified prospectus. This document provides the fund
information you need in clear and straightforward language, and it includes
helpful tips and definitions of investment terms.
We want your experience with American Century to be rewarding, and we
appreciate your continued confidence in us.
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
[right margin]
Table of Contents
Report Highlights ....................................................... 2
Market Perspective ...................................................... 3
CALIFORNIA HIGH-YIELD MUNICIPAL
Performance Information ................................................. 4
Management Q&A .......................................................... 5
Portfolio Composition
by Credit Rating ..................................................... 6
Top Five Sectors ........................................................ 7
Schedule of Investments ................................................. 8
CALIFORNIA INSURED TAX-FREE
Performance Information ................................................. 14
Management Q&A .......................................................... 15
Top Five Sectors ........................................................ 16
Portfolio Composition
by Credit Rating ..................................................... 17
Schedule of Investments ................................................. 18
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities .......................................................... 21
Statements of Operations ................................................ 22
Statements of Changes
in Net Assets ........................................................ 23
Notes to Financial
Statements ........................................................... 24
Financial Highlights .................................................... 26
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ...................................................... 28
Comparative Indices .................................................. 28
Lipper Rankings ...................................................... 28
Investment Team
Leaders ........................................................... 28
Credit Rating
Guidelines ........................................................ 28
Glossary ................................................................ 29
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Municipal bonds posted modestly positive returns during the six months ended
February 28, 1999.
* Short- and intermediate-term municipal bonds produced modest price gains as
their yields fell slightly. They outperformed long-term municipals, whose
yields rose a little.
* Bond yields fell and prices rose early in the period as the Federal Reserve
cut short-term interest rates three times, but yields rose in early 1999 as
the U.S. economy surged.
* Municipal bonds outperformed Treasury securities in terms of total return,
thanks to improving supply and demand conditions. However, municipal yields
are still attractive relative to Treasury yields.
CALIFORNIA HIGH-YIELD MUNICIPAL
* The fund outperformed the average California municipal debt fund while
offering a significantly higher yield.
* The "neutral" duration of the portfolio during a volatile environment for
bonds helped California High-Yield Municipal outperform other funds.
* Fund performance was also bolstered by the portfolio's 45% position in
unrated bonds, which performed well as credit spreads tightened.
* California High-Yield Municipal continued to adhere to its long-standing
investment practices, which emphasize a value approach and individual
security selection instead of targeting sectors.
* It appears as though the California economy will remain robust, which should
help California municipal securities. Rapid growth in the high-tech,
biotech, and entertainment sectors has offset weakened overseas demand for
California goods.
CALIFORNIA INSURED TAX-FREE
* The fund outperformed the average California insured municipal debt fund
while offering a higher yield.
* Because of our expectations for lower interest rates, the portfolio had a
longer-than-average duration and focused on discount bonds (bonds with
lower-than-prevailing interest rates)
* The longer duration allowed California Insured Tax-Free to cap-ture
additional price gains when interest rates fell. The discount bonds gave the
portfolio some protection from refinancing by municipal bond issuers.
* Looking ahead, market conditions appear to be favorable for municipal bonds,
so we plan to maintain the fund's current positioning.
[left margin]
CALIFORNIA HIGH-YIELD MUNICIPAL
(BCHYX)
TOTAL RETURNS: AS OF 2/28/99
6 Months 2.40%*
1 Year 6.59%
NET ASSETS: $342.4 million
30-DAY SEC YIELD: 4.58%
INCEPTION DATE: 12/30/86
CALIFORNIA INSURED TAX-FREE
(BCINX)
TOTAL RETURNS: AS OF 2/28/99
6 Months 2.23%*
1 Year 6.06%
NET ASSETS: $228.6 million
30-DAY SEC YIELD: 3.97%
INCEPTION DATE: 12/30/86
* Not annualized.
See Total Returns on pages 4 and 14. Investment terms are defined in the
Glossary on page 29.
2 1-800-345-2021
Market Perspective from Randall W. Merk
- --------------------------------------------------------------------------------
/photo of Randall W. Merk/
Randall W. Merk, chief investment officer of fixed income
MUNICIPAL BOND PERFORMANCE
Amid several powerful shifts in market sentiment, municipal securities
posted modestly positive returns during the six months ended February 28, 1999.
Their performance was primarily dictated by changes in interest rates. Rates
fell in September and October but crept higher during much of the remainder of
the period.
Short- and intermediate-term municipal bonds outperformed long-term
municipals during the period (see the accompanying table). Short- and
intermediate-term yields fell slightly overall, producing modest price gains in
these sectors of the market. In contrast, long-term municipal yields actually
rose a little.
STRONGER-THAN-EXPECTED ECONOMIC CONDITIONS
Despite initial fears to the contrary, the U.S. economy continued to grow
at a healthy pace during the past six months. At the start of the period, bond
investors were optimistic because they felt that the Federal Reserve (the Fed)
would need to lower interest rates to stimulate U.S. economic growth and combat
a slowing global economy. Those expectations, and the three Fed interest rate
cuts that followed, supported a bond market rally that lasted through
mid-October.
By November, however, the factors that had driven the bond rally began to
unwind. The Fed's actions helped restore confidence in the U.S. stock market,
and investors began to shy away from bonds. In early 1999, bond investors
worried that the U.S. economy's impressive growth--which climbed to a 6% annual
rate during the final three months of 1998--could ignite inflation and prompt
the Fed to reverse course.
MUNICIPALS GAIN GROUND
In 1998, municipal bonds underperformed Treasury bonds, primarily because
of supply and demand factors. In the municipal market, demand was sporadic,
while supply increased as many issuers took advantage of the low interest rate
environment. In contrast, Treasurys benefited from strong demand amid a global
flight to safety, and supply shrank as the federal budget surplus reduced the
government's borrowing needs. By October, municipal and Treasury yields were as
tight as they had been in a decade (see the chart at right).
In the first two months of this year, however, the tide turned in favor of
municipal bonds, thanks to diminished supply and firmer demand. Meanwhile,
flight-to-quality demand in the Treasury market began to dry up. As the chart
illustrates, Treasury and municipal yields widened out quite a bit at the end of
the period.
Even after outperforming Treasurys in recent months, municipal bonds still
offer attractive yields on a tax-equivalent basis. As of February 28, an
investor in the highest federal tax bracket (39.6%) could earn a tax-adjusted
yield of nearly 7% on a 10-year AAA rated municipal bond, well above the 5.24%
yield on a 10-year U.S. Treasury bond.
[right margin]
"EVEN AFTER OUTPERFORMING TREASURYS IN RECENT MONTHS, MUNICIPAL BONDS STILL
OFFER ATTRACTIVE YIELDS ON A TAX-EQUIVALENT BASIS."
MUNICIPAL BOND INDEX RETURNS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999
LEHMAN THREE-YEAR
MUNICIPAL INDEX 2.53%
LEHMAN FIVE-YEAR GENERAL
OBLIGATION INDEX 2.72%
LEHMAN LONG-TERM
MUNICIPAL INDEX 2.24%
Source: Lipper Inc., Frank Russell Co.
[line graph - data below]
10-YEAR TREASURY YIELDS VS.
10-YEAR AAA MUNICIPAL YIELDS
10-Year 10-Year
AAA Municipal Treasury
8/31/98 4.27% 4.96%
9/15/98 4.23% 4.84%
9/30/98 4.14% 4.37%
10/15/98 4.02% 4.32%
10/31/98 4.10% 4.54%
11/15/98 4.22% 4.80%
11/30/98 4.16% 4.71%
12/15/98 4.10% 4.62%
12/31/98 4.14% 4.63%
1/15/99 4.15% 4.68%
1/31/99 4.05% 4.63%
2/15/99 4.08% 5.05%
2/28/99 4.15% 5.24%
Source: Bloomberg Financial Markets
www.americancentury.com 3
<TABLE>
<CAPTION>
California High-Yield Municipal--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1999
CALIFORNIA LEHMAN LONG-TERM CALIFORNIA MUNICIPAL DEBT FUNDS(2)
HIGH-YIELD MUNICIPAL MUNI BOND INDEX AVERAGE RETURN FUND'S RANKING
<S> <C> <C> <C> <C>
6 MONTHS(1) 2.40% 2.24% 2.09% --
1 YEAR 6.59% 6.40% 5.43% 3 OUT OF 107
===========================================================================================
AVERAGE ANNUAL RETURNS
===========================================================================================
3 YEARS 7.97% 7.99% 6.49% 3 OUT OF 91
5 YEARS 7.22% 7.43% 6.04% 4 OUT OF 65
10 YEARS 8.18% 9.11% 7.58% 4 OUT OF 33
</TABLE>
The fund's inception date was 12/30/86.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
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 10 YEARS
Value on 2/28/99
Lehman Long-Term Municipal Bond Index $23,922
California High-Yield Municipal $21,953
California Lehman Long-Term
High-Yield Municipal Municipal Bond Index
DATE VALUE VALUE
2/28/89 $10,000 $10,000
2/28/90 $10,877 $11,108
2/28/91 $11,608 $12,141
2/29/92 $12,711 $13,521
2/28/93 $14,333 $15,730
2/28/94 $15,485 $16,716
2/28/95 $15,531 $16,876
2/29/96 $17,397 $18,996
2/28/97 $18,609 $20,170
2/28/98 $20,586 $22,483
2/28/99 $21,953 $23,922
$10,000 investment made 2/28/89
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
Lehman Long-Term Municipal Bond Index is provided for comparison in each graph.
California High-Yield Municipal's total returns include operating expenses (such
as transaction costs and management fees) that reduce returns, while the total
returns of the index do not. 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED FEBRUARY 28)
California Lehman Long-Term
High-Yield Municipal Municipal Bond Index
DATE RETURN RETURN
2/28/90 8.77% 11.08%
2/28/91 6.72% 9.30%
2/29/92 9.50% 11.37%
2/28/93 12.76% 16.33%
2/28/94 8.04% 6.27%
2/28/95 0.30% 0.96%
2/29/96 12.01% 12.56%
2/28/97 6.97% 6.18%
2/28/98 10.62% 11.47%
2/28/99 6.59% 6.40%
4 1-800-345-2021
California High-Yield Municipal--Q&A
- --------------------------------------------------------------------------------
/photo of Steven Permut/
An interview with Steven Permut, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID CALIFORNIA HIGH-YIELD MUNICIPAL PERFORM DURING THE SIX-MONTH PERIOD
ENDED FEBRUARY 28, 1999?
California High-Yield Municipal continued to perform well versus other
funds. It returned 2.40%, compared with the 2.09% average total return of the
108 "California Municipal Debt Funds" tracked by Lipper Inc. The portfolio's
longer-term returns also consistently beat the average California municipal
fund. (See the previous page for additional performance comparisons.)
In addition, California High-Yield Municipal performed well in terms of
yield. The portfolio's 30-day SEC yield* as of February 28 was 4.58%, compared
with the 3.75% yield of the average California municipal fund, according to
Lipper.
WHAT INVESTMENT STRATEGIES HELPED CALIFORNIA HIGH-YIELD MUNICIPAL?
There were several factors behind the portfolio's relatively strong
performance. First, we kept its duration--which measures its sensitivity to
changes in interest rates--"neutral," or in line with the average duration of a
peer group of similar funds. The longer a fund's duration, the more the share
price will rise or fall when interest rates change. The shorter a fund's
duration, the less its share price will fluctuate in response to changing rates.
Throughout the period, expectations about U.S. economic growth and the
potential for more inflation and higher interest rates changed rapidly. That
uncertainty translated into bond market volatility and caused funds with
durations that were too short or too long to suffer compared with those that
remained "duration neutral."
WHAT WERE OTHER KEY FACTORS BEHIND THE FUND'S PERFORMANCE?
About 45% of California High-Yield Municipal's portfolio consisted of
unrated bonds. These bonds were helped by the ongoing tightening of credit
spreads, which refers to a narrowing of the gap between the yields of bonds of
varying credit quality. The lower a bond's credit quality (based on the ability
of its issuer to make timely interest and principal payments), the more yield it
generally carries as compensation for that risk.
During the past six months, however, the incremental yield that
lower-quality (including unrated) bonds offered diminished for a variety of
reasons. First, issuers increasingly sought municipal bond insurance and the AAA
rating it carries, so there were fewer unrated bonds that came to market.
Second, unrated bonds were in strong demand by individual investors who desired
high yields in a declining * Although California High-Yield Municipal'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 on the
greater credit risk of the securities in the fund's portfolio.
[right margin]
"CALIFORNIA HIGH-YIELD MUNICIPAL CONTINUED TO PERFORM WELL VERSUS OTHER FUNDS."
YIELDS AS OF FEBRUARY 28, 1999
30-DAY SEC YIELD 4.58%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 7.01%
37.42% TAX BRACKET 7.32%
41.95% TAX BRACKET 7.89%
45.22% TAX BRACKET 8.36%
PORTFOLIO AT A GLANCE
2/28/99 8/31/98
NUMBER OF SECURITIES 166 146
WEIGHTED AVERAGE
MATURITY 20.0 YRS 20.8 YRS
AVERAGE DURATION 7.5 YRS 7.9 YRS
EXPENSE RATIO 0.54%* 0.54%
* Annualized.
Investment terms are defined in the Glossary on page 29.
www.americancentury.com 5
California High-Yield Municipal--Q&A
- --------------------------------------------------------------------------------
(Continued)
interest rate environment. Finally, the continued strength of California's
economy led to fewer credit concerns and more credit upgrades.
HOW DID THAT ENVIRONMENT AFFECT CALIFORNIA HIGH-YIELD MUNICIPAL'S UNRATED
BONDS?
At the beginning of the period, the spread between unrated bonds and the
highest-rated AAA bonds was about 75 basis points (0.75%--a basis point equals
0.01%). By the end of February, that spread had narrowed to about 65 basis
points. As yields converged, unrated securities generally outperformed
higher-rated bonds in terms of total return.
THE FUND ALSO BENEFITED FROM SOME BONDS THAT WERE PREREFUNDED. WHAT IS
PREREFUNDING AND HOW DID IT HELP THE PORTFOLIO?
Through a somewhat complicated process, a municipal bond issuer that wants
to reduce the cost of its debt refinances older--usually high-yielding--bonds. A
prerefunded bond isn't retired when it's refinanced. Instead, it's backed by
U.S. Treasury securities and assumes a higher credit rating and a shorter call
date. (The call date is the first opportunity the issuer has to refinance the
old bond.) A shorter-maturity, higher-rated bond tends to have a lower yield
than a longer-maturity, lower-rated security. When several of our holdings went
from being long-maturity, unrated bonds to shorter-maturity, AAA bonds, their
yields fell substantially and their prices--which move in the opposite direction
of yields--surged as much as 10-20%.
HEALTHCARE BONDS WERE ONE AREA OF THE CALIFORNIA MUNICIPAL MARKET THAT STRUGGLED
DURING THE PAST SIX MONTHS. WHAT WAS BEHIND THEIR PROBLEMS AND HOW DID IT AFFECT
THE FUND?
When a large hospital system in Pennsylvania filed for bankruptcy in 1998,
it cast a pall on the entire healthcare sector. Fortunately, the fund had a
light weighting relative to its peers in healthcare bonds, and their
underperformance had only a very slight effect on the fund's return. By the end
of the period, we selectively added some healthcare bonds--such as those issued
by hospitals, long-term care facilities, and nursing homes--at what we felt were
attractive prices.
This is a good time to remind investors that our sector weightings are a
byproduct of our individual bond selection; we don't focus on underweighting and
overweighting sectors. At the core of our security selection process is an
experienced research team that attempts to stay ahead of the market by
identifying under- or fairly-valued securities that have the potential to
appreciate as a result of improving credit quality. At the same time, we try to
avoid securities that we view as expensive given their prospects, as well as
bonds that appear poised to suffer from future credit quality deterioration.
[left margin]
"ABOUT 45% OF CALIFORNIA HIGH-YIELD MUNICIPAL'S PORTFOLIO CONSISTED OF UNRATED
BONDS."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
2/28/99 8/31/98
AAA 28% 26%
AA 2% 9%
A 13% 12%
BBB 12% 13%
UNRATED 45% 40%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 28
for more information.
"UNRATED BONDS WERE IN STRONG DEMAND BY INDIVIDUAL INVESTORS WHO DESIRED HIGH
YIELDS IN A DECLINING INTEREST RATE ENVIRONMENT."
6 1-800-345-2021
California High-Yield Municipal--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT'S YOUR OUTLOOK FOR THE CALIFORNIA HIGH-YIELD BOND MARKET?
Let's start with interest rates, which likely will be the prime determinant
of municipal bond performance. Amid contradictory signs about U.S. economic
growth, inflationary pressures, and Federal Reserve policy, we think that
interest rates will stay in a "trading range." At the end of February, interest
rates appeared to be on the high side of that trading range, which suggests they
could fall.
From a credit quality standpoint, we think the California economy will
remain robust, despite declining exports to recession-afflicted Asia. Weakened
overseas demand for California goods has been offset by rapid growth in the
high-tech, biotech, and entertainment sectors. We think those growth sectors
will continue to post good results in 1999. As a result, our outlook calls for
continued tight credit spreads and relatively good high-yield municipal bond
performance.
GIVEN THAT OUTLOOK, WHAT WILL YOUR STRATEGY BE?
We'll likely keep California High-Yield Municipal's duration neutral until
we see more definitive signs about which way rates are headed. Even then, we'll
only make slight adjustments to duration. We'll also continue to do what has led
to the fund's strong performance over the past 10 years--use thorough
bond-by-bond analysis to help identify opportunities and avoid problem areas.
[right margin]
"OUR SECTOR WEIGHTINGS ARE A BYPRODUCT OF OUR INDIVIDUAL BOND SELECTION; WE
DON'T FOCUS ON UNDERWEIGHTING AND OVERWEIGHTING SECTORS."
TOP FIVE SECTORS (AS OF 2/28/99)
% OF FUND INVESTMENTS
LAND BASED 27%
COPS/LEASES 15%
TAX ALLOCATION REVENUE 11%
TRANSPORTATION REVENUE 7%
PREREFUNDED 7%
TOP FIVE SECTORS (AS OF 8/31/98)
% OF FUND INVESTMENTS
LAND BASED 27%
TRANSPORTATION REVENUE 16%
HOSPITAL REVENUE 13%
TAX AND REVENUE
ANTICIPATION NOTES 9%
GENERAL OBLIGATION 8%
Security types are defined on pages 29-30.
www.americancentury.com 7
Cal. High-Yield Municipal--Sched. of Investments
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--96.6%
$2,845,000 Alameda Corridor Transportation
Auth. Rev., Series 1999 A,
5.25%, 10/1/21 (MBIA) $ 2,912,082
2,000,000 Alameda Public Financing Auth.
Local Agency Rev., Series
1996 A, (Community Facility
District No. 1), 7.00%, 8/1/19 2,205,400
1,000,000 American Canyon Joint Powers
Financing Auth. Lease Rev.,
(Civic-Recreation Facilities),
6.40%, 6/1/22 1,053,180
4,000,000 Anaheim Public Financing Auth.
Lease Rev., Series 1997 C,
(Public Improvements), 5.90%,
9/1/18 (FSA)(1) 1,487,200
1,000,000 Association of Bay Area
Governments Finance Auth.
Rev. COP, (Episcopal Homes
Foundation), 5.125%, 7/1/18 984,260
3,000,000 Association of Bay Area
Governments Finance Auth.
Rev. COP, (Rhoda Haas
Goldman Plaza), 5.125%,
5/15/23 (California Mortgage
Insurance) 2,966,940
700,000 Bishop, Escalon & Lemoore Cities
COP, Series 1991 A, 7.70%,
5/1/11 738,339
1,000,000 Blythe Financing Auth. Water
Rev., 5.75%, 4/1/28 1,027,530
1,800,000 Blythe Redevelopment No. 1 Tax
Allocation, 5.80%, 5/1/28 1,858,464
4,000,000 Bonita Canyon Public Facilities
Financing Auth. Special Tax,
(Community Facilities District
No. 98-1), 5.375%, 9/1/28 3,894,360
3,000,000 Brawley COP, (Water System
Improvement), 6.40%, 12/1/06,
Prerefunded at 102% of Par(2)(3) 3,514,860
1,250,000 Brea Community Facilities District
Special Tax, (Olinda Heights
No. 1997-1), 5.80%, 9/1/28 1,256,863
2,000,000 Brea Olinda Unified School
District Community Facilities
Special Tax, (No. 95-1), 5.75%,
9/1/28 2,020,280
2,500,000 Brentwood Infrastructure
Refinancing Auth. Rev., Series
1998-1, 5.875%, 9/2/28 2,513,975
1,540,000 Brisbane COP, (Capital
Improvement Refinancing),
6.00%, 4/1/18 1,613,751
1,000,000 Cabrillo Unified School District
GO, Series 1996 A, 5.95%,
8/1/17 (AMBAC)(1) 399,200
Principal Amount Value
- --------------------------------------------------------------------------------
$1,850,000 California Community College
Financing Auth. Lease Rev.,
Series 1998 A, 4.625%,
9/1/23 (MBIA) $ 1,751,340
500,000 California Educational Facilities
Auth. Rev., (California Lutheran
University), 7.375%, 12/1/16 532,295
2,000,000 California Educational Facilities
Auth. Rev., (Los Angeles College
Chiropractic), 5.60%, 11/1/17 2,072,240
1,000,000 California Educational Facilities
Auth. Rev., (Mills College),
6.875%, 9/1/02, Prerefunded
at 102% of Par(3) 1,128,200
1,000,000 California Educational Facilities
Auth. Rev., (University of San
Diego), 4.98%, 10/1/15
(AMBAC)(1) 445,240
1,000,000 California Educational Facilities
Auth. Rev., Series 1993 B,
(Pooled College and University
Financing), 6.125%, 6/1/09 1,068,190
2,000,000 California Educational Facilities
Auth. Rev., Series 1997 N,
(Stanford University), 5.20%,
12/1/27 2,037,420
2,500,000 California Educational Facilities
Auth. Rev., Series 1998 A,
(Pooled College and University
Projects), 5.625%, 7/1/23 2,565,200
4,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/12 (AMBAC)(1) 2,111,320
1,000,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Casa De Las
Campanas), 5.25%, 8/1/20
(California Mortgage Insurance) 1,006,990
445,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1989 B, 8.00%, 8/1/29 458,083
300,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1990 C, 7.60%, 8/1/30 313,074
1,955,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1997 B, 6.10%, 2/1/28
(MBIA) 2,082,231
1,500,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1997 E, 6.10%, 8/1/29
(AMBAC) 1,601,340
3,500,000 California Housing Finance
Agency Multi-Unit Mortgage
Rev., Series 1992 C, 6.875%,
8/1/24 3,723,510
See Notes to Financial Statements
8 1-800-345-2021
Cal. High-Yield Municipal--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$3,455,000 California Housing Finance
Agency Multifamily Mortgage
Rev., Series 1997 A,
5.95%, 8/1/28 (MBIA) $ 3,634,695
2,500,000 California Housing Finance
Agency Single Family Mortgage
Rev., Series 1997 A-1, 5.95%,
8/1/16 2,657,850
2,960,000 California Housing Finance
Agency Single Family Mortgage
Rev., Series 1997 C-2, 5.65%,
2/1/25 3,066,086
400,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 A, (Pooled
Project), 8.50%, 3/1/18 407,472
7,000,000 California Public Works Board
Lease Rev., Series 1998 A,
(California Community Colleges),
5.25%, 12/1/14 7,356,720
3,000,000 California Public Works Board
Lease Rev., Series 1998 A,
(California Community Colleges),
5.25%, 12/1/15 3,135,150
3,665,000 California State GO, 6.75%,
9/1/09(1) 2,327,605
1,555,000 California State and Local
Government Financing Auth.
Rev., (Marin Valley Mobile
Country-B), 7.50%, 10/1/24
(Acquired 3/13/97, Cost
$1,555,000)(4) 1,658,501
2,000,000 California State Public Works
Board Lease Rev. COP, Series
1993 D, (Department of
Corrections State Prisons),
5.25%, 6/1/15 (FSA) 2,122,780
7,000,000 California Statewide Communities
Development Auth. Lease Rev.,
Series 1997 A, (United Airlines),
5.70%, 10/1/33 7,195,790
1,000,000 California Statewide Communities
Development Auth. Rev. COP,
Series 1996 A, (Insurance
Health Facility, San Gabriel
Valley), 5.50%, 9/1/14
(California Mortgage Insurance) 1,024,920
3,520,000 Central Valley Schools Financing
Auth. Tax and Rev. Anticipation
Notes, 3.50%, 1/27/00 3,538,339
190,000 Clayton Improvement Bond Act
1915 Special Assessment,
(Oakhurst Assessment District),
8.00%, 9/2/14 197,902
55,000 Clayton Improvement Bond Act
1915 Special Assessment,
Series 1988 A, (Oakhurst
Assessment District), 8.40%,
9/2/10 57,497
Principal Amount Value
- --------------------------------------------------------------------------------
$2,785,000 Coachella Redevelopment Agency
Tax Allocation, (Project Area
No. 3), 5.875%, 12/1/28 $ 2,755,730
4,500,000 Colton Public Financing Auth.
Rev., (Electric System), 7.50%,
10/1/03, Prerefunded at
101% of Par(3) 5,259,825
1,320,000 Compton Sewer Rev., 5.375%,
9/1/23 1,309,334
750,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev., Series 1992 A, 7.10%,
8/1/22 818,303
1,000,000 Contra Costa County Public
Financing Lease Rev., Series
1999 A, 5.25%, 6/1/14
(MBIA)(5) 1,056,800
1,250,000 Contra Costa County Public
Financing Lease Rev., Series
1999 A, 5.25%, 6/1/15
(MBIA)(5) 1,314,700
675,000 Corcoran COP, 8.75%, 6/1/16
(Acquired 4/28/92, Cost
$675,000)(4) 744,471
1,750,000 Corona Community Facilities
District Special Tax, (Eagle
Glen), 5.875%, 9/1/23 1,745,468
1,000,000 Davis Community Facility District
No. 1991-2 Special Tax,
Series 1992 B, 7.80%,
9/1/02, Prerefunded at 103%
of Par(3) 1,164,840
1,500,000 Del Mar Race Track Auth. Rev.,
6.20%, 8/15/11 1,625,400
275,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.50%,
9/1/12 273,961
300,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.55%,
9/1/13 298,815
340,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.55%,
9/1/14 338,599
1,215,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.625%,
9/1/23 1,208,585
3,400,000 Fairfield Redevelopment Agency
Tax Allocation, 5.00%, 8/1/04 3,383,136
3,000,000 Folsom Public Financing Auth.
Rev., Series1997 A, 6.875%,
9/2/19 3,105,390
2,000,000 Folsom Special Tax, (Community
Facilities District No. 11),
5.65%, 9/1/18 1,961,780
1,750,000 Folsom Special Tax, (Community
Facilities District No. 11),
5.75%, 9/1/23 1,712,865
See Notes to Financial Statements
www.americancentury.com 9
Cal. High-Yield Municipal--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,500,000 Folsom Special Tax, (Community
Facility District No. 7), 7.25%,
9/1/21 $ 1,626,600
2,500,000 Fontana Redevelopment Agency
Tax Allocation, Series 1994 B,
(Jurupa Hills), 7.70%, 1/1/19 2,778,100
1,040,000 Foothill-De Anza Community
College District COP, (Campus
Center), 7.35%, 3/1/07 1,145,581
2,500,000 Foster City Redevelopment
Agency Tax Allocation, (Metro
Center), 6.75%, 9/1/20 2,765,850
3,065,000 Fremont Public Financing Auth.
Rev., Series 1998 A, 5.50%,
9/2/11 3,069,076
1,185,000 Gateway Improvement Auth. Rev.,
Series 1995 A, (Marin City
Community Facility), 7.75%,
9/1/05, Prerefunded at 102%
of Par(3) 1,462,468
1,250,000 High Desert Memorial Health
Care District Rev., 5.50%,
10/1/15 1,219,000
2,000,000 Industry Urban Redevelopment
Agency Tax Allocation,
(Project 3), 6.90%, 11/1/16 2,181,780
985,000 Irvine Improvement Bond 1915
Special Assessment, Series
1992 A, (District No. 89-9),
7.40%, 9/2/17 1,010,344
1,000,000 La Mesa Improvement Bond Act
1915 Special Assessment,
(Limited Obligation, District
No. 98-1), 5.75%, 9/2/23 1,007,530
2,000,000 La Mirada Redevelopment Agency
Special Tax Rev., (Community
Facilities District No. 89-1),
5.70%, 10/1/20 2,020,000
3,250,000 Lake Elsinore School Financing
Auth. Rev., (Horsethief Canyon),
5.625%, 9/1/16 3,239,210
1,000,000 Lake Elsinore School Financing
Auth. Rev., 6.125%, 9/1/19 1,061,400
1,000,000 Lake Elsinore Unified School
District Community Facilities
Special Tax, (No. 88-1), 8.25%,
9/1/01, Prerefunded at 102%
of Par(3) 1,135,380
2,195,000 Las Virgenes Unified School
District GO, Series 1998 A,
5.19%, 11/1/20 (MBIA)(1) 726,589
3,440,000 Long Beach Harbor Rev.,
5.375%, 5/15/20 (MBIA) 3,508,387
1,000,000 Long Beach Industrial
Development Rev., Series
1998 A, (CSU Foundation),
5.25%, 2/1/13 1,014,920
Principal Amount Value
- --------------------------------------------------------------------------------
$3,590,000 Long Beach Water Rev., Series
1997 A, 5.00%, 5/1/24
(MBIA) $ 3,571,906
2,000,000 Los Angeles Community Facilities
District Special Tax, (Cascades
Business Park), 6.40%, 9/1/22 2,092,020
80,000 Los Angeles County Single Family
Mortgage Rev., (GNMA
Mortgage, Issue B), 9.00%,
12/1/20 (GNMA) 83,730
1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1991 B, 6.50%, 7/1/13 1,081,280
5,000,000 Los Angeles Harbor Department
Rev., Series 1996 B, 5.375%,
11/1/19 (MBIA) 5,113,250
15,000 Los Angeles Home Mortgage
Rev., 9.00%, 6/15/18 15,184
2,150,000 Los Angeles State Building Auth.
Lease Rev. COP, Series
1993 A, 5.625%, 5/1/11 2,392,929
3,000,000 Los Angeles Unified School
District COP, Series 1996 A,
5.50%, 10/1/16 (FSA) 3,163,380
2,000,000 Metropolitan Water District
Southern California Waterworks
Rev., Series 1998 A, 4.75%,
7/1/22 1,930,100
4,145,000 Milpitas Improvement Bond Act
1915 Special Assessment,
(Local Improvement District 18),
5.65%, 9/2/14 4,244,066
3,000,000 Milpitas Improvement Bond Act
1915 Special Assessment,
Series 1996 A, (Local
Improvement District 18),
6.75%, 9/2/16 3,242,880
2,020,000 Milpitas Improvement Bond Act
1915 Special Assessment,
Series 1998 A, (Local
Improvement District 18),
5.85%, 9/2/18 2,065,854
1,500,000 Modesto Irrigation District
Financing Auth. Rev., Series
1998 D, (Domestic Water),
4.75%, 9/1/22 (AMBAC) 1,447,470
2,000,000 Monterey Park Public Financing
Auth. Tax Allocation Rev.,
(Merged Redevelopment),
5.30%, 3/1/28 1,939,500
2,000,000 Novato Community Facility
District No. 1 Special Tax,
(Vintage Oaks), 7.20%, 8/1/15 2,196,640
5,000,000 Oceanside Mobile Home Park
Financing Auth. Rev., (Laguna
Vista Mobile Estates), 5.80%,
3/1/28 5,068,600
See Notes to Financial Statements
10 1-800-345-2021
Cal. High-Yield Municipal--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Orange County Community
Facilities District Special Tax,
Series 1993 A, (No. 87-5E),
7.30%, 8/15/18 $ 1,079,520
1,000,000 Pioneer Union Elementary School
District GO, 7.50%, 8/1/14 1,060,050
1,645,000 Pittsburg Infrastructure Financing
Auth. Rev. Improvement Special
Assessment, Series 1998 A,
5.55%, 9/2/16 1,669,609
3,500,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.25%, 8/1/26(2) 3,827,495
5,000,000 Pomona Improvement Bond Act
1915, (Rio Rancho Assessment
District), 7.50%, 9/2/21 5,458,450
475,000 Pomona Public Financing Auth.
Rev., Series 1994 L, (Southwest
Pomona Redevelopment),
5.70%, 2/1/04, Prerefunded at
102% of Par(3) 525,260
1,025,000 Pomona Public Financing Auth.
Rev., Series 1994 L, (Southwest
Pomona Redevelopment),
5.70%, 2/1/13 1,089,872
1,305,000 Poway Community Facilities
District Special Tax, (No. 88-1,
Parkway Business Center),
6.75%, 8/15/15 1,424,525
2,250,000 Rancho Mirage Joint Powers
Financing Auth. COP,
(Eisenhower Memorial Hospital),
7.00%, 3/1/02, Prerefunded at
102% of Par(3) 2,513,790
1,815,000 Redondo Beach Public Financing
Auth. Rev., (South Bay Center
Redevelopment), 7.125%,
7/1/26 2,017,227
1,000,000 Richmond Joint Powers Financing
Auth. Rev. COP, Series 1995 A,
5.25%, 5/15/13 1,037,280
3,165,000 Richmond Redevelopment Agency
Tax Allocation, Series 1998 A,
(Harbour Redevelopment),
4.75%, 7/1/23 (MBIA) 3,051,946
500,000 Roseville Community Facilities
District No. 2 Special Tax,
8.25%, 9/1/00, Prerefunded at
102% of Par(3) 546,465
5,200,000 Roseville Special Tax, (Roseville
Community Facilities District 1),
5.75%, 9/1/23 5,156,060
2,200,000 Sacramento County Improvement
Bond Act 1915 Special
Assessment, (Sunrise/Cordova
Reassessment), 5.30%, 9/2/09 2,256,518
635,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.60%, 9/1/07 668,661
Principal Amount Value
- --------------------------------------------------------------------------------
$ 645,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.70%, 9/1/08 $ 685,016
2,250,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.70%, 12/1/20 2,271,218
1,500,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 6.30%, 9/1/21 1,577,340
3,970,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 4,155,399
1,400,000 Salinas COP, Series 1997 A,
(Capital Improvement), 5.70%,
10/1/28 1,465,114
750,000 Salinas Improvement Bond Act
1915 Special Assessment,
(District No. 90-1, Series
C-185), 5.45%, 9/2/13 761,663
1,000,000 Salinas Improvement Bond Act
1915 Special Assessment,
(District No. 90-1, Series
C-185), 5.50%, 9/2/14 1,010,930
1,915,000 Salinas Improvement Bond Act
1915 Special Assessment,
(Harden Ranch Assessment
District 94-1), 6.875%, 9/2/11 2,040,681
1,000,000 San Diego Community Facilities
District No. 1 Special Tax,
Series 1995 B, 7.10%, 9/1/05,
Prerefunded at 102% of Par(3) 1,197,480
3,990,000 San Diego County Improvement
Bond Act 1915 GO, 6.25%,
9/2/12 4,127,296
4,000,000 San Francisco Bay Area Rapid
Transit District Sales Tax Rev.,
4.75%, 7/1/23 (AMBAC) 3,862,560
1,615,000 San Francisco Building Auth.
Lease Rev., Series 1996 A,
(San Francisco Civic Center
Complex), 5.25%, 12/1/16
(AMBAC) 1,679,309
1,500,000 San Francisco City and County
Airport Commission International
Airport Rev., 5.90%, 5/1/26 1,596,345
3,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/18 (MBIA) 2,839,170
1,970,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 21, 4.50%,
5/1/23 (MBIA) 1,833,873
1,250,000 San Francisco City and County
Redevelopment Agency Lease
Rev., (George R. Moscone),
7.05%, 7/1/13(1) 620,213
See Notes to Financial Statements
www.americancentury.com 11
Cal. High-Yield Municipal--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$7,810,000 San Francisco Community College
District COP, Series 1998 A,
5.95%, 7/1/18 $ 7,811,640
1,780,000 San Jose Finance Auth. Rev.
COP, Series 1993 C,
(Convention Center), 6.30%,
9/1/09 1,927,064
1,000,000 San Marcos Public Facilities Auth.
Rev., 5.80%, 9/1/27 1,002,070
5,000,000 San Marcos Public Facilities Auth.
Rev., Series 1993 A, (Civic
Center), 6.20%, 8/1/22 5,160,550
2,365,000 San Marcos Redevelopment
Agency Tax Allocation, Series
1998 A, (Affordable Housing),
5.65%, 10/1/28 2,441,981
3,250,000 San Marcos Unified School
District Special Tax, (Community
Facilities District No. 5), 5.60%,
9/1/29(5) 3,242,883
1,540,000 San Mateo County Joint Powers
Auth. Lease Rev., Series
1997 A, 5.00%, 7/15/22 (FSA) 1,532,562
5,000,000 Santa Ana COP, (City Hall
Expansion), 4.70%, 1/1/28
(FSA) 4,760,900
1,000,000 Santa Clara Improvement Bond
Act 1915 Special Assessment,
(Convention Center), 5.10%,
9/2/09 1,010,460
1,000,000 Santa Clara Improvement Bond
Act 1915 Special Assessment,
(Convention Center), 5.15%,
9/2/10 1,010,910
1,300,000 Santa Rosa Improvement Bond
Act 1915 Special Assessment,
Series 1999 A, (Fountaingrove
Parkway), 5.70%, 9/2/19 1,297,647
1,500,000 Santa Rosa Improvement Bond
Act 1915, Series 1998 A,
(Skyhawk Assessment District),
5.75%, 9/2/20 1,519,455
1,615,000 South San Francisco
Redevelopment Agency Tax
Allocation, 7.60%, 9/1/02,
Prerefunded at 102% of Par(3) 1,856,378
455,000 Southern California Housing
Finance Auth. Single Family
Mortgage Rev., Series 1991 A,
(GNMA & FNMA
Mortgage-Backed Securities),
7.35%, 9/1/24 (GNMA/FNMA
Collateral) 477,745
500,000 Southern California Public Power
Auth. Rev., (Pooled Project),
6.75%, 7/1/10 (FSA) 610,310
2,400,000 Southern California Public Power
Auth. Rev., (Transmission),
6.35%, 7/1/14 (MBIA)(1) 1,149,432
Principal Amount Value
- --------------------------------------------------------------------------------
$1,250,000 Southern California Public Power
Auth. Rev., (Transmission),
6.35%, 7/1/15 (MBIA)(1) $ 563,375
2,000,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 5.80%, 9/1/14 2,049,180
1,100,000 Stockton Community Facilities
District Special Tax Rev.,
Series 1998 A, (Mello
Roos-Weston Ranch), 6.00%,
9/1/24 1,130,877
2,000,000 Stockton East Water District COP,
Series 1997 A, 4.75%,
4/1/22 (AMBAC) 1,927,880
1,770,000 Tehama Community COP, (Social
Services Building), 7.00%,
10/1/05, Prerefunded at
102% of Par(3) 2,117,823
1,655,000 Torrance Hospital Rev., (Little
County of Mary Hospital),
6.875%, 7/1/15, Prerefunded
at 102% of Par(3) 1,859,078
1,180,000 Torrance Redevelopment Agency
Tax Allocation, Series 1998 B,
5.625%, 9/1/28 1,185,652
2,255,000 Tracy Operating Partnership Joint
Powers Auth. Rev., (Jr. Lien
Assessment District 87-3),
6.375%, 9/2/11 2,312,863
1,565,000 Twentynine Palms Water District
COP, 7.10%, 8/1/22 1,697,133
2,000,000 Union City Special Tax,
(Community Facilities District
No. 1997-1), 5.80%, 9/1/28 2,039,700
2,250,000 Vacaville Improvement Bond Act
1915 Special Assessment,
(Northeast Sector Assessment
District A), 7.00%, 9/2/22 2,370,465
3,850,000 Vacaville Special Tax, Series
1998 C, (Community Facilities
District No. 2), 5.60%, 9/1/15 3,942,208
5,000,000 Vallejo Hiddenbrooke Improvement
District No. 1 Rev., 6.50%,
9/1/31 5,020,850
1,645,000 Vallejo Multifamily Housing Rev.,
Series 1998 B, (Solano
Affordable Housing), 8.25%,
4/1/39 (Acquired 10/21/98,
Cost $1,645,000)(4) 1,596,292
2,000,000 West Contra Costa Unified
School District COP, 7.125%,
1/1/24 2,250,420
2,000,000 West Sacramento Redevelopment
Agency Tax Allocation, 4.75%,
9/1/27 (MBIA) 1,922,980
See Notes to Financial Statements
12 1-800-345-2021
Cal. High-Yield Municipal--Sched. of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$1,520,000 Windsor Redevelopment Agency
Tax Allocation, 6.875%,
9/1/15 $ 1,682,503
-------------
TOTAL MUNICIPAL SECURITIES 330,011,271
-------------
(Cost $316,705,622)
SHORT-TERM MUNICIPAL SECURITIES--3.4%
1,000,000 California Health Facilities
Financing Auth. Rev., Series
1996 B, VRDN, 3.10%,
3/1/99 1,000,000
2,000,000 California Pollution Control
Financing Auth. Solid Waste
Disposal Rev., Series 1996 A,
(Shell Martinez Refining), VRDN,
3.00%, 3/1/99 2,000,000
Principal Amount Value
- --------------------------------------------------------------------------------
$1,300,000 California State Economic
Development Financing Auth.
Rev., Series 1998 C, VRDN,
3.50%, 3/1/99 1,300,000
5,900,000 California Statewide Community
Development Auth. Rev.,
Floating Rate Trust Receipts,
2.95%, 3/3/99 (Acquired
2/16/99-2/26/99, Cost
$5,900,000)(4)(6) 5,900,000
1,300,000 Irvine Ranch Water District Rev.,
Series 1993 A, VRDN, 3.00%,
3/1/99 1,300,000
-------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 11,500,000
-------------
(Cost $11,500,000)
TOTAL INVESTMENT SECURITIES--100.0% $341,511,271
=============
(Cost $328,205,622)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
MBIA = MBIA Insurance Corp.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
February 28, 1999.
(1) Security is a zero-coupon municipal bond. The yield to maturity at purchase
is indicated. Zero-coupon securities are purchased at a substantial
discount from their value at maturity.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(3) Escrowed to maturity in U.S. Government securities or state and local
government securities.
(4) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement, and unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at February 28, 1999, was
$9,899,264 which represented 2.9% of net assets.
(5) When-issued security.
(6) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1999.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
www.americancentury.com 13
<TABLE>
<CAPTION>
California Insured Tax-Free--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF FEBRUARY 28, 1999
CALIFORNIA INSURED LEHMAN LONG-TERM CALIF. INSURED MUNICIPAL DEBT FUNDS(2)
TAX-FREE MUNI BOND INDEX AVERAGE RETURN FUND'S RANKING
<S> <C> <C> <C> <C>
6 MONTHS(1) 2.23% 2.24% 2.19% --
1 YEAR 6.06% 6.40% 5.33% 3 OUT OF 26
=============================================================================================
AVERAGE ANNUAL RETURNS
=============================================================================================
3 YEARS 6.59% 7.99% 6.21% 4 OUT OF 25
5 YEARS 6.50% 7.43% 5.93% 3 OUT OF 17
10 YEARS 7.98% 9.11% 7.93% 3 OUT OF 7
</TABLE>
The fund's inception date was 12/30/86.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
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 10 YEARS
Value on 2/28/99
Lehman Long-Term Municipal Bond Index $23,922
California Insured Tax-Free $21,557
California Lehman Long-Term
Insured Tax-Free Municipal Bond Index
DATE VALUE VALUE
2/28/89 $10,000 $10,000
2/28/90 $10,873 $11,108
2/28/91 $11,787 $12,141
2/29/92 $12,897 $13,521
2/28/93 $14,983 $15,730
2/28/94 $15,726 $16,716
2/28/95 $15,890 $16,876
2/29/96 $17,728 $18,996
2/28/97 $18,576 $20,170
2/28/98 $20,318 $22,483
2/28/99 $21,557 $23,922
$10,000 investment made 2/28/89
The graph at left shows the growth of a $10,000 investment in the fund over 10
years, while the graph below shows the fund's year-by-year performance. The
Lehman Long-Term Municipal Bond Index is provided for comparison in each graph.
California Tax-Free Insured's total returns include operating expenses (such as
transaction costs and management fees) that reduce returns, while the total
returns of the index do not. 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.
[bar graph - data below]
ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED FEBRUARY 28)
California Lehman Long-Term
Insured Tax-Free Municipal Bond Index
DATE RETURN RETURN
2/28/90 8.73% 11.08%
2/28/91 8.41% 9.30%
2/29/92 9.41% 11.37%
2/28/93 16.18% 16.33%
2/28/94 4.96% 6.27%
2/28/95 1.04% 0.96%
2/29/96 11.57% 12.56%
2/28/97 4.78% 6.18%
2/28/98 9.38% 11.47%
2/28/99 6.06% 6.40%
14 1-800-345-2021
California Insured Tax-Free--Q&A
- --------------------------------------------------------------------------------
/photo of Dave MacEwen/
An interview with Dave MacEwen, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID THE FUND PERFORM DURING THE SIX-MONTH PERIOD ENDED FEBRUARY 28, 1999?
California Insured Tax-Free posted a 2.23% total return, which was better
than the 2.19% average total return of its peer group--26 "California Insured
Municipal Debt Funds" tracked by Lipper Inc. (See the previous page for other
fund comparisons.)
California Insured Tax-Free also produced more current income than its
peers. The fund's 30-day SEC yield as of February 28 was 3.97%, compared with
the 3.41% yield of the average California insured municipal fund, according to
Lipper.
WHAT STRATEGIES DETERMINED THE FUND'S PERFORMANCE?
One of the main contributors to California Insured Tax-Free's performance
was its longer-than-average duration. Duration measures how sensitive a fund's
share price is to changes in interest rates. (The longer a fund's duration, the
more the share price will rise or fall as interest rates change.) We maintained
a slightly long duration because we believed interest rates would move lower as
a slowing global economy suppressed inflationary pressures.
The fund's longer-than-average duration served us well when interest rates
declined--last autumn and again in January--but detracted from performance when
rates rose like they did in February. It's important to note, however, that we
make only small adjustments to duration based on our interest rates
expectations. We typically keep duration within a year of that of California
Insured Tax-Free's benchmark (a group of funds with similar investment
objectives).
WHY DID YOU CHOOSE TO MAKE CALIFORNIA TAX-FREE'S DURATION SLIGHTLY LONGER THAN
ITS BENCHMARK'S?
We believed the relationship between municipal and Treasury bond yields
indicated that municipal yields were relatively high. As a result, we felt that
municipal yields would likely decline. Historically speaking, municipal bond
yields average about 83% of Treasury yields. Six months ago, some municipal
bonds actually yielded more than Treasury bonds with comparable maturities.
The relatively high yields of municipal bonds were a function of too much
supply and too little demand. On the supply side, a near-record amount of new
municipals was issued in 1998. On the demand side, municipals didn't enjoy the
same strong demand from foreign investors--who can't benefit from municipals'
tax-exempt status--that drove Treasury prices higher and their yields lower. By
the end of the period, municipal yields had fallen back to about 90% of Treasury
yields, but that still represented good value from a historical standpoint.
[right margin]
"ONE OF THE MAIN CONTRIBUTORS TO CALIFORNIA INSURED TAX-FREE'S PERFORMANCE
WAS ITS LONGER-THAN-AVERAGE DURATION."
YIELDS AS OF FEBRUARY 28, 1999
30-DAY SEC YIELD 3.97%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 6.08%
37.42% TAX BRACKET 6.34%
41.95% TAX BRACKET 6.84%
45.22% TAX BRACKET 7.25%
PORTFOLIO AT A GLANCE
2/28/99 8/31/98
NUMBER OF SECURITIES 76 71
WEIGHTED AVERAGE
MATURITY 18.0 YRS 17.9 YRS
AVERAGE DURATION 8.6 YRS 8.5 YRS
EXPENSE RATIO 0.51%* 0.51%
* Annualized.
Investment terms are defined in the Glossary on page 29.
www.americancentury.com 15
California Insured Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT OTHER MANAGEMENT TECHNIQUES DID YOU FOCUS ON DURING THE PERIOD?
We continued to emphasize call protection by buying discount bonds.
Discount bonds offer a degree of call protection because they are less likely to
be called away by municipal bond issuers who want to refinance at lower
rates--the municipal equivalent of a homeowner refinancing a mortgage. That's
due to the fact that they carry coupons--the interest rate the issuer agrees to
pay bondholders--that are lower than prevailing interest rates. While calls can
be beneficial for bond issuers, they can spell trouble for bondholders who
effectively have the duration of their municipal portfolio shortened. Our
position in discount bonds aided the fund's performance when rates fell, but
detracted from it when rates were moving higher.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES?
In our view, interest rates could resume their decline this year, although
we wouldn't be surprised to see them temporarily drift higher as investors
digest news about strong growth and low unemployment. While the U.S. economy
grew much faster than expected in the fourth quarter of last year and
unemployment hit 29-year lows, inflation remained in check.
Continued low inflation owed much to slowing economies in the rest of the
world. Many Asian countries are struggling through recessions, with some
teetering toward depression. Latin America also faces ongoing challenges as it
struggles with inflation, slowing growth, and currency problems. Europe shows
signs of slowing down in reaction to problems encountered with the introduction
of the continent's unified currency, the euro.
With such anemic economic growth overseas, we believe we're likely to see
excess global capacity for all types of goods and services, and as a result,
practically no pricing pressures. Combine that with increasing productivity due
to technological improvements, and it appears unlikely that inflation will be a
problem any time soon.
WHAT DOES THAT OUTLOOK MEAN FOR THE MUNICIPAL MARKET?
Continued low inflation and declining interest rates would certainly help
boost the market. But supply and demand will also determine the performance of
municipal bonds. Municipals underperformed Treasurys when interest rates
declined last year in large part because of the surge in demand for Treasurys
from overseas investors and increased municipal supply. So far in 1999, however,
we've already seen signs that the supply of California municipals is tapering
off and demand has firmed, which we believe could set the stage for lower
municipal yields. On the demand side, the relative cheapness of municipals
compared with Treasurys may attract investors who want tax- free income.
[left margin]
"WE CONTINUED TO EMPHASIZE CALL PROTECTION BY BUYING DISCOUNT BONDS."
TOP FIVE SECTORS (AS OF 2/28/99)
% OF FUND INVESTMENTS
COPS/LEASES 24%
ELECTRIC REVENUE 14%
WATER AND SEWER REVENUE 12%
TAX ALLOCATION REVENUE 9%
GENERAL OBLIGATION 7%
TOP FIVE SECTORS (AS OF 8/31/98)
% OF FUND INVESTMENTS
COPS/LEASES 24%
ELECTRIC REVENUE 16%
WATER AND SEWER REVENUE 14%
TAX ALLOCATION REVENUE 11%
HOSPITAL REVENUE 7%
Security types are defined on pages 29-30.
16 1-800-345-2021
California Insured Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
WITH THIS OUTLOOK IN MIND, WHAT ARE YOUR PLANS FOR CALIFORNIA INSURED TAX-FREE?
We will likely keep the portfolio's duration a bit longer than the average
California insured municipal fund. That should be a positive for returns if
municipal bond yields decline, as we expect. In addition, we'll still emphasize
call-protected securities, such as discount bonds. Other than that, we will
continue to monitor the California municipal market to uncover securities that
we believe offer good relative values and attractive yields.
[right margin]
"WE'VE ALREADY SEEN SIGNS THAT THE SUPPLY OF CALIFORNIA MUNICIPALS IS TAPERING
OFF AND DEMAND HAS FIRMED, WHICH WE BELIEVE COULD SET THE STAGE FOR LOWER
MUNICIPAL YIELDS."
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
2/28/99 8/31/98
AAA 100% 100%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 28
for more information.
www.americancentury.com 17
Cal. Insured Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES--95.2%
$ 1,000,000 Banning COP, (Wastewater
System Refunding &
Improvement), 8.00%, 1/1/19
(AMBAC) $ 1,322,100
900,000 Brea Redevelopment Agency Tax
Allocation, (Project AB),
6.125%, 8/1/13 (MBIA) 991,440
5,565,000 California Educational Facilities
Auth. Rev., (California Institute
of Technology), 4.25%,
10/1/28 4,904,042
2,450,000 California Educational Facilities
Auth. Rev., Series 1997 M,
(Stanford University), 5.25%,
12/1/26 2,490,033
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Sutter Hospital),
6.70%, 3/1/99 (AMBAC)(1) 2,526,325
1,250,000 California Health Facilities
Financing Auth. Rev., Series
1991 A, (Adventist Health),
7.00%, 3/1/13 (MBIA) 1,351,925
1,505,000 California Public Capital
Improvements Financing Auth.
Rev., (Pooled Project 1988 B),
8.10%, 3/1/18 (BIGI) 1,533,700
2,000,000 California State GO, 4.50%,
12/1/24 (FGIC) 1,857,260
3,500,000 California State GO, 4.25%,
10/1/26 (MBIA) 3,111,605
4,000,000 California State Public Works
Board Lease Rev. COP, Series
1993 A, (Department of
Corrections State Prisons),
5.00%, 12/1/19 (AMBAC) 4,069,800
6,000,000 California State Public Works
Board Lease Rev. COP, Series
1993 D, (Department of
Corrections State Prisons),
5.25%, 6/1/15 (FSA) 6,368,340
4,135,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) 4,485,276
3,925,000 California Statewide Communities
Development Auth. Rev. COP,
(Gemological Institute), 6.75%,
5/1/10 (Connie Lee) 4,745,914
7,000,000 California Statewide Community
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/22 (AMBAC,
California Mortgage Insurance) 7,062,510
1,520,000 Castaic Lake Water Agency COP,
Series 1994 A, (Water System
Improvement), 7.00%, 8/1/12
(MBIA) 1,893,722
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Contra Costa County COP, 7.80%,
6/1/99, Prerefunded at 102%
of Par (BIGI)(1) $ 1,032,860
1,200,000 Contra Costa Water District Rev.,
Series 1992 E, 6.25%,
10/1/12 (AMBAC) 1,421,904
1,000,000 East Valley Water District COP,
(Treatment Plant), 6.60%,
12/1/14 (AMBAC) 1,110,330
2,000,000 Escondido Joint Powers Financing
Auth. Rev. COP, 6.125%,
9/1/11 (AMBAC) 2,159,420
2,620,000 Escondido Unified School District
COP, 4.75%, 7/1/19 (MBIA) 2,570,587
1,695,000 Escondido Unified School District
COP, 4.75%, 7/1/23 (MBIA) 1,647,710
2,000,000 Fontana Unified School District
GO, Series 1997 D, 5.85%,
5/1/22 (FGIC)(2) 2,095,120
3,100,000 Foothill-De Anza Community
College District COP, 6.25%,
9/1/13 (Connie Lee) 3,435,234
1,725,000 Fresno Sewer Rev., Series
1993 A-1, 6.25%, 9/1/14
(AMBAC) 2,035,000
1,240,000 Fresno Sewer Rev., Series
1993 A-1, 4.75%, 9/1/21
(AMBAC) 1,215,126
5,000,000 Glendale Hospital Rev., Series
1991 A, (Adventist Hospital),
6.75%, 3/1/13 (MBIA) 5,378,600
4,830,000 Glendale Unified School District
COP, Series 1994 A, 6.50%,
3/1/12 (AMBAC) 5,446,936
1,340,000 Kern High School District GO,
Series 1993 C, 6.25%, 8/1/13
(MBIA) 1,582,955
3,630,000 Kern High School District GO,
Series 1993 D, 7.00%, 8/1/17
(MBIA) 4,191,198
2,000,000 La Quinta Financing Auth. Lease
Rev. COP, (La Quinta City Hall),
5.55%, 10/1/18 (MBIA) 2,179,700
790,000 Lake Elsinore Public Financing
Auth. Tax Allocation, Series
1992 C, (Redevelopment),
6.625%, 2/1/17 (FGIC) 828,031
1,500,000 Lakewood Redevelopment Agency
Tax Allocation, Series 1992 A,
(Project No. 1), 6.50%, 9/1/17
(FSA) 1,654,395
640,000 Los Angeles Community
Redevelopment Agency Housing
Rev., Series 1994 C, 7.00%,
1/1/14 (AMBAC) 698,138
3,500,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA)(3) 3,947,650
See Notes to Financial Statements
18 1-800-345-2021
Cal. Insured Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,000,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/15
(FSA) $ 4,500,440
1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
6.50%, 7/1/13 (AMBAC) 1,082,460
2,000,000 Los Angeles Unified School
District GO, Series 1997 A,
5.00%, 7/1/21 (FGIC) 1,990,540
1,100,000 Los Angeles Wastewater System
Rev., Series 1991 C,
7.00%, 6/1/99, Prerefunded at 102%
of Par (AMBAC)(1) 1,133,979
1,915,000 Midpeninsula Regional Open
Space District Financing Auth.
Rev., 5.90%, 9/1/14 (AMBAC) 2,099,223
5,000,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan),
6.75%, 7/1/20 (MBIA) 6,087,900
1,200,000 National City Joint Powers Auth.
Lease Rev. COP, (Police
Facilities), 6.75%, 10/1/01,
Prerefunded at 102% of Par
(AMBAC)(1) 1,326,936
2,810,000 Oakland Redevelopment Agency
Tax Allocation, (Central District
Redevelopment Tax), 5.50%,
2/1/14 (AMBAC) 3,072,904
2,700,000 Orange County Financing Auth.
Tax Allocation, Series 1992 A,
6.25%, 9/1/14 (MBIA) 2,918,160
1,950,000 Ramona Municipal Water District
COP, 7.20%, 10/1/10
(AMBAC) 2,101,281
1,100,000 Redlands Unified School District
COP, 6.00%, 9/1/12 (FSA) 1,160,632
17,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 18,317,250
2,210,000 Sacramento Redevelopment
Agency Tax Allocation, Series
1990 A, 6.50%, 11/1/00,
Prerefunded at 102% of Par
(MBIA)(1) 2,376,170
295,000 Sacramento Redevelopment
Agency Tax Allocation, Series
1990 A, 6.50%, 11/1/13,
Prerefunded at 102% of Par
(MBIA)(1) 314,715
3,000,000 Saddleback Community College
District COP, 7.00%, 8/1/19
(BIGI) 3,107,010
1,345,000 San Diego Community College
District Lease Rev. COP,
6.125%, 12/1/06, Prerefunded
at 102% of Par (MBIA)(1) 1,569,077
Principal Amount Value
- --------------------------------------------------------------------------------
$ 7,000,000 San Diego County COP, 5.625%,
9/1/12 (AMBAC) $ 7,767,550
6,035,000 San Diego County Water Auth.
Water Rev. COP, Series
1998 A, 4.50%, 5/1/24 (FGIC) 5,601,084
3,250,000 San Francisco Bay Area Rapid
Transportation District Sales Tax
Rev., 6.75%, 7/1/00,
Prerefunded at 102% of Par
(AMBAC)(1) 3,470,448
3,500,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/26 (MBIA) 3,243,660
6,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 21, 4.50%,
5/1/23 (MBIA) 5,585,400
8,330,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 2, 6.75%, 5/1/20 (MBIA) 9,335,848
1,670,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 2, 6.75%, 5/1/03,
Prerefunded at 102% of Par
(MBIA)(1) 1,906,405
3,500,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 5.00%,
7/1/21 (MBIA) 3,549,385
3,535,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 6.50%,
7/1/15 (MBIA) 4,252,782
1,000,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/18
(MBIA) 1,051,560
1,000,000 San Ysidro School District GO,
6.125%, 8/1/21 (AMBAC) 1,136,140
3,500,000 Santa Ana Financing Auth. Rev.,
Series 1999 B, (South Harbor
Boulevard), 5.125%, 9/1/19
(MBIA)(4) 3,467,450
2,000,000 Santa Clara Electric Rev.,
Series 1998 A, 5.00%, 7/1/27
(AMBAC) 1,989,360
2,000,000 Santa Margarita-Dana Point Auth.
Rev., Series 1994 B,
(Improvement Districts 3, 3A,
4, 4A), 7.25%, 8/1/14 (MBIA) 2,573,680
1,265,000 Sierra Valley Hospital District GO,
5.50%, 8/1/23 (MBIA) 1,331,349
2,500,000 South Coast Air Quality
Management District Building
GO, (Installment Sale
Headquarters), 6.00%,
8/1/11 (AMBAC) 2,894,075
See Notes to Financial Statements
www.americancentury.com 19
Cal. Insured Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (UNAUDITED)
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,500,000 Ukiah Electric Rev., 6.25%,
6/1/18 (MBIA) $ 2,939,925
1,445,000 Walnut Valley Unified School
District GO, Series 1992 B,
6.00%, 8/1/10 (AMBAC) 1,678,440
2,080,000 Watsonville Wastewater Rev.,
5.00%, 5/15/16 (MBIA) 2,100,509
4,525,000 Woodland COP, (Wastewater
System Reference), 5.75%,
3/1/12 (AMBAC) 5,079,901
-------------
TOTAL MUNICIPAL SECURITIES 217,458,514
-------------
(Cost $203,044,118)
MUNICIPAL DERIVATIVES(5)--2.8%
2,000,000 East Bay Municipal Utility District
Wastewater Treatment System
Rev., Yield Curve Notes, Inverse
Floater, 6.82%, 6/1/13
(AMBAC) 2,195,000
1,000,000 San Diego County Water Auth.
Rev. COP, (Reg Rites), Yield
Curve Notes, Inverse Floater,
7.25%, 5/1/09 (FGIC) 1,236,250
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,750,000 Southern California Public Power
Auth. Rev., Yield Curve Notes,
Inverse Floater, 6.62%, 7/1/17
(FGIC) $ 3,080,000
-------------
TOTAL MUNICIPAL DERIVATIVES 6,511,250
-------------
(Cost $5,838,430)
SHORT-TERM MUNICIPAL SECURITIES--2.0%
2,000,000 California Health Facilities
Financing Auth. Rev., Series
1996 B, VRDN, 3.10%, 3/1/99 2,000,000
1,500,000 California State Economic
Development Financing Auth.
Rev., Series 1998 C, VRDN,
3.50%, 3/1/99 1,500,000
1,000,000 California Statewide Community
Development Auth. Rev.,
Floating Rate Trust Receipts,
2.95%, 3/3/99 (Acquired
2/26/99, Cost $1,000,000)(6)(7) 1,000,000
-------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 4,500,000
-------------
(Cost $4,500,000)
TOTAL INVESTMENT SECURITIES--100.0% $228,469,764
=============
(Cost $213,382,548)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
BIGI = Bond Investor's Guaranty Inc.
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
February 28, 1999.
(1) Escrowed to maturity in U.S. Government securities or state and local
government securities.
(2) Step-coupon security. Yield to maturity at purchase is indicated. These
securities become interest bearing at a predetermined rate and future date
and 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) 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.
(6) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement, and unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of these securities at February 28, 1999, was $1,000,000,
which represented 0.4% of net assets.
(7) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 28, 1999.
- --------------------------------------------------------------------------------
UNDERSTANDING THE SCHEDULE OF INVESTMENTS--This schedule tells you which
investments your fund owned on the last day of the reporting period.
The schedule includes:
* a list of each investment
* the principal amount of each investment
* the market value of each investment
See Notes to Financial Statements
20 1-800-345-2021
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (UNAUDITED)
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
ASSETS
Investment securities, at value
(identified cost of $328,205,622 and
$213,382,548 respectively) (Note 3) .......... $341,511,271 $228,469,764
Investment in affiliated money
market fund (Note 2) ......................... 8,639 8,759
Cash ........................................... 1,075,515 471,398
Interest receivable ............................ 6,125,299 3,393,379
------------ ------------
348,720,724 232,343,300
------------ ------------
LIABILITIES
Payable for investments purchased .............. 5,618,681 3,349,395
Payable for capital shares redeemed ............ 494,460 236,222
Accrued management fees (Note 2) ............... 138,599 88,504
Dividends payable .............................. 94,942 62,429
Payable for trustees' fees
and expenses ................................. 779 527
------------ ------------
6,347,461 3,737,077
------------ ------------
Net Assets ..................................... $342,373,263 $228,606,223
============ ============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ........................ 34,893,379 21,714,314
============ ============
Net Asset Value Per Share ...................... $ 9.81 $ 10.53
============ ============
NET ASSETS CONSIST OF:
Capital paid in ................................ $329,066,752 $213,200,784
Accumulated undistributed net
realized gain on investment
transactions ................................. 862 318,223
Net unrealized appreciation
on investments (Note 3) ...................... 13,305,649 15,087,216
------------ ------------
$342,373,263 $228,606,223
============ ============
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF ASSETS AND LIABILITIES--This statement details
what the fund owns (assets), what it owes (liabilities), and its net assets as
of the last day of the period. If you subtract what the fund owes from what it
owns, you get the fund's net assets. The net assets divided by the total number
of shares outstanding gives you the price of an individual share, or the net
asset value per share.
NET ASSETS are also broken down by capital (money invested by shareholders); net
gains earned on investments but not yet paid to shareholders or net losses on
investments (known as realized gains or losses); and finally, gains or losses on
securities still owned by the fund (known as unrealized appreciation or
depreciation). This breakdown tells you the value of net assets that are
performance-related, such as investment gains or losses, and the value of net
assets that are not related to performance, such as shareholder investments and
redemptions.
See Notes to Financial Statements
www.americancentury.com 21
Statements of Operations
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
HIGH-YIELD INSURED
MUNICIPAL TAX-FREE
INVESTMENT INCOME
Income:
Interest ................................... $ 8,763,384 $ 5,748,750
----------- -----------
Expenses (Note 2):
Management fees ............................ 841,595 554,669
Trustees' fees and expenses ................ 5,900 4,369
----------- -----------
847,495 559,038
----------- -----------
Net investment income ...................... 7,915,889 5,189,712
----------- -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain on investments ........... 1,447,884 806,053
Change in net unrealized
appreciation on investments .............. (1,890,452) (1,268,735)
----------- -----------
Net realized and unrealized
loss on investments ...................... (442,568) (462,682)
----------- -----------
Net Increase in Net Assets
Resulting from Operations ................ $ 7,473,321 $ 4,727,030
=========== ===========
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF OPERATIONS--This statement breaks down how each
fund's net assets changed during the period as a result of the fund's
operations. It tells you how much money the fund made or lost after taking into
account income, fees and expenses, and investment gains or losses. It does not
include shareholder transactions and distributions.
Fund OPERATIONS include:
* income earned from investments
* management fees and other expenses
* gains or losses from selling investments (known as realized gains or losses)
* gains or losses on current fund holdings (known as unrealized appreciation or
depreciation)
See Notes to Financial Statements
22 1-800-345-2021
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
SIX MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND YEAR ENDED AUGUST 31, 1998
HIGH-YIELD MUNICIPAL INSURED TAX-FREE
Increase in Net Assets 1999 1998 1999 1998
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............... $ 7,915,889 $ 12,677,129 $ 5,189,712 $ 9,928,056
Net realized gain on investments .... 1,447,884 2,562,512 806,053 1,583,804
Change in net unrealized
appreciation on investments ....... (1,890,452) 6,311,903 (1,268,735) 5,870,522
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ......... 7,473,321 21,551,544 4,727,030 17,382,382
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .......... (7,934,700) (12,677,129) (5,189,712) (9,928,056)
From net realized gains on
investment transactions ........... (3,429,593) (2,545,652) (1,169,516) (2,921,262)
------------- ------------- ------------- -------------
Decrease in net assets
from distributions ................ (11,364,293) (15,222,781) (6,359,228) (12,849,318)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........... 92,105,967 181,804,274 42,920,146 82,053,478
Proceeds from reinvestment
of distributions .................. 8,089,596 11,152,218 4,499,696 8,954,545
Payments for shares redeemed ........ (57,772,868) (88,275,006) (32,690,638) (69,176,578)
------------- ------------- ------------- -------------
Net increase in net assets from
capital share transactions ........ 42,422,695 104,681,486 14,729,204 21,831,445
------------- ------------- ------------- -------------
Net increase in net assets .......... 38,531,723 111,010,249 13,097,006 26,364,509
NET ASSETS
Beginning of period ................. 303,841,540 192,831,291 215,509,217 189,144,708
------------- ------------- ------------- -------------
End of period ....................... $ 342,373,263 $ 303,841,540 $ 228,606,223 $ 215,509,217
============= ============= ============= =============
Undistributed net investment
income ............................ -- $ 18,811 -- --
============= ============= ============= =============
TRANSACTIONS IN
SHARES OF THE FUNDS
Sold ................................ 9,305,384 18,553,052 4,045,979 7,856,824
Issued in reinvestment
of distributions .................. 818,052 1,137,993 424,129 855,798
Redeemed ............................ (5,824,261) (9,015,907) (3,081,616) (6,627,802)
------------- ------------- ------------- -------------
Net increase ........................ 4,299,175 10,675,138 1,388,492 2,084,820
============= ============= ============= =============
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING THE STATEMENTS OF CHANGES IN NET ASSETS--These statements show how
each fund's net assets changed over the past two reporting periods. It details
how much a fund grew or shrank as a result of:
* operations--a summary of the Statement of Operations from the previous page
for the most recent period
* distributions--income and gains distributed to shareholders
* share transactions--shareholders' purchases, reinvestments, and redemptions
Net assets at the beginning of the period plus the sum of operations,
distributions to shareholders and capital share transactions result in net
assets at the end of the period.
See Notes to Financial Statements
www.americancentury.com 23
Notes to Financial Statements
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 (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. California High-Yield Municipal Fund
(High-Yield) and California Insured Tax-Free Fund (Insured) (the funds) are two
of the seven funds issued by the trust. The funds are diversified under the 1940
Act. The funds seek income that 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 are in accordance with generally
accepted accounting principles; these principles may require the use of
estimates by fund management.
SECURITY VALUATIONS -- Portfolio securities are valued through 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 as of the
trade date. 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 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, 1999.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
24 1-800-345-2021
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
FEBRUARY 28, 1999 (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 fee is calculated daily and paid
monthly. It consists of an Investment Category Fee based on the average net
assets of the funds in a specific fund's investment category and a Complex Fee
based on the average net assets of all the funds managed by ACIM. The rates for
the Investment Category Fee range from 0.1925% to 0.3100% and 0.1625% to
0.2800%, for High-Yield and Insured, respectively. The rates for the Complex Fee
range from 0.2900% to 0.3100%. For the six months ended February 28, 1999, the
effective annual management fee was 0.54% and 0.51% for High-Yield and Insured,
respectively.
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, and the
trust's transfer agent, American Century Services Corporation.
As of February 28, 1999, High-Yield had invested $8,639 in shares of
California Municipal Money Market Fund (Municipal Money Market) and Insured had
invested $8,759 in shares of 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.
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
High-Yield and Insured totaled $108,218,495 and $52,001,474, respectively. Sales
of investment securities, excluding short-term investments, for High-Yield and
Insured totaled $74,816,599 and $37,689,016, respectively.
As of February 28, 1999, accumulated net unrealized appreciation for
High-Yield and Insured was $13,305,649 and $15,087,216 respectively, which
consisted of unrealized appreciation of $13,893,210 and $15,549,990,
respectively, and unrealized depreciation of $587,561 and $462,774 respectively.
The aggregate cost of investments for federal income tax purposes was the same
as the cost for financial reporting purposes.
- --------------------------------------------------------------------------------
4. BANK LOANS
Effective December 18, 1998, the funds, along with certain other funds
managed by ACIM, entered into an unsecured $570,000,000 bank line of credit
agreement with Chase Manhattan Bank. Borrowings under the agreement bear
interest at the Federal Funds rate plus 0.40%. The funds may borrow money for
temporary or emergency purposes to fund shareholder redemptions. The funds did
not borrow from the line during the period December 18, 1998 through February
28, 1999.
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
The following name changes became effective March 1, 1999:
==================================================================
NEW NAME FORMER NAME
==================================================================
FUND: California High-Yield American Century - Benham California
Municipal Fund High-Yield Municipal Fund
FUND: California Insured American Century - Benham California
Tax-Free Fund Insured Tax-Free Fund
www.americancentury.com 25
<TABLE>
<CAPTION>
Cal. High-Yield Municipal--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
1999(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period ............... $9.93 $9.68 $9.27 $9.11 $9.06 $9.66
--------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income ........... 0.25 0.51 0.55 0.56 0.56 0.56
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions .................... (0.01) 0.37 0.41 0.16 0.05 (0.48)
--------- -------- -------- -------- -------- --------
Total From Investment
Operations ...................... 0.24 0.88 0.96 0.72 0.61 0.08
--------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ...... (0.25) (0.51) (0.55) (0.56) (0.56) (0.56)
From Net Realized Gains ......... (0.11) (0.12) -- -- -- (0.12)
--------- -------- -------- -------- -------- --------
Total Distributions ............. (0.36) (0.63) (0.55) (0.56) (0.56) (0.68)
--------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period ..................... $9.81 $9.93 $9.68 $9.27 $9.11 $9.06
========= ======== ======== ======== ======== ========
Total Return(2) ................. 2.40% 9.35% 10.61% 8.02% 7.09% 0.87%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets .............0.54%(3) 0.54% 0.50% 0.51% 0.51% 0.51%
Ratio of Net Investment Income
to Average Net Assets .............5.03%(3) 5.23% 5.77% 5.99% 6.30% 6.02%
Portfolio Turnover Rate ........... 24% 36% 46% 36% 40% 43%
Net Assets, End of Period
(in thousands) ....................$342,373 $303,842 $192,831 $144,675 $116,166 $116,000
</TABLE>
(1) Six months ended February 28, 1999 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
26 1-800-345-2021
<TABLE>
<CAPTION>
Cal. Insured Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED)
1999(1) 1998 1997 1996 1995 1994
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period .............. $10.60 $10.37 $10.00 $9.89 $9.67 $10.64
---------- --------- --------- --------- --------- ---------
Income From Investment
Operations
Net Investment Income .......... 0.25 0.51 0.53 0.53 0.53 0.53
Net Realized and Unrealized
Gain (Loss) on Investment
Transactions ................... (0.01) 0.39 0.37 0.11 0.22 (0.69)
---------- --------- --------- --------- --------- ---------
Total From Investment
Operations ..................... 0.24 0.90 0.90 0.64 0.75 (0.16)
---------- --------- --------- --------- --------- ---------
Distributions
From Net Investment Income ..... (0.25) (0.51) (0.53) (0.53) (0.53) (0.53)
From Net Realized Gains ........ (0.06) (0.16) -- -- -- (0.21)
In Excess of Net
Realized Gains ................. -- -- -- -- -- (0.07)
---------- --------- --------- --------- --------- ---------
Total Distributions ............ (0.31) (0.67) (0.53) (0.53) (0.53) (0.81)
---------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period .................... $10.53 $10.60 $10.37 $10.00 $9.89 $9.67
========== ========= ========= ========= ========= =========
Total Return(2) ................ 2.23% 8.96% 9.25% 6.60% 8.09% (1.68)%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51%(3) 0.51% 0.48% 0.49% 0.50% 0.49%
Ratio of Net Investment Income
to Average Net Assets ............ 4.72%(3) 4.91% 5.23% 5.30% 5.54% 5.20%
Portfolio Turnover Rate .......... 17% 31% 46% 43% 40% 47%
Net Assets, End of Period
(in thousands) ................... $228,606 $215,509 $189,145 $191,811 $178,913 $189,439
</TABLE>
(1) Six months ended February 28, 1999 (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.
- --------------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS--This statement itemizes current period
activity and statistics and provides comparison data for the last five fiscal
years.
On a per-share basis, it includes:
* share price at the beginning of the period
* investment income and capital gains or losses
* income and capital gains distributions paid to shareholders
* share price at the end of the period
It also includes some key statistics for the period:
* total return--the overall percentage return of the fund, assuming reinvestment
of all distributions
* expense ratio--operating expenses as a percentage of average net assets
* net income ratio--net investment income as a percentage of average net assets
* portfolio turnover--the percentage of the portfolio that was replaced during
the period
See Notes to Financial Statements
www.americancentury.com 27
Background Information
- --------------------------------------------------------------------------------
INVESTMENT PHILOSOPHY AND POLICIES
American Century offers 38 fixed-income funds, ranging from money market
portfolios to long-term bond funds and including both taxable and tax-exempt
funds. Each 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 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 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.
[left margin]
INVESTMENT TEAM LEADERS
PORTFOLIO MANAGERS
DAVE MACEWEN
STEVEN PERMUT
CREDIT RESEARCH MANAGER
STEVEN PERMUT
CREDIT RATING GUIDELINES
CREDIT RATINGS ARE ISSUED BY INDEPENDENT RESEARCH COMPANIES SUCH AS
STANDARD & POOR'S AND MOODY'S. THEY ARE BASED ON AN ISSUER'S FINANCIAL STRENGTH
AND ABILITY TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.
SECURITIES RATED AAA, AA, A, OR BBB ARE CONSIDERED "INVESTMENT-GRADE"
SECURITIES, MEANING THEY ARE RELATIVELY SAFE FROM DEFAULT. CALIFORNIA HIGH-YIELD
INSURED MAY INVEST UP TO 50% OF ITS PORTFOLIO IN SECURITIES THAT ARE BELOW
INVESTMENT GRADE OR NOT RATED. HERE ARE THE MOST COMMON CREDIT RATINGS AND THEIR
DEFINITIONS:
* AAA--EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* AA--VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* A--STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BBB--GOOD ABILITY TO MEET FINANCIAL OBLIGATIONS.
* BB--LESS VULNERABLE TO DEFAULT THAN OTHER LOWER-QUALITY ISSUES BUT DO NOT
QUITE MEET INVESTMENT-GRADE STANDARDS.
IT'S IMPORTANT TO NOTE THAT CREDIT RATINGS ARE SUBJECTIVE, REFLECTING THE
OPINIONS OF THE RATING AGENCIES; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY.
28 1-800-345-2021
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
* 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 (GENERAL OBLIGATION) BONDS--securities backed by the taxing power of the
issuer.
www.americancentury.com 29
Glossary
- --------------------------------------------------------------------------------
(Continued)
* 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).
FUND CLASSIFICATIONS
INVESTMENT OBJECTIVE
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
* CAPITAL PRESERVATION--Offers taxable and tax-free money market funds for
relative stability of principal and liquidity, allowing maximum portfolio
diversification.
* INCOME--Offers funds that can provide current income and competitive yields,
as well as a strong and stable foundation and generally lower volatility levels
than stock funds.
* GROWTH & INCOME--Offers funds that emphasize both growth and income,
diversification, varying capitalization sizes, and different investment styles
and strategies.
* GROWTH--Offers funds with a focus on capital appreciation and long-term
growth, generally providing high return potential with corresponding high price
fluctuation risk.
RISK
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that the fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
* CONSERVATIVE--these funds generally provide lower return potential with either
low or minimal price fluctuation risk.
* MODERATE-- these funds generally provide moderate return potential with
moderate price fluctuation risk.
* AGGRESSIVE-- these funds generally provide high return potential with
corresponding high price fluctuation risk.
30 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 31
Notes
- --------------------------------------------------------------------------------
32 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Tax-Managed Value
Strategic Allocation -- Income & Growth
Moderate Value
Strategic Allocation -- Equity Income
Conservative
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
New Opportunities Global Gold Emerging Markets
Giftrust(reg.tm) International Discovery
Vista International Growth
Heritage Global Growth
Growth
Ultra
Select
RISK LEVEL - MODERATE
SPECIALTY
Global Natural Resources
The investment objective may be based on the fund's objective as stated in its
prospectus or fund profile, or the fund's categorization by independent rating
organizations based on its management style.
The classification of funds by risk category is based on quantitative historical
measures as well as qualitative prospective measures. It is not intended to be a
precise indicator of future risk or return levels. The degree of risk within
each category can vary significantly, and some fund returns have historically
been higher than more aggressive funds or lower than more conservative funds.
Please be aware that a fund's category may change over time. Therefore, it is
important that you read a fund's prospectus or fund profile carefully before
investing to ensure its objectives, policies and risk potential are consistent
with your needs.
For a definition of fund categories, see the Glossary.
* While listed within the Income investment objective, the Target funds do not
pay current dividend income. Income dividends are distributed once a year in
December. The Target funds are listed in all three risk categories due to the
dramatic price volatility investors may experience during certain market
conditions. If held to their target dates, however, they can offer a
conservative, dependable way to invest for a specific time horizon.
Please call for a prospectus or profile on any American Century fund. These
documents contain important information including charges and expenses, and you
should read them carefully before you invest or send money.
[back cover]
[american century logo(reg.sm)]
American
Century
P.O. BOX 419200
KANSAS CITY, MISSOURI 64141-6200
WWW.AMERICANCENTURY.COM
INVESTOR RELATIONS
1-800-345-2021 OR 816-531-5575
AUTOMATED INFORMATION LINE
1-800-345-8765
FAX: 816-340-7962
TELECOMMUNICATIONS DEVICE FOR THE DEAF
1-800-634-4113 OR 816-444-3485
BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS
1-800-345-3533
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.
American Century Investments BULK RATE
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
9904 Funds Distributor, Inc.
SH-BKT-15979 (c)1999 American Century Services Corporation
