[front cover]
AUGUST 31, 1999
ANNUAL REPORT
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AMERICAN CENTURY
[graphic of stairs]
CALIFORNIA TAX-FREE MONEY MARKET
CALIFORNIA MUNICIPAL MONEY MARKET
[american century logo(reg. sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY
DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain
operations in the event of any Y2K-related incidents. We have conducted
practice drills of contingency scenarios and will continue to refine our plans
during the rest of 1999 to respond quickly and effectively so that the date
change is as seamless as possible for investors. We expect the Year 2000 to be
business as usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
CALIFORNIA TAX-FREE MONEY MARKET
(BCTXX)
- -----------------------------------
CALIFORNIA MUNICIPAL MONEY MARKET
(BNCXX)
- -----------------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF
AMERICAN CENTURY FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
- --------------------------------------------------------------------------------
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Our Message to You
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[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
Strong economic growth, increasing inflation anxiety, and rising interest
rates set the tone for the U.S. bond market in 1999. These factors helped
determine the performance of American Century's California municipal funds for
the fiscal year ended August 31, 1999.
Municipal bond funds enjoyed gains during the second half of 1998 when
interest rates fell and bond markets rallied. Those positive returns were
largely negated in 1999, however, as the recovery of overseas economies and
unabated U.S. growth reignited inflation fears and sent interest rates soaring.
While the Federal Reserve (the Fed--the U.S. central bank) saw fit to cut
short-term interest rates three times during the fall of 1998, the Fed raised
rates twice during the summer of 1999.
Though market behavior and Fed interest rate policy swung from one extreme
to the other, one thing that remained remarkably consistent was the performance
of the American Century California municipal funds against their peers. All
seven of our California municipal money market and bond funds provided higher
tax-free yields and lower expenses than the average of their Lipper Inc. peer
groups. That's a hallmark of the American Century municipal investment approach.
The strength of our municipal investment and credit research teams also
contributed to fund performance. The investment and credit teams, as well as
fund investors, have benefited from our commitment to build and maintain a
talented fund management group. American Century's entire investment management
team has doubled in size over the past three years.
In addition to strengthening our portfolio and research staff, we've
recently made strategic investments in several other financial companies,
including Archipelago, Tradepoint Financial Networks, W.R. Hambrecht, and
WorldStreet Corporation. These investments demonstrate our active support of the
development and use of technologies that improve the efficiencies of capital
markets, lower trading costs, and ultimately offer better returns for
shareholders.
One final note--in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our continued diligence in
this area is very important to you.
As always, we appreciate your continued confidence in American Century.
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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Frequently Asked
Questions ........................................................... 3
CALIFORNIA TAX-FREE MONEY MARKET
Performance Information ................................................ 4
Portfolio at a Glance .................................................. 4
Management Q&A ......................................................... 5
Portfolio Composition
by Credit Rating .................................................... 5
Types of Investments ................................................... 5
Schedule of Investments ................................................ 6
CALIFORNIA MUNICIPAL MONEY MARKET
Performance Information ................................................ 10
Portfolio at a Glance .................................................. 10
Management Q&A ......................................................... 11
Portfolio Composition
by Credit Rating .................................................... 11
Types of Investments ................................................... 11
Schedule of Investments ................................................ 12
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 15
Statements of Operations ............................................... 16
Statements of Changes
in Net Assets ....................................................... 17
Notes to Financial
Statements .......................................................... 18
Financial Highlights ................................................... 19
Report of Independent
Accountants ......................................................... 21
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 22
Lipper Rankings ..................................................... 22
Credit Rating
Guidelines ....................................................... 22
Investment Team
Leaders .......................................................... 22
Glossary ............................................................... 23
www.americancentury.com 1
Report Highlights
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CALIFORNIA TAX-FREE MONEY MARKET
* California Tax-Free Money Market produced more state and federal tax-free
income and had higher returns than the average California money market
fund in the fiscal year ended August 31, 1999.
* One reason the portfolio delivered such good relative performance is that
it has lower-than-average management expenses. Other things being equal,
lower expenses mean higher yields and returns for our shareholders.
* We were also able to produce very competitive yields because we've developed
excellent working relationships with those dealers that offer attractive
rates on California money market securities.
* The fund's yield increased significantly during the fiscal year. That's
primarily because the Federal Reserve raised interest rates twice during
the summer to try to cool the economy and head off inflation.
* Though interest rates are higher overall, yields on California money market
securities are below national levels. California's healthy economy has
reduced state and local borrowing needs. That means less supply, while
demand for state tax-free securities remains high.
* We'd like to lock in higher rates by extending the fund's average maturity,
but we'll likely wait until yields on California securities become more
attractive relative to national levels.
CALIFORNIA MUNICIPAL MONEY MARKET
* California Municipal Money Market provided shareholders more state and
federal tax-free income than the average California money market fund. The
fund's return ranked in the top 15% of the Lipper group (see page 10 for
complete ranking information).
* California Municipal Money Market's yield and return are higher than those
of California Tax-Free Money Market because the municipal fund holds
securities subject to the federal alternative minimum tax (AMT). AMT
securities typically offer higher yields than non-AMT securities.
California Municipal Money Market is most appropriate for investors who do
not file under the AMT.
* The key to the fund's solid relative performance is our below-average
management fees. Other things being equal, lower expenses mean higher
yields and returns for our shareholders.
* Though the portfolio's yield increased during the year, interest rates on
California money market securities lagged those on national money market
instruments. California's healthy economy has reduced state and local
borrowing needs at a time when demand for state tax-free securities is
high.
* Looking ahead, we'd like to lock in higher rates by extending the fund's
average maturity, but we'll likely wait until yields on California
securities become more attractive relative to national levels.
[left margin]
CALIFORNIA TAX-FREE MONEY MARKET
(BCTXX)
TOTAL RETURNS: AS OF 8/31/99
6 Months 1.31%*
1 Year 2.62%
7-DAY CURRENT YIELD: 2.54%
INCEPTION DATE: 11/9/83
NET ASSETS: $558.2 million
CALIFORNIA MUNICIPAL MONEY MARKET
(BNCXX)
TOTAL RETURNS: AS OF 8/31/99
6 Months 1.39%*
1 Year 2.76%
7-DAY CURRENT YIELD: 2.67%
INCEPTION DATE: 12/31/90
NET ASSETS: $180.0 million
* Not annualized.
Investment terms are defined in the Glossary on pages 23-24.
2 1-800-345-2021
Money Market Funds--Frequently Asked Questions
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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 by calling an Investor Relations
Representative, using our Automated Information Line, or visiting our Web
site, the investor first must have provided us with written authorization
to do so.
A FASTER AND EASIER WAY TO DEPOSIT MUTUAL FUND DISTRIBUTIONS
If you prefer to have your fund dividend or capital gains distributions sent to
you instead of reinvesting them, there are a couple of ways to 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
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TOTAL RETURNS AS OF AUGUST 31, 1999
CALIFORNIA TAX-FREE CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 1.31% 1.24% --
1 YEAR 2.62% 2.47% 12 OUT OF 51
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 2.97% 2.81% 10 OUT OF 48
5 YEARS 3.07% 2.93% 10 OUT OF 43
10 YEARS 3.20% 3.16% 10 OUT OF 25
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 22-23 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
8/31/99 8/31/98
NUMBER OF SECURITIES 96 91
WEIGHTED AVERAGE
MATURITY 51 DAYS 34 DAYS
EXPENSE RATIO 0.50% 0.50%
Investment terms are defined in the Glossary on pages 23-24.
YIELDS AS OF AUGUST 31, 1999
7-DAY CURRENT YIELD 2.54%
7-DAY EFFECTIVE YIELD 2.57%
7-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 3.89%
37.42% TAX BRACKET 4.06%
41.95% TAX BRACKET 4.37%
45.22% TAX BRACKET 4.64%
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
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[photo of Todd Pardula]
An interview with Todd Pardula, a portfolio manager on the California
Tax-Free Money Market fund investment team.
HOW DID CALIFORNIA TAX-FREE MONEY MARKET PERFORM DURING THE FISCAL YEAR ENDED
AUGUST 31, 1999?
California Tax-Free Money Market produced a total return of 2.62%. That's
better than the average California tax-exempt money market fund, which returned
2.47% for the same period, according to Lipper Inc. California Tax-Free Money
Market's return was good enough to rank in the top quarter of the Lipper group.
(See the previous page for additional fund performance comparisons.)
HOW DOES THE PORTFOLIO'S YIELD COMPARE?
The fund continued to provide shareholders with more state and federal
tax-free income than the average California money fund. California Tax-Free
Money Market's 7-day effective yield on August 31, 1999, was 2.57%, while the
average yield of the 51 California tax-exempt money market funds tracked by
Lipper was 2.41%.
WHY DID CALIFORNIA TAX-FREE MONEY MARKET PRODUCE BETTER YIELDS AND RETURNS THAN
ITS LIPPER GROUP?
The key to the portfolio's solid 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 the fund performed well was our ability to buy securities at
attractive yields and prices. We're able to do that because we've developed
solid working relationships with securities dealers who offer very good rates on
California money market securities.
We also made some good judgment calls about the market. For example, we
decided not to buy some notes issued in early June because of their low yields.
That turned out to be a good move because new issues came to market a few weeks
later offering yields 25 basis points higher. (A basis point equals 0.01%, so 25
basis points equal 0.25%.)
CALIFORNIA TAX-FREE MONEY MARKET'S YIELD INCREASED, PARTICULARLY IN THE PAST SIX
MONTHS. WHY?
Money market yields are higher primarily because the Federal Reserve raised
interest rates twice in the last six months to try to cool the economy and head
off potential inflation. In addition, the market expects at least one more rate
hike.
But it's worth noting that yields on California money market securities are
low relative to national levels. That's because demand for California securities
is high, while supply is lower than in years past because California's strong
economy has reduced security issuance.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We'd like to extend the average maturity slightly by adding some
higher-yielding one-year securities. However, we'll likely hold off on extending
the maturity until the difference in yield between California and national notes
returns to more normal levels.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/99 2/28/99
SP1+ 85% 79%
SP1 7% 11%
SP2 8% 10%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 22
for more information.
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF AUGUST 31, 1999
Variable-Rate Notes 74%
Put Bonds 10%
Municipal Notes 7%
Commercial Paper 6%
Bonds <1 Year 3%
AS OF FEBRUARY 28, 1999
Variable-Rate Notes 79%
Put Bonds 9%
Municipal Notes 5%
Bonds <1 Year 4%
Commercial Paper 3%
Investment terms are defined in the Glossary on pages 23-24.
www.americancentury.com 5
California Tax-Free Money Market--Schedule of Investments
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This schedule lists all investments owned by the fund, as well as each
security's amortized cost, as of the last day of the reporting period.
AUGUST 31, 1999
Principal Amount Value
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SHORT-TERM MUNICIPAL SECURITIES
$ 7,000,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-10,
VRDN, 3.10%, 9/1/99 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 8/19/98-3/8/99,
Cost $7,000,000)(1) $ 7,000,000
3,912,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-17,
VRDN, 3.10%, 9/1/99 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 11/18/98-3/9/99,
Cost $3,912,000)(1) 3,912,000
5,000,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-25,
VRDN, 3.20%, 12/1/99 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 12/2/98, Cost
$5,000,000)(1) 5,000,000
2,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Bentley School), VRDN, 2.80%,
9/1/99 (LOC: Banque
Nationale de Paris S.A.) 2,000,000
10,500,000 Avalon Community Improvement
Agency Tax Allocation Rev.,
(Community Improvement Area),
VRDN, 3.30%, 9/2/99 (LOC:
Union Bank of California, N.A.) 10,500,000
10,300,000 Azusa Multifamily Housing Rev.,
(Pacific Glen Apartments),
VRDN, 2.90%, 9/2/99 (FNMA
Collateral Agreement) 10,300,000
1,600,000 California Educational Facilities
Auth. Rev., (Mount St. Marys
College), VRDN, 2.80%,
9/1/99 (LOC: Allied Irish
Banks, PLC) 1,600,000
3,500,000 California Educational Facilities
Auth. Rev., Series 1998 A,
(University Judaism), VRDN,
2.90%, 9/2/99 (LOC: Allied
Irish Banks, PLC) 3,500,000
4,400,000 California Health Facilities Auth.
Rev., (Episcopal Home), VRDN,
3.15%, 9/1/99 (LOC: Union
Bank of California, N.A.) 4,400,000
910,000 California Health Facilities
Financing Auth. Rev., (Little Co.
Mary Health Service), 3.50%,
10/1/99 (AMBAC) 910,217
490,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Pooled Project),
VRDN, 2.90%, 9/1/99 (LOC:
Rabobank Nederland N.V.) 490,000
Principal Amount Value
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$ 3,500,000 California Health Facilities
Financing Auth. Rev., Series
1995 C, (Catholic Healthcare
West), VRDN, 2.75%, 9/1/99
(MBIA) (SBBPA: Rabobank
Nederland N.V.) $ 3,500,000
8,400,000 California Health Facilities
Financing Auth. Rev., Series
1996 D, (Catholic Healthcare),
VRDN, 2.75%, 9/1/99 (MBIA)
(SBBPA: Rabobank
Nederland N.V.) 8,400,000
7,460,000 California Housing Finance Agency
Rev., Series 1999 I, VRDN,
2.85%, 9/1/99 (MBIA)
(SBBPA: Westdeutsche
Landesbank Girozentral) 7,460,000
1,000,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA Inc.), VRDN, 3.10%,
11/15/99 (Guaranteed: Chevron
Corp.) 1,000,000
10,500,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA Inc.), VRDN, 3.10%,
5/15/00 (Guaranteed: Chevron
Corp.) 10,500,000
1,550,000 California Pollution Control
Financing Auth. Rev., Series
1986 B, (Southern California
Edison), VRDN, 2.60%, 9/1/99
(Guaranteed: Southern
California Edison Company) 1,550,000
5,000,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, VRDN,
3.15%, 9/15/99 (LOC:
National Westminster Bank PLC) 5,000,000
4,000,000 California State Economic
Development Financing Auth.
Rev., Series 1998 C, VRDN,
2.55%, 9/1/99 (LOC: Bank of
America N.T. & S.A.) 4,000,000
3,895,000 California State GO, VRDN,
3.04%, 9/2/99 (MBIA)
(SBBPA: Merrill Lynch & Co.,
Inc.) (Acquired 5/3/99, Cost
$3,895,000)(1) 3,895,000
5,000,000 California Statewide Communities
Apartment Development Auth.
Rev., (Whispering Winds
Apartments), VRDN, 2.80%,
9/1/99 (LOC: Rabobank
Nederland N.V.) 5,000,000
7,475,000 California Statewide Communities
Development Auth. Rev., Fixed
Rate Trust Receipts, 3.35%,
9/30/99 (FSA) (Acquired
4/29/99, Cost $7,475,000)(1) 7,475,000
6 1-800-345-2021 See Notes to Financial Statements
California Tax-Free Money Market--Schedule of Investments
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(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 7,700,000 California Statewide COP,
(Covenant Retirement
Community), VRDN, 3.125%,
9/2/99 (LOC: LaSalle National
Bank) $ 7,700,000
13,000,000 California Transportation Finance
Auth. Rev., VRDN, 2.90%,
9/1/99 (FSA) (SBBPA: Credit
Suisse First Boston) 13,000,000
6,840,000 Contra Costa County COP, VRDN,
3.10%, 9/1/99 (MBIA)
(SBBPA: Bank of New York)
(Acquired 6/10/99, Cost
$6,840,000)(1) 6,840,000
5,125,000 Covina Redevelopment Agency
Multifamily Housing Rev.,
(Shadowhills Apartments),
VRDN, 2.90%, 9/2/99 (FNMA
Collateral Agreement) 5,125,000
6,500,000 East Bay Municipal Utility District
Commercial Paper, 3.25%,
10/14/99 (SBBPA:
Westdeutsche Landesbank
Girozentrale) 6,500,000
8,000,000 East Bay Municipal Utility District
Commercial Paper, 2.95%,
9/7/99 (SBBPA: Westdeutsche
Landesbank Girozentrale) 8,000,000
2,990,000 Fillmore Public Financing Auth.
Tax Allocation, Series 1998 B,
(Central City Redevelopment),
VRDN, 2.90%, 9/2/99 (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) 990,000
1,000,000 Fremont Unified High School
District Santa Clara County GO,
Series 1998 A, 7.00%, 9/1/99
(FGIC) 1,000,000
2,000,000 Glendale Industrial Development
Auth. Rev., (Reliance
Development), VRDN, 3.50%,
9/15/99 (LOC: Bank of
Montreal) 2,000,000
5,500,000 Golden Empire Schools Financing
Auth. Rev., Series 1995 A,
(Kern High School District),
VRDN, 2.95%, 9/1/99 (LOC:
National Westminster Bank PLC
and Canadian Imperial Bank of
Commerce) 5,500,000
2,000,000 Hacienda La Puente Unified
School District COP, VRDN,
3.20%, 9/2/99 (LOC: Union
Bank of California, N.A.) 2,000,000
1,120,000 Hanford COP, (Public IMPC Corp.),
VRDN, 3.30%, 9/2/99 (LOC:
Union Bank of California, N.A.) 1,120,000
6,055,000 Hanford Sewer Rev., Series
1996 A, VRDN, 3.30%,
9/2/99 (LOC: Union Bank of
California, N.A.) 6,055,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,200,000 Helix Water District COP, Series
1999 A, 7.25%, 4/1/00 (FSA) $ 1,224,801
3,500,000 Hemet Multifamily Housing Auth.
Rev., (Sunwest Resort), VRDN,
2.75%, 9/2/99 (LOC: FHLB) 3,500,000
4,200,000 Hemet Multifamily Housing Auth.
Rev., (West Acacia), VRDN,
2.85%, 9/2/99 (LOC: FHLB) 4,200,000
2,900,000 Irvine Ranch Water District Rev.,
Series 1985 B, (Consolidated
Bonds), VRDN, 2.50%, 9/1/99
(LOC: Landesbank
Hessen-Thuringen Girozentrale) 2,900,000
15,900,000 Kern County Superintendent of
Schools COP, Series 1996 A,
VRDN, 2.95%, 9/2/99 (LOC:
Anchor National Life Insurance
Company) 15,900,000
4,250,000 Lancaster Redevelopment Agency
Rev., Series 1996 C, (20th
Street Apartments), VRDN,
2.90%, 9/2/99 (LOC: FHLB) 4,250,000
2,100,000 Lemore COP, (Golf Course),
VRDN, 3.20%, 9/2/99 (LOC:
Union Bank of California, N.A.) 2,100,000
2,900,000 Loma Linda Water Rev., VRDN,
3.15%, 9/1/99 (LOC: Union
Bank of California, N.A.) 2,900,000
8,350,000 Los Angeles Community
Redevelopment Agency Rev.,
VRDN, 2.95%, 9/2/99 (LOC:
Barclays Bank PLC) 8,350,000
1,000,000 Los Angeles COP, (Municipal
Improvement Corp., Project H),
3.00%, 11/1/99 (AMBAC) 1,000,000
9,600,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1993 A,
(Proposition C, Second Series),
VRDN, 2.75%, 9/2/99 (MBIA)
(SBBPA: Credit Locale de
France) 9,600,000
9,800,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
VRDN, 2.80%, 9/1/99 (FGIC)
(SBBPA: Bayerische
Landesbank Girozentrale) 9,800,000
6,496,000 Los Angeles Multifamily Housing
Rev., Series 1985 C, (Studio
Colony), VRDN, 2.90%, 9/2/99
(LOC: Bank One Arizona, N.A.) 6,496,000
33,000,000 Los Angeles Multifamily Housing
Rev., Series 1985 K, VRDN,
2.70%, 9/7/99 (LOC: FHLB) 33,000,000
3,350,000 Los Angeles Municipal
Improvement Corp. Lease Rev.,
Series 1999 E, (Police
Emergency), 4.00%, 9/1/00
(AMBAC) 3,367,865
See Notes to Financial Statements www.americancentury.com 7
California Tax-Free Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$20,000,000 Los Angeles Unified School
District Floating Rate Trust
Receipts, 3.10%, 9/8/99
(SBBPA: Bank of New York)
(Acquired 7/1/99, Cost
$20,000,000)(1)(2) $ 20,000,000
2,635,000 Maywood Public Financing Auth.
Tax Allocation, VRDN, 3.00%,
9/2/99 (LOC: Allied Irish
Banks, PLC) 2,635,000
5,000,000 Metropolitan Water District
Commercial Paper, 3.25%,
9/13/99 (SBBPA: Westdeutsch
Landesbank Girozentrale) 5,000,000
2,000,000 Modesto Multifamily Housing Rev.,
Series 1996 A, (Shadowbrook),
VRDN, 3.10%, 9/2/99 (LOC:
Bank of America N.T. & S.A.) 2,000,000
2,025,000 Modesto Special Tax, (Community
Facilities District No. 98-1),
VRDN, 2.90%, 9/2/99 (LOC:
Wells Fargo Bank, N.A.) 2,025,000
1,880,000 Moreno Valley COP, (City Hall
Refinancing), VRDN, 3.30%,
9/2/99 (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,
2.90%, 9/2/99 (LOC: Wells
Fargo Bank, N.A.) 1,500,000
14,000,000 Oceanside Multifamily Housing
Rev., (Lakeridge Apartments),
VRDN, 3.45%, 9/1/99
(Guaranteed: Continental
Casualty Co.) 14,000,000
8,380,000 Orange County Apartment
Development Rev., Series
1992 B, (Aliso Creek), VRDN,
2.75%, 9/2/99 (LOC: WFC
Holdings Corp.) 8,380,000
5,500,000 Orange County Sanitation District
COP, VRDN, 2.40%, 9/1/99
(LOC: National Westminster
Bank PLC) 5,500,000
5,000,000 Rancho Water District Financing
Auth. Rev., Series 1998 A,
VRDN, 2.75%, 9/1/99 (FGIC)
(SBBPA: General Electric
Capital Corp.) 5,000,000
2,500,000 Redwood City COP, (City Hall),
VRDN, 2.90%, 9/2/99 (LOC:
KBC Bank N.V.) 2,500,000
9,000,000 Rialto Public Financing Auth. Tax
Allocation, Series 1998 A,
(Agua Mansa & Industrial),
VRDN, 3.65%, 9/2/99 (LOC:
Union Bank of California, N.A.) 9,000,000
3,370,000 Riverside County Multifamily
Housing Rev., (Ambergate
Apartments), VRDN, 3.00%,
9/2/99 (LOC: Union Bank of
California, N.A.) 3,370,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,715,000 Rohnert Park Multifamily Housing
Rev., (Crossbrook Apartments),
VRDN, 2.75%, 9/1/99 (FNMA
Collateral Agreement) $ 1,715,000
6,800,000 Sacramento County Multifamily
Housing Rev., Series 1996 A,
VRDN, 2.80%, 9/1/99 (LOC:
California State Teachers'
Retirement System) 6,800,000
2,000,000 San Bernardino County COP,
(Medical Center Financing),
VRDN, 2.85%, 9/1/99 (MBIA)
(SBBPA: Landesbank
Hessen-Thuringen Girozentrale) 2,000,000
22,875,000 San Bernardino County COP,
VRDN, 3.04%, 9/2/99 (MBIA)
(SBBPA: Merrill Lynch & Co.,
Inc.) (Acquired
6/28/95-2/4/98, Cost
$22,875,000)(1) 22,875,000
25,500,000 San Bernardino County Multifamily
Housing Auth. Rev., 4.80%,
5/1/00 (LOC: National
Westminster Bank PLC)
(Acquired 4/27/99, Cost
$25,846,035)(1) 25,731,006
3,350,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1992 A, (Arrowview Park
Apartments), VRDN, 2.85%,
9/2/99 (LOC: FHLB) 3,350,000
1,800,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1993 A, (Monterey Villas
Apartments), VRDN, 2.85%,
9/2/99 (LOC: FHLB) 1,800,000
2,800,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1997 A, (Mountain View),
VRDN, 2.90%, 9/2/99
(LOC: FHLB) 2,800,000
4,200,000 San Diego Multifamily Housing
Rev., Series 1993 A, (Coral
Point Apartments), VRDN,
3.45%, 9/2/99 (Guaranteed:
Continental Casualty Co.) 4,200,000
3,500,000 San Diego Teeter Notes, 3.20%,
10/4/99 (LOC: Landesbank
Hessen-Thuringen Girozentrale) 3,500,000
2,800,000 San Diego Teeter Notes, 3.25%,
10/21/99 (LOC: Landesbank
Hessen-Thuringen Girozentrale) 2,800,000
5,000,000 San Diego Teeter Notes, 3.45%,
3/7/00 (LOC: Landesbank
Hessen-Thuringen Girozentrale) 5,000,000
3,000,000 San Diego Unified School District
Tax and Rev. Anticipation Notes,
Series 1998 A, 4.50%,
10/1/99 3,002,718
8 1-800-345-2021 See Notes to Financial Statements
California Tax-Free Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,000,000 San Francisco City and County
Redevelopment Agency
Multifamily Housing Rev., Series
1985 B, (Bayside Village),
VRDN, 2.80%, 9/2/99 (LOC:
Bank One Arizona, N.A.) $ 5,000,000
2,265,000 San Francisco City and County
Redevelopment Financing Auth.
Rev., (Yerba Buena Garden),
VRDN, 2.95%, 9/1/99 (LOC:
National Westminster Bank PLC) 2,265,000
1,000,000 San Francisco City and County
Sewer Rev., 6.50%, 10/1/99,
Prerefunded at 102% of Par(3) 1,023,165
2,400,000 San Francisco City and County
Unified School District Tax and
Rev. Anticipation Notes, 4.50%,
9/22/99 2,401,483
2,945,000 San Jose Financing Auth. Rev.,
Series 1998 B, (Hayes Mansion
Improvement), VRDN, 2.90%,
9/1/99 (AMBAC) (SBBPA:
Bank of Nova Scotia) 2,945,000
1,500,000 San Jose-Santa Clara Water
Financing Auth. Sewer Rev.,
Series 1997 A, 4.00%,
11/15/99 (AMBAC) 1,502,731
13,400,000 Santa Paula Public Financing Auth.
Lease Rev., (Water System
Acquisition), VRDN, 2.75%,
9/1/99 (LOC: California State
Teachers' Retirement System) 13,400,000
3,075,000 Simi Valley Multifamily Housing
Rev., Series 1993 A, VRDN,
2.75%, 9/2/99 (LOC: FHLMC) 3,075,000
35,000,000 South Coast Local Education
Agencies Tax & Rev. Anticipation
Notes, 4.00%, 6/30/00 (MBIA) 35,186,158
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,400,000 Triunfo Sanitation District Rev.,
VRDN, 3.00%, 9/1/99 (LOC:
Banque Nationale de Paris S.A.) $ 1,400,000
3,030,000 University of California Rev., Series
1999 J, (Multiple Purpose),
4.50%, 9/1/00 3,059,998
9,400,000 Vacaville Multifamily Mortgage
Rev., (Quail Run), VRDN, 2.70%,
9/1/99 (FNMA) 9,400,000
1,880,000 Vallejo Unified School District GO,
7.75%, 8/1/00 (FSA) 1,949,459
7,000,000 Watereuse Finance Auth. Rev.,
VRDN, 2.90%, 9/1/99 (FSA)
(SBBPA: Credit Suisse First
Boston) 7,000,000
4,000,000 West Basin Municipal Water
District Rev. COP, Series
1999 B, VRDN, 3.00%, 9/1/99
(LOC: Bayerische Hypo-Und
Vereinsbank AG) 4,000,000
1,900,000 West Hollywood COP, VRDN,
3.30%, 9/2/99 (LOC: Union
Bank of California, N.A.) 1,900,000
4,300,000 Westminster COP, Series 1998 A,
(Civic Center), VRDN, 2.90%,
9/2/99 (AMBAC) (SBBPA: First
Union National Bank) 4,300,000
1,900,000 Westminster Redevelopment
Agency Tax Allocation Rev.,
(Commercial Redevelopment
Project No. 1), VRDN, 2.90%,
9/2/99 (AMBAC) (SBBPA:
Landesbank Hessen-Thuringen
Girozentrale) 1,900,000
------------
TOTAL INVESTMENT SECURITIES--100.0% $554,872,601
============
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation GO = General Obligation
COP = Certificates of Participation LOC = Letter of Credit
FGIC = Financial Guaranty Insurance Co. MBIA = MBIA Insurance Corp.
FHLB = Federal Home Loan Bank SBBPA = Standby Bond Purchase Agreement
FHLMC = Federal Home Loan Mortgage Corp. VRDN = Variable Rate Demand Note.
Interest reset date is indicated and
used in calculating the weighted
average portfolio maturity. Rate shown
is effective August 31, 1999.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
(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 August 31, 1999, was $102,728,006,
which represented 18.4% 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 August 31, 1999.
(3) Escrowed to maturity in U.S. government securities or state and local
government securities.
See Notes to Financial Statements www.americancentury.com 9
California Municipal Money Market--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1999
CALIFORNIA MUNICIPAL CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 1.39% 1.24% --
1 YEAR 2.76% 2.47% 7 OUT OF 51
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 3.04% 2.81% 7 OUT OF 48
5 YEARS 3.14% 2.93% 7 OUT OF 43
LIFE OF FUND 3.09% 2.86% 6 OUT OF 35
The fund's inception date was 12/31/90.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 22-23 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
8/31/99 8/31/98
NUMBER OF SECURITIES 54 58
WEIGHTED AVERAGE
MATURITY 58 DAYS 40 DAYS
EXPENSE RATIO 0.50% 0.50%
Investment terms are defined in the Glossary on pages 23-24.
YIELDS AS OF AUGUST 31, 1999
7-DAY CURRENT YIELD 2.67%
7-DAY EFFECTIVE YIELD 2.70%
7-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 4.09%
37.42% TAX BRACKET 4.27%
41.95% TAX BRACKET 4.60%
45.22% TAX BRACKET 4.87%
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.
10 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 Municipal Money Market fund investment team.
HOW DID CALIFORNIA MUNICIPAL MONEY MARKET PERFORM DURING THE FISCAL YEAR ENDED
AUGUST 31, 1999?
California Municipal Money Market had a total return of 2.76%, which ranked
in the top 15% of the Lipper group. (See the previous page for additional fund
returns and performance comparisons.)
The portfolio also provided more state and federal tax-free income than the
average California money fund. California Municipal Money Market's 7-day
effective yield on August 31, 1999, was 2.70%, while the average yield of the 51
California tax-exempt money market funds tracked by Lipper was 2.41%.
WHY DID CALIFORNIA MUNICIPAL MONEY MARKET OUTPERFORM ITS LIPPER GROUP?
The key to the portfolio's solid 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 the fund performed well was our ability to buy securities at
attractive yields and prices. We're able to do that because we've developed
solid working relationships with securities dealers who offer very good rates on
California money market securities.
We also made some good judgment calls about the market. For example, we
decided not to buy some notes issued early in June because of their low yields.
That turned out to be a good move because new issues came to market a few weeks
later offering yields 25 basis points higher. (A basis point equals 0.01%, so 25
basis points equal 0.25%.)
In addition, California Municipal Money Market tends to hold 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.
CALIFORNIA MUNICIPAL MONEY MARKET'S YIELD INCREASED, PARTICULARLY IN THE PAST
SIX MONTHS. WHY?
Money market yields rose primarily because the Federal Reserve raised
interest rates twice in the last six months to try to cool the economy and head
off potential inflation. In addition, the market expects at least one more rate
hike.
But it's worth noting that yields on California money market securities are
low relative to national levels. That's because demand for California securities
is high, while supply is lower than in years past because California's strong
economy has reduced security issuance.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We'd like to extend the average maturity slightly by adding some
higher-yielding one-year securities. However, we'll likely hold off on extending
the fund's maturity until the difference in yield between California and
national notes returns to more normal levels.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/99 2/28/99
SP1+ 72% 72%
SP1 15% 14%
SP2 13% 14%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 22
for more information.
[pie charts - data below]
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF AUGUST 31, 1999
Variable-Rate Notes 79%
Put Bonds 17%
Municipal Notes 4%
AS OF FEBRUARY 28, 1999
Variable-Rate Notes 89%
Put Bonds 11%
Investment terms are defined in the Glossary on pages 23-24.
www.americancentury.com 11
California Municipal Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's amortized cost, as of the last day of the reporting period.
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
$ 3,200,000 Abaq Finance Authority for
Nonprofit Corps California
Multifamily Rev., VRDN, 3.00%,
9/2/99 (LOC: Comerica
Bank-California) $ 3,200,000
3,000,000 Alameda County Industrial
Development Auth. Rev., (Bat
Properties), VRDN, 3.00%,
9/2/99 (LOC: Wells Fargo
Bank, N.A.) 3,000,000
1,250,000 Alameda County Industrial
Development Auth. Rev., (Design
Workshops), VRDN, 3.00%,
9/2/99 (LOC: Wells Fargo
Bank, N.A.) 1,250,000
1,700,000 Alameda County Industrial
Development Auth. Rev., Series
1994 A, (Scientific Technology),
VRDN, 3.05%, 9/1/99 (LOC:
Banque Nationale de Paris S.A.) 1,700,000
700,000 Alameda County Industrial
Development Auth. Rev., Series
1996 A, (Edward L. Shimmon
Inc.), VRDN, 3.00%, 9/2/99
(LOC: Banque Nationale de
Paris S.A.) 700,000
1,685,000 Alameda County Industrial
Development Auth. Rev., Series
1997 A, (Adeline Association),
VRDN, 3.00%, 9/2/99 (LOC:
Wells Fargo Bank, N.A.) 1,685,000
1,350,000 Alameda County Industrial
Development Auth. Rev., Series
1997 A, (Plyproperties), VRDN,
3.00%, 9/2/99 (LOC: Wells
Fargo Bank, N.A.) 1,350,000
2,900,000 California Health Facilities Auth.
Rev., (Episcopal Home), VRDN,
3.15%, 9/1/99 (LOC: Union
Bank of California, N.A.) 2,900,000
3,605,000 California Housing Finance
Agency Rev., Series 1996 A,
Class A, VRDN, 3.09%, 9/2/99
(LOC: Caisse Des Depots et
Consignations) (Acquired
2/4/98, Cost $3,605,000)(1) 3,605,000
10,000,000 California Housing Finance
Agency Single Family Mortgage
Purchase Rev., Series 1999 E,
3.40%, 8/1/00 10,000,000
1,000,000 California Infrastructure and
Economic Industrial
Development Rev., (Roller
Bearing Co. America), VRDN,
3.10%, 9/1/99 (LOC: First
Union National Bank) 1,000,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,500,000 California Infrastructure and
Economic Industrial
Development Rev., Series
1999 A, VRDN, 3.05%,
9/2/99 (LOC: Wells Fargo
Bank, N.A.) $ 2,500,000
8,500,000 California Pollution Control
Financing Auth. Solid Waste
Disposal Rev., Series 1994 A,
(Western Waste Industries),
VRDN, 3.30%, 9/2/99 (LOC:
Union Bank of California, N.A.) 8,500,000
2,500,000 California Pollution Control
Financing Auth. Solid Waste
Disposal Rev., Series 1999 A,
(Athens Disposal Inc.), VRDN,
2.95%, 9/1/99 (LOC: Wells
Fargo Bank, N.A.) 2,500,000
2,525,000 California Pollution Control
Financing Auth. Solid Waste
Disposal Rev., Series 1999 A,
(Evergreen Distributors), VRDN,
3.00%, 9/1/99 (LOC: California
State Teacher's Retirement
System) 2,525,000
3,435,000 California Pollution Control
Financing Auth. Solid Waste
Disposal Rev., Series 1999 A,
(Greenwaste of Tehama), VRDN,
3.05%, 9/1/99 (LOC: Comerica
Bank-California) 3,435,000
2,300,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, VRDN,
3.15%, 9/15/99 (LOC:
National Westminster Bank PLC) 2,300,000
6,100,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Applied Aerospace), VRDN,
3.00%, 9/1/99 (LOC:
American National Bank and
Trust Company of Chicago) 6,100,000
1,100,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(CALCO), VRDN, 2.95%,
9/1/99 (LOC: Wells Fargo
Bank, N.A.) 1,100,000
2,000,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Provena Foods Inc.), VRDN,
3.05%, 9/1/99 (LOC: Comerica
Bank-California) 2,000,000
2,400,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Scientific Specialties), VRDN,
3.00%, 9/1/99 (LOC: Bank of
America N.T. & S.A.) 2,400,000
12 1-800-345-2021 See Notes to Financial Statements
California Municipal Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,040,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Vortech Engineering Inc.),
VRDN, 3.55%, 9/1/99 (LOC:
Bank of Hawaii) $ 3,040,000
1,418,364 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Wesflex Pipe Manufacturing),
VRDN, 3.20%, 9/2/99 (LOC:
Wells Fargo Bank, N.A.) 1,418,364
4,995,000 California State Veterans GO,
VRDN, 3.10%, 9/9/99 (LOC:
Merrill Lynch & Co. Inc),
(Acquired 3/5/99, Cost
$4,995,000)(1) 4,995,000
3,500,000 California Statewide Communities
Development Auth. Lease Rev.,
Fixed Rate Trust Receipts,
3.65%, 2/17/00 (LOC: Merrill
Lynch & Co., Inc.) (Acquired
8/19/99, Cost $3,500,000)(1) 3,500,000
5,900,000 California Statewide Communities
Development Auth. Multifamily
Housing Rev., Series 1997 A,
(Plaza Club Apartments), VRDN,
3.15%, 9/1/99 (LOC: Comerica
Bank-California) 5,900,000
1,200,000 California Statewide Communities
Development Auth. Multifamily
Housing Rev., Series 1997 G,
(Sunrise of Moraga), VRDN,
3.10%, 9/2/99 (LOC:
Commerzbank A.G.) 1,200,000
1,425,000 California Statewide Communities
Development Auth. Rev., Fixed
Rate Trust Receipts, 3.35%,
9/30/99 (FSA) (Acquired
4/29/99, Cost $1,425,000)(1) 1,425,000
1,650,000 California Statewide Communities
Development Corp. Rev., (South
Bay Circle), VRDN, 3.10%,
9/1/99 (LOC: California
Teachers' Retirement System) 1,650,000
1,445,000 California Statewide Communities
Development Corp. Rev., (Tri H
Foods), VRDN, 4.10%, 9/1/99
(LOC: Union Bank of California,
N.A.) 1,445,000
1,225,000 California Statewide Communities
Development Corp. Rev., Series
1996 G, (Lansmont Property),
VRDN, 3.10%, 9/1/99 (LOC:
Wells Fargo Bank, N.A.) 1,225,000
5,560,000 California Statewide Communities
Development Corp. Rev., Series
1998 B, (DIX Metals), VRDN,
3.20%, 9/1/99 (LOC: California
State Teachers' Retirement
System) 5,560,000
4,900,000 Chula Vista Industrial Development
Rev., Series 1996 B, (San Diego
Gas & Electric Co.), VRDN,
2.65%, 9/1/99 4,900,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,500,000 Kern County Superintendent of
Schools COP, Series 1996 A,
VRDN, 2.95%, 9/2/99 (LOC:
Anchor National Life Insurance
Company) $ 5,500,000
3,000,000 La Verne Industrial Development
Auth. Rev., Series 1998 A,
VRDN, 3.10%, 9/2/99 (LOC:
Fleet Bank, N.A.) (Acquired
12/21/98, Cost $3,000,000)(1) 3,000,000
2,000,000 Lassen Municipal Utility District
Rev., Series 1996 A, VRDN,
3.20%, 9/2/99 (FSA) (SBBPA:
Credit Local de France) 2,000,000
3,340,000 Los Angeles County Industrial
Development Auth. Rev., (Caitac
& Jae Co., Inc.), VRDN, 4.10%,
9/1/99 (LOC: Union Bank of
California, N.A.) 3,340,000
1,985,000 Los Angeles Industrial
Development Auth. Rev.,
(Kairak Inc.), VRDN, 3.60%,
9/1/99 (LOC: Bank of Hawaii) 1,985,000
1,235,000 Los Angeles Industrial
Development Auth. Rev.,
(Keystone Engineering
Company), VRDN, 3.60%,
9/1/99 (LOC: Bank of Hawaii) 1,235,000
5,500,000 Los Angeles Multifamily Housing
Rev., Series 1997 D, (Mission
Village Terrace), VRDN, 2.90%,
9/2/99 (LOC: FHLB) 5,500,000
3,600,000 Oxnard Industrial Development
Auth. Rev., (Western Saw
Manufacturers), VRDN, 3.00%,
9/1/99 (LOC: California State
Teachers' Retirement System) 3,600,000
2,500,000 Oxnard Industrial Development
Financing Auth. Rev., (Accurate
Engineering), VRDN, 3.00%,
9/1/99 (LOC: California State
Teachers' Retirement System) 2,500,000
2,400,000 Pinole Redevelopment Agency,
Series 1998 A, (East Bluff
Apartments), VRDN, 3.20%,
9/2/99 (LOC: Comerica
Bank-California) 2,400,000
2,565,000 Pleasant Hill Redevelopment
Agency Multifamily Housing Rev.,
Series 1996 A, (Chateau III),
VRDN, 3.10%, 9/2/99 (LOC:
Commerzbank A.G.) 2,565,000
3,000,000 Port of Oakland Rev. Floating Rate
Trust Receipts, Series 1999 A24,
3.15%, 9/1/99 (MBIA) (SBBPA:
Commerzbank AG) (Acquired
7/21/99, Cost $3,000,000)(1)(2) 3,000,000
3,400,000 Port of Oakland Rev. Floating Rate
Trust Receipts, Series 1999 A24,
3.15%, 9/1/99 (MBIA) (SBBPA:
Commerzbank AG) (Acquired
4/12/99, Cost $3,400,000)(1)(2) 3,400,000
See Notes to Financial Statements www.americancentury.com 13
California Municipal Money Market--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,110,000 Riverside County Industrial
Development Auth. Rev., (Merrick
Engineering Inc.), VRDN, 2.95%,
9/1/99 (LOC: Wells Fargo
Bank, N.A.) (Acquired 6/29/99,
Cost $2,110,000)(1) $ 2,110,000
13,500,000 Sacramento County Housing Auth.
Rev., Issue 1992 A, (Shadowood
Apartments), VRDN, 3.00%,
9/1/99 (LOC: General Electric
Capital Corp.) 13,500,000
2,500,000 Sacramento County Special
Facilities Airport Rev., (Cessna
Aircraft Co.), VRDN, 3.00%,
9/2/99 (LOC: Bank of America
N.T. & S.A.) 2,500,000
7,500,000 San Bernardino County Multifamily
Housing Auth. Rev., 4.80%,
5/1/00 (LOC: National
Westminster Bank PLC),
(Acquired 4/27/99, Cost
$7,601,775)(1) 7,567,943
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,514,151 San Bernardino County Single
Family Mortgage Rev., Series
1999 A-2, 5.16%, 6/1/00
(GIC: Transamerica Life
Insurance & Annuity Co.) $ 5,593,121
900,000 San Diego Industrial Development
Rev., Series 1987 A, (Kaiser
Aerospace and Electricity),
VRDN, 3.00%, 9/2/99 (LOC:
ABN Amro Bank N.V.) 900,000
3,000,000 San Jose Multifamily Housing Rev.,
Series 1998 A, (Carlton Plaza),
VRDN, 3.10%, 9/2/99 (LOC:
Commerzbank A.G.) 3,000,000
7,000,000 South Coast Local Education
Agencies Tax & Rev. Anticipation
Notes, 4.00%, 6/30/00 (MBIA) 7,036,959
------------
TOTAL INVESTMENT SECURITIES--100.0% $182,241,387
============
NOTES TO SCHEDULE OF INVESTMENTS
COP = Certificates of Participation
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
August 31, 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 be sold only to qualified institutional investors. The
aggregate value of these securities at August 31, 1999, was $32,602,943,
which represented 18.1% 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 August 31, 1999.
14 1-800-345-2021 See Notes to Financial Statements
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
TAX-FREE MUNICIPAL
AUGUST 31, 1999 MONEY MARKET MONEY MARKET
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) ........... $ 554,872,601 $ 182,241,387
Cash ..................................... 986,730 --
Interest receivable ...................... 2,554,287 890,768
------------- -------------
558,413,618 183,132,155
------------- -------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................. -- 3,071,832
Accrued management fees
(Note 2) ............................... 237,953 75,386
Dividends payable ........................ 181 47
Payable for trustees' fees
and expenses ........................... 983 311
------------- -------------
239,117 3,147,576
------------- -------------
Net Assets ............................... $ 558,174,501 $ 179,984,579
============= =============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................. 558,185,719 180,021,204
============= =============
Net Asset Value Per Share ................ $ 1.00 $ 1.00
============= =============
NET ASSETS CONSIST OF:
Capital paid in .......................... $ 558,185,719 $ 180,021,204
Undistributed net investment income ...... 300,416 122,436
Accumulated net realized loss
on investment transactions ............. (311,634) (159,061)
------------- -------------
$ 558,174,501 $ 179,984,579
============= =============
See Notes to Financial Statements www.americancentury.com 15
Statements of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
TAX-FREE MUNICIPAL
YEAR ENDED AUGUST 31, 1999 MONEY MARKET MONEY MARKET
INVESTMENT INCOME
Income:
Interest ................................ $ 15,758,881 $ 5,713,873
------------ ------------
Expenses (Note 2):
Management fees ......................... 2,514,416 873,026
Trustees' fees and expenses ............. 16,935 6,498
------------ ------------
2,531,351 879,524
------------ ------------
Net investment income ................... 13,227,530 4,834,349
------------ ------------
NET REALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss)
on investments ........................ (12,545) 214
------------ ------------
Net Increase in Net Assets
Resulting from Operations ............. $ 13,214,985 $ 4,834,563
============ ============
16 1-800-345-2021 See Notes to Financial Statements
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows how the 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET MUNICIPAL MONEY MARKET
Increase in Net Assets 1999 1998 1999 1998
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............... $ 13,227,530 $ 13,370,351 $ 4,834,349 $ 5,404,285
Net realized gain (loss)
on investments .................... (12,545) (580) 214 (669)
------------- ------------- ------------- -------------
Net increase in net
assets resulting
from operations ................... 13,214,985 13,369,771 4,834,563 5,403,616
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .......... (13,226,200) (13,369,357) (4,834,349) (5,398,614)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........... 701,786,020 434,812,626 171,530,835 153,582,331
Proceeds from reinvestment
of distributions .................. 11,318,419 12,745,632 4,559,301 5,174,073
Payments for shares redeemed ........ (610,912,283) (409,349,170) (168,697,393) (156,647,128)
------------- ------------- ------------- -------------
Net increase in net assets
from capital share transactions ... 102,192,156 38,209,088 7,392,743 2,109,276
------------- ------------- ------------- -------------
Net increase in net assets .......... 102,180,941 38,209,502 7,392,957 2,114,278
NET ASSETS
Beginning of period ................. 455,993,560 417,784,058 172,591,622 170,477,344
------------- ------------- ------------- -------------
End of period ....................... $ 558,174,501 $ 455,993,560 $ 179,984,579 $ 172,591,622
============= ============= ============= =============
Undistributed net
investment income ................. $ 300,416 $ 299,086 $ 122,436 $ 122,436
============= ============= ============= =============
TRANSACTIONS IN
SHARES OF THE FUNDS
Sold ................................ 701,786,020 434,812,626 171,530,835 153,582,331
Issued in reinvestment
of distributions .................. 11,318,419 12,745,632 4,559,301 5,174,073
Redeemed ............................ (610,912,283) (409,349,170) (168,697,393) (156,647,128)
------------- ------------- ------------- -------------
Net increase ........................ 102,192,156 38,209,088 7,392,743 2,109,276
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements www.americancentury.com 17
Notes to Financial Statements
- --------------------------------------------------------------------------------
AUGUST 31, 1999
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. For the year ended August 31, 1999, 100%
(unaudited) of the funds' distributions from net investment income have been
designated as exempt from federal and California state income tax.
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 gains and losses for financial statement and tax
purposes and may result in reclassification among certain capital accounts.
At August 31, 1999, accumulated net realized capital loss carryovers for
Tax-Free Money Market of $274,509 (expiring in 2004 through 2007) and for
Municipal Money Market of $159,057 (expiring in 2003 through 2006) may be used
to offset future taxable gains.
Tax-Free Money Market has elected to treat $12,510 of net capital losses
incurred in the ten month period ended August 31, 1999, as having been incurred
in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM), under which ACIM provides each fund with
investment advisory and management services in exchange for a single, unified
management fee. The Agreement provides that all expenses of the funds, except
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, will be paid by ACIM. 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 year ended August 31, 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.
18 1-800-345-2021
California Tax-Free Money Market--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), and
EXPENSE RATIO (operating expenses as a percentage of average net assets).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net Investment Income ........... 0.03 0.03 0.03 0.03 0.03
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ...... (0.03) (0.03) (0.03) (0.03) (0.03)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(1) ................. 2.62% 3.12% 3.17% 3.12% 3.31%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.50% 0.50% 0.49% 0.49% 0.52%
Ratio of Net Investment Income
to Average Net Assets ............. 2.59% 3.07% 3.10% 3.12% 3.28%
Net Assets, End of Period
(in thousands) .................... $ 558,175 $ 455,994 $ 417,784 $ 425,846 $ 414,099
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 19
California Municipal Money Market--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), and
EXPENSE RATIO (operating expenses as a percentage of average net assets).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
1999 1998 1997 1996 1995
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net Investment Income ........... 0.03 0.03 0.03 0.03 0.03
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ...... (0.03) (0.03) (0.03) (0.03) (0.03)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Return(1) ................. 2.76% 3.20% 3.15% 3.23% 3.35%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............. 0.50% 0.50% 0.52% 0.53% 0.53%
Ratio of Net Investment Income
to Average Net Assets ............. 2.73% 3.16% 3.10% 3.20% 3.31%
Net Assets, End of Period
(in thousands) .................... $ 179,985 $ 172,592 $ 170,477 $ 196,520 $ 191,722
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
20 1-800-345-2021 See Notes to Financial Statements
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of the American Century California Tax-Free and Municipal Funds
and Shareholders of the California Tax-Free Money Market Fund and the California
Municipal Money Market Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the California Tax-Free Money
Market Fund and the California Municipal Money Market Fund (formerly the
American Century - Benham California Tax-Free Money Market Fund and the American
Century - Benham California Municipal Money Market Fund, respectively) (the
"Funds") at August 31, 1999, and the results of their operations for the year
then ended, the changes in their net assets and the financial highlights for
each of the two years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. The financial
highlights for each of the three years in the period ended August 31, 1997, were
audited by other auditors, whose report, dated October 3, 1997, expressed an
unqualified opinion on those statements. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
October 13, 1999
www.americancentury.com 21
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 Director
STEVEN PERMUT
22 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 19-20.
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 23
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.
* 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 provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* 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.
24 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 -- Large Cap Value
Conservative Equity Income
===============================================================================
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(reg.tm)
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 1-800-345-2021 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
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AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS
INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
KANSAS CITY, MISSOURI
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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
Funds Distributor, Inc. is
9910 the distributor of American Century funds
SH-ANN-18083 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
AUGUST 31, 1999
ANNUAL REPORT
- ------------------
AMERICAN CENTURY
[graphic of stairs]
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]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain
operations in the event of any Y2K-related incidents. We have conducted
practice drills of contingency scenarios and will continue to refine our plans
during the rest of 1999 to respond quickly and effectively so that the date
change is as seamless as possible for investors. We expect the Year 2000 to be
business as usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
CALIFORNIA LIMITED-TERM TAX-FREE
(BCSTX)
- ----------------------------------------
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
(BCITX)
- ----------------------------------------
CALIFORNIA LONG-TERM TAX-FREE
(BCLTX)
- ----------------------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF
AMERICAN CENTURY FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
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Our Message to You
- --------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
Strong economic growth, increasing inflation anxiety, and rising interest
rates set the tone for the U.S. bond market in 1999. These factors helped
determine the performance of American Century's California municipal funds for
the fiscal year ended August 31, 1999.
Municipal bond funds enjoyed gains during the second half of 1998 when
interest rates fell and bond markets rallied. Those positive returns were
largely negated in 1999, however, as the recovery of overseas economies and
unabated U.S. growth reignited inflation fears and sent interest rates soaring.
While the Federal Reserve (the Fed--the U.S. central bank) saw fit to cut
short-term interest rates three times during the fall of 1998, the Fed raised
rates twice during the summer of 1999.
Though market behavior and Fed interest rate policy swung from one extreme
to the other, one thing that remained remarkably consistent was the performance
of the American Century California municipal funds against their peers. All
seven of our California municipal money market and bond funds provided higher
tax-free yields and lower expenses than the average of their Lipper Inc. peer
groups. That's a hallmark of the American Century municipal investment approach.
The strength of our municipal investment and credit research teams also
contributed to fund performance. The investment and credit teams, as well as
fund investors, have benefited from our commitment to build and maintain a
talented fund management group. American Century's entire investment management
team has doubled in size over the past three years.
In addition to strengthening our portfolio and research staff, we've
recently made strategic investments in several other financial companies,
including Archipelago, Tradepoint Financial Networks, W.R. Hambrecht, and
WorldStreet Corporation. These investments demonstrate our active support of the
development and use of technologies that improve the efficiencies of capital
markets, lower trading costs, and ultimately offer better returns for
shareholders.
One final note--in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our continued diligence in
this area is very important to you.
As always, we appreciate your continued confidence in American Century.
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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
Municipal Credit Review ................................................ 4
CALIFORNIA LIMITED-TERM TAX-FREE
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Portfolio at a Glance .................................................. 6
Schedule of Investments ................................................ 8
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
Performance Information ................................................ 11
Management Q&A ......................................................... 12
Portfolio at a Glance .................................................. 12
Schedule of Investments ................................................ 14
CALIFORNIA LONG-TERM TAX-FREE
Performance Information ................................................ 19
Management Q&A ......................................................... 20
Portfolio at a Glance .................................................. 20
Schedule of Investments ................................................ 22
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 26
Statements of Operations ............................................... 27
Statements of Changes
in Net Assets ....................................................... 28
Notes to Financial
Statements .......................................................... 29
Financial Highlights ................................................... 31
Report of Independent
Accountants ......................................................... 34
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 35
Comparative Indices ................................................. 35
Lipper Rankings ..................................................... 35
Investment Team
Leaders .......................................................... 35
Credit Rating
Guidelines ....................................................... 35
Glossary ............................................................... 36
www.americancentury.com 1
Report Highlights
- --------------------------------------------------------------------------------
MARKET PERSPECTIVE
* Municipal bond prices sagged under the weight of rising interest rates and
weaker demand in the 12 months ended August 31, 1999.
* A healthy U.S. economy, better growth overseas, and worries about inflation
led the Federal Reserve to raise interest rates twice in 1999.
* Short-term bonds, which are the least sensitive to rate changes, performed
best, while intermediate- and longer-term securities had flat to negative
returns.
CREDIT REVIEW
* A healthy economy and state budget surplus led Standard & Poor's to upgrade
California's credit rating.
* California produced jobs faster than the national average, and the state's
unemployment rate hit a nine-year low in August.
* A key to California's economic health has been the "wealth effect"--
household incomes and spending have been boosted by the big gains in
housing prices and the stock market.
CALIFORNIA LIMITED-TERM TAX-FREE
* The portfolio performed well--its return for the fiscal year ranked in the
top quarter of the Lipper group.
* The fund produced more tax-free income than the average California
short-term fund, according to Lipper.
* Two big reasons the portfolio outperformed the Lipper group were
below-average expenses and good duration management.
* We maintained the portfolio's high credit quality--we don't think
lower-rated securities offer enough additional yield right now to justify
taking added credit risk.
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
* The difficult environment for intermediate- and longer-term municipal bonds
limited the portfolio's return.
* California Intermediate-Term Tax-Free gave shareholders more tax-free income
than the average California intermediate-term bond fund, according to
Lipper.
* We bought Puerto Rico bonds and securities that were out of favor with
individual investors to boost the portfolio's yield without taking on any
additional credit risk.
* We're generally positive on the municipal market--credit quality is high,
inflation is low, and municipal yields are attractive relative to
Treasurys.
CALIFORNIA LONG-TERM TAX-FREE
* Higher interest rates weighed on fund returns in 1999. The fund's long
duration, which boosted performance when rates fell in 1998, limited
returns this year.
* The fund produced far more current income than the average California
municipal fund, with a 30-day SEC yield in the top 5% of the peer group,
according to Lipper.
* We have a generally positive outlook for California municipal bonds--their
yields are attractive relative to Treasurys, and we think we'll continue to
see low inflation and modest economic growth.
* We'll likely keep duration a little long while continuing to emphasize the
same value-oriented approach that's helped the fund to its solid long-term
performance.
[left margin]
CALIFORNIA LIMITED-TERM TAX-FREE
(BCSTX)
TOTAL RETURNS: AS OF 8/31/99
6 Months -0.01%*
1 Year 2.26%
30-DAY SEC YIELD: 3.72%
INCEPTION DATE: 6/1/92
NET ASSETS: $141.5 million
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
(BCITX)
TOTAL RETURNS: AS OF 8/31/99
6 Months -1.72%*
1 Year 0.74%
30-DAY SEC YIELD: 4.20%
INCEPTION DATE: 11/9/83
NET ASSETS: $459.9 million
CALIFORNIA LONG-TERM TAX-FREE
(BCLTX)
TOTAL RETURNS: AS OF 8/31/99
6 Months -3.97%*
1 Year -1.85%
30-DAY SEC YIELD: 4.95%
INCEPTION DATE: 11/9/83
NET ASSETS: $332.6 million
* Not annualized.
Investment terms are defined in the Glossary on pages 36-37.
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
Municipal bond prices came under pressure during the year ended August 31,
1999, as improving global economic conditions caused inflation anxiety. But the
fiscal year didn't begin that way. Bonds rallied in the second half of 1998 when
recessionary expectations surged due to financial crises in Asia, Russia, and
Latin America. The Federal Reserve (the Fed) bolstered the bond market when it
cut interest rates three times during the fall of 1998 to stem overseas problems
and shore up U.S. economic growth.
Early 1999 brought evidence that the Fed's actions worked. The U.S. economy
remained robust, and Japan appeared on the mend. By the spring, recessionary
expectations gave way to inflation fears. Changing market sentiment and rate
hikes in June and August by the Fed pushed bond yields higher, taking their toll
on bond prices.
LONGER-TERM BONDS LAG
Long-term bond yields rose the most and their prices dipped furthest, while
shorter-term bonds generally posted modest gains. (See the accompanying chart.)
Long-term bonds stumbled because of their greater interest rate sensitivity,
though falling demand also figured heavily in their losses.
Bargain-hunting insurance companies--who had helped boost long-term
municipal bonds in the first half of the fiscal year--later turned their backs
on them. They gravitated instead to corporate bonds, which offered low prices
and attractive yields as companies swamped the market with new debt to avoid
potential fourth-quarter Year 2000 problems.
Meanwhile, lower interest rate sensitivity and steady demand helped support
shorter-term bonds.
SECTOR OVERVIEW
Although the strong economic environment created a stormy backdrop for
bonds, it contained a silver lining. Tax collections and municipal revenues in
California soared, boosting the creditworthiness of many municipal issuers in
the state.
Among the biggest beneficiaries were land-based bonds, buoyed by the strong
real estate environment, and general obligation bonds, which are backed by tax
collections.
Confidence in the economy and investors' appetite for higher yields were
reflected in a narrowing yield gap between lower quality municipal bonds (those
rated BBB) and higher-rated (A to AAA) bonds, causing BBBs to outperform AAAs.
On the flip side, interest rate-sensitive discount bonds--which sell below
face value--and hospital bonds performed poorly.
[right margin]
"MUNICIPAL BOND PRICES CAME UNDER PRESSURE DURING THE YEAR ENDED AUGUST 31,
1999."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED AUGUST 31, 1999
LEHMAN THREE-YEAR
MUNICIPAL INDEX 2.92%
LEHMAN FIVE-YEAR GENERAL
OBLIGATION INDEX 2.21%
LEHMAN LONG-TERM
MUNICIPAL INDEX -2.14%
Source: Lipper Inc., Russell/Mellon Analytical
[line graph - data below]
RISING MUNICIPAL YIELD CURVES
8/31/98 2/28/99 8/31/99
YEARS TO
MATURITY
1 3.41% 3.05% 3.59%
2 3.57% 3.30% 3.94%
3 3.68% 3.45% 4.15%
4 3.78% 3.58% 4.27%
5 3.87% 3.70% 4.39%
6 3.95% 3.81% 4.49%
7 4.03% 3.91% 4.59%
8 4.11% 3.99% 4.69%
9 4.19% 4.07% 4.79%
10 4.27% 4.15% 4.89%
11 4.35% 4.25% 4.97%
12 4.43% 4.35% 5.05%
13 4.51% 4.45% 5.13%
14 4.59% 4.55% 5.20%
15 4.66% 4.65% 5.27%
16 4.69% 4.70% 5.31%
17 4.72% 4.75% 5.35%
18 4.75% 4.80% 5.39%
19 4.79% 4.84% 5.43%
20 4.83% 4.88% 5.47%
21 4.83% 4.89% 5.47%
22 4.83% 4.90% 5.48%
23 4.83% 4.91% 5.48%
24 4.84% 4.92% 5.49%
25 4.84% 4.92% 5.50%
26 4.84% 4.92% 5.50%
27 4.85% 4.93% 5.51%
28 4.85% 4.93% 5.51%
29 4.86% 4.94% 5.52%
30 4.86% 4.94% 5.52%
Source: Bloomberg Financial Markets
www.americancentury.com 3
California Municipal Credit Review
- --------------------------------------------------------------------------------
California's vibrant economy solidified municipal credit conditions during
the year ended August 31, 1999. A long list of positive economic data and a
favorable political climate spurred a credit upgrade for the state, which should
continue to benefit from its current strength for the next two or three years.
SUNNY ECONOMIC WEATHER
By most accounts, several key segments of California's economy continued to
grow faster than the national average. In fact, California showed few signs of
the pain it was supposed to suffer due to the economic weakness of many of the
state's Pacific Rim trading partners.
Instead, state unemployment hit a nine-year low of 5.1% in August, and the
2.8% rate of job growth outpaced the national average. Personal bankruptcy
filings declined at twice the national average, house prices increased at nearly
double the national rate, and sales of existing single-family homes reached a
record pace.
On top of that, with California's governor and assembly working in unison,
the state's budget--including a healthy surplus--was passed on time for the
first time in seven years. Based on these improved financial and political
conditions, Standard & Poor's upgraded the state's general obligation bond
rating to AA- during the summer.
WHAT'S BEHIND THE GOLDEN GLOW
While high-technology hardware businesses such as semiconductors struggled
with offshore competition, other areas such as software, multimedia,
biotechnology, and Internet-related businesses were very strong.
Construction--notably in affordable housing in Central California--and
service industries have been particularly solid. Plus, even though tourism
dollars from Asia dropped off as expected, California was able to take up the
slack by attracting tourists from inside the U.S.
In addition, as much as 1% was added to California's growth rate by what is
known as the "wealth effect"--household income and spending increases due to the
bull market in stocks, the cashing in of stock options, and the sale of
single-family homes that have skyrocketed in value. The wealth effect was
particularly strong in Northern California.
CLOUDS ON THE HORIZON?
Some observers believe California has reached a peak in its current
economic cycle. There are questions as to the sustainability of the wealth
effect due to the possibility of a stock market pullback caused by higher
interest rates and weaker corporate profits. In addition, rapidly increasing
property values have led to some consumer price inflation.
However, we don't believe these influences will cause any near-term
problems in California. The state stands to benefit from any rebound in foreign
trade and the expansion of the Internet. Those are two of the key reasons why we
think that there are at least two or three years of economic strength ahead.
[left margin]
"A LONG LIST OF POSITIVE ECONOMIC DATA AND A FAVORABLE POLITICAL CLIMATE
SPURRED A CREDIT UPGRADE FOR THE STATE."
[line graph - data below]
FALLING UNEMPLOYMENT RATES
June 1991-June 1999
California U.S.
1991 7.7% 6.9%
1992 9.3% 7.8%
1993 9.4% 7.0%
1994 8.7% 6.1%
1995 7.9% 5.6%
1996 7.2% 5.3%
1997 6.3% 5.0%
1998 5.9% 4.5%
1999 5.4% 4.3%
Source: Employment Development Department, Bureau of Labor Statistics
"SEVERAL KEY SEGMENTS OF CALIFORNIA'S ECONOMY CONTINUED TO GROW FASTER THAN THE
NATIONAL AVERAGE."
4 1-800-345-2021
California Limited-Term Tax-Free--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1999
<TABLE>
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) -0.01% 0.27% -0.53% --
1 YEAR 2.26% 2.92% 1.62% 3 OUT OF 13
=================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.35% 4.77% 3.85% 2 OUT OF 10
5 YEARS 4.45% 4.98% 4.32% 3 OUT OF 6
LIFE OF FUND 4.49% 5.04% 4.66%(3) 2 OUT OF 2(3)
</TABLE>
The fund's inception date was 6/1/92.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
(3) Since 6/30/92, the date nearest the fund's inception for which data are
available.
See pages 35-36 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 8/31/99
California Limited-Term Tax-Free $13,745
Lehman 3-Year Municipal Index $14,216
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
3/31/99 $13,776 $14,191
6/30/99 $13,668 $14,129
8/31/99 $13,745 $14,216
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 AUGUST 31)
California
Limited-Term Lehman 3-Year
Tax-Free Municipal Index
DATE RETURN RETURN
8/31/92* 2.22% 2.73%
8/31/93 6.15% 6.38%
8/31/94 1.90% 2.51%
8/31/95 5.33% 6.68%
8/31/96 3.87% 3.95%
8/31/97 5.42% 5.65%
8/31/98 5.40% 5.76%
8/31/99 2.26% 2.92%
* From 6/1/92 (the fund's inception date) to 8/31/92.
www.americancentury.com 5
California Limited-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
[photo of Todd Pardula]
An interview with Dave MacEwen and Todd Pardula (pictured above), portfolio
managers on the California Limited-Term Tax-Free fund investment team. Dave and
Todd--both experienced portfolio managers and members of the tax-free and
municipal funds team since the early 1990s--replaced Joel Silva, who left
American Century to pursue other opportunities.
HOW DID CALIFORNIA LIMITED-TERM TAX-FREE PERFORM DURING THE FISCAL YEAR ENDED
AUGUST 31, 1999?
The fund performed well despite the difficult environment for bonds (see
the Market Perspective on page 3). For the 12 months ended August 31, 1999,
California Limited-Term Tax-Free returned 2.26%, which compares favorably with
the 1.62% average return of the 13 "California Short-Intermediate Municipal Debt
Funds" tracked by Lipper Inc. For the year, the fund's return ranked in the top
quarter of the Lipper group. The Lehman 3-Year Municipal Index returned 2.92%
for the same period. (See the previous page for other fund performance
comparisons).
WHY DID THE PORTFOLIO DO SO WELL RELATIVE TO THE LIPPER GROUP?
One reason we beat our Lipper group average is that we did a good job of
managing the fund's duration. Duration measures a portfolio's sensitivity to
changes in interest rates. The shorter the duration, the less a fund's share
price fluctuates when rates change, while a longer duration means a fund is more
sensitive to rate changes. Ideally, you want a shorter duration when interest
rates are rising and a longer duration when rates are falling. Our relative
performance got a boost this year because we lengthened duration in late 1998,
when municipal bond rates were falling, and shortened duration this year, when
interest rates were rising.
Another reason for the fund's solid relative performance is that our
expenses are below average. The fund's expense ratio on August 31 was 0.51%,
compared with a category average of 0.92% according to Lipper. Other things
being equal, lower expenses should mean higher yields and returns for our
shareholders.
WHAT OTHER STRATEGIES DID YOU USE TO BOOST THE FUND'S RETURN?
We took advantage of the big difference in yield between bonds maturing in
2002-04 and bonds maturing in 2007-08. Longer-term municipal bonds typically
have higher yields than shorter-term securities to compensate for the extra risk
associated with interest rate uncertainty over a longer time frame.
But the difference in yield can vary depending on supply and demand
factors. Demand from retail investors (which include individuals and brokers)
for higher-quality, shorter-term municipal bonds was very strong. That meant the
difference in yield between short- and intermediate-term bonds was greater than
usual.
As a result, we sold some of our shorter-term bonds and bought more
attractively valued, higher-yielding bonds due in 2008. Making that trade
allowed us to collect premium prices on our shorter-term securities while
picking up significant extra yield on these intermediate-term securities.
[left margin]
"FOR THE YEAR, THE FUND'S RETURN RANKED IN THE TOP QUARTER OF THE LIPPER GROUP.
YIELDS AS OF AUGUST 31, 1999
30-DAY SEC YIELD 3.72%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 5.70%
37.42% TAX BRACKET 5.94%
41.95% TAX BRACKET 6.41%
45.22% TAX BRACKET 6.79%
PORTFOLIO AT A GLANCE
8/31/99 8/31/98
NUMBER OF SECURITIES 77 86
WEIGHTED AVERAGE
MATURITY 3.5 YRS 3.6 YRS
AVERAGE DURATION 2.9 YRS 3.0 YRS
EXPENSE RATIO 0.51% 0.52%
Investment terms are defined in the Glossary on pages 36-37.
6 1-800-345-2021
California Limited-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
CAN YOU GIVE AN EXAMPLE OF HOW ONE OF THESE TRADES WORKS IN PRACTICE?
We recently purchased California general obligation bonds maturing in 2008
that yielded 4.80% and sold similar bonds due in 2003 with a yield of 4.08%.
That's 72 basis points (a basis point equals 0.01%, so 72 basis points equals
0.72%) in additional yield for going out five years in maturity, which we view
as a very attractive trade. Of course, we were limited in the extent to which we
could buy these intermediate-term securities because we didn't want to lengthen
the portfolio's duration significantly, given the prevailing interest rate
environment.
SPEAKING OF INTEREST RATES, HOW DOES CALIFORNIA LIMITED-TERM TAX-FREE'S YIELD
COMPARE?
On August 31, the fund's 30-day SEC yield was 3.72%, while the average
yield of the Lipper group was 3.22%. The fund's 3.72% yield equates to a fully
taxable yield of 6.79% for California investors in the highest federal and state
tax brackets.
The fund's yield is much higher than it was six months ago (when it was
3.03%). That's largely due to the general increase in municipal market interest
rates.
DID YOU MAKE ANY CHANGES TO TRY TO ADD YIELD TO THE PORTFOLIO?
Yes, we added Puerto Rican bonds whose yields were a little higher than
those we could get on California municipal bonds with a similar maturity. (The
income from Puerto Rican bonds is free from state and federal taxes for
investors in all 50 states.)
California municipal bond yields are below those of Puerto Rican bonds
because the demand for shorter-term California bonds has been extremely strong.
In addition, the supply of new bonds is down because higher interest rates have
made borrowing less attractive for municipal bond issuers. The result of lower
supply and higher demand is the same for any market: California municipal bond
prices are higher and their yields lower than would otherwise be the case.
HOW DID YOU MANAGE THE FUND'S CREDIT QUALITY?
We maintained the portfolio's high average credit quality. We don't think
lower-rated bonds offer enough extra yield to justify taking on the additional
credit risk right now. The California economy is extremely strong, so credit
quality is up across the board. And in general, we don't see many BBB rated
bonds in our maturity sector, so credit quality hasn't been much of an issue
lately.
WHAT IS YOUR OUTLOOK FOR THE FUND?
We will continue to look for opportunities to buy higher-yielding
intermediate-term bonds, as well as attractively priced new issues. We'll keep
selling shorter-term bonds at premium prices as long as demand from retail
investors remains stronger than usual. At the same time, we will position the
fund cautiously as we approach year-end, carefully managing the portfolio's
duration and liquidity.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/99 2/28/99
AAA 55% 53%
AA 15% 15%
A 23% 27%
BBB 7% 5%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35
for more information.
TOP FIVE SECTORS (AS OF 8/31/99)
% OF FUND INVESTMENTS
COPS/LEASES 26%
GO 14%
HOSPITAL REVENUE 12%
ELECTRIC REVENUE 6%
SALES TAX REVENUE 6%
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%
Investment terms are defined in the Glossary on pages 36-37.
www.americancentury.com 7
California Limited-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 94.2%
CALIFORNIA -- 86.7%
$1,235,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.50%, 7/1/03 $ 1,229,135
2,450,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.80%, 7/1/06 2,442,086
1,245,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Rhoda Haas Goldman Plaza),
5.00%, 5/15/07 (California
Mortgage Insurance) 1,254,014
565,000 California Educational Facilities
Auth. Rev., (Los Angeles College
Chiropractic), 4.45%, 11/1/99 565,627
1,145,000 California Educational Facilities
Auth. Rev., (Pepperdine
University), 5.125%, 1/15/02
(AMBAC) 1,173,167
1,140,000 California Educational Facilities
Auth. Rev., Series 1995 A,
(Pooled College & University
Projects), 4.55%, 12/1/99 1,142,462
1,710,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern
California), 5.60%, 10/1/01 1,767,815
1,910,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern
California), 5.60%, 10/1/03 2,013,484
395,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.45%, 4/1/02 405,444
420,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.55%, 4/1/03 434,721
440,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.65%, 4/1/04 458,784
465,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.75%, 4/1/05 487,897
1,000,000 California Health Facilities
Financing Auth. Rev., (Sisters
Providence), 5.25%, 10/1/01 1,023,610
Principal Amount Value
- --------------------------------------------------------------------------------
$1,180,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/02 (MBIA) $ 1,213,724
1,750,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.50%, 11/1/01(1) 1,805,878
1,000,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Casa De Las
Campanas), 5.00%, 8/1/04
(California Mortgage Insurance) 1,018,930
1,245,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Kaiser Permanente),
5.00%, 6/1/06 (FSA) 1,275,341
1,600,000 California Public Works Board
Lease Rev. COP, Series 1995 A,
(Department of Justice
Building), 5.50%, 5/1/00 1,619,472
3,000,000 California Public Works Board
Lease Rev. COP, Series 1997 A,
(California Community Colleges),
5.00%, 4/1/02 3,065,070
1,065,000 California Public Works Board
Lease Rev. COP, Series 1997 A,
(California Science Center),
4.50%, 10/1/04 1,071,933
1,000,000 California Public Works Board
Lease Rev., Series 1998 C,
(California State University),
5.25%, 10/1/06 1,040,410
2,000,000 California Rural Home Mortgage
Financing Auth. Lease Rev.,
Series 1996 A, 4.45%, 8/1/01
(MBIA) 2,003,180
1,600,000 California State GO, 6.70%,
10/1/01 1,686,736
2,325,000 California State GO, 6.10%,
2/1/02 (AMBAC)(2) 2,434,182
1,500,000 California State GO, 6.25%,
9/1/04 1,629,990
2,000,000 California State GO, 5.50%,
10/1/07 2,118,200
1,500,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.00%,
7/1/03 1,527,375
1,965,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.00%,
7/1/06 1,984,689
4,825,000 Central Valley Financing Auth.
Cogeneration Project Rev.,
(Carson Ice General), 4.50%,
7/1/01 (MBIA) 4,875,952
8 1-800-345-2021 See Notes to Financial Statements
California Limited-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$1,100,000 Clovis Unified School District
COP, (Stadium & Relocatables
Financing), 4.375%, 7/1/04 $ 1,096,150
1,000,000 Encinitas Unified School District
COP, 5.00%, 9/1/01 1,015,870
5,000,000 Foothill/Eastern Corridor Agency
Toll Road Rev., 4.375%,
1/15/07 (MBIA) 4,928,550
1,775,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.25%, 11/1/01 (AMBAC) 1,824,789
1,400,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.25%, 11/1/05 (AMBAC) 1,465,492
2,955,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 5.30%,
5/1/01 3,014,484
1,000,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 4.90%,
5/1/03 1,020,270
4,875,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1997 I,
(Central Business District),
5.00%, 11/15/01 4,926,821
5,000,000 Los Angeles COP, (Equipment &
Real Estate Acquisition Program
AC), 4.25%, 10/1/01 5,017,150
1,000,000 Los Angeles COP, (Equipment &
Real Estate Acquisition Program
AC), 4.50%, 10/1/04 1,001,990
1,265,000 Los Angeles County Capital Asset
Leasing Corp. Rev., 5.625%,
12/1/03 (AMBAC) 1,332,146
1,750,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1998 B, 4.00%, 12/1/00 1,748,618
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/02
(AMBAC) 1,049,340
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/05
(AMBAC) 1,075,990
2,645,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A,
(Proposition A), 5.50%, 7/1/02
(MBIA) 2,748,340
2,360,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1996 A, 6.00%, 9/1/04
(MBIA) 2,540,422
5,000,000 Los Angeles County Public Works
Financing Auth. Rev., Series
1997 A, (Regional Park &
Open Space District), 5.00%,
10/1/01 5,108,350
Principal Amount Value
- --------------------------------------------------------------------------------
$3,000,000 Los Angeles GO, Series 1994 A,
5.40%, 9/1/03 (MBIA) $ 3,138,600
1,525,000 Los Angeles GO, Series 1999 B,
5.00%, 9/1/08(3) 1,555,454
3,100,000 Los Angeles Unified School
District GO, Series 1997 A,
5.00%, 7/1/04 (FGIC) 3,199,758
1,000,000 Los Angeles Wastewater System
Rev., Series 1990 A, 6.70%,
2/1/00 1,012,050
1,250,000 Los Angeles Wastewater System
Rev., Series 1990 A, 6.80%,
2/1/01 1,287,825
1,000,000 Los Angeles Wastewater System
Rev., Series 1996 A, 6.00%,
2/1/03 (FGIC) 1,058,160
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.375%, 7/1/02 1,059,750
2,000,000 Modesto, Stockton, Redding
Public Power Agency San Juan
Project Rev., Series 1997 G,
5.50%, 7/1/01 (MBIA) 2,055,800
1,365,000 Ontario Redevelopment Financing
Auth. Rev., (Center City
Cimarron), 5.70%, 8/1/01
(MBIA) 1,409,772
1,500,000 Orange County Transportation
Sales Tax Rev., 5.50%,
2/15/01 (AMBAC) 1,533,930
1,160,000 Oroville Hospital Rev., Series
1997 A, 4.75%, 12/1/04
(California Mortgage Insurance) 1,171,461
1,000,000 Riverside County Asset Leasing
Corporation Leasehold Rev.,
Series 1993 A, (Riverside
County Hospital), 5.90%,
6/1/02 1,040,030
1,185,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.30%, 6/1/02
(AMBAC) 1,224,200
2,000,000 Riverside Unified School District
COP, (School Facility Boarding
Refunding Program), 3.85%,
9/1/01 (FSA) (SBBPA: First
Union National Bank) 1,989,740
1,170,000 Sacramento Schools Insurance
Auth. Rev., Series 1993 C,
(Workers Compensation
Program), 5.75%, 6/1/03(1) 1,200,092
2,000,000 San Bernardino County COP,
Series 1995 A, (Medical Center
Financing), 5.20%, 8/1/04
(MBIA) 2,074,000
600,000 San Diego County COP, (Burnham
Institute), 5.15%, 9/1/06(3) 599,130
6,000,000 San Diego Unified School District
GO, Series 1999 A, 4.25%,
9/29/00 6,046,200
See Notes to Financial Statements www.americancentury.com 9
California Limited-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 4, 5.625%,
5/1/05 (MBIA) $ 1,058,570
1,085,000 Santa Barbara County COP,
4.90%, 3/1/01 1,098,638
1,000,000 Southern California Public Power
Auth. Rev., Series 1997 A, (Palo
Verde Project), 5.00%, 7/1/04
(FSA) 1,031,740
1,075,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hospital Association), 4.80%,
12/1/02 1,072,431
1,040,000 Victor Valley Joint Union High
School District GO, 5.60%,
9/1/04 (MBIA)(1) 1,103,367
3,175,000 Whittier Health Rev., (Presbyterian
Intercommunity Hospital), 5.50%,
6/1/02 (MBIA) 3,288,856
------------
126,993,634
------------
PUERTO RICO -- 6.8%
3,000,000 Puerto Rico Commonwealth
Aqueduct & Sewer Auth. Rev.,
Series 1985 A, 9.00%, 7/1/05
Prerefunded at 100% of Par
(FSA)(1) 3,560,970
4,100,000 Puerto Rico Commonwealth GO,
(Public Improvement), 5.00%,
7/1/05 (MBIA) 4,217,670
1,000,000 Puerto Rico Commonwealth
Highway and Transportation
Auth. Rev., Series 1996 Y,
6.00%, 7/1/03 (MBIA) 1,062,140
Principal Amount Value
- --------------------------------------------------------------------------------
$1,000,000 Puerto Rico Commonwealth
Highway and Transportation
Auth. Rev., Series 1996 Y,
6.25%, 7/1/06 (MBIA) $ 1,098,500
------------
9,939,280
------------
VIRGIN ISLANDS -- 0.7%
1,000,000 Virgin Islands Water and Power
Auth. Electric System Rev.,
5.00%, 7/1/02 1,011,380
------------
TOTAL MUNICIPAL SECURITIES 137,944,294
------------
(Cost $137,400,662)
SHORT-TERM MUNICIPAL SECURITIES -- 5.8%
5,000,000 California State Economic
Development Financing Auth.
Rev., Series 1998 C, VRDN,
2.55%, 9/1/99 (LOC: Bank of
America N.T. & S.A.) 5,000,000
3,500,000 Irvine Improvement Bond Act
1915 Special Assessment,
(District No. 87-8), VRDN,
2.40%, 9/1/99 3,500,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 8,500,000
------------
(Cost $8,500,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $146,444,294
============
(Cost $145,900,662)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
LOC = Letter of Credit
COP = Certificates of Participation
MBIA = MBIA Insurance Corp.
FGIC = Financial Guaranty Insurance Co.
SBBPA = Standby Bond Purchase Agreement
FSA = Financial Security Assurance Inc.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 1999.
GO = General Obligation
(1) Escrowed to maturity in U.S. government securities or state and local
government securities.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(3) When-issued security.
10 1-800-345-2021 See Notes to Financial Statements
California Intermediate-Term Tax-Free--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF AUGUST 31, 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) -1.72% -0.50% -1.65% --
1 YEAR 0.74% 2.21% 0.69% 17 OUT OF 26
=================================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.00% 5.21% 4.92% 13 OUT OF 21
5 YEARS 5.37% 5.50% 5.35% 11 OUT OF 18
10 YEARS 6.32% 6.45% 6.32% 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 35-36 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 8/31/99
California Intermediate-Term Tax-Free $18,448
Lehman 5-Year GO Index $18,682
California
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
DATE VALUE VALUE
8/31/89 $10,000 $10,000
8/31/90 $10,616 $10,675
8/31/91 $11,650 $11,752
8/31/92 $12,719 $12,920
8/31/93 $14,045 $14,062
8/31/94 $14,201 $14,293
8/31/95 $15,208 $15,454
8/31/96 $15,936 $16,041
8/31/97 $17,114 $17,112
8/31/98 $18,312 $18,278
8/31/99 $18,448 $18,682
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 AUGUST 31)
California
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
DATE RETURN RETURN
8/31/90 6.16% 5.91%
8/31/91 9.74% 10.09%
8/31/92 9.18% 9.93%
8/31/93 10.42% 8.83%
8/31/94 1.11% 1.64%
8/31/95 7.09% 8.12%
8/31/96 4.79% 3.80%
8/31/97 7.39% 6.10%
8/31/98 7.00% 6.80%
8/31/99 0.74% 2.21%
www.americancentury.com 11
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 IN THE FISCAL YEAR ENDED
AUGUST 31, 1999?
The fund's performance reflects the difficult investment climate for
municipal bonds so far in 1999 (see the Market Perspective on page 3). For the
fiscal year, California Intermediate-Term Tax-Free returned 0.74%. This compares
with the 0.69% average return of the 26 "California Intermediate Municipal Debt
Funds" tracked by Lipper Inc. (See the previous page for additional performance
comparisons.)
HOW DID THE PORTFOLIO'S YIELD COMPARE?
California Intermediate-Term Tax-Free produced more state and federal
tax-free income than the average California intermediate bond fund. On August
31, 1999, our fund had a 30-day SEC yield of 4.20%, while the Lipper group had
an average yield of 4.01%. The portfolio's 4.20% yield translates into a
tax-equivalent yield of 7.67% for an investor in the highest state and federal
tax brackets. That tax-equivalent yield compares very favorably with the 6.07%
yield on the 30-year Treasury bond at the end of August.
CAN YOU EXPLAIN THE PORTFOLIO'S PERFORMANCE FOR THE 12 MONTHS?
The fiscal year is really a tale of two distinct periods. California
Intermediate-Term Tax-Free performed very well from late 1998 to early 1999,
when interest rates on municipal bonds fell. But returns were limited in recent
months as intermediate-term municipal bond yields rose.
For example, a year ago, a five-year AAA municipal bond yielded 3.87%. By
February, that yield was down to 3.70%. Bond prices and yields move in opposite
directions, so lower yields meant healthy returns for the fund. But municipal
bond yields rose for much of 1999 and by August 31, five-year municipal bonds
were yielding 4.39%. Higher rates limited the fund's return in recent months.
HOW DID YOU MANAGE THE FUND'S EXPOSURE TO INTEREST RATE CHANGES?
We use duration to measure a portfolio's sensitivity to changes in interest
rates. The longer a fund's duration, the more you gain when rates fall, and the
more you lose when rates rise. Conversely, a shorter duration means a bond
portfolio's price fluctuates less when rates change. So, ideally, you want to
lengthen duration when interest rates are falling and shorten duration when
rates are rising.
Our duration was relatively long, at about 6.0 years, when municipal bond
rates were falling in late 1998 and early 1999. That longer duration helped the
fund's performance. But the strategy that worked well earlier in the year
limited returns in mid-1999, when interest rates rose sharply. As a result, we
started to rein in California Intermediate-Term Tax-Free's duration, bringing
it down to about 5.7 years by August 31, 1999.
[left margin]
"CALIFORNIA INTERMEDIATE-TERM TAX-FREE PRODUCED MORE STATE AND FEDERAL TAX-FREE
INCOME THAN THE AVERAGE CALIFORNIA INTERMEDIATE BOND FUND."
YIELDS AS OF AUGUST 31, 1999
30-DAY SEC YIELD 4.20%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 6.43%
37.42% TAX BRACKET 6.71%
41.95% TAX BRACKET 7.24%
45.22% TAX BRACKET 7.67%
PORTFOLIO AT A GLANCE
8/31/99 8/31/98
NUMBER OF SECURITIES 153 151
WEIGHTED AVERAGE
MATURITY 8.3 YRS 8.6 YRS
AVERAGE DURATION 5.7 YRS 5.6 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 36-37.
12 1-800-345-2021
California Intermediate-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT OTHER CHANGES DID YOU MAKE TO THE PORTFOLIO?
We sold some securities to take advantage of supply and demand imbalances
in the California municipal market. The supply of new bonds is down in
California because the robust economy has boosted tax revenues, which reduces
the need for municipalities to borrow. Meanwhile, demand from individual
investors and brokerage firms surged.
Individual investors typically buy high-quality short- and
intermediate-term bonds trading at par (a price equal to their face value).
Lower supply and higher demand made California par bonds attractive candidates
for sale. As a result, we were able to lock in profits by selling some of these
bonds.
DID YOU MAKE ANY CHANGES TO TRY TO INCREASE THE FUND'S YIELD?
Yes, we used the proceeds from the sale of these par bonds to buy
securities that were out of favor by individual investors, such as callable and
non-par bonds. Those trades helped us increase the fund's yield without taking
on any additional credit risk.
In addition, we increased the portfolio's yield by adding Puerto Rican
bonds. (The income from Puerto Rican bonds is free from state and federal taxes
for investors in all 50 states.) Yields on Puerto Rican securities were a little
higher than those we could get on California municipal bonds with a similar
maturity. Again, that's because California municipal bond yields were depressed
by strong demand and limited supply.
WHAT'S YOUR OUTLOOK FOR THE CALIFORNIA MUNICIPAL MARKET?
We're cautiously optimistic. State and local credit quality is good, and
inflation remains low. What's more, municipal bond yields are very attractive
relative to yields on fully taxable investments. In fact, municipal bonds are as
attractive relative to Treasury securities as they were at the height of the
Asian economic crisis last year--but we see no comparable risk this year. As a
result, we think municipal bonds represent very good values right now.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
In terms of duration, we'll continue to position the fund a little more
conservatively than we did earlier in the year. In addition, we're likely to
keep the portfolio's credit quality relatively high. That's because we don't see
much yield advantage to taking on additional credit risk right now. We'll also
continue to take some profits by selling par bonds to brokers and individual
investors, while trying to find higher-yielding securities elsewhere in the
market.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/99 2/28/99
AAA 63% 65%
AA 20% 17%
A 16% 17%
BBB 1% 1%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35
for more information.
TOP FIVE SECTORS (AS OF 8/31/99)
% OF FUND INVESTMENTS
COPS/LEASES 27%
GO 19%
SALES TAX REVENUE 11%
WATER AND SEWER REVENUE 11%
ELECTRIC REVENUE 10%
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%
Investment terms are defined in the Glossary on pages 36-37.
www.americancentury.com 13
California Intermediate-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 98.1%
CALIFORNIA -- 89.0%
$ 1,350,000 Alameda Corridor Transportation
Auth. Rev., Series 1999 A,
5.00%, 10/1/10 (MBIA) $ 1,360,814
8,845,000 Alameda County COP, (Santa Rita
Jail), 5.375%, 6/1/09 (MBIA) 9,219,141
2,450,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.80%, 7/1/06 2,442,086
4,060,000 Burbank Redevelopment Agency
Tax Allocation, (West Olive),
6.50%, 12/1/01 (AMBAC) 4,282,732
280,000 California Educational Facilities
Auth. Rev., (Santa Clara
University), 5.25%, 9/1/10
(MBIA) 286,756
895,000 California Educational Facilities
Auth. Rev., (Santa Clara
University), 5.25%, 9/1/06,
Prerefunded at 102% of Par
(MBIA)(1) 950,535
2,145,000 California Educational Facilities
Auth. Rev., (University of San
Diego), 6.75%, 10/1/00,
Prerefunded at 102% of Par
(MBIA)(1) 2,257,119
1,045,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/03 (MBIA) 1,080,614
1,500,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
6.70%, 10/1/99(1) 1,503,810
1,745,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.625%, 11/1/02(1) 1,825,706
3,145,000 California Health Facilities
Financing Auth. Rev., Series
1995 A, (Insured Health Facility),
6.00%, 7/1/04 (AMBAC) 3,365,276
1,000,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Casa De Las
Campanas), 5.50%, 8/1/12
(California Mortgage Insurance) 1,003,090
3,250,000 California Public Works Board
Energy Efficiency Rev., Series
1991 A, (Pooled Project),
6.00%, 9/1/99 3,250,000
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,320,000 California Public Works Board
Energy Efficiency Rev., Series
1998 A, 5.00%, 10/1/11
(AMBAC) $ 1,318,165
4,520,000 California Public Works Board
Lease Rev. COP, Series
1992 A, (Archives Building
Project), 6.20%, 12/1/05
(AMBAC) 4,951,976
1,000,000 California Public Works Board
Lease Rev. COP, Series
1992 A, (Various University of
California Projects), 5.90%,
12/1/03 (AMBAC) 1,067,190
3,700,000 California Public Works Board
Lease Rev. COP, Series 1993 D,
(California State Prisons), 5.25%,
6/1/08 3,781,585
3,000,000 California Public Works Board
Lease Rev. COP, Series 1994 A,
(Various University of California
Projects), 6.15%, 11/1/09 3,306,300
1,010,000 California Public Works Board
Lease Rev. COP, Series 1997 A,
(California Science Center),
4.60%, 10/1/05 1,016,626
1,470,000 California Public Works Board
Lease Rev., Series 1996 C,
(Department of Corrections),
5.125%, 9/1/11 (MBIA) 1,480,540
8,355,000 California Public Works Board
Lease Rev., Series 1998 A,
(California Community Colleges),
5.25%, 12/1/12 (AMBAC) 8,421,422
7,825,000 California Rural Home Mortgage
Financing Auth. Lease Rev.,
Series 1996 A, 4.45%, 8/1/01
(MBIA) 7,837,442
4,795,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1992 J-2,
5.80%, 12/1/04(2) 5,137,603
3,260,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1998 T,
5.00%, 12/1/10 3,284,483
1,855,000 California State GO, 7.00%,
11/1/06 (FGIC) 2,127,073
7,460,000 California State GO, 5.00%,
10/1/07 7,651,647
5,860,000 California State GO, 5.75%,
10/1/08 6,294,695
7,000,000 California State GO, 6.60%,
2/1/11 (MBIA) 7,959,070
5,625,000 California State GO, 4.75%,
9/1/11 5,437,688
14 1-800-345-2021 See Notes to Financial Statements
California Intermediate-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,700,000 California State GO, 5.00%,
10/1/11 $ 4,689,237
6,000,000 California State GO, 5.25%,
6/1/16 5,878,440
3,000,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) 3,077,310
8,000,000 California Statewide Communities
Development Auth. COP,
(California Lutheran Homes),
5.375%, 11/15/06(1)(2) 8,428,640
2,385,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System Obligation
Group), 6.50%, 7/1/03(1) 2,579,378
2,500,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System Obligation
Group), 5.25%, 7/1/11 2,472,700
2,180,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System Obligation
Group), 5.00%, 7/1/12 2,102,784
2,545,000 Capistrano Unified Public
Financing Auth. Special Tax Rev.,
Series 1996 A, (First Lien),
6.00%, 9/1/06 (AMBAC) 2,769,673
2,075,000 Chabot Las Positas Community
College District COP, 5.50%,
12/1/10 (FSA) 2,177,858
5,435,000 Contra Costa County Transportation
Auth. Sales Tax Rev., Series
1993 A, 6.00%, 3/1/05 (FGIC) 5,857,082
1,065,000 Contra Costa County Water District
Rev., Series 1990 A, 7.00%,
10/1/00, Prerefunded at
102% of Par(1) 1,123,000
1,110,000 Contra Costa County Water District
Rev., Series 1999 J, 5.125%,
10/1/10 (FGIC) 1,129,691
1,170,000 Contra Costa County Water District
Rev., Series 1999 J, 5.125%,
10/1/11 (FGIC) 1,181,782
1,220,000 Coronado Community Development
Agency Tax Allocation, 6.00%,
9/1/08 (FSA) 1,321,785
2,570,000 East Bay Municipal Utility District
Water System Rev., 6.00%,
6/1/05 2,727,001
2,665,000 East Bay Municipal Utility District
Water System Rev., 4.50%,
6/1/12 2,496,039
4,015,000 East Bay Regional Park District
GO, 5.00%, 9/1/11 4,025,118
1,000,000 Foothill/Eastern Corridor Agency
Toll Road Rev., 4.50%,
1/15/08 (MBIA) 985,220
5,730,000 Fresno Special Tax, (Community
Facilities District No. 3), 4.75%,
9/1/05 (LOC: Rabobank
Nederland N.V.) 5,737,678
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,285,000 Garden Grove Agency Community
Development Tax Allocation,
(Garden Grove Community),
5.30%, 10/1/02 $ 1,318,513
7,350,000 Imperial Irrigation District COP,
(Electrical System), 6.50%,
11/1/07 (MBIA) 8,272,572
1,225,000 Imperial Irrigation District COP,
(Electrical System), 5.20%,
11/1/09 (MBIA) 1,263,477
2,715,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.50%, 11/1/10 (AMBAC) 2,840,704
1,090,000 Kings River Conservation District
Pine Flat Power Rev., Series
1999 E, 5.125%, 1/1/15 1,055,066
1,750,000 Loma Linda Hospital Rev.,
(University Medical Center),
6.95%, 12/1/05 (AMBAC) 1,798,142
2,300,000 Los Angeles Airport Rev., Series
1995 A, 6.00%, 5/15/05
(FGIC) 2,481,930
4,000,000 Los Angeles Capital Asset Lease
Rev. COP, 5.875%, 12/1/05
(AMBAC) 4,299,800
1,155,000 Los Angeles Convention and
Exhibition Center Auth. Lease
Rev. COP, Series 1993 A,
6.00%, 8/15/10 (MBIA) 1,260,151
2,625,000 Los Angeles County Metropolitan
Transportation Auth. Rev., Series
1996 A, (Union Station), 5.10%,
7/1/10 (FSA) 2,659,650
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%,
7/1/06 (AMBAC) 1,081,080
6,175,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A,
(Proposition A), 5.25%,
7/1/12 (MBIA) 6,215,755
1,000,000 Los Angeles County Public
Properties COP, 6.25%,
4/1/00 (BIGI) 1,015,390
2,625,000 Los Angeles County Sanitation
Districts Financing Auth. Rev.,
Series 1993 A, (Capital),
5.20%, 10/1/05 2,739,476
2,900,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.00%,
7/1/01 2,997,469
4,665,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.20%,
7/1/03 4,967,572
2,000,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.25%,
7/1/04 2,133,320
See Notes to Financial Statements www.americanentury.com 15
California Intermediate-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,500,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1991 A,
(Proposition A), 6.40%, 7/1/01,
Prerefunded at 102% of Par(1) $ 2,655,725
3,515,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
(Proposition C), 6.20%, 7/1/04 3,783,898
3,765,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
(Proposition C), 6.40%, 7/1/06 4,143,194
4,780,000 Los Angeles County Wastewater
System Rev., Series 1992 B,
6.20%, 6/1/02, Prerefunded at
102% of Par (AMBAC)(1) 5,136,014
1,000,000 Los Angeles Department of Water
and Power Waterworks Rev.,
6.30%, 4/15/06 (FGIC) 1,060,890
2,140,000 Los Angeles Department of Water
and Power Waterworks Rev.,
5.00%, 10/15/14 (FGIC) 2,079,074
1,000,000 Los Angeles GO, Series 1999 B,
5.00%, 9/1/08(3) 1,019,970
2,245,000 Los Angeles GO, Series 1999 B,
5.375%, 9/1/18(3) 2,208,272
1,790,000 Los Angeles Municipal
Improvement Corp. Lease Rev.,
Series 1999 D, (Police
Emergency), 4.375%, 9/1/10 1,696,222
2,915,000 Los Angeles Municipal
Improvement Corp. Lease Rev.,
Series 1999 D, (Police
Emergency), 4.50%, 9/1/11 2,758,202
2,900,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/11 (FGIC) 3,146,993
1,000,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/15 (FGIC) 1,069,300
3,115,000 Los Angeles Unified School
District GO, Series 1999 C,
5.50%, 7/1/12 (MBIA) 3,210,942
1,610,000 Merced Unified High School
District, Series 1999 A, 5.25%,
8/1/12 (FGIC) 1,622,574
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.625%, 7/1/01,
Prerefunded at 102% of Par(1) 1,065,500
5,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1996 C, 5.00%,
7/1/10 5,046,100
5,505,000 Mid-Peninsula Regional Open
Space District Financing Auth.
Rev., (Second Issue), 5.25%,
8/1/17 (AMBAC) 5,358,347
2,700,000 Modesto Irrigation District
Financing Auth. Rev., Series
1996 A, 5.80%, 10/1/11
(MBIA) 2,863,620
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,100,000 Mojave California Water Agency
Improvement District GO,
(Morongo Basin), 5.40%,
9/1/08 (FGIC) $ 1,154,747
1,110,000 Ontario Redevelopment Financing
Auth. Local Agency Rev., Series
1995 A, 5.80%, 9/2/06 (FSA) 1,180,685
3,000,000 Orange County Water District
COP, Series 1997 A, 5.00%,
8/15/14 (MBIA) 2,906,280
1,330,000 Oxnard Harbor District Rev.,
7.00%, 8/1/04 (FSA) 1,484,134
1,000,000 Ramona Municipal Water District
COP, 6.90%, 10/1/01
(AMBAC) 1,050,030
1,060,000 Redding Joint Powers Financing
Auth. Electric System Rev.,
Series 1996 A, 6.25%,
6/1/07 (MBIA) 1,171,035
1,010,000 Richmond Joint Powers Financing
Auth. Rev. COP, Series 1995 A,
5.30%, 5/15/06 1,037,129
2,080,000 Riverside County Public Financing
Auth. Special Tax Rev., Series
1995 A, 5.25%, 9/1/04
(MBIA) 2,172,331
1,225,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.60%,
6/1/05 (AMBAC) 1,299,958
2,900,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.70%,
6/1/06 (AMBAC) 3,103,029
1,025,000 Rocklin Unified School District
Community Facility Special Tax
Rev., (No. 1), 5.20%, 9/1/09
(MBIA) 1,054,305
2,600,000 Sacramento County Multifamily
Housing Rev., Issue 1985 B,
(Parcwood Apartments), 4.80%,
9/1/02 (Guaranteed:
Connecticut General Life
Insurance) 2,605,746
1,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 A, 6.25%, 8/15/10
(MBIA) 1,109,340
5,710,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 C, 5.75%, 11/15/07
(MBIA) 6,006,121
6,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1993 D, 5.25%, 11/15/12
(FGIC) 6,029,460
3,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1994 H, 5.75%, 1/1/11
(MBIA) 3,632,090
4,230,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 L, 5.00%, 7/1/10
(AMBAC) 4,260,752
16 1-800-345-2021 See Notes to Financial Statements
California Intermediate-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,205,000 Saddleback Valley Unified School
District Public Financing Special
Tax Rev., 6.00%, 9/1/11 (FSA) $ 1,312,185
4,490,000 San Bernardino County COP,
(Medical Center Financing),
5.00%, 8/1/02 4,568,350
5,000,000 San Bernardino County COP,
Series 1995 A, (Medical Center
Financing), 5.75%, 8/1/07
(MBIA) 5,379,450
700,000 San Diego County COP, (Burnham
Institute), 5.70%, 9/1/11(3) 699,097
2,000,000 San Diego County COP, (Central
Jail), 5.00%, 10/1/10 (AMBAC) 1,997,380
7,200,000 San Diego County Water Auth.
Rev. COP, Series 1991 A,
6.125%, 5/1/03 7,550,568
3,505,000 San Diego Regional Transportation
Commission Sales Tax Rev.,
Series 1992 A, 5.50%, 4/1/04
(FGIC) 3,684,842
4,000,000 San Diego Regional Transportation
Commission Sales Tax Rev.,
Series 1994 A, 6.00%, 4/1/04
(FGIC) 4,284,280
1,000,000 San Francisco Bay Area Rapid
Transit District Sales Tax Rev.,
5.35%, 7/1/07 (FGIC) 1,044,380
3,255,000 San Francisco City and County
Educational Facilities Unified
School District GO, Series
1999 B, 5.50%, 6/15/12 3,337,677
1,605,000 San Francisco City and County
Public Utilities Commission Water
Rev., Series 1996 A, 5.00%,
11/1/11 1,608,980
3,405,000 San Francisco Port Commission
Rev., 5.625%, 7/1/02 3,529,895
1,000,000 San Jacinto Unified School
District COP, 3.875%, 10/1/02
(FSA) (SBBPA: First Union
National Bank) 985,390
4,580,000 San Jose Financing Auth. Rev.
COP, Series 1993 A,
(Convention Center), 6.10%,
9/1/06 4,812,756
3,950,000 San Jose Financing Auth. Rev.
COP, Series 1993 C,
(Convention Center), 6.00%,
9/1/05 4,142,918
3,875,000 San Jose Redevelopment Agency
Tax Allocation, Series 1992 A,
(Merged Area Redevelopment),
6.00%, 8/1/02 (MBIA)(1) 4,034,495
1,620,000 San Mateo County Joint Powers
Auth. Lease Rev., Series 1997 A,
4.875%, 7/15/11 (FSA) 1,594,112
4,585,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.00%, 6/1/11 (MBIA) 4,582,616
3,750,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/15 (MBIA) 3,723,900
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,015,000 Santa Ana Police Administration
COP, Series 1994 A, 5.50%,
7/1/07 (MBIA) $ 1,067,668
1,610,000 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) 1,823,148
1,510,000 Santa Clara County Financing
Auth. Lease Rev., Series 1997 A,
6.00%, 11/15/12 (AMBAC) 1,637,021
2,855,000 Santa Clara County Financing
Auth. Lease Rev., Series 1998 A,
(Multiple Facilities), 4.50%,
5/15/11 (AMBAC) 2,711,251
1,250,000 Santa Monica-Malibu Unified
School District GO, 5.25%,
8/1/13 1,255,462
1,000,000 Saratoga Unified School District
GO, 5.125%, 9/1/13 (MBIA) 992,120
1,200,000 South Orange County Public
Financing Auth. Special Tax Rev.,
Series 1994 C, (Foothill Area),
6.50%, 8/15/10 (FGIC) 1,356,348
1,785,000 South Sutter Water District
Hydroelectric Rev., 6.80%,
8/1/01 (FGIC) 1,824,913
2,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/00 2,047,900
3,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/01 3,119,850
3,090,000 Southern California Public Power
Auth. Rev., (Transmission),
5.625%, 7/1/03 (MBIA) 3,249,228
4,065,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.20%, 7/1/02
(MBIA) 4,273,209
5,000,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.40%, 7/1/04
(MBIA) 5,257,750
1,500,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.50%, 7/1/07
(MBIA) 1,579,245
2,000,000 Stanislaus County COP, 5.50%,
5/1/06 (MBIA) 2,114,540
1,800,000 Sweetwater Auth. Water Rev.,
5.25%, 4/1/10 (AMBAC) 1,849,212
1,150,000 Taft Public Financing Auth. Lease
Rev. COP, Series 1997 A,
(Community Correctional
Facility), 5.50%, 1/1/06 1,184,569
1,950,000 University of California Rev.,
(Medical Center), 5.60%,
7/1/09 (AMBAC) 2,040,578
2,510,000 Watsonville Hospital Insured Rev.,
Series 1996 A, (Watsonville
Community Hospital), 5.45%,
7/1/03 (California Mortgage
Insurance)(1) 2,622,122
See Notes to Financial Statements www.americanentury.com 17
California Intermediate-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,980,000 Whittier Health Facility Rev.,
(Presbyterian Intercommunity),
6.00%, 6/1/06 (MBIA) $ 4,301,067
1,465,000 Woodland Wastewater System
COP, 6.00%, 3/1/06 (AMBAC) 1,588,089
------------
415,012,237
------------
PUERTO RICO -- 9.1%
3,655,000 Puerto Rico Commonwealth GO,
6.00%, 7/1/16 (MBIA) 3,909,863
2,400,000 Puerto Rico Commonwealth GO,
(Public Improvement), 5.00%,
7/1/05 (MBIA) 2,468,880
3,000,000 Puerto Rico Commonwealth GO,
(Public Improvement), 5.00%,
7/1/05 (MBIA) 3,086,100
3,000,000 Puerto Rico Commonwealth GO,
(Public Improvement), 5.25%,
7/1/11 3,014,220
10,000,000 Puerto Rico Commonwealth GO,
(Public Improvement), 4.50%,
7/1/23 (FSA) 8,416,900
3,000,000 Puerto Rico Commonwealth
Infrastructure Financing Auth.
Special Tax Rev., Series 1998 A,
5.50%, 7/1/08 (AMBAC) 3,161,670
5,000,000 Puerto Rico Electric Power Auth.
Rev., Series 1995 W, 6.00%,
7/1/03 (MBIA) 5,310,700
5,790,000 Puerto Rico Electric Power Auth.
Rev., Series 1998 DD, 4.50%,
7/1/19 (FSA) 5,035,737
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,090,000 Puerto Rico Public Buildings Auth.
Rev., Series 1995 A, 6.25%,
7/1/09 (AMBAC) $ 3,421,094
4,500,000 Puerto Rico Public Finance Corp.,
Series 1998 A, 5.375%,
6/1/11 (AMBAC) 4,626,045
------------
42,451,209
------------
TOTAL MUNICIPAL SECURITIES 457,463,446
------------
(Cost $452,870,155)
SHORT-TERM MUNICIPAL SECURITIES -- 1.9%
4,000,000 California Pollution Control
Financing Auth. Rev., Series
1986 A, (Southern California
Edison), VRDN, 2.60%, 9/1/99
(Guaranteed: Southern
California Edison Company) 4,000,000
4,100,000 California Pollution Control
Financing Auth. Rev., Series
1986 C, (Southern California
Edison), VRDN, 2.60%, 9/1/99
(Guaranteed: Southern
California Edison Company) 4,100,000
700,000 Irvine Improvement Bond Act
1915 Special Assessment,
(District No. 87-8), VRDN,
2.40%, 9/1/99 700,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 8,800,000
------------
(Cost $8,800,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $466,263,446
============
(Cost $461,670,155)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
LOC = Letter of Credit
BIGI = Bond Investor's Guaranty Inc.
MBIA = MBIA Insurance Corp.
COP = Certificates of Participation
SBBPA = Standby Bond Purchase Agreement
FGIC = Financial Guaranty Insurance Co.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 1999.
FSA = Financial Security Assurance Inc.
GO = General Obligation
(1) Escrowed to maturity in U.S. government securities or state and local
government securities.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(3) When-issued security.
18 1-800-345-2021 See Notes to Financial Statements
California Long-Term Tax-Free--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF AUGUST 31, 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) -3.97% -4.29% -3.52% --
1 YEAR -1.85% -2.14% -1.49% 70 OUT OF 106
============================================================================================
AVERAGE ANNUAL
RETURNS
3 YEARS 5.56% 6.35% 5.22% 33 OUT OF 90
5 YEARS 6.13% 7.07% 5.71% 23 OUT OF 72
10 YEARS 7.07% 7.92% 6.65% 9 OUT OF 35
</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 35-36 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 8/31/99
California Long-Term Tax-Free $19,792
Lehman Long-Term Municipal Index $21,446
California
Long-Term Lehman Long-Term
Tax-Free Municipal Index
DATE VALUE VALUE
8/31/89 $10,000 $10,000
8/31/90 $10,466 $10,611
8/31/91 $11,749 $12,040
8/31/92 $12,992 $13,557
8/31/93 $14,814 $15,558
8/31/94 $14,698 $15,240
8/31/95 $15,758 $16,677
8/31/96 $16,825 $17,824
8/31/97 $18,457 $19,831
8/31/98 $20,164 $21,915
8/31/99 $19,792 $21,446
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 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 AUGUST 31)
California
Long-Term Lehman Long-Term
Tax-Free Municipal Index
DATE RETURN RETURN
8/31/90 4.66% 6.11%
8/31/91 12.26% 13.47%
8/31/92 10.58% 12.60%
8/31/93 14.02% 14.76%
8/31/94 -0.78% -2.05%
8/31/95 7.21% 9.43%
8/31/96 6.77% 6.88%
8/31/97 9.70% 11.26%
8/31/98 9.25% 10.51%
8/31/99 -1.85% -2.14%
www.americancentury.com 19
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 CALIFORNIA LONG-TERM TAX-FREE PERFORM DURING ITS FISCAL YEAR ENDED
AUGUST 31, 1999?
It was a disappointing year for both the municipal market and the fund.
California Long-Term Tax-Free posted a total return of -1.85%, which lagged the
- -1.49% average total return of its peer group--106 "California Municipal Debt
Funds" tracked by Lipper Inc. Despite this recent setback, the fund's
longer-term results remained solid. For the three-, five-, and 10-year periods
ended August 31, 1999, the fund consistently ranked in the top 40% of its peer
group.
Additionally, California Long-Term Tax-Free produced more state and federal
tax-free income than its peers. The fund's 30-day SEC yield as of August 31,
1999, was 4.95%, compared with the 4.26% average yield of the Lipper peer group
The portfolio's below-average expenses helped boost the fund's long-term
returns and its yield.
WHY DID THE FUND TRAIL ITS PEERS DURING THE PAST YEAR?
As is the case from time to time, the strategy that helped us outperform in
one period hurt us in another. In this instance, California Long-Term Tax-Free's
duration--a measure of its interest rate sensitivity--was longer than the
average of its peers. (The longer a fund's duration, the more the share price
will rise or fall when interest rates change.) This positioning helped
performance in 1998 when interest rates fell, but hurt the fund in 1999 when
rates rose.
CAN YOU EXPLAIN WHY YOU KEPT DURATION RELATIVELY LONG?
Our decision to maintain a somewhat longer duration was based on our view
that interest rates would decline in 1999 in response to global economic
weakness. Given that outlook, we wanted to protect the fund from "reinvestment"
risk, which occurs when rates fall. Under those circumstances, municipalities
refinance older, higher-yielding bonds and potentially force bondholders to
reinvest the proceeds in newer bonds at lower interest rates.
To guard against reinvestment risk, we used discount bonds. These bonds
trade below face value (par)--at a "discount"--because their interest payments
are below prevailing market interest rates. There's less incentive for issuers
to refinance--or "call"--discount bonds. That natural "call protection" means
the duration of discount bonds is relatively long to begin with. Unfortunately,
rising rates diminished the likelihood that discount bonds would be called, so
their lives extended further and their durations lengthened. That made the
portfolio even more sensitive to rising rates.
[left margin]
"CALIFORNIA LONG-TERM TAX-FREE PRODUCED MORE STATE AND FEDERAL TAX-FREE INCOME
THAN ITS PEERS."
YIELDS AS OF AUGUST 31, 1999
30-DAY SEC YIELD 4.95%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 7.58%
37.42% TAX BRACKET 7.91%
41.95% TAX BRACKET 8.53%
45.22% TAX BRACKET 9.04%
PORTFOLIO AT A GLANCE
8/31/99 8/31/98
NUMBER OF SECURITIES 90 83
WEIGHTED AVERAGE
MATURITY 19.3 YRS 19.5 YRS
AVERAGE DURATION 9.4 YRS 8.7 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 36-37.
20 1-800-345-2021
California Long-Term Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
WHAT CHANGES DID YOU MAKE IN RESPONSE TO RISING INTEREST RATES?
Rather than sell discount bonds at distressed prices and abandon a strategy
we believe will ultimately help the fund, we chose another route. To prevent the
fund from becoming overly interest rate sensitive, we sold some par bonds at
relatively good prices and temporarily parked the proceeds in short-term
investments such as money market securities, which helped offset the
longer-maturity discount bonds.
Rising rates and weak prices also gave us the opportunity to do some "tax
swapping." When it was advantageous to do so, we sold some of our
worst-performing bonds at a loss to offset capital gains incurred elsewhere in
the fund. The proceeds were used to buy higher-yielding bonds, which helped to
boost the fund's distribution yield.
Finally, we increased our stake in BBB bonds. That helped performance
because BBB bonds held up relatively well.
WHAT'S THE ATTRACTION OF CERTIFICATES OF PARTICIPATION (COPS), THE FUND'S
LARGEST POSITION THROUGHOUT THE PERIOD?
COPs originated in 1978 when California voters approved "Proposition 13."
That amendment put strict limits on the amount of money that could be raised
from property taxes and required two-thirds voter approval to sell new general
obligation bonds. Those restrictions helped COPs, which are an alternate form of
financing that don't require voter approval, become more popular.
We're attracted to COPs because they are less well understood than other
bonds, which allows us to buy them at higher yields than comparably rated, more
familiar types of securities with similar maturities.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND THE BOND MARKET?
We're moderately bullish. The broad U.S. inflation gauges haven't changed
much recently, and there's evidence that the U.S. economy may be slowing.
Furthermore, we believe the Fed will remain sidelined for the balance of 1999 in
recognition of low inflation and out of concern for potential Y2K problems.
Beyond the end of 1999, the outlook is less clear. It's quite feasible that
the tug-of-war between "good" (low inflation) and "evil" (tight labor markets
and wage pressures) will continue well into 2000. Ultimately, we think that
non-inflationary, moderate economic growth will win, providing a more favorable
backdrop for bonds. Because municipal bonds are currently priced attractively
relative to Treasury securities, we think municipals can be a prime beneficiary
of more favorable market sentiment.
GIVEN YOUR OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS?
As long as our outlook remains somewhat bullish, we're likely to maintain
our current duration position and emphasis on discount bonds. We'll also
continue working with our research staff to uncover attractively valued
securities, such as COPs, that have the potential to enhance returns. And we
plan to stick with the same value-oriented approach and below-average expenses
that have contributed to our long-term success.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/99 2/28/99
AAA 59% 60%
AA 11% 9%
A 24% 26%
BBB 6% 5%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35
for more information.
TOP FIVE SECTORS (AS OF 8/31/99)
% OF FUND INVESTMENTS
COPS/LEASES 19%
TAX ALLOCATION REVENUE 16%
GO 14%
WATER AND SEWER REVENUE 8%
HOSPITAL REVENUE 7%
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%
Investment terms are defined in the Glossary on pages 36-37.
www.americancentury.com 21
California Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 97.1%
CALIFORNIA -- 93.1%
$ 6,500,000 Alameda Corridor Transportation
Auth. Rev., Series 1999 A,
5.00%, 10/1/29 (MBIA) $ 5,861,504
2,300,000 Alameda County COP, 6.80%,
6/15/17 (MBIA)(1) 842,651
2,700,000 Brea Public Finance Auth. Rev.
Tax Allocation, (Project Area AB),
7.00%, 8/1/15 (MBIA) 2,879,658
1,220,000 Brea Redevelopment Agency Tax
Allocation, (Project AB), 6.125%,
8/1/13 (MBIA) 1,287,649
1,500,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College and University
Projects), 6.30%, 4/1/21 1,533,990
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) 1,534,320
3,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/09(1) 1,784,280
1,730,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Gould Medical),
7.30%, 4/1/20(2) 1,801,138
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1991 B, (Adventist Health),
6.75%, 3/1/14 (MBIA) 2,628,600
2,000,000 California Health Facilities
Financing Auth. Rev., Series
1992 A, 6.75%, 3/1/20
(California Mortgage Insurance) 2,114,480
1,290,000 California Health Facilities
Financing Auth. Rev., Series
1992 C, (AIDS Healthcare
Foundation), 6.25%, 9/1/17
(California Mortgage Insurance) 1,328,003
5,165,000 California Health Facilities
Financing Auth. Rev., Series
1993 C, (St. Francis Memorial
Hospital), 5.875%, 11/1/23(2) 5,437,454
5,125,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1994 G, 7.25%, 8/1/17 5,284,285
1,290,000 California Housing Finance
Agency Rev., (Multi-Unit Rental
Housing), 6.875%, 2/1/22 1,296,631
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,125,000 California Housing Finance
Agency Rev., Series 1995 C,
(Home Mortgage), 6.80%,
8/1/17 $ 1,177,481
1,500,000 California Pollution Control
Financing Auth. Rev., Series
1987 D, (Southern California
Edison), 6.85%, 12/1/08 1,530,000
17,100,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections),
5.25%, 6/1/15 (FSA) 16,980,984
2,500,000 California Public Works Board
Lease Rev., Series 1998 B,
(Department of Corrections),
5.00%, 9/1/21 (MBIA) 2,295,350
5,000,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1997 S,
5.00%, 12/1/29 4,507,650
1,000,000 California State Franchise Tax
Board COP, 6.90%, 10/1/99,
Prerefunded at 102% of Par(2) 1,022,710
3,000,000 California State GO, 6.125%,
10/1/11 (AMBAC) 3,301,740
2,945,000 California State GO, 5.00%,
2/1/20 2,729,809
9,000,000 California State GO, 4.50%,
12/1/21 (FGIC) 7,592,040
4,655,000 California State GO, 4.50%,
12/1/24 (FGIC) 3,881,804
8,000,000 California State GO, 4.25%,
10/1/26 (MBIA) 6,329,920
2,130,000 California State GO, 4.75%,
4/1/29 1,827,370
1,410,000 California State GO, Series
1984 B, (New Prison
Construction), 10.00%, 8/1/03 1,697,626
9,000,000 California Statewide Communities
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/22 (AMBAC,
California Mortgage Insurance) 8,290,890
5,695,000 Capistrano Unified School District
Community Facilities Special Tax,
(Refunding Issue 1988-1),
6.50%, 9/1/14 (FSA) 6,136,362
1,000,000 Coachella Valley Water District #71
COP, (Flood Control), 6.75%,
10/1/02, Prerefunded at
102% of Par(2) 1,095,150
1,320,000 Coalinga Public Financing Auth.
Local Obligation Rev., Series
1998 A, 6.375%, 9/15/21
(AMBAC) 1,465,543
13,500,000 Compton Redevelopment Agency
Tax Allocation, Series 1995 A,
6.50%, 8/1/13 (FSA) 14,694,345
22 1-800-345-2021 See Notes to Financial Statements
California Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,580,000 Concord Joint Power Financing
Auth. Lease Rev. COP, (Police
Facilities), 5.25%, 8/1/13 $ 2,563,540
3,805,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev., 5.25%, 8/1/28 3,393,794
2,615,000 Corona Community Facilities
District Tax Allocation, (Special
Tax No. 86-2), 5.125%, 9/1/19
(AMBAC) 2,447,300
3,605,000 Inglewood Redevelopment Agency
Tax Allocation, Series 1998 A,
(Merged Redevelopment),
5.25%, 5/1/23 (AMBAC) 3,442,631
1,815,000 Kern County High School District
GO, 7.15%, 8/1/14 (MBIA)(2) 2,170,413
1,305,000 Los Altos Association of Bay Area
Governments COP, 5.90%,
5/1/27 1,314,513
3,475,000 Los Angeles Community
Redevelopment Agency Housing
Rev., Series 1994 A, 6.45%,
7/1/17 (AMBAC) 3,620,464
2,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1996 A, 6.00%,
7/1/06, Prerefunded at 101%
of Par (MBIA)(2) 2,194,980
3,340,000 Los Angeles Department of Water
and Power Waterworks Rev.,
4.50%, 10/15/24 2,751,993
1,000,000 Los Angeles Transportation
Commission Sales Tax Rev.,
6.50%, 7/1/13 (MBIA) 1,054,990
1,865,000 Mendocino Coast District Health
Care Facility Rev., 5.875%,
2/1/20 (California Mortgage
Insurance) 1,868,562
8,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 5.75%, 8/10/18 8,223,600
4,650,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1996 B, 4.75%,
7/1/21 (MBIA) 4,088,652
5,150,000 Mid-Peninsula Regional Open
Space District GO, 7.00%,
9/1/14 5,632,298
5,830,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan),
6.75%, 7/1/20 (MBIA)(2) 6,614,310
3,000,000 Oakland Redevelopment Agency
Tax Allocation, (Central District),
5.50%, 2/1/14 (AMBAC) 3,061,320
2,960,000 Orange County Water District Rev.
COP, Series 1999 A, 5.25%,
8/15/22 2,806,850
1,855,000 Pacifica Financing Auth. Sewer
Rev., 6.20%, 8/1/26 1,877,854
2,950,000 Pasadena COP, (Old Pasadena
Parking Facility), 6.25%,
1/1/18 3,188,596
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,475,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.20%, 8/1/19 $ 4,599,808
5,000,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.25%, 8/1/26 5,158,050
2,700,000 Pittsburg Redevelopment Agency
Tax Allocation, Series 1993 B,
(Los Medanos Community
Development), 5.80%, 8/1/34
(FSA) 2,732,076
2,100,000 Pomona Public Financing Auth.
Rev., Series 1992 A, (Water
Treatment), 6.10%, 7/1/02,
Prerefunded at 102% of Par
(AMBAC)(2) 2,254,140
2,000,000 Rancho Cucamonga
Redevelopment Agency Tax
Allocation, 5.25%, 9/1/20
(FSA) 1,924,940
3,680,000 Riverside County Asset Leasing
Corporation Rev. COP, Series
1997 B, (Riverside County
Hospital), 5.00%, 6/1/19
(MBIA) 3,391,010
8,705,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 8,326,332
1,000,000 Saddleback Valley Unified School
District Public Financing Auth.
Special Tax Rev., Series 1997 A,
6.00%, 9/1/16 (FSA) 1,070,240
3,400,000 San Diego County COP, 5.625%,
9/1/12 (AMBAC) 3,531,988
3,500,000 San Diego County Regional
Transportation Sales Tax Rev.,
Series 1991 A, 6.93%,
4/1/04(1)(2) 2,863,210
9,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/23 (MBIA) 7,549,200
5,450,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/26 (MBIA) 4,522,900
1,000,000 San Francisco City and County
Redevelopment Hotel Tax Rev.,
6.75%, 7/1/04, Prerefunded at
102% of Par (FSA)(2) 1,125,140
3,000,000 San Jose Financing Auth. Rev.
COP, Series 1993 C,
(Convention Center), 6.375%,
9/1/13 3,128,160
7,575,000 San Jose Financing Auth. Rev.
COP, Series 1993 D, (Central
Service Yard), 5.25%, 10/15/23 7,097,624
9,525,000 San Jose Redevelopment Agency
Tax Allocation, Series 1993 D,
(Merged Area Redevelopment),
5.75%, 8/1/24 9,532,048
See Notes to Financial Statements www.americancentury.com 23
California Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,000,000 San Marino Unified School District
GO, Series 1998 B, 5.00%,
6/1/23 $ 4,592,800
3,975,000 San Mateo County Joint Powers
Finance Auth. Lease Rev. COP,
(Capital Projects Program),
6.50%, 7/1/16 (MBIA) 4,470,643
4,000,000 San Mateo County Joint Powers
Finance Auth. Lease Rev. COP,
(Capital Projects Program),
6.00%, 7/1/19 (MBIA) 4,261,840
3,500,000 Santa Ana Finance Auth. Lease
Rev. COP, 6.25%, 7/1/15
(MBIA) 3,847,060
4,830,000 Santa Monica Community College
District COP, Series 1997 A,
5.90%, 2/1/27 4,859,173
1,455,000 South Orange County Public
Financing Auth. Special Tax Rev.,
Series 1999 A, 5.375%,
8/15/10 (FSA) 1,511,134
2,670,000 South Orange County Public
Financing Auth. Special Tax Rev.,
Series 1999 A, 5.375%,
8/15/11 (FSA) 2,750,207
2,745,000 South Tahoe Joint Powers
Financing Auth. Rev., Series
1999 A, 5.375%, 10/1/30 2,490,154
3,260,000 Southern California Public Power
Auth. Rev., 6.00%, 7/1/18 3,270,302
7,315,000 Southern California Public Power
Auth. Rev., (Multiple Projects),
6.75%, 7/1/12 (FSA) 8,399,814
3,730,000 Southern California Public Power
Auth. Rev., (Multiple Projects),
6.75%, 7/1/13 (FSA) 4,276,967
1,425,000 Southern California Public Power
Auth. Rev., (Transportation Auth.),
7.00%, 7/1/09 1,486,318
3,000,000 Southern California Public Power
Auth. Rev., Series 1989 A,
7.15%, 7/1/04 (AMBAC)(1) 2,423,400
2,000,000 Southern Orange County Finance
Auth. Special Tax Rev., Series
1994 A, 7.00%, 9/1/11 (MBIA) 2,346,800
800,000 Stockton Health Facilities Rev.,
Series 1997 A, (Dameron
Hospital Association), 5.70%,
12/1/14 775,376
2,000,000 Taft Public Financing Auth. Lease
Rev. COP, Series 1997 A,
(Community Correctional Facility),
6.05%, 1/1/17 2,034,740
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,400,000 Torrance Redevelopment Agency
Rev., Series 1998 A,
(Downtown Redevelopment),
5.60%, 9/1/28 $ 1,299,074
3,020,000 Watsonville Insured Hospital Rev.,
Series 1996 A, (Watsonville
Community Hospital), 6.20%,
7/1/12 (California Mortgage
Insurance)(2) 3,276,368
------------
311,667,113
------------
PUERTO RICO -- 4.0%
16,250,000 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 13,511,388
------------
TOTAL MUNICIPAL SECURITIES 325,178,501
------------
(Cost $323,523,453)
MUNICIPAL DERIVATIVES(3) -- 1.1%
4,000,000 Northern California Transmission
Rev., Inverse Floater, 6.78%,
4/29/24 (MBIA) 3,815,000
------------
(Cost $3,963,920)
SHORT-TERM MUNICIPAL SECURITIES -- 1.8%
1,000,000 California Health Facilities
Financing Auth. Rev., Series
1995 C, (Catholic Healthcare
West), VRDN, 2.75%, 9/1/99
(MBIA) (SBBPA: Rabobank
Nederland N.V.) 1,000,000
3,000,000 California Statewide Communities
Development Auth. Rev. COP,
(Sutter Health Obligation Group),
VRDN, 2.40%, 9/1/99
(AMBAC) (SBBPA: KBC
Bank N.V.) 3,000,000
2,000,000 Irvine Improvement Bond Act
1915 Special Assessment,
(District No. 89-10), VRDN,
2.40%, 9/1/99 (LOC: National
Westminster Bank PLC) 2,000,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 6,000,000
------------
(Cost $6,000,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $334,993,501
============
(Cost $333,487,373)
24 1-800-345-2021 See Notes to Financial Statements
California Long-Term Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
LOC = Letter of Credit
COP = Certificates of Participation
MBIA = MBIA Insurance Corp.
FGIC = Financial Guaranty Insurance Co.
SBBPA = Standby Bond Purchase Agreement
FSA = Financial Security Assurance Inc.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 1999.
GO = General Obligation
(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 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.
See Notes to Financial Statements www.americancentury.com 25
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
<TABLE>
<CAPTION>
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
AUGUST 31, 1999 TAX-FREE TAX-FREE TAX-FREE
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of $145,900,662,
$461,670,155 and $333,487,373,
respectively) (Note 3) ............. $ 146,444,294 $ 466,263,446 $ 334,993,501
Receivable for investments sold ...... -- 1,679,122 3,367,787
Interest receivable .................. 1,856,007 6,478,922 4,228,401
------------- ------------- -------------
148,300,301 474,421,490 342,589,689
------------- ------------- -------------
LIABILITIES
Disbursements in excess of
demand deposit cash ................ 4,484,358 10,226,730 6,281,233
Payable for investments purchased .... 2,147,669 3,907,442 3,349,712
Accrued management fees
(Note 2) ........................... 59,930 198,332 143,871
Dividends payable .................... 58,655 228,984 187,081
Payable for trustees' fees
and expenses ....................... 241 798 579
------------- ------------- -------------
6,750,853 14,562,286 9,962,476
------------- ------------- -------------
Net Assets ........................... $ 141,549,448 $ 459,859,204 $ 332,627,213
============= ============= =============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .............. 13,782,306 42,387,303 30,640,236
============= ============= =============
Net Asset Value Per Share ............ $ 10.27 $ 10.85 $ 10.86
============= ============= =============
NET ASSETS CONSIST OF:
Capital paid in ...................... $ 141,451,152 $ 456,045,861 $ 332,027,691
Accumulated net realized loss
on investments ..................... (445,336) (779,948) (906,606)
Net unrealized appreciation
on investments (Note 3) ............ 543,632 4,593,291 1,506,128
------------- ------------- -------------
$ 141,549,448 $ 459,859,204 $ 332,627,213
============= ============= =============
</TABLE>
26 1-800-345-2021 See Notes to Financial Statements
Statements of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
<TABLE>
<CAPTION>
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
YEAR ENDED AUGUST 31, 1999 TAX-FREE TAX-FREE TAX-FREE
INVESTMENT INCOME
Income:
<S> <C> <C> <C>
Interest ............................ $ 6,327,039 $ 23,434,766 $ 18,661,903
------------ ------------ ------------
Expenses (Note 2):
Management fees ..................... 744,334 2,402,570 1,729,194
Trustees' fees and expenses ......... 5,805 16,496 12,154
------------ ------------ ------------
750,139 2,419,066 1,741,348
------------ ------------ ------------
Net investment income ............... 5,576,900 21,015,700 16,920,555
------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(NOTE 3)
Net realized gain on investments .... 135,223 1,469,341 178,811
Change in net unrealized
appreciation on investments ....... (2,294,647) (19,090,647) (23,792,754)
------------ ------------ ------------
Net realized and unrealized
loss on investments ............... (2,159,424) (17,621,306) (23,613,943)
------------ ------------ ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations .. $ 3,417,476 $ 3,394,394 $ (6,693,388)
============ ============ ============
</TABLE>
See Notes to Financial Statements www.americancentury.com 27
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows how the 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-FREE TAX-FREE TAX-FREE
Increase (Decrease) in Net Assets 1999 1998 1999 1998 1999 1998
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ........... $ 5,576,900 $ 5,160,591 $ 21,015,700 $ 20,402,484 $ 16,920,555 $ 15,874,999
Net realized gain
on investments ................ 135,223 253,098 1,469,341 3,919,772 178,811 2,963,978
Change in net unrealized
appreciation on investments ... (2,294,647) 1,302,650 (19,090,647) 5,632,637 (23,792,754) 8,929,558
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting
from operations ............... 3,417,476 6,716,339 3,394,394 29,954,893 (6,693,388) 27,768,535
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income ...... (5,576,900) (5,160,591) (21,023,720) (20,402,484) (16,929,588) (15,874,999)
From net realized gains on
investment transactions ....... -- -- (4,068,589) (5,651,243) (1,834,114) (5,354,293)
In excess of net realized
gains on investment
transactions .................. -- -- (779,994) -- (906,606) --
------------- ------------- ------------- ------------- ------------- -------------
Decrease in net assets
from distributions ............ (5,576,900) (5,160,591) (25,872,303) (26,053,727) (19,670,308) (21,229,292)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares sold ....... 65,637,307 43,612,098 161,571,112 155,826,396 159,063,547 98,878,179
Proceeds from reinvestment
of distributions .............. 3,592,859 3,439,775 19,097,750 19,653,179 13,437,962 14,613,846
Payments for shares
redeemed ...................... (55,657,881) (45,102,215) (158,935,588) (154,216,741) (138,704,256) (99,508,180)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets
from capital share
transactions .................. 13,572,285 1,949,658 21,733,274 21,262,834 33,797,253 13,983,845
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets ................. 11,412,861 3,505,406 (744,635) 25,164,000 7,433,557 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 ................... $ 141,549,448 $ 130,136,587 $ 459,859,204 $ 460,603,839 $ 332,627,213 $ 325,193,656
============= ============= ============= ============= ============= =============
Undistributed net investment
income ........................ -- -- -- $ 8,020 -- $ 9,033
============= ============= ============= ============= ============= =============
TRANSACTIONS IN
SHARES OF THE FUNDS
Sold ............................ 6,293,053 4,214,707 14,367,915 13,806,443 13,855,858 8,544,372
Issued in reinvestment
of distributions .............. 344,983 332,197 1,699,082 1,741,245 1,167,760 1,262,693
Redeemed ........................ (5,337,253) (4,357,987) (14,186,136) (13,662,495) (12,126,150) (8,606,849)
------------- ------------- ------------- ------------- ------------- -------------
Net increase .................... 1,300,783 188,917 1,880,861 1,885,193 2,897,468 1,200,216
============= ============= ============= ============= ============= =============
</TABLE>
28 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
- --------------------------------------------------------------------------------
AUGUST 31, 1999
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. The funds are 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
are declared daily and distributed monthly. Distributions from net realized
gains are declared and paid annually. For the year ended August 31, 1999, 100%
(unaudited) of the funds' distributions from net investment income have been
designated as exempt from federal and California state income tax.
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 realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At August 31, 1999, accumulated net realized capital loss carryovers of
$445,336 for Limited-Term (expiring in 2004) may be used to offset future
taxable gains.
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 August 31, 1999.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM), under which ACIM provides each fund with
investment advisory and management services in exchange for a single, unified
management fee. The Agreement provides that all expenses of the funds, except
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, will be paid by ACIM. 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 year ended August 31, 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.
www.americancentury.com 29
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
- --------------------------------------------------------------------------------
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 ..$94,401,285 $274,073,862 $209,500,031
PROCEEDS FROM SALES
Municipal Obligations ..$82,427,961 $255,931,595 $175,200,491
On August 31, 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 ...........$893,425 $10,079,386 $9,854,934
Depreciation ...........(349,793) (5,486,095) (8,348,806)
---------------- ------------------- ---------------
Net ....................$543,632 $ 4,593,291 $1,506,128
================ =================== ===============
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 August 31,
1999.
30 1-800-345-2021
California Limited-Term Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
1999 1998 1997 1996 1995
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 10.43 $ 10.30 $ 10.19 $ 10.23 $ 10.12
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............... 0.39 0.42 0.43 0.43 0.41
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ............. (0.16) 0.13 0.11 (0.04) 0.11
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .... 0.23 0.55 0.54 0.39 0.52
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... (0.39) (0.42) (0.43) (0.43) (0.41)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........ $ 10.27 $ 10.43 $ 10.30 $ 10.19 $ 10.23
=========== =========== =========== =========== ===========
Total Return(1) ..................... 2.26% 5.40% 5.42% 3.87% 5.33%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.51% 0.52% 0.49% 0.49% 0.51%
Ratio of Net Investment Income
to Average Net Assets ............... 3.78% 4.02% 4.20% 4.20% 4.10%
Portfolio Turnover Rate ............... 57% 44% 47% 44% 50%
Net Assets, End of Period
(in thousands) ...................... $ 141,549 $ 130,137 $ 126,631 $ 103,707 $ 104,723
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 31
California Intermediate-Term Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
1999 1998 1997 1996 1995
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 11.37 $ 11.27 $ 11.05 $ 11.06 $ 10.86
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............... 0.49 0.52 0.54 0.54 0.54
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ............ (0.41) 0.25 0.25 (0.01) 0.20
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .... 0.08 0.77 0.79 0.53 0.74
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... (0.49) (0.52) (0.54) (0.54) (0.54)
From Net Realized Gains on
Investment Transactions ............. (0.09) (0.15) (0.03) -- --
In Excess of Net Realized Gains ..... (0.02) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions ................. (0.60) (0.67) (0.57) (0.54) (0.54)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........ $ 10.85 $ 11.37 $ 11.27 $ 11.05 $ 11.06
=========== =========== =========== =========== ===========
Total Return(1) ..................... 0.74% 7.00% 7.39% 4.79% 7.09%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.51% 0.51% 0.48% 0.48% 0.48%
Ratio of Net Investment Income
to Average Net Assets ............... 4.41% 4.60% 4.81% 4.87% 5.02%
Portfolio Turnover Rate ............... 54% 28% 42% 36% 25%
Net Assets, End of Period
(in thousands) ...................... $ 459,859 $ 460,604 $ 435,440 $ 430,950 $ 417,550
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
32 1-800-345-2021 See Notes to Financial Statements
California Long-Term Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
1999 1998 1997 1996 1995
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..$ 11.72 $ 11.48 $ 11.06 $ 10.94 $ 10.88
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............... 0.57 0.59 0.61 0.61 0.62
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions ............. (0.76) 0.44 0.44 0.12 0.12
----------- ----------- ----------- ----------- -----------
Total From Investment Operations .... (0.19) 1.03 1.05 0.73 0.74
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .......... (0.57) (0.59) (0.61) (0.61) (0.62)
From Net Realized Gains on
Investment Transactions ............. (0.07) (0.20) (0.02) -- (0.06)
In Excess of Net Realized Gains ..... (0.03) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions ................. (0.67) (0.79) (0.63) (0.61) (0.68)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ........$ 10.86 $ 11.72 $ 11.48 $ 11.06 $ 10.94
=========== =========== =========== =========== ===========
Total Return(1) ..................... (1.85)% 9.25% 9.70% 6.77% 7.21%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............... 0.51% 0.51% 0.48% 0.48% 0.49%
Ratio of Net Investment Income
to Average Net Assets ............... 4.94% 5.07% 5.40% 5.48% 5.84%
Portfolio Turnover Rate ............... 52% 36% 50% 42% 60%
Net Assets, End of Period
(in thousands) ......................$ 332,627 $ 325,194 $ 304,671 $ 288,022 $ 276,085
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 33
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of the American Century California Tax-Free and Municipal Funds
and Shareholders of the California Limited-Term Tax-Free Fund, the California
Intermediate-Term Tax-Free Fund and the California Long-Term Tax-Free Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the California Limited-Term
Tax-Free Fund, the California Intermediate-Term Tax-Free Fund and the California
Long-Term Tax-Free Fund (formerly the American Century - Benham California
Limited-Term Tax-Free Fund, the American Century - Benham California
Intermediate-Term Tax-Free Fund and the American Century - Benham California
Long-Term Tax-Free Fund, respectively) (the "Funds") at August 31, 1999, and the
results of their operations for the year then ended, the changes in their net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. The financial highlights for each of the three years in the period
ended August 31, 1997, were audited by other auditors, whose report, dated
October 3, 1997, expressed an unqualified opinion on those statements. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1999 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
October 13, 1999
34 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 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 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 interest income exempt from federal and
California state income taxes. The fund invests primarily in California
municipal securities and maintains a weighted average maturity of 10 years or
more.
COMPARATIVE INDICES
The following indices are used in the report for fund performance
comparisons. They are not investment products available for purchase.
The LEHMAN BROTHERS 3-YEAR MUNICIPAL BOND INDEX is composed of more than
4,000 municipal bonds with maturities of 2-4 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
COLLEEN DENZLER
DAVE MACEWEN
TODD PARDULA
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 35
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 31-33.)
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.
* 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).
36 1-800-345-2021
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.
* 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 provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* 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 37
Notes
- --------------------------------------------------------------------------------
38 1-800-345-2021
Notes
- --------------------------------------------------------------------------------
www.americancentury.com 39
Notes
- --------------------------------------------------------------------------------
40 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 -- Large Cap Value
Conservative Equity Income
===============================================================================
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(reg.tm)
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 1-800-345-2021 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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
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
Funds Distributor, Inc. is
9910 the distributor of American Century funds
SH-ANN-18085 (c)1999 American Century Services Corporation
<PAGE>
[front cover]
AUGUST 31, 1999
ANNUAL REPORT
- ------------------
AMERICAN CENTURY
[graphic of stairs]
CALIFORNIA HIGH-YIELD MUNICIPAL
CALIFORNIA INSURED TAX-FREE
[american century logo(reg.sm)]
American
Century
[inside front cover]
Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS
- --------------------------------------------------------------------------------
Y2K, short for the Year 2000, refers more specifically to the date change from
December 31, 1999 to January 1, 2000. This date change is significant for
computers because many were originally programmed to process dates with
two-character years--99 instead of 1999.
When the calendar rolls to 2000, this can create problems for computers
programmed this way because they will read the date as "00," and may interpret
it as 1900. Most companies have been working to reprogram their computer systems
with four-digit years. Reprogramming is very labor-intensive and requires
testing to ensure that there are no errors and that all lines of code were
successfully changed.
Recognizing the possible impact of the Y2K issue, our senior-level Steering
Committee, programmers, business partners and Y2K team have been working
diligently to make January 1, 2000 a non-event for American Century investors.
Currently, our systems have been modified, tested and returned to production,
and we have tested our systems with our vendors and business partners.
In March and April of this year, we participated in the Security Industry
Association's (SIA) industry-wide test and successfully processed transactions
for dates up to and beyond 2000. American Century transactions with our partner
firms were processed free of Y2K bugs. We also participated in the Market Data
Test conducted by the SIA and Financial Information Forum in May. Again, the
computer scripts were executed successfully with no Y2K-related errors.
In addition, our Y2K team has developed contingency plans. These plans are
designed to minimize the impact on our investors and help us maintain
operations in the event of any Y2K-related incidents. We have conducted
practice drills of contingency scenarios and will continue to refine our plans
during the rest of 1999 to respond quickly and effectively so that the date
change is as seamless as possible for investors. We expect the Year 2000 to be
business as usual at American Century.
Year 2000 Readiness Disclosure
[left margin]
CALIFORNIA HIGH-YIELD MUNICIPAL
(BCHYX)
- ----------------------------------------
CALIFORNIA INSURED TAX-FREE
(BCINX)
- ----------------------------------------
TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF
AMERICAN CENTURY FUNDS CLASSIFIED BY OBJECTIVE AND RISK.
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Our Message to You
- --------------------------------------------------------------------------------
[photo of James E. Stowers III, seated, with James E. Stowers, Jr.]
Strong economic growth, increasing inflation anxiety, and rising interest
rates set the tone for the U.S. bond market in 1999. These factors helped
determine the performance of American Century's California municipal funds for
the fiscal year ended August 31, 1999.
Municipal bond funds enjoyed gains during the second half of 1998 when
interest rates fell and bond markets rallied. Those positive returns were
largely negated in 1999, however, as the recovery of overseas economies and
unabated U.S. growth reignited inflation fears and sent interest rates soaring.
While the Federal Reserve (the Fed--the U.S. central bank) saw fit to cut
short-term interest rates three times during the fall of 1998, the Fed raised
rates twice during the summer of 1999.
Though market behavior and Fed interest rate policy swung from one extreme
to the other, one thing that remained remarkably consistent was the performance
of the American Century California municipal funds against their peers. All
seven of our California municipal money market and bond funds provided higher
tax-free yields and lower expenses than the average of their Lipper Inc. peer
groups. That's a hallmark of the American Century municipal investment approach.
The strength of our municipal investment and credit research teams also
contributed to fund performance. The investment and credit teams, as well as
fund investors, have benefited from our commitment to build and maintain a
talented fund management group. American Century's entire investment management
team has doubled in size over the past three years.
In addition to strengthening our portfolio and research staff, we've
recently made strategic investments in several other financial companies,
including Archipelago, Tradepoint Financial Networks, W.R. Hambrecht, and
WorldStreet Corporation. These investments demonstrate our active support of the
development and use of technologies that improve the efficiencies of capital
markets, lower trading costs, and ultimately offer better returns for
shareholders.
One final note--in the spirit of our ongoing Year 2000 readiness
disclosures, we've provided a complete update on our preparations for Y2K on the
inside front cover of this report. We understand that our continued diligence in
this area is very important to you.
As always, we appreciate your continued confidence in American Century.
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 Vice Chairman of the Board and
Chief Executive Officer
[right margin]
Table of Contents
Report Highlights ...................................................... 2
Market Perspective ..................................................... 3
Municipal Credit Review ................................................ 4
CALIFORNIA HIGH-YIELD MUNICIPAL
Performance Information ................................................ 5
Management Q&A ......................................................... 6
Yields ................................................................. 6
Portfolio at a Glance .................................................. 6
Top Five Sectors ....................................................... 7
Schedule of Investments ................................................ 8
CALIFORNIA INSURED TAX-FREE
Performance Information ................................................ 14
Management Q&A ......................................................... 15
Yields ................................................................. 15
Portfolio at a Glance .................................................. 15
Top Five Sectors ....................................................... 16
Schedule of Investments ................................................ 17
FINANCIAL STATEMENTS
Statements of Assets and
Liabilities ......................................................... 20
Statements of Operations ............................................... 21
Statements of Changes
in Net Assets ....................................................... 22
Notes to Financial
Statements .......................................................... 23
Financial Highlights ................................................... 25
Report of Independent
Accountants ......................................................... 27
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 bond prices sagged under the weight of rising interest rates and
weaker demand in the year ended August 31, 1999.
* A healthy U.S. economy, better growth overseas, and worries about inflation
led the Federal Reserve to raise interest rates twice in 1999.
* Short-term bonds, which are least sensitive to rate changes, performed best,
while intermediate- and longer-term securities had flat to negative
returns.
CREDIT REVIEW
* A healthy economy and state budget surplus led Standard & Poor's to upgrade
California's credit rating.
* California produced jobs faster than the national average, and the state's
unemployment rate hit a nine-year low in August.
* A key to California's economic health has been the "wealth
effect"--household incomes and spending have been boosted by the big gains
in housing prices and the stock market.
CALIFORNIA HIGH-YIELD MUNICIPAL
* California High-Yield Municipal continued to perform very well against its
peers. Its fiscal year performance put it in the top 5% of its Lipper peer
group. (See page 5 for standardized ranking information.)
* However, like most other U.S. bond funds, its one-year returns were low.
Rising interest rates put downward pressure on bond prices.
* The portfolio performed well versus similar funds for two important reasons.
First, it was less sensitive (as measured by duration) to rising interest
rates. Second, it held a relatively large position in unrated bonds, which
generally outperformed other municipal securities.
* This fund typically focuses much more on high-yielding, undervalued
securities than on changing its interest rate sensitivity. We plan to
continue this long-term value strategy as long as the California economy
remains strong
CALIFORNIA INSURED TAX-FREE
* Higher interest rates weighed on fund returns in 1999. The fund's
relatively long duration, which boosted performance when interest rates
fell in 1998, limited returns this year.
* The fund produced more current income than the average California insured
municipal fund, with a 30-day SEC yield in the top 11% of the peer group,
according to Lipper.
* We have a generally positive outlook for California municipal bonds--their
yields are attractive relative to Treasurys, and we think we'll continue to
see low inflation and modest economic growth.
* We'll likely keep duration a little long while continuing to emphasize the
same value-oriented approach that's helped the fund to its solid long-term
performance.
[left margin]
CALIFORNIA HIGH-YIELD MUNICIPAL
(BCHYX)
TOTAL RETURNS: AS OF 8/31/99
6 Months -2.09%*
1 Year 0.26%
30-DAY SEC YIELD: 5.12%
INCEPTION DATE: 12/30/86
NET ASSETS: $342.0 million
CALIFORNIA INSURED TAX-FREE
(BCINX)
TOTAL RETURNS: AS OF 8/31/99
6 Months -3.85%*
1 Year -1.71%
30-DAY SEC YIELD: 4.73%
INCEPTION DATE: 12/30/86
NET ASSETS: $211.9 million
* Not annualized.
Investment terms are defined in the Glossary on pages 29-30.
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
Municipal bond prices came under pressure during the year ended August 31,
1999, as improving global economic conditions caused inflation anxiety. But the
fiscal year didn't begin that way. Bonds rallied in the second half of 1998 when
recessionary expectations surged due to financial crises in Asia, Russia, and
Latin America. The Federal Reserve (the Fed) bolstered the bond market when it
cut interest rates three times during the fall of 1998 to stem overseas problems
and shore up U.S. economic growth.
Early 1999 brought evidence that the Fed's actions worked. The U.S. economy
remained robust, and Japan appeared on the mend. By the spring, recessionary
expectations gave way to inflation fears. Changing market sentiment and rate
hikes in June and August by the Fed pushed bond yields higher, taking their toll
on bond prices.
LONGER-TERM BONDS LAG
Long-term bond yields rose the most and their prices dipped furthest, while
shorter-term bonds generally posted modest gains. (See the accompanying chart.)
Long-term bonds stumbled because of their greater interest rate sensitivity,
though falling demand also figured heavily in their losses.
Bargain-hunting insurance companies--who had helped boost long-term
municipal bonds in the first half of the fiscal year--later turned their backs
on them. They gravitated instead to corporate bonds, which offered low prices
and attractive yields as companies swamped the market with new debt to avoid
potential fourth-quarter Year 2000 problems.
Meanwhile, lower interest rate sensitivity and steady demand helped support
shorter-term bonds.
SECTOR OVERVIEW
Although the strong economic environment created a stormy backdrop for
bonds, it contained a silver lining. Tax collections and municipal revenues in
California soared, boosting the creditworthiness of many municipal issuers in
the state.
Among the biggest beneficiaries were land-based bonds, buoyed by the strong
real estate environment, and general obligation bonds, which are backed by tax
collections.
Confidence in the economy and investors' appetite for higher yields were
reflected in a narrowing yield gap between lower quality municipal bonds (those
rated BBB) and higher-rated (A to AAA) bonds, causing BBBs to outperform AAAs.
On the flip side, interest rate-sensitive discount bonds--which sell below
face value--and hospital bonds performed poorly.
[right margin]
"MUNICIPAL BOND PRICES CAME UNDER PRESSURE DURING THE YEAR ENDED AUGUST 31,
1999."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED AUGUST 31, 1999
LEHMAN THREE-YEAR
MUNICIPAL INDEX 2.92%
LEHMAN FIVE-YEAR GENERAL
OBLIGATION INDEX 2.21%
LEHMAN LONG-TERM
MUNICIPAL INDEX -2.14%
Source: Lipper Inc., Russell/Mellon Analytical
[line graph - data below]
RISING MUNICIPAL YIELD CURVES
8/31/98 2/28/99 8/31/99
YEARS TO
MATURITY
1 3.41% 3.05% 3.59%
2 3.57% 3.30% 3.94%
3 3.68% 3.45% 4.15%
4 3.78% 3.58% 4.27%
5 3.87% 3.70% 4.39%
6 3.95% 3.81% 4.49%
7 4.03% 3.91% 4.59%
8 4.11% 3.99% 4.69%
9 4.19% 4.07% 4.79%
10 4.27% 4.15% 4.89%
11 4.35% 4.25% 4.97%
12 4.43% 4.35% 5.05%
13 4.51% 4.45% 5.13%
14 4.59% 4.55% 5.20%
15 4.66% 4.65% 5.27%
16 4.69% 4.70% 5.31%
17 4.72% 4.75% 5.35%
18 4.75% 4.80% 5.39%
19 4.79% 4.84% 5.43%
20 4.83% 4.88% 5.47%
21 4.83% 4.89% 5.47%
22 4.83% 4.90% 5.48%
23 4.83% 4.91% 5.48%
24 4.84% 4.92% 5.49%
25 4.84% 4.92% 5.50%
26 4.84% 4.92% 5.50%
27 4.85% 4.93% 5.51%
28 4.85% 4.93% 5.51%
29 4.86% 4.94% 5.52%
30 4.86% 4.94% 5.52%
Source: Bloomberg Financial Markets
www.americancentury.com 3
California Municipal Credit Review
- --------------------------------------------------------------------------------
California's vibrant economy solidified municipal credit conditions during
the year ended August 31, 1999. A long list of positive economic data and a
favorable political climate spurred a credit upgrade for the state, which should
continue to benefit from its current strength for the next two or three years.
SUNNY ECONOMIC WEATHER
By most accounts, several key segments of California's economy continued to
grow faster than the national average. In fact, California showed few signs of
the pain it was supposed to suffer due to the economic weakness of many of the
state's Pacific Rim trading partners.
Instead, state unemployment hit a nine-year low of 5.1% in August, and the
2.8% rate of job growth outpaced the national average. Personal bankruptcy
filings declined at twice the national average, house prices increased at nearly
double the national rate, and sales of existing single-family homes reached a
record pace.
On top of that, with California's governor and assembly working in unison,
the state's budget--including a healthy surplus--was passed on time for the
first time in seven years. Based on these improved financial and political
conditions, Standard & Poor's upgraded the state's general obligation bond
rating to AA- during the summer.
WHAT'S BEHIND THE GOLDEN GLOW
While high-technology hardware businesses such as semiconductors struggled
with offshore competition, other areas such as software, multimedia,
biotechnology, and Internet-related businesses were very strong.
Construction--notably in affordable housing in Central California--and
service industries have been particularly solid. Plus, even though tourism
dollars from Asia dropped off as expected, California was able to take up the
slack by attracting tourists from inside the U.S.
In addition, as much as 1% was added to California's growth rate by what is
known as the "wealth effect"--household income and spending increases due to the
bull market in stocks, the cashing in of stock options, and the sale of
single-family homes that have skyrocketed in value. The wealth effect was
particularly strong in Northern California.
CLOUDS ON THE HORIZON?
Some observers believe California has reached a peak in its current
economic cycle. There are questions as to the sustainability of the wealth
effect due to the possibility of a stock market pullback caused by higher
interest rates and weaker corporate profits. In addition, rapidly increasing
property values have led to some consumer price inflation.
However, we don't believe these influences will cause any near-term
problems in California. The state stands to benefit from any rebound in foreign
trade and the expansion of the Internet. Those are two of the key reasons why we
think that there are at least two or three years of economic strength ahead.
[left margin]
"A LONG LIST OF POSITIVE ECONOMIC DATA AND A FAVORABLE POLITICAL CLIMATE
SPURRED A CREDIT UPGRADE FOR THE STATE."
[line graph - data bel0w]
FALLING UNEMPLOYMENT RATES
California U.S.
1991 7.7% 6.9%
1992 9.3% 7.8%
1993 9.4% 7.0%
1994 8.7% 6.1%
1995 7.9% 5.6%
1996 7.2% 5.3%
1997 6.3% 5.0%
1998 5.9% 4.5%
1999 5.4% 4.3%
Source: Employment Development Department, Bureau of Labor Statistics
"SEVERAL KEY SEGMENTS OF CALIFORNIA'S ECONOMY CONTINUED TO GROW FASTER THAN THE
NATIONAL AVERAGE."
4 1-800-345-2021
California High-Yield Municipal--Performance
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 1999
CALIFORNIA
HIGH-YIELD LEHMAN LONG-TERM CALIFORNIA MUNICIPAL DEBT FUNDS(2)
MUNICIPAL MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) -2.09% -4.29% -3.52% --
1 YEAR 0.26% -2.14% -1.49% 4 OUT OF 106
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 6.64% 6.35% 5.22% 4 OUT OF 90
5 YEARS 7.00% 7.07% 5.71% 3 OUT OF 72
10 YEARS 7.47% 7.92% 6.65% 2 OUT OF 35
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 8/31/99
California High-Yield Municipal $20,548
Lehman Long-Term Municipal Index $21,440
California
High-Yield Lehman Long-Term
Municipal Municipal Index
DATE VALUE VALUE
8/31/1989 $10,000 $10,000
8/31/1990 $10,577 $10,611
8/31/1991 $11,713 $12,040
8/31/1992 $12,897 $13,556
8/31/1993 $14,523 $15,557
8/31/1994 $14,650 $15,238
8/31/1995 $15,689 $16,675
8/31/1996 $16,947 $17,822
8/31/1997 $18,745 $19,826
8/31/1998 $20,497 $21,909
8/31/1999 $20,548 $21,440
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 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 AUGUST 31)
California
High-Yield Lehman Long-Term
Municipal Municipal Index
DATE RETURN RETURN
8/31/1990 5.77% 6.11%
8/31/1991 10.75% 13.47%
8/31/1992 10.11% 12.60%
8/31/1993 12.61% 14.76%
8/31/1994 0.87% -2.05%
8/31/1995 7.09% 9.43%
8/31/1996 8.02% 6.88%
8/31/1997 10.61% 11.26%
8/31/1998 9.35% 10.51%
8/31/1999 0.26% -2.14%
www.americancentury.com 5
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 ITS FISCAL YEAR ENDED
AUGUST 31, 1999?
California High-Yield Municipal continued to perform very well against its
peers. The fund returned 0.26%, compared with the -1.49% average total return of
the 106 "California Municipal Debt Funds" tracked by Lipper Inc.
That performance put the portfolio in the top 5% of the Lipper group for
the fiscal year. In addition, for the key long-term performance periods ended
August 31, 1999, California High-Yield Municipal consistently placed in the top
10% of its peer group.
But that can't obscure the fact that 1999 has been a difficult year for
bonds. As a result, the fund's absolute returns, like the returns for most U.S.
bond funds during the period, were low. But on the bright side, the portfolio
provided a very attractive 30-day SEC yield. As of August 31, 1999, the SEC
yield was 5.12%, compared with the 4.26% average yield of the Lipper group.
WHAT HELPED BOOST CALIFORNIA HIGH-YIELD MUNICIPAL'S PERFORMANCE?
Two important factors. The portfolio's duration--a measure of its
sensitivity to changes in interest rates--was shorter than the average duration
of its peers. That meant that California High-Yield Municipal was hurt less as
interest rates rose during the period. In addition, the fund held a more
substantial weighting in higher-yielding unrated bonds than most of its
competitors. These bonds provided superior performance.
WHAT SPURRED THE SUPERIOR PERFORMANCE OF UNRATED BONDS?
At the beginning of the period, there was concern about continued economic
weakness in Asia and its impact on California's economy. Bonds of low credit
quality, including unrated bonds, suffered from this anxiety. However, the Asian
problems did not hurt the California economy as much as expected, and we never
saw a weakening in the prospects for our unrated holdings.
As unrated bonds held their value, the yield differential between unrated
and rated California municipal bonds narrowed significantly when interest rates
rose. Unrated bonds basically enjoyed an increase in value relative to rated
securities. By overweighting unrated bonds--our unrated bond holdings increased
from 45% to 57% of the portfolio over the past six months--and using our
experienced credit team to help us avoid credit problems, California High-Yield
Municipal outpaced most of its competition.
[left margin]
"CALIFORNIA HIGH-YIELD MUNICIPAL CONTINUED TO PERFORM VERY WELL AGAINST ITS
PEERS."
YIELDS AS OF AUGUST 31, 1999
30-DAY SEC YIELD 5.12%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 7.84%
37.42% TAX BRACKET 8.18%
41.95% TAX BRACKET 8.82%
45.22% TAX BRACKET 9.35%
PORTFOLIO AT A GLANCE
8/31/99 8/31/98
NUMBER OF SECURITIES 155 146
WEIGHTED AVERAGE
MATURITY 19.3 YRS 20.8 YRS
AVERAGE DURATION 7.7 YRS 7.9 YRS
EXPENSE RATIO 0.54% 0.54%
Investment terms are defined in the Glossary on pages 29-30.
6 1-800-345-2021
California High-Yield Municipal--Q&A
- --------------------------------------------------------------------------------
(Continued)
AMONG UNRATED SECURITIES, WHAT WERE THE MOST IMPORTANT SECTORS?
Land-secured bonds were fertile ground for us. This is a sector that we've
continually overweighted relative to its representation in the California
municipal market. On August 31, 1999, land-secured deals made up about 3-4% of
the market. The portfolio, on the other hand, had 33% of its assets invested in
land-secured investments, with an additional 10% in housing revenue bonds.
Land-secured bonds are typically issued to support residential or
commercial real estate development. As the land is developed and ownership
diversifies, the credit risk diminishes. There's less chance that one
participant's credit problems will keep bondholders from receiving timely
interest and principal payments, and the credit quality of the land-secured
bonds improves. So do their prices, and that's when we typically sell the bonds.
Land-secured bonds performed particularly well because of the strength of
the California economy and a dramatic increase in property values. Within this
sector, we focused primarily on affordable single-family residential districts
in some of the economically healthier regions of the state, such as the San
Francisco Bay Area, Sacramento, southern Orange County and northern San Diego
County.
WHAT ARE THE POTENTIAL RISKS ASSOCIATED WITH DEDICATING SUCH A LARGE PART OF THE
PORTFOLIO TO LAND-SECURED BONDS?
If the economy were to weaken, real estate would be one of the first
sectors that would be hurt. Therefore, it's clearly a sector to overweight only
in a period of strong or improving credit quality. If economic problems
appeared, we would try to reduce our holdings in land-secured bonds,
particularly those issued by districts in the early stages of development. We'd
also likely increase holdings in essential service revenue bonds, which are
typically least affected by the economic cycle.
In addition, it's important to remember two factors. First, we benefit from
the local expertise of our municipal credit analysts, which helps them pick
promising investments, watch over them, and sell them if problems arise. Second,
our credit expertise spills into other unrated areas that have provided
significant yield and benefited the portfolio, including hotels, mobile home
parks, healthcare facilities for the elderly, and hospitals.
AS 1999 WINDS DOWN, WHAT IS YOUR INTEREST RATE OUTLOOK AND HOW WILL THAT AFFECT
YOUR STRATEGY?
Inflation still appears to be under control, and there's evidence that the
U.S. economy may be slowing. But the outlook remains murky--interest rates could
continue to rise as investors react to economic reports perceived as potentially
inflationary, or to saber rattling by the Fed.
Looking at portfolio strategy, we intend to keep California High-Yield
Municipal's duration neutral, avoiding a significant bet on the direction of
interest rates. Instead, we'll aim to add value through our security selection
process, picking the bonds we think have the best long-term credit fundamentals
and offer the most appealing yields. This is the same strategy that has been
consistently successful for us.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/99 2/28/99
AAA 19% 28%
AA 3% 2%
A 11% 13%
BBB 10% 12%
UNRATED 57% 45%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 28
for more information.
TOP FIVE SECTORS (AS OF 8/31/99)
% OF FUND INVESTMENTS
LAND BASED 33%
TAX ALLOCATION REVENUE 12%
PREREFUNDED 11%
HOUSING REVENUE 10%
COPS/LEASES 9%
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%
Investment terms are defined in the Glossary on pages 29-30.
www.americancentury.com 7
California High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 96.2%
$ 2,000,000 Alameda Public Financing Auth.
Local Agency Rev., Series
1996 A, (Community Facility
District No. 1), 7.00%, 8/1/19 $ 2,142,840
1,000,000 American Canyon Joint Powers
Financing Auth. Lease Rev.,
(Civic-Recreation Facilities),
6.40%, 6/1/22 1,014,840
1,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Eskaton Gold River Lodge),
6.375%, 11/15/15 986,480
3,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Eskaton Gold River Lodge),
6.375%, 11/15/28 2,890,200
3,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Rhoda Haas Goldman Plaza),
5.125%, 5/15/23 (California
Mortgage Insurance) 2,735,220
700,000 Bishop, Escalon & Lemoore Cities
COP, Series 1991 A, 7.70%,
5/1/11 728,735
1,800,000 Blythe Redevelopment No. 1 Tax
Allocation, 5.80%, 5/1/28 1,725,930
7,000,000 Bonita Canyon Public Facilities
Financing Auth. Special Tax,
(Community Facilities District
No. 98-1), 5.375%, 9/1/28 6,257,160
3,000,000 Brawley COP, (Water System
Improvement), 6.40%, 12/1/06,
Prerefunded at 102% of Par(1) 3,393,480
1,250,000 Brea Community Facilities District
Special Tax, (Olinda Heights
No. 1997-1), 5.80%, 9/1/28 1,193,575
2,000,000 Brea Olinda Unified School
District Community Facilities
Special Tax, (No. 95-1), 5.75%,
9/1/28 1,888,520
1,540,000 Brisbane COP, (Capital
Improvement Refinancing),
6.00%, 4/1/18 1,533,932
1,000,000 Cabrillo Unified School District
GO, Series 1996 A, 5.95%,
8/1/17 (AMBAC)(2) 366,280
500,000 California Educational Facilities
Auth. Rev., (California Lutheran
University), 7.375%, 12/1/00,
Prerefunded at 102% of Par(1) 531,265
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 California Educational Facilities
Auth. Rev., (Mills College),
6.875%, 9/1/02, Prerefunded
at 102% of Par(1) $ 1,096,850
2,330,000 California Educational Facilities
Auth. Rev., (Santa Clara
University), 5.25%, 9/1/26 2,200,149
1,000,000 California Educational Facilities
Auth. Rev., (University of San
Diego), 4.98%, 10/1/15
(AMBAC)(2) 412,330
1,000,000 California Educational Facilities
Auth. Rev., Series 1993 B,
(Pooled College & University
Financing), 6.125%, 6/1/09 1,034,080
4,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/12 (AMBAC)(2) 1,990,800
240,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1990 C, 7.60%, 8/1/30 244,476
1,955,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1997 B, 6.10%, 2/1/28
(MBIA) 1,974,394
1,500,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1997 E, 6.10%, 8/1/29
(AMBAC) 1,527,825
3,500,000 California Housing Finance
Agency Multi-Unit Mortgage
Rev., Series 1992 C, 6.875%,
8/1/24 3,675,035
3,455,000 California Housing Finance
Agency Multifamily Mortgage
Rev., Series 1997 A, 5.95%,
8/1/28 (MBIA) 3,489,515
2,500,000 California Housing Finance
Agency Single Family Mortgage
Rev., Series 1997 A-1, 5.95%,
8/1/16 2,556,625
2,845,000 California Housing Finance
Agency Single Family Mortgage
Rev., Series 1997 C-2, 5.65%,
2/1/25 2,737,317
400,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 A, (Pooled
Project), 8.50%, 3/1/18 407,232
7,000,000 California Public Works Board
Lease Rev. COP, Series 1998 A,
(California Community Colleges),
5.25%, 12/1/14 6,894,790
2,000,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections State
Prisons), 5.25%, 6/1/15 (FSA) 1,986,080
8 1-800-345-2021 See Notes to Financial Statements
California High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,755,000 California Rural Home Mortgage
Financing Auth. Single Family
Mortgage Rev., Series 1999 A,
5.20%, 6/1/30 (GNMA/FNMA) $ 4,005,233
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)(3) 1,587,904
1,000,000 California State GO, 4.50%,
12/1/24 (FGIC) 833,900
3,665,000 California State GO, 6.75%,
9/1/09(2) 2,224,692
2,850,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System Obligation
Group), 5.25%, 7/1/11 2,818,878
3,250,000 California Statewide Communities
Development Auth. COP,
(Sonoma County Indian Health),
6.40%, 9/1/29 3,116,555
7,000,000 California Statewide Communities
Development Auth. Lease Rev.,
Series 1997 A, (United Airlines),
5.70%, 10/1/33(4) 6,510,140
1,000,000 California Statewide Communities
Development Auth. Rev. COP,
Series 1996 A, (Insurance
Health Facility, San Gabriel
Valley), 5.50%, 9/1/06,
Prerefunded at 102% of Par
(California Mortgage Insurance)(1) 985,460
1,000,000 Calleguas-Las Virgines Public
Financing Auth. Installment
Purchase Rev., (Las Virgines
Municipal Water District), 5.00%,
11/1/23 (FSA) 911,740
2,500,000 Capistrano Unified School District
Community Facilities Special Tax,
(No. 98-2 Ladera), 5.70%,
9/1/20 2,364,125
3,520,000 Central Valley Schools Financing
Auth. Tax and Rev. Anticipation
Notes, 3.50%, 1/27/00 3,517,114
155,000 Clayton Improvement Bond Act
1915 Special Assessment,
(Oakhurst Assessment District),
8.00%, 9/2/14 160,865
40,000 Clayton Improvement Bond Act
1915 Special Assessment,
Series 1988 A, (Oakhurst
Assessment District), 8.40%,
9/2/10 41,647
4,500,000 Colton Public Financing Auth. Rev.,
(Electric System), 7.50%,
10/1/03, Prerefunded at 101%
of Par(1) 5,090,580
750,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev., Series 1992 A, 7.10%,
8/1/22 806,580
Principal Amount Value
- --------------------------------------------------------------------------------
$ 670,000 Corcoran COP, 8.75%, 6/1/16
(Acquired 4/28/92, Cost
$670,000)(3) $ 706,361
1,750,000 Corona Community Facilities
District Special Tax, (Eagle
Glen), 5.875%, 9/1/23 1,686,842
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(1) 1,131,420
1,500,000 Del Mar Race Track Auth. Rev.,
6.20%, 8/15/11 1,572,345
4,500,000 El Dorado County Special Tax,
(Community Facilities District
No. 1992-1), 5.60%, 9/1/09 4,454,235
275,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.50%,
9/1/12 264,869
300,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.55%,
9/1/13 288,432
340,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.55%,
9/1/14 326,305
1,215,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.625%,
9/1/23 1,153,011
3,400,000 Fairfield Redevelopment Agency
Tax Allocation, 5.00%, 8/1/04 3,325,336
4,000,000 Folsom Public Financing Auth.
Rev., Series 1997 A, 6.875%,
9/2/19 4,127,320
2,000,000 Folsom Special Tax, (Community
Facilities District No. 11), 5.65%,
9/1/18 1,881,380
1,750,000 Folsom Special Tax, (Community
Facilities District No. 11), 5.75%,
9/1/23 1,649,200
2,495,000 Folsom Special Tax, (Community
Facilities District No. 7), 5.75%,
9/1/14 2,401,687
2,500,000 Folsom Special Tax, (Community
Facilities District No. 7), 6.00%,
9/1/24 2,432,250
1,500,000 Folsom Special Tax, (Community
Facilities District No. 7), 7.25%,
9/1/21 1,590,930
2,500,000 Fontana Redevelopment Agency
Tax Allocation, Series 1994 B,
(Jurupa Hills), 7.70%, 1/1/05,
Prerefunded at 102% of Par(1) 2,916,750
1,040,000 Foothill-De Anza Community
College District COP, (Campus
Center), 7.35%, 9/1/03,
Prerefunded at 100% of Par(1) 1,159,683
2,500,000 Foster City Redevelopment
Agency Tax Allocation, (Metro
Center), 6.75%, 9/1/20 2,661,000
1,770,000 Galt Capital Improvements Auth.
Rev., (Wastewater), 5.25%,
9/1/16 1,648,472
See Notes to Financial Statements www.americancentury.com 9
California High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,185,000 Gateway Improvement Auth. Rev.,
Series 1995 A, (Marin City
Community Facility), 7.75%,
9/1/05, Prerefunded at 102%
of Par(1) $ 1,409,569
1,520,000 Glendale Health Facilities Rev.,
Series 1995 A, (Memorial
Hospital and Health Center),
5.625%, 11/15/15 (Connie
Lee) 1,534,774
1,250,000 High Desert Memorial Health Care
District Rev., 5.50%, 10/1/15 1,158,900
2,000,000 Industry Urban Redevelopment
Agency Tax Allocation, (Project
3), 6.90%, 11/1/16 2,122,520
2,000,000 La Mirada Redevelopment Agency
Special Tax Rev., (Community
Facilities District No. 89-1),
5.70%, 10/1/20 1,882,880
4,250,000 Lake Elsinore School Financing
Auth. Rev., (Horsethief Canyon),
5.625%, 9/1/16 4,008,218
1,000,000 Lake Elsinore School Financing
Auth. Rev., 6.125%, 9/1/19 1,007,560
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(1) 1,100,000
1,000,000 Long Beach Industrial
Development Rev., Series
1998 A, (CSU Foundation),
5.25%, 2/1/13 957,690
2,000,000 Los Angeles Community Facilities
District Special Tax, (Cascades
Business Park), 6.40%, 9/1/22 2,026,500
3,230,000 Los Angeles County Community
Facilities District No. 7 Special
Tax, Series 1999 A, 6.00%,
9/1/29 3,127,544
70,000 Los Angeles County Single Family
Mortgage Rev., (GNMA
Mortgage, Issue B), 9.00%,
12/1/20 (GNMA) 70,626
1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1991 B, 6.50%, 7/1/13 1,054,080
10,000 Los Angeles Home Mortgage Rev.,
9.00%, 6/15/18 10,106
2,150,000 Los Angeles State Building Auth.
Lease Rev. COP, Series 1993 A,
5.625%, 5/1/11 2,252,985
3,000,000 Los Angeles Unified School
District COP, Series 1996 A,
5.50%, 10/1/16 (FSA) 3,011,550
4,145,000 Milpitas Improvement Bond Act
1915 Special Assessment,
(Local Improvement District 18),
5.65%, 9/2/14 3,974,350
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,000,000 Milpitas Improvement Bond Act
1915 Special Assessment,
Series 1996 A, (Local
Improvement District 18),
6.75%, 9/2/16 $ 3,119,580
2,020,000 Milpitas Improvement Bond Act
1915 Special Assessment,
Series 1998 A, (Local
Improvement District 18),
5.85%, 9/2/18 1,935,625
2,000,000 Novato Community Facility District
No. 1 Special Tax, (Vintage
Oaks), 7.20%, 8/1/15 2,124,760
4,930,000 Oceanside Mobile Home Park
Financing Auth. Rev., (Laguna
Vista Mobile Estates), 5.80%,
3/1/28 4,744,139
1,000,000 Orange County Community
Facilities District Special Tax,
Series 1993 A, (No. 87-5E),
7.30%, 8/15/02, Prerefunded
at 102% of Par(1) 1,105,430
2,900,000 Palomar Pomerado Health Care
District COP, (Indian Health
Council Inc.), 6.25%, 10/1/29 2,724,724
1,000,000 Pioneer Union Elementary School
District GO, 7.50%, 8/1/14 1,039,760
1,645,000 Pittsburg Infrastructure Financing
Auth. Rev. Improvement Special
Assessment, Series 1998 A,
5.55%, 9/2/16 1,557,552
3,500,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.25%, 8/1/26(4) 3,610,635
5,000,000 Pomona Improvement Bond Act
1915, (Rio Rancho Assessment
District), 7.50%, 9/2/21 5,278,200
475,000 Pomona Public Financing Auth.
Rev., Series 1994 L, (Southwest
Pomona Redevelopment),
5.70%, 2/1/04, Prerefunded at
102% of Par(1) 509,841
1,025,000 Pomona Public Financing Auth.
Rev., Series 1994 L, (Southwest
Pomona Redevelopment),
5.70%, 2/1/13 1,043,378
1,955,000 Poway Community Facilities
District Special Tax, (No. 88-1,
Parkway Business Center),
6.75%, 8/15/15 2,065,790
2,000,000 Poway Redevelopment Agency
Tax Allocation, (Paguay
Redevelopment), 4.75%,
12/15/03 1,964,900
2,250,000 Rancho Mirage Joint Powers
Financing Auth. COP,
(Eisenhower Memorial Hospital),
7.00%, 3/1/02, Prerefunded at
102% of Par(1) 2,447,482
10 1-800-345-2021 See Notes to Financial Statements
California High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,815,000 Redondo Beach Public Financing
Auth. Rev., (South Bay Center
Redevelopment), 7.125%,
7/1/26 $ 1,946,787
1,000,000 Richmond Joint Powers Financing
Auth. Rev. COP, Series 1995 A,
5.25%, 5/15/13 975,600
500,000 Roseville Community Facilities
District No. 2 Special Tax,
8.25%, 9/1/00, Prerefunded at
102% of Par(1) 531,695
2,350,000 Roseville Special Tax, (Central
Community District No. 1),
4.85%, 9/1/03 2,319,802
2,720,000 Roseville Special Tax, (Central
Community District No. 1),
5.20%, 9/1/06 2,663,859
4,250,000 Roseville Special Tax, (Central
Community District No. 1),
5.80%, 9/1/17 4,096,150
5,200,000 Roseville Special Tax, (Roseville
Community Facilities District
No. 1), 5.75%, 9/1/23 4,900,480
6,000,000 Sacramento City Financing Auth.
Rev., Series 1999 A,
(Convention Center Hotel),
6.25%, 1/1/30 5,784,840
2,230,000 Sacramento County Improvement
Bond Act 1915 Special
Assessment, (Sunrise/Cordova
Reassessment), 5.20%, 9/2/08 2,179,446
2,200,000 Sacramento County Improvement
Bond Act 1915 Special
Assessment, (Sunrise/Cordova
Reassessment), 5.30%, 9/2/09 2,144,560
635,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.60%, 9/1/07 640,658
645,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.70%, 9/1/08 652,101
2,250,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.70%, 12/1/20 2,130,322
1,500,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 6.30%, 9/1/21 1,509,615
3,970,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 3,797,305
750,000 Salinas Improvement Bond Act
1915 Special Assessment,
(District No. 90-1, Series C-185),
5.45%, 9/2/13 710,272
1,000,000 Salinas Improvement Bond Act
1915 Special Assessment,
(District No. 90-1, Series C-185),
5.50%, 9/2/14 943,910
1,915,000 Salinas Improvement Bond Act
1915 Special Assessment,
(Harden Ranch Assessment
District 94-1), 6.875%, 9/2/11 1,999,432
Principal Amount Value
- --------------------------------------------------------------------------------
$ 5,000,000 San Bernardino County Unified
School District GO, Series
1999 A, 5.875%, 8/1/24
(FGIC)(5) $ 5,133,500
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(1) 1,156,260
1,600,000 San Diego County COP,
(Burnham Institute), 6.25%,
9/1/29(5) 1,594,624
3,990,000 San Diego County Improvement
Bond Act 1915 GO, 6.25%,
9/2/12 4,074,748
1,500,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 12A, 5.90%,
5/1/26 1,510,425
3,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/18 (MBIA) 2,600,310
1,250,000 San Francisco City and County
Redevelopment Agency Lease
Rev., (George R. Moscone),
7.05%, 7/1/13(2) 575,612
7,585,000 San Francisco Community College
District COP, Series 1998 A,
5.95%, 1/1/00, Prerefunded at
100% of Par(1) 7,594,178
1,780,000 San Jose Finance Auth. Rev.
COP, Series 1993 C,
(Convention Center), 6.30%,
9/1/09 1,877,419
5,000,000 San Jose Multifamily Housing
Rev., Series 1999 A, (Helzer
Courts Apartments), 6.40%,
12/1/41 (LOC: Union Bank of
California) 4,816,400
5,000,000 San Marcos Public Facilities Auth.
Rev., Series 1993 A, (Civic
Center), 6.20%, 8/1/22 5,046,650
10,390,000 San Marcos Public Facilities Auth.
Rev., Series 1999 A, (Area
No. 3), 6.00%, 8/1/31 9,983,543
1,575,000 San Marcos Redevelopment
Agency Tax Allocation Rev.,
(Area No. 1), 6.00%, 8/1/29 1,494,423
2,365,000 San Marcos Redevelopment
Agency Tax Allocation, Series
1998 A, (Affordable Housing),
5.65%, 10/1/28 2,256,305
5,000,000 Santa Ana Financing Auth. Rev.,
Series 1998 A, (South Harbor
Blvd.), 5.00%, 9/1/19 (MBIA) 4,656,000
4,284,000 Santa Clara County Housing Auth.
Multifamily Housing Rev., Series
1999 A, (The Willows
Apartments), 6.40%, 6/1/30 4,138,515
1,000,000 Santa Clara Improvement Bond
Act 1915 Special Assessment,
(Convention Center), 5.10%,
9/2/09 969,460
See Notes to Financial Statements www.americancentury.com 11
California High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 Santa Clara Improvement Bond
Act 1915 Special Assessment,
(Convention Center), 5.15%,
9/2/10 $ 963,090
2,500,000 Solano County COP, (Capital
Improvement Program), 5.00%,
11/15/19 (AMBAC) 2,326,825
1,615,000 South San Francisco
Redevelopment Agency Tax
Allocation, 7.60%, 9/1/02,
Prerefunded at 102% of Par(1) 1,804,181
380,000 Southern California Housing
Finance Auth. Single Family
Mortgage Rev., Series 1991 A,
(GNMA & FNMA Mortgage-
Backed Securities), 7.35%,
9/1/24 394,098
500,000 Southern California Public Power
Auth. Rev., (Pooled Project),
6.75%, 7/1/10 (FSA) 574,495
2,400,000 Southern California Public Power
Auth. Rev., (Transmission),
6.35%, 7/1/14 (MBIA)(2) 1,064,712
1,250,000 Southern California Public Power
Auth. Rev., (Transmission),
6.35%, 7/1/15 (MBIA)(2) 519,350
3,000,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 5.80%, 9/1/14 2,931,060
2,935,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 6.00%, 9/1/24 2,855,462
1,770,000 Tehama Community COP, (Social
Services Building), 7.00%,
10/1/05, Prerefunded at 102%
of Par(1) 2,040,881
1,610,000 Torrance Hospital Rev., (Little
County of Mary Hospital),
6.875%, 7/1/02, Prerefunded
at 102% of Par(1) 1,753,548
2,235,000 Tracy Operating Partnership Joint
Powers Auth. Rev., (Jr. Lien
Assessment District 87-3),
6.375%, 9/2/11 2,285,533
1,565,000 Twentynine Palms Water District
COP, 7.10%, 8/1/22 1,653,250
2,250,000 Vacaville Improvement Bond Act
1915 Special Assessment,
(Northeast Sector Assessment
District A), 7.00%, 9/2/22 2,292,346
Principal Amount Value
- --------------------------------------------------------------------------------
$ 3,850,000 Vacaville Special Tax, Series
1998 C, (Community Facilities
District No. 2), 5.60%, 9/1/15 $ 3,701,045
5,000,000 Vallejo Hiddenbrooke Improvement
District No. 1 Rev., 6.50%,
9/1/31 5,003,950
1,645,000 Vallejo Multifamily Housing Rev.,
Series 1998 B, (Solano
Affordable Housing), 8.25%,
4/1/39 (Acquired 10/21/98,
Cost $1,598,134)(3) 1,552,239
2,000,000 West Contra Costa Unified School
District COP, 7.125%, 1/1/24 2,170,860
1,520,000 Windsor Redevelopment Agency
Tax Allocation, 6.875%, 9/1/15 1,623,483
------------
TOTAL MUNICIPAL SECURITIES 334,866,458
------------
(Cost $334,728,346)
SHORT-TERM MUNICIPAL SECURITIES -- 3.8%
4,000,000 California Health Facilities
Financing Auth. Rev., Series
1995 C, (Catholic Healthcare
West), VRDN, 2.75%, 9/1/99
(MBIA) (SBBPA: Rabobank
Nederland N.V.) 4,000,000
1,000,000 California Pollution Control
Financing Auth. Rev., Series
1986 A, (Southern California
Edison), VRDN, 2.60%, 9/1/99
(Guaranteed: Southern
California Edison Company) 1,000,000
4,450,000 California Pollution Control
Financing Auth. Rev., Series
1986 C, (Southern California
Edison), VRDN, 2.60%, 9/1/99
(Guaranteed: Southern
California Edison Company) 4,450,000
200,000 California Statewide Communities
Development Auth. Rev. COP,
(Sutter Health Obligation Group),
VRDN, 2.40%, 9/1/99 200,000
3,625,000 Los Angeles Convention and
Exhibition Center Auth. Lease
Rev., VRDN, 3.10%, 9/1/99
(MBIA) (SBBPA: Bank of New
York) (Acquired 8/10/99,
Cost $3,625,000)(3) 3,625,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 13,275,000
------------
(Cost $13,275,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $348,141,458
============
(Cost $348,003,346)
12 1-800-345-2021 See Notes to Financial Statements
California High-Yield Municipal--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
GO = General Obligation
COP = Certificates of Participation
LOC = Letter of Credit
FGIC = Financial Guaranty Insurance Co.
MBIA = MBIA Insurance Corp.
FNMA = Federal National Mortgage Association
SBBPA = Standby Bond Purchase Agreement
FSA = Financial Security Assurance Inc.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 1999.
GNMA = Government National Mortgage Association
(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
aggregate value of these securities at August 31, 1999, was $7,471,504
which represented 2.2% of net assets. None of these securities are
considered illiquid.
(4) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(5) When-issued security.
See Notes to Financial Statements www.americancentury.com 13
California Insured Tax-Free--Performance
- --------------------------------------------------------------------------------
<TABLE>
TOTAL RETURNS AS OF AUGUST 31, 1999
CALIFORNIA LEHMAN LONG-TERM CALIFORNIA INSURED MUNICIPAL DEBT FUNDS(2)
INSURED TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
========================================================================================
<S> <C> <C> <C> <C>
6 MONTHS(1) -3.85% -4.29% -3.55% --
1 YEAR -1.71% -2.14% -1.45% 15 OUT OF 23
========================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.38% 6.35% 5.10% 6 OUT OF 22
5 YEARS 6.16% 7.07% 5.82% 4 OUT OF 15
10 YEARS 6.95% 7.92% 6.95% 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 8/31/99
California Insured Tax-Free $19,582
Lehman Long-Term Municipal Index $21,440
California
Insured Lehman Long-Term
Tax-Free Municipal Index
DATE VALUE VALUE
8/31/1989 $10,000 $10,000
8/31/1990 $10,396 $10,611
8/31/1991 $11,630 $12,040
8/31/1992 $12,987 $13,556
8/31/1993 $14,772 $15,557
8/31/1994 $14,524 $15,238
8/31/1995 $15,698 $16,675
8/31/1996 $16,735 $17,822
8/31/1997 $18,283 $19,826
8/31/1998 $19,921 $21,909
8/31/1999 $19,582 $21,440
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 Index is provided for comparison in each graph.
California Insured 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 AUGUST 31)
California
Insured Lehman Long-Term
Tax-Free Municipal Index
DATE RETURN RETURN
8/31/1990 3.96% 6.11%
8/31/1991 11.87% 13.47%
8/31/1992 11.67% 12.60%
8/31/1993 13.74% 14.76%
8/31/1994 -1.68% -2.05%
8/31/1995 8.09% 9.43%
8/31/1996 6.60% 6.88%
8/31/1997 9.25% 11.26%
8/31/1998 8.96% 10.51%
8/31/1999 -1.71% -2.14%
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 CALIFORNIA INSURED TAX-FREE PERFORM DURING THE FISCAL YEAR ENDED AUGUST
31, 1999?
The fund's performance reflected the difficulties the municipal bond market
faced. California Insured Tax-Free returned -1.71%, which lagged the -1.45%
average total return of its peer group--23 "California Insured Municipal Debt
Funds" tracked by Lipper Inc.
Even with the recent disappointing performance, the fund's longer-term
record remained compelling. For the three- and five-year periods ended August
31, 1999, the fund consistently ranked in the top third of its peer group.
Additionally, California Insured Tax-Free produced more current income than
its peers. The fund's 30-day SEC yield as of August 31, 1999, was 4.73%,
compared with the 4.01% average yield of the Lipper group.
The fund's strong yield and long-term returns can be attributed in part to
below-average expenses. Other things being equal, lower expenses mean higher
yields and returns for shareholders.
WHAT FACTORS CAUSED THE FUND TO LAG ITS PEERS DURING THE PAST YEAR?
The main factor was the fund's increased interest rate sensitivity,
measured by its somewhat long duration relative to its peers. (The longer a
fund's duration, the more the share price will rise and fall in response to
interest rate changes.)
In August 1998, our outlook called for falling interest rates in response
to global economic weakness. To capture more of the anticipated gains resulting
from declining rates, we focused on discount bonds. These bonds trade below face
value (par)--at a discount--because their interest coupons are below prevailing
market interest rates.
When interest rates declined in 1998, the fund's somewhat longer duration
and focus on discount bonds gave it an advantage over its peers. But when rates
began to move higher in 1999, those same factors hurt performance.
WHAT MADE DISCOUNT BONDS SO SUSCEPTIBLE TO RISING INTEREST RATES?
A bond's price and duration reflect in part the likelihood that it will be
called (refinanced) by its issuer before maturity. If it appears likely that a
bond is in jeopardy of being called, investors tend to push its price lower
because they don't relish the prospect of being forced to forfeit
higher-yielding bonds and reinvest at lower rates. At the same time, the bond's
duration shortens.
Because their interest coupons are below prevailing interest rates,
discount bonds are generally the last bonds to be refinanced. That "call
[right margin]
"CALIFORNIA INSURED TAX-FREE PRODUCED MORE CURRENT INCOME THAN ITS
PEERS."
YIELDS AS OF AUGUST 31, 1999
30-DAY SEC YIELD 4.73%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 7.24%
37.42% TAX BRACKET 7.56%
41.95% TAX BRACKET 8.15%
45.22% TAX BRACKET 8.63%
PORTFOLIO AT A GLANCE
8/31/99 8/31/98
NUMBER OF SECURITIES 72 71
WEIGHTED AVERAGE
MATURITY 18.1 YRS 17.9 YRS
AVERAGE DURATION 8.9 YRS 8.5 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 29-30.
www.americancentury.com 15
California Insured Tax-Free--Q&A
- --------------------------------------------------------------------------------
(Continued)
protection" means the duration of discount bonds is relatively long compared
with higher-coupon bonds, and that their duration lengthens when rates rise.
Their heightened sensitivity to rising interest rates--coupled with diminished
demand for call-protection--caused discount bonds to perform poorly during 1999.
WHAT CHANGES IN STRATEGY DID YOU MAKE DURING THE YEAR?
We didn't want to sell discount bonds at distressed prices or abandon a
strategy we believe could ultimately serve the fund well. So to keep the fund
from becoming overly interest rate sensitive, we began to "barbell" the
portfolio, increasing our holdings in short-term investments such as cash to
help offset long-duration discount bonds.
In addition, we sold some of our worst-performing bonds at a loss to offset
capital gains incurred elsewhere in the portfolio. We invested the proceeds in
higher-yielding bonds, which helped boost the fund's distribution yield.
IN TERMS OF SECTORS, WHAT CHOICES DID YOU MAKE?
One area of emphasis was certificates of participation (COPs). As a quick
review, you may recall that COPs originated in 1978 when California voters
approved "Proposition 13." That amendment put strict limits on the amount of
money that could be raised from property taxes and required two-thirds voter
approval by the issuing jurisdiction to sell new general obligation bonds. Those
restrictions helped COPs, which are an alternate form of financing that don't
require voter approval, become more popular.
We favor COPs because they are less well known than other bonds, which
allows us to buy them for less than comparable, more familiar types of
securities.
WHAT DO YOU SEE AHEAD FOR INTEREST RATES AND THE MUNICIPAL MARKET?
We're more cautious than we were a year ago, but we're still optimistic
about the municipal bond market. Inflation still appears to be under control,
and there's evidence that the U.S. economy may be slowing. Given that backdrop,
we believe the Fed will refrain from raising interest rates further for the
balance of 1999, in part to avoid upsetting global financial markets that are
already jittery about Y2K.
As for next year, the outlook is murkier. The market could continue to
experience volatility as investors focus on each economic data release to
determine if the economy is growing at an inflationary pace or if it's slowing
down. But eventually, we think that interest rates will move down in response to
slower economic growth.
WITH THAT BACKDROP IN MIND, HOW WILL YOU POSITION THE FUND?
We're likely to maintain our current duration position and hold discount
bonds as long as we believe that rates will eventually fall. We also plan to
continue to work closely with our credit research team to look for attractively
valued securities, such as COPs. That approach has helped contribute to our
long-term success.
[left margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/99 2/28/99
AAA 100% 100%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 28
for more information.
TOP FIVE SECTORS (AS OF 8/31/99)
% OF FUND INVESTMENTS
COPS/LEASES 25%
ELECTRIC REVENUE 13%
TRANSPORTATION REVENUE 11%
WATER AND SEWER REVENUE 10%
TAX ALLOCATION REVENUE 10%
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%
GO 7%
Investment terms are defined in the Glossary on pages 29-30.
16 1-800-345-2021
California Insured Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
This schedule lists all investments owned by the fund, as well as each
security's market value, as of the last day of the reporting period.
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 97.1%
$ 6,000,000 Alameda Corridor Transportation
Auth. Rev., Series 1999 A,
5.00%, 10/1/29 (MBIA) $ 5,410,620
1,000,000 Banning COP, (Wastewater
System, Refunding &
Improvement), 8.00%, 1/1/19
(AMBAC) 1,237,490
900,000 Brea Redevelopment Agency Tax
Allocation, (Project AB), 6.125%,
8/1/13 (MBIA) 949,905
1,250,000 California Health Facilities
Financing Auth. Rev., Series
1991 A, (Adventist Health),
7.00%, 3/1/13 (MBIA) 1,317,612
1,470,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 B, (Pooled
Project), 8.10%, 3/1/18 (BIGI) 1,497,004
4,000,000 California Public Works Board
Lease Rev., Series 1993 A,
(Department of Corrections),
5.00%, 12/1/19 (AMBAC) 3,745,640
6,000,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections),
5.25%, 6/1/15 (FSA) 5,958,240
2,565,000 California State GO, 4.50%,
12/1/21 (FGIC) 2,163,731
6,035,000 California State GO, 4.50%,
12/1/24 (FGIC) 5,032,586
3,500,000 California State GO, 4.25%,
10/1/26 (MBIA) 2,769,340
4,135,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) 4,241,559
3,925,000 California Statewide Communities
Development Auth. Rev. COP,
(Gemological Institute), 6.75%,
5/1/10 (Connie Lee) 4,478,464
7,000,000 California Statewide Communities
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/22 (AMBAC,
California Mortgage Insurance) 6,448,470
1,520,000 Castaic Lake Water Agency COP,
Series 1994 A, (Water System
Improvement), 7.00%, 8/1/12
(MBIA) 1,767,927
1,200,000 Contra Costa Water District Rev.,
Series 1992 E, 6.25%,
10/1/12 (AMBAC) 1,328,700
1,000,000 East Valley Water District COP,
(Treatment Plant), 6.60%,
12/1/14 (AMBAC) 1,073,910
Principal Amount Value
- --------------------------------------------------------------------------------
$ 2,000,000 Escondido Joint Powers Financing
Auth. Rev., 6.125%, 9/1/11
(AMBAC) $ 2,104,600
2,620,000 Escondido Unified School District
COP, 4.75%, 7/1/19 (MBIA) 2,342,411
1,695,000 Escondido Unified School District
COP, 4.75%, 7/1/23 (MBIA) 1,489,583
2,000,000 Fontana Unified School District
GO, Series 1997 D, 5.85%,
5/1/22 (FGIC)(1) 1,908,960
3,100,000 Foothill-De Anza Community
College District COP, 6.25%,
9/1/13 (Connie Lee) 3,302,027
1,975,000 Fresno Sewer Rev., Series
1993 A-1, 6.25%, 9/1/14
(AMBAC) 2,175,028
1,240,000 Fresno Sewer Rev., Series
1993 A-1, 4.75%, 9/1/21
(AMBAC) 1,098,466
5,000,000 Glendale Hospital Rev., Series
1991 A, (Adventist Health),
6.75%, 3/1/13 (MBIA) 5,252,500
4,830,000 Glendale Unified School District
COP, Series 1994 A, 6.50%,
3/1/12 (AMBAC) 5,235,817
1,340,000 Kern High School District GO,
Series 1992 C, 6.25%, 8/1/13
(MBIA)(2) 1,484,385
3,630,000 Kern High School District GO,
Series 1993 D, 7.00%, 8/1/17
(MBIA)(2) 4,055,436
2,000,000 La Quinta Financing Auth. Lease
Rev. COP, (La Quinta City Hall),
5.55%, 10/1/18 (MBIA) 2,027,000
790,000 Lake Elsinore Public Financing
Auth. Tax Allocation, Series
1992 C, (Redevelopment),
6.625%, 2/1/00, Prerefunded
at 102% of Par (FGIC)(2) 813,645
1,500,000 Lakewood Redevelopment
Agency Tax Allocation, Series
1992 A, (Project No. 1), 6.50%,
9/1/17 (FSA) 1,605,405
2,260,000 Long Beach Board Financing
Auth. Lease Rev., Series
1999 A, (Rainbow Harbor),
5.25%, 5/1/24 (AMBAC) 2,135,994
2,000,000 Long Beach Water Rev., Series
1997 A, 5.00%, 5/1/24 (MBIA) 1,821,780
400,000 Los Angeles Community
Redevelopment Agency
Housing Rev., Series 1994 C,
7.00%, 1/1/14 (AMBAC) 427,228
3,500,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 3,797,990
See Notes to Financial Statements www.americancentury.com 17
California Insured Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 4,000,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/15
(FSA) $ 4,332,520
1,000,000 Los Angeles County
Transportation Commission
Sales Tax Rev., 6.50%, 7/1/13
(AMBAC) 1,054,990
3,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1996 B, 4.75%,
7/1/21 (MBIA) 2,637,840
1,915,000 Mid-Peninsula Regional Open
Space District Financing Auth.
Rev., 5.90%, 9/1/14 (AMBAC) 1,983,787
5,000,000 Modesto, Stockton, Redding Public
Power Agency Rev., Series
1989 D, (San Juan), 6.75%,
7/1/20 (MBIA)(2) 5,672,650
2,810,000 Oakland Redevelopment Agency
Tax Allocation, (Central District),
5.50%, 2/1/14 (AMBAC) 2,867,436
1,940,000 Oakland Unified School District
Alameda County GO, Series
1999 E, 5.25%, 8/1/21 (MBIA) 1,841,894
2,700,000 Orange County Financing Auth.
Tax Allocation, Series 1992 A,
6.25%, 9/1/14 (MBIA) 2,843,721
1,950,000 Ramona Municipal Water District
COP, 7.20%, 10/1/10 (AMBAC) 2,051,380
2,000,000 Rancho Cucamonga
Redevelopment Agency Tax
Allocation, 5.25%, 9/1/20 (FSA) 1,924,940
1,100,000 Redlands Unified School District
COP, 6.00%, 9/1/12 (FSA) 1,140,777
17,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 16,738,750
295,000 Sacramento Redevelopment
Agency Tax Allocation, Series
1990 A, 6.50%, 11/1/13
(MBIA) 308,399
2,210,000 Sacramento Redevelopment
Agency Tax Allocation, Series
1990 A, 6.50%, 11/1/00,
Prerefunded at 102% of Par
(MBIA)(2) 2,323,815
1,345,000 San Diego Community College
District Lease Rev. COP,
6.125%, 12/1/06, Prerefunded
at 102% of Par (MBIA)(2) 1,502,298
7,000,000 San Diego County COP, 5.625%,
9/1/12 (AMBAC) 7,271,740
3,250,000 San Francisco Bay Area Rapid
Transportation District Sales Tax
Rev., 6.75%, 7/1/00,
Prerefunded at 102% of Par
(AMBAC)(2) 3,398,265
Principal Amount Value
- --------------------------------------------------------------------------------
$ 8,330,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 2, 6.75%,
5/1/20 (MBIA) $ 9,025,638
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)(2) 1,845,784
2,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 15B, 4.50%,
5/1/25 (MBIA) 1,670,060
3,500,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/26 (MBIA) 2,904,615
6,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 21, 4.50%,
5/1/23 (MBIA) 5,032,800
3,500,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 5.00%,
7/1/21 (MBIA) 3,247,405
3,535,000 San Mateo County Joint Powers
Auth. Lease Rev. COP, (Capital
Projects Program), 6.50%,
7/1/15 (MBIA) 3,979,314
1,000,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/18 (MBIA) 973,740
1,000,000 San Ysidro School District GO,
6.125%, 8/1/21 (AMBAC) 1,068,050
3,500,000 Santa Ana Financing Auth. Rev.,
Series 1999 B, (South Harbor
Boulevard), 5.125%, 9/1/19
(MBIA) 3,311,560
2,000,000 Santa Margarita-Dana Point Auth.
Rev., Series 1994 B,
(Improvement Districts 3, 3A, 4,
4A), 7.25%, 8/1/14 (MBIA) 2,401,500
1,265,000 Sierra Valley Hospital District GO,
5.50%, 8/1/23 (MBIA) 1,242,647
1,150,000 Simi Valley Unified School District
COP, (Refunding & Capital
Improvement Projects), 5.25%,
8/1/17 (AMBAC) 1,124,494
1,800,000 Simi Valley Unified School District
COP, (Refunding & Capital
Improvement Projects), 5.25%,
8/1/22 (AMBAC) 1,729,243
2,500,000 South Coast Air Quality
Management District Building
GO, (Installment Sale
Headquarters), 6.00%, 8/1/11
(AMBAC) 2,721,126
2,500,000 Ukiah Electric Rev., 6.25%,
6/1/18 (MBIA) 2,737,450
18 1-800-345-2021 See Notes to Financial Statements
California Insured Tax-Free--Schedule of Investments
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,445,000 Walnut Valley Unified School
District GO, Series 1992 B,
6.00%, 8/1/10 (AMBAC)(2) $ 1,577,449
4,525,000 Woodland COP, (Wastewater
System Reference), 5.75%,
3/1/12 (AMBAC) 4,744,011
------------
TOTAL MUNICIPAL SECURITIES 203,731,541
------------
(Cost $201,981,733)
MUNICIPAL DERIVATIVES(3) -- 2.9%
2,000,000 East Bay Municipal Utility District
Wastewater Treatment System
Rev., Yield Curve Notes, Inverse
Floater, 6.82%, 6/1/13
(AMBAC) 2,052,500
Principal Amount Value
- --------------------------------------------------------------------------------
$ 1,000,000 San Diego County Water Auth.
Rev. COP, (Reg Rites), Yield
Curve Notes, Inverse Floater,
7.25%, 4/22/09 (FGIC) $ 1,115,000
2,750,000 Southern California Public Power
Auth. Rev., Yield Curve Notes,
Inverse Floater, 6.62%, 7/1/17
(FGIC) 2,846,250
------------
TOTAL MUNICIPAL DERIVATIVES 6,013,750
------------
(Cost $5,833,405)
TOTAL INVESTMENT SECURITIES -- 100.0% $209,745,291
============
(Cost $207,815,138)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
FSA = Financial Security Assurance Inc.
BIGI = Bond Investor's Guaranty Inc.
GO = General Obligation
COP = Certificates of Participation
MBIA = MBIA Insurance Corp.
FGIC = Financial Guaranty Insurance Co.
(1) 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.
(2) Escrowed to maturity in U.S. government securities or state and local
government securities.
(3) Inverse floaters have interest rates that move inversely to market interest
rates. Inverse floaters typically have durations longer than long-term
bonds, which may cause their value to be more volatile than long-term
bonds when interest rates change.
See Notes to Financial Statements www.americancentury.com 19
Statements of Assets and Liabilities
- --------------------------------------------------------------------------------
This statement breaks down the fund's ASSETS (such as securities, cash, and
other receivables) and LIABILITIES (money owed for securities purchased,
management fees, and other liabilities) as of the last day of the reporting
period. Subtracting the liabilities from the assets results in the fund's NET
ASSETS. The net assets divided by shares outstanding is the share price, or NET
ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets
into capital (shareholder investments) and performance (investment income and
gains/losses).
HIGH-YIELD INSURED
AUGUST 31, 1999 MUNICIPAL TAX-FREE
ASSETS
Investment securities, at value
(identified cost of $348,003,346 and
$207,815,138, respectively) (Note 3) ..... $ 348,141,458 $ 209,745,291
Interest receivable ........................ 6,508,382 3,340,773
------------- -------------
354,649,840 213,086,064
------------- -------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................... 5,601,612 939,708
Payable for investments purchased .......... 6,720,789 --
Accrued management fees (Note 2) ........... 155,492 91,584
Dividends payable .......................... 203,079 116,991
Payable for trustees' fees and expenses .... 591 369
------------- -------------
12,681,563 1,148,652
------------- -------------
Net Assets ................................. $ 341,968,277 $ 211,937,412
============= =============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................... 36,540,790 21,441,721
============= =============
Net Asset Value Per Share .................. $ 9.36 $ 9.88
============= =============
NET ASSETS CONSIST OF:
Capital paid in ............................ $ 345,146,562 $ 210,396,899
Accumulated net realized loss
on investment transactions ............... (3,316,397) (389,640)
Net unrealized appreciation
on investments (Note 3) .................. 138,112 1,930,153
------------- -------------
$ 341,968,277 $ 211,937,412
============= =============
20 1-800-345-2021 See Notes to Financial Statements
Statements of Operations
- --------------------------------------------------------------------------------
This statement shows how the fund's net assets changed during the reporting
period as a result of the fund's operations. In other words, it shows how much
money the fund made or lost as a result of dividend and interest income, fees
and expenses, and investment gains or losses.
HIGH-YIELD INSURED
YEAR ENDED AUGUST 31, 1999 MUNICIPAL TAX-FREE
INVESTMENT INCOME
Income:
Interest ................................... $ 18,673,591 $ 11,726,658
------------ ------------
Expenses (Note 2):
Management fees ............................ 1,778,084 1,118,237
Trustees' fees and expenses ................ 11,914 8,202
------------ ------------
1,789,998 1,126,439
------------ ------------
Net investment income ...................... 16,883,593 10,600,219
------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on investments .... (1,869,375) 98,190
Change in net unrealized
appreciation on investments .............. (15,057,989) (14,425,798)
------------ ------------
Net realized and unrealized
loss on investments ...................... (16,927,364) (14,327,608)
------------ ------------
Net Decrease in Net Assets
Resulting from Operations ................ $ (43,771) $ (3,727,389)
============ ============
See Notes to Financial Statements www.americancentury.com 21
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
This statement shows how the 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 (as detailed on the previous page for the most recent period), income
and capital gain distributions, and shareholder investments and redemptions.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998
HIGH-YIELD MUNICIPAL INSURED TAX-FREE
Increase (Decrease) in Net Assets 1999 1998 1999 1998
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ............$ 16,883,593 $ 12,677,129 $ 10,600,219 $ 9,928,056
Net realized gain (loss)
on investments ................. (1,869,375) 2,562,512 98,190 1,583,804
Change in net unrealized
appreciation on investments .... (15,057,989) 6,311,903 (14,425,798) 5,870,522
------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting
from operations ................ (43,771) 21,551,544 (3,727,389) 17,382,382
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ....... (16,902,404) (12,677,129) (10,600,219) (9,928,056)
From net realized gains on
investment transactions ........ (113,197) (2,545,652) (779,876) (2,921,262)
In excess of net realized gains
on investment transactions ..... (3,316,396) -- (389,640) --
------------- ------------- ------------- -------------
Decrease in net assets
from distributions ............. (20,331,997) (15,222,781) (11,769,735) (12,849,318)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ........ 183,401,537 181,804,274 78,766,649 82,053,478
Proceeds from reinvestment
of distributions ............... 14,343,428 11,152,218 8,188,008 8,954,545
Payments for shares redeemed ..... (139,242,460) (88,275,006) (75,029,338) (69,176,578)
------------- ------------- ------------- -------------
Net increase in net assets from
capital share transactions ..... 58,502,505 104,681,486 11,925,319 21,831,445
------------- ------------- ------------- -------------
Net increase (decrease)
in net assets .................. 38,126,737 111,010,249 (3,571,805) 26,364,509
NET ASSETS
Beginning of period .............. 303,841,540 192,831,291 215,509,217 189,144,708
------------- ------------- ------------- -------------
End of period ....................$ 341,968,277 $ 303,841,540 $ 211,937,412 $ 215,509,217
============= ============= ============= =============
Undistributed net
investment income .............. -- $ 18,811 -- --
============= ============= ============= =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ............................. 18,760,200 18,553,052 7,534,351 7,856,824
Issued in reinvestment
of distributions ............... 1,469,140 1,137,993 785,177 855,798
Redeemed ......................... (14,282,754) (9,015,907) (7,203,629) (6,627,802)
------------- ------------- ------------- -------------
Net increase ..................... 5,946,586 10,675,138 1,115,899 2,084,820
============= ============= ============= =============
</TABLE>
22 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
- --------------------------------------------------------------------------------
AUGUST 31, 1999
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. For the year ended
August 31, 1999, 100% (unaudited) of the funds' distributions from net
investment income have been designated as exempt from federal and California
state income tax.
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 realized 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 August 31, 1999.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's
distributor. Certain officers of FDI are also officers of the trust.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH RELATED PARTIES
The trust has entered into a Management Agreement with American Century
Investment Management, Inc. (ACIM), under which ACIM provides each fund with
investment advisory and management services in exchange for a single, unified
management fee. The Agreement provides that all expenses of the funds, except
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, will be paid by ACIM. 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 year ended August 31, 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.
www.americancentury.com 23
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Continued)
AUGUST 31, 1999
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
High-Yield and Insured totaled $243,924,904 and $84,501,806, respectively. Sales
of investment securities, excluding short-term investments, for High-Yield and
Insured totaled $189,374,467 and $70,465,934, respectively.
As of August 31, 1999, accumulated net unrealized appreciation for
High-Yield and Insured was $138,112 and $1,930,153, respectively, which
consisted of unrealized appreciation of $7,348,211 and $6,555,115, respectively,
and unrealized depreciation of $7,210,099 and $4,624,962, 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 August 31,
1999.
24 1-800-345-2021
California High-Yield Municipal--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
1999 1998 1997 1996 1995
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 9.93 $ 9.68 $ 9.27 $ 9.11 $ 9.06
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................ 0.49 0.51 0.55 0.56 0.56
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions .............. (0.46) 0.37 0.41 0.16 0.05
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ..... 0.03 0.88 0.96 0.72 0.61
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........... (0.49) (0.51) (0.55) (0.56) (0.56)
From Net Realized Gains .............. --(1) (0.12) -- -- --
In Excess of Net Realized Gains ...... (0.11) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions .................. (0.60) (0.63) (0.55) (0.56) (0.56)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ......... $ 9.36 $ 9.93 $ 9.68 $ 9.27 $ 9.11
=========== =========== =========== =========== ===========
Total Return(2) ...................... 0.26% 9.35% 10.61% 8.02% 7.09%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.54% 0.54% 0.50% 0.51% 0.51%
Ratio of Net Investment Income
to Average Net Assets ................ 5.08% 5.23% 5.77% 5.99% 6.30%
Portfolio Turnover Rate ................ 59% 36% 46% 36% 40%
Net Assets, End of Period
(in thousands) ....................... $ 341,968 $ 303,842 $ 192,831 $ 144,675 $ 116,166
</TABLE>
(1) Per share amount was less than $0.005.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 25
California Insured Tax-Free--Financial Highlights
- --------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE
RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO
TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
1999 1998 1997 1996 1995
PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 10.60 $ 10.37 $ 10.00 $ 9.89 $ 9.67
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................ 0.50 0.51 0.53 0.53 0.53
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions .............. (0.66) 0.39 0.37 0.11 0.22
----------- ----------- ----------- ----------- -----------
Total From Investment Operations ..... (0.16) 0.90 0.90 0.64 0.75
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........... (0.50) (0.51) (0.53) (0.53) (0.53)
From Net Realized Gains .............. (0.04) (0.16) -- -- --
In Excess of Net Realized Gains ...... (0.02) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions .................. (0.56) (0.67) (0.53) (0.53) (0.53)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ......... $ 9.88 $ 10.60 $ 10.37 $ 10.00 $ 9.89
=========== =========== =========== =========== ===========
Total Return(1) ...................... (1.71)% 8.96% 9.25% 6.60% 8.09%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ................ 0.51% 0.51% 0.48% 0.49% 0.50%
Ratio of Net Investment Income
to Average Net Assets ................ 4.78% 4.91% 5.23% 5.30% 5.54%
Portfolio Turnover Rate ................ 32% 31% 46% 43% 40%
Net Assets, End of Period
(in thousands) ....................... $ 211,937 $ 215,509 $ 189,145 $ 191,811 $ 178,913
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
26 1-800-345-2021 See Notes to Financial Statements
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of the American Century California Tax-Free and Municipal Funds
and Shareholders of the California High-Yield Municipal Fund and the California
Insured Tax-Free Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the California High-Yield Municipal
Fund and the California Insured Tax-Free Fund (formerly the American Century -
Benham California High-Yield Municipal Fund and the American Century - Benham
California Insured Tax-Free Fund, respectively) (the "Funds") at August 31,
1999, and the results of their operations for the year then ended, the changes
in their net assets and the financial highlights for each of the two years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. The financial highlights for each of the three
years in the period ended August 31, 1997, were audited by other auditors, whose
report, dated October 3, 1997, expressed an unqualified opinion on those
statements. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1999 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
October 13, 1999
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
MUNICIPAL MAY INVEST MORE THAN 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 25-26.
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.
* 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).
www.americancentury.com 29
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.
* 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 provided
by either dividend-paying equities or a combination of equity and fixed-income
securities.
* 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
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www.americancentury.com 31
Notes
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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 -- Large Cap Value
Conservative Equity Income
===============================================================================
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(reg.tm)
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 1-800-345-2021 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
BANKS AND TRUST COMPANIES, BROKER-DEALERS,
FINANCIAL ADVISORS, INSURANCE COMPANIES
1-800-345-6488
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
Funds Distributor, Inc. is
9910 the distributor of American Century funds
SH-ANN-18084 (c)1999 American Century Services Corporation
