August 31, 2000
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
California Tax-Free Money Market
California Municipal Money Market
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Get Investment Insight with Fund Advisor*
--------------------------------------------------------------------------------
They say hindsight is 20/20. But what about insight? That's what you really
want when choosing mutual funds. Now you can get the insight you need with Fund
Advisor, an online tool that helps you select the right no-load funds for
you--on a goal by goal basis. Fund Advisor helps you:
Get organized.
Compile all your investments, review their performance and see if you're on
track to meet your personal financial goals.
Get direction.
Receive recommendations based on funds available through your current fund
family or financial service provider -- not just American Century funds.
Gain confidence.
Whether you want to analyze your current investments, or find new ones, Fund
Advisor can help you feel confident with the decisions you make.
How does it work?
Just tell Fund Advisor about your investing style, your current investments
and your goals. It will analyze your investments and offer impartial
recommendations to help you get on track.
To review Fund Advisor's unique perspective, go to www.americancentury.com
and select Fund Advisor at the top of the page. For the initial set-up, you
might want to have available:
* Your latest tax return
* Your most recent investment account statements
* Printouts from any software you use to track your personal finances
To learn more about this new tool and how it can help you better manage your
financial future, select the "Demo" from the Fund Advisor introduction page.
* Patent pending. It was developed for Acumation, Inc., a registered investment
advisor and wholly owned subsidiary of American Century.
American Century does not receive sales commissions or direct compensation for
recommending any fund, although it may receive management, service or other fees
from funds recommended through Fund Advisor. These agreements are described in
Acumation, Inc.'s Form ADV Part II.
[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.
Receive Your Annual Reports Online
--------------------------------------------------------------------------------
Now you can receive documents such as annual reports, prospectuses, and
newsletters online rather than regular mail. Your link to American Century
documents is a click away with the Electronic Communication option.
* Receive links to documents by email
* Download select documents and file electronically to save space in your
file cabinets
* Read documents at your convenience
To sign up for this option, visit www.americancentury.com and log in with
your secure OnePIN. Then simply select an account on your account list and
choose the Electronic Communication link. Questions? Call 1-800-345-2021. LOG IN
AND TAKE CONTROL TODAY!
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
California municipal money market yields rose during the year ended August
31, 2000. The Federal Reserve raised short-term interest rates four times to
slow the U.S. economy and keep inflation contained.
However, strong demand for municipal money market securities kept their
yields from rising as much as the Fed's short-term rates. This was especially
true in California, where freshly minted dot-com millionaires looked to preserve
some of their newfound wealth in a tax-free investment.
In this environment, American Century's California money market funds
continued to provide shareholders with an above-average level of tax-free income
(according to Lipper Inc., an independent mutual fund ranking service). Fund
manager Todd Pardula talks more about the funds' performance on pages 5 and 12.
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., which became a substantial minority
shareholder in American Century Companies, Inc. in 1998. If the transaction is
completed as expected, J.P. Morgan Chase, the new enterprise, will own the
shares of American Century currently held by Morgan. Corporate control of
American Century is not affected by this transaction. We will be exploring ways
to partner with J.P. Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we chose to divide the chairman of
the board position between the two of us and named American Century President
William M. Lyons chief executive officer, giving him ultimate management
responsibility for the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue other worthwhile endeavors. For example, Jim Stowers III will focus more
on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, he'll continue to serve on the investment teams for the
Ultra and Veedot funds.
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 Co-Chairman of the Board
[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
Yields ................................................................. 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 ................................................ 11
Portfolio at a Glance .................................................. 11
Yields ................................................................. 11
Management Q&A ......................................................... 12
Portfolio Composition
by Credit Rating .................................................... 12
Types of Investments ................................................... 12
Schedule of Investments ................................................ 13
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 16
Statement of Operations ................................................ 17
Statement of Changes
in Net Assets ....................................................... 18
Notes to Financial
Statements .......................................................... 19
Financial Highlights ................................................... 20
Report of Independent
Accountants ......................................................... 22
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 23
Lipper Rankings ..................................................... 23
Credit Rating
Guidelines ....................................................... 23
Investment Team
Leaders .......................................................... 23
Glossary ............................................................... 24
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
CALIFORNIA TAX-FREE MONEY MARKET
* The fund's one-year return for the fiscal year ended August 31, 2000, ranked
in the top quarter of the California money market funds tracked by Lipper
Inc. (See page 4 for standardized ranking and performance information.)
* California Tax-Free Money Market's yield was consistently higher than its
Lipper category average throughout the fiscal year.
* Although four interest rate hikes by the Federal Reserve pushed all money
market yields higher, strong demand and less new issuance limited the rise
in California municipal money market yields.
* We bought a number of one-year notes in June when yields were relatively
attractive, and this caused the fund's average maturity to extend
dramatically.
CALIFORNIA MUNICIPAL MONEY MARKET
* The fund's one-year return for the fiscal year ended August 31, 2000, ranked
in the top 10% of the California money market funds tracked by Lipper Inc.
(See page 11 for standardized ranking and performance information.)
* California Municipal Money Market's yield was consistently higher than its
Lipper category average throughout the fiscal year.
* Although four interest rate hikes by the Federal Reserve pushed all money
market yields higher, strong demand and less new issuance limited the rise
in California municipal money market yields.
* We bought a number of one-year notes in June when yields were relatively
attractive, and this caused the fund's average maturity to extend.
[left margin]
CALIFORNIA TAX-FREE MONEY MARKET
(BCTXX)
TOTAL RETURNS: AS OF 8/31/00
6 Months 1.71%*
1 Year 3.11%
7-DAY CURRENT YIELD: 3.39%
INCEPTION DATE: 11/9/83
NET ASSETS: $640.5 million
CALIFORNIA MUNICIPAL MONEY MARKET
(BNCXX)
TOTAL RETURNS: AS OF 8/31/00
6 Months 1.75%*
1 Year 3.19%
7-DAY CURRENT YIELD: 3.46%
INCEPTION DATE: 12/31/90
NET ASSETS: $178.5 million
* Not annualized.
See Total Returns on pages 4 and 11.
Investment terms are defined in the Glossary on pages 24-25.
2 1-800-345-2021
Money Market Funds--Frequently Asked Questions
--------------------------------------------------------------------------------
CAN I MAKE DIRECT DEPOSITS INTO MY MONEY MARKET FUND ACCOUNT?
Yes. You can arrange for direct deposit of your paycheck, Social Security
check, 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?
There is a 10-business-day holding period for deposited funds--including
your initial investment in a new account. There is a one-business-day holding
period for wire transfers.
IS THERE A COST FOR WRITING CHECKS ON MY MONEY MARKET ACCOUNT?
As long as each check is for $100 or more, you can write as many checks as
you like at no charge.
HOW CAN I KEEP TRACK OF MY MONEY MARKET FUND TRANSACTIONS BETWEEN ACCOUNT
STATEMENTS?
You can access your investments any time through our automated telephone
line and the American Century Web site. These services provide fund yields,
returns, account information, and transaction services.
You can keep tabs on your investments 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* weekdays,
7 a.m.-7 p.m. Central time Saturdays, 9 a.m.-2 p.m. Central time
WHY DOES MY MONEY FUND YIELD FLUCTUATE?
Money market funds are managed to maintain a stable $1 share price, but
their yields will fluctuate with changes in market conditions. Common reasons
for changes in your fund's yield are adjustments to Federal Reserve interest
rate policy, the outlook for inflation, and supply and demand for money market
securities.
Keep in mind that no money market fund is guaranteed or insured by the U.S.
government. And although money market funds are intended to preserve the value
of your investment at $1 per share, there's no guarantee that they'll be able to
do so.
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.
[right margin]
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 to five days.
Contact our Investor Relations Representatives to set up either of these
options.
* We must have your written authorization on file if you wish to make exchanges
by phone, on our Automated Information Line, or through our Web site.
www.americancentury.com 3
California Tax-Free Money Market--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 2000
CALIFORNIA TAX-FREE CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 1.71% 1.60% --
1 YEAR 3.11% 2.91% 12 OUT OF 52
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 2.95% 2.77% 11 OUT OF 49
5 YEARS 3.03% 2.86% 11 OUT OF 44
10 YEARS 2.99% 2.94% 13 OUT OF 31
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 23-24 for information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
8/31/00 8/31/99
NUMBER OF SECURITIES 103 96
WEIGHTED AVERAGE
MATURITY 64 DAYS 51 DAYS
EXPENSE RATIO 0.49% 0.50%
YIELDS AS OF AUGUST 31, 2000
7-DAY CURRENT YIELD 3.39%
7-DAY EFFECTIVE YIELD 3.44%
7-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 5.19%
37.42% TAX BRACKET 5.42%
41.95% TAX BRACKET 5.83%
45.22% TAX BRACKET 6.19%
Investment terms are defined in the Glossary on pages 24-25.
Past performance does not guarantee future results.
Money market funds are neither insured nor guaranteed by the FDIC or any other
government agency.
Yields will fluctuate, and although the fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by investing in the
fund. The 7-day yield more closely reflects earnings of the fund than the total
return.
4 1-800-345-2021
California Tax-Free Money Market--Q&A
--------------------------------------------------------------------------------
[photo of Todd Pardula]
An interview with Todd Pardula, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID CALIFORNIA TAX-FREE MONEY MARKET PERFORM FOR THE YEAR ENDED AUGUST 31,
2000?
The fund returned 3.11%, beating the 2.91% average return of the 52
"California Tax-Exempt Money Market Funds" tracked by Lipper Inc. The fund's
one-year return ranked in the top quarter of its Lipper category, and its
longer-term returns are similarly strong (see the previous page).
In addition, California Tax-Free Money Market's yield was consistently
higher than its Lipper category average throughout the fiscal year.
MUNICIPAL MONEY MARKET YIELDS WENT UP IN THE PAST YEAR (THE FUND'S 7-DAY CURRENT
YIELD ROSE FROM 2.54% TO 3.39%). WHY?
In general, short-term interest rates rose as the Federal Reserve raised
rates four times to slow the economy and fight inflation.
However, California municipal money market yields didn't increase as much
as you might expect given the four Fed rate hikes. Supply and demand factors,
which tend to have the biggest short-term impact on municipal money market
yields, kept California yields in check.
Demand picked up as the volatile stock market convinced many investors to
diversify into more conservative investments. Tax-free investing also appealed
to those who have been pushed into higher tax brackets by strong stock returns.
On the supply side, issuance has been lower than in years past because
municipalities are flush with cash-- the strong economy has boosted tax revenues
and reduced borrowing needs. For example, the state of California will not issue
any short-term revenue notes this year, the first time that's happened in about
20 years.
When there's increased demand for a declining number of money market
securities, yields tend to move lower.
GIVEN THIS ENVIRONMENT, HOW DID YOU KEEP THE FUND'S YIELD AHEAD OF THE PACK?
Relatively low expenses helped. California Tax-Free Money Market's annual
expense ratio is 0.49%, compared with the 0.61% average expense ratio of the
Lipper category.
We also took advantage of opportunities to boost the fund's yield. In the
first half of the fiscal year, we increased our holdings of commercial paper
when it was offering higher yields than were available on variable-rate notes,
which make up a majority of the portfolio.
In June--a month when many California municipalities typically issue
one-year notes--we bought a number of notes with very attractive yields. This
caused the fund's average maturity to extend from around 35 days in early March,
when it was a little shorter than the average California municipal money market
fund, to 70 days by the end of June. We maintained this longer average maturity
through the end of August.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/00 2/29/00
A-1+ 84% 82%
A-1 11% 12%
A-2 5% 6%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 23
for more information.
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF AUGUST 31, 2000
VARIABLE-RATE NOTES 59%
MUNICIPAL NOTES 15%
COMMERCIAL PAPER 10%
PUT BONDS 9%
BONDS <1 YEAR 7%
AS OF FEBRUARY 29, 2000
VARIABLE-RATE NOTES 68%
BONDS <1 YEAR 10%
MUNICIPAL NOTES 8%
PUT BONDS 8%
COMMERCIAL PAPER 6%
Investment terms are defined in the Glossary on pages 24-25.
www.americancentury.com 5
California Tax-Free Money Market--Schedule of Investments
--------------------------------------------------------------------------------
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES -- 100%
CALIFORNIA -- 98.4%
$ 7,000,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-10,
VRDN, 3.85%, 9/6/00 (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, 3.85%, 9/6/00 (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, 3.85%, 9/6/00 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 12/2/98, Cost
$5,000,000)(1) 5,000,000
5,000,000 ABN Amro Munitops Certificates
Trust Receipts, Series 2000-1,
3.85%, 9/6/00 (MBIA)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 5/24/00, Cost
$5,000,000)(1) 5,000,000
5,385,000 Adelanto Public Utility Auth. Rev.,
Series 2000 B, (Utility System),
VRDN, 3.65%, 9/7/00 (LOC:
California State Teacher's
Retirement) 5,385,000
5,895,000 Apple Valley COP, (Public Facilities
Financing), VRDN, 3.75%,
9/7/00 (LOC: California State
Teacher's Retirement) 5,895,000
2,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Bentley School), VRDN, 3.60%,
9/6/00 (LOC: Banque
Nationale de Paris S.A.) 2,000,000
10,200,000 Avalon Community Improvement
Agency Tax Allocation Rev.,
(Community Improvement Area),
VRDN, 4.00%, 9/7/00 (LOC:
Union Bank of California, N.A.) 10,200,000
480,000 California Educational Facilities
Auth. Rev., (Mount St. Marys
College), VRDN, 3.85%,
9/6/00 (LOC: Allied Irish
Banks PLC) 480,000
2,250,000 California Educational Facilities
Auth. Rev., (Point Loma
Nazarene University), VRDN,
3.55%, 9/7/00 (LOC: Allied
Irish Banks PLC) 2,250,000
3,500,000 California Educational Facilities
Auth. Rev., Series 1998 A,
(University Judaism), VRDN,
3.55%, 9/7/00 (LOC: Allied
Irish Banks, PLC) 3,500,000
Principal Amount Value
--------------------------------------------------------------------------------
$ 6,800,000 California Health Facilities Auth.
Rev., (Episcopal Home), VRDN,
4.15%, 9/1/00 (LOC: Union
Bank of California, N.A.) $ 6,800,000
10,130,000 California Health Facilities
Financing Auth. Rev., Series
1985 B, (Pooled Loan Program),
3.60%, 9/6/00 (FGIC) 10,130,000
4,800,000 California Health Facilities
Financing Auth. Rev., Series
1985 C, (Santa Barbara
Cottage), VRDN, 3.70%,
9/7/00 (LOC: Bank of
America N.A.) 4,800,000
8,500,000 California Health Facilities
Financing Auth. Rev., Series
1996 B, VRDN, 3.45%,
9/1/00 (AMBAC) (SBBPA:
ABN Amro Bank N.V.) 8,500,000
7,685,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1999 I, VRDN, 3.65%,
9/6/00 (MBIA) (SBBPA:
Westdeutsche Landesbank
Girozentrale) 7,685,000
8,700,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1999 P, VRDN, 3.65%,
9/6/00 (SBBPA: Commerzbank
AG & California State Teacher's
Retirement) 8,700,000
1,000,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA Inc.), VRDN, 3.80%,
11/15/00 (Guaranteed:
Chevron Corp.) 1,000,000
10,500,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA Inc.), VRDN, 4.15%,
5/15/01 (Guaranteed:
Chevron Corp.) 10,500,000
6,500,000 California Pollution Control
Financing Auth. Rev., Series
1986 B, (Southern California
Edison), VRDN, 3.60%, 9/1/00
(Guaranteed: Southern
California Edison Company) 6,500,000
8,100,000 California Pollution Control
Financing Auth. Rev., Series
1986 C, (Southern California
Edison), VRDN, 3.60%, 9/1/00
(Guaranteed: Southern
California Edison Company) 8,100,000
2,305,000 California Pollution Control
Financing Auth. Rev., Series
1986 D, (Southern California
Edison), VRDN, 3.60%, 9/1/00
(Guaranteed: Southern
California Edison Company) 2,305,000
2,100,000 California Pollution Control
Financing Auth. Rev., Series
1996 C, (Pacific Gas & Electric),
VRDN, 3.50%, 9/1/00 (LOC:
Bank of America N.A.) 2,100,000
6 1-800-345-2021 See Notes to Financial Statements
California Tax-Free Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 5,000,000 California Public Capital
Improvements Financing Auth.
Rev. Floating Rate Trust Receipts,
Series 1999 D, VRDN, 4.00%,
9/6/00 (MBIA) (SBBPA: Bank
of New York) $ 5,000,000
5,000,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, VRDN,
4.00%, 9/15/00 (LOC:
National Westminster Bank PLC) 5,000,000
36,790,000 California School Cash Reserve
Program Auth. Rev., Series
2000 A, 5.25%, 7/3/01
(AMBAC) 37,101,411
1,300,000 California School Facilities
Financing Corp. COP, Series
1998 A, (Capital Improvement
Financing Projects), VRDN,
3.75%, 9/6/00 (LOC:
Bayerische Vareinsbank A.G.) 1,300,000
13,500,000 California State GO, 5.00%,
10/1/00 13,515,303
13,375,000 California State GO, Series
2000 A-11, 4.05%, 9/6/00
(SBBPA: Bayerische
Hypovereinsbank AG)
(Acquired 3/8/00-7/3/00,
Cost $13,375,000)(1) 13,375,000
8,660,000 California Statewide Communities
Development Auth. Multifamily
Rev., VRDN, 4.60%, 9/8/00
(LOC: Merrill Lynch & Co., Inc.)
(Acquired 6/29/00,
Cost $8,660,000)(1) 8,660,000
7,600,000 California Statewide COP,
(Covenant Retirement
Community), VRDN, 3.75%,
9/7/00 (LOC: LaSalle National
Bank) 7,600,000
7,900,000 California Transportation Finance
Auth. Rev., VRDN, 3.60%,
9/6/00 (FSA) (SBBPA: Credit
Suisse First Boston) 7,900,000
3,000,000 Davis Special Tax Rev.,
(Community Facilities District
No. 1999-2), VRDN, 3.65%,
9/7/00 (LOC: Wells Fargo
Bank, N.A.) 3,000,000
2,500,000 Elsinore Valley Municipal Water
District COP, Series 2000 A,
VRDN, 3.50%, 9/6/00 (FGIC) 2,500,000
5,000,000 Encinitas Multifamily Housing Rev.,
Series 1993 A, (Torrey Pines),
3.60%, 9/7/00 (LOC: Bank of
America NT & SA) 5,000,000
2,990,000 Fillmore Public Financing Auth.
Tax Allocation Rev., Series
1998 B, (Central City
Redevelopment), VRDN, 3.75%,
9/7/00 (LOC: California State
Teacher's Retirement) 2,990,000
Principal Amount Value
--------------------------------------------------------------------------------
$ 4,300,000 Fremont Union High School
District Santa Clara County GO,
4.75%, 7/5/01 $ 4,319,439
3,315,000 Fresno Multifamily Housing Rev.,
Series 1996 A, (Heron Pointe
Apartments), 3.65%, 9/6/00
(LOC: Wells Fargo Bank N.A.) 3,315,000
2,555,000 Hanford Sewer Rev., Series
1996 A, VRDN, 4.00%,
9/7/00 (LOC: Union Bank of
California, N.A.) 2,555,000
4,100,000 Hemet Multifamily Housing Auth.
Rev., (West Acacia), VRDN,
3.58%, 9/7/00 (LOC: FHLB) 4,100,000
2,600,000 Kern County Superintendent of
Schools COP, Series 1996 A,
VRDN, 3.75%, 9/7/00 (LOC:
Anchor National Life Insurance
Company) 2,600,000
54,207,686 Koch Certificates Trust 1999-2
Rev., VRDN, 4.23%, 9/7/00
(AMBAC) (MBIA) (SBBPA:
State Street Bank & Trust Co.)
(Acquired 2/11/00-8/4/00,
Cost $54,207,685)(1) 54,207,686
3,505,000 Los Angeles COP, (Equipment &
Real Property Acquisition
Program AE), 4.00%, 12/1/00
(AMBAC) 3,506,783
5,810,000 Los Angeles County COP,
(Correctional Facilities), 6.50%,
9/1/00, Prerefunded at 102%
of Par (MBIA)(2) 5,928,171
5,750,000 Los Angeles County GO, Series
2000 A, 5.00%, 6/29/01 5,788,691
9,000,000 Los Angeles County Schools
Pooled Financing Program GO,
Series 2000 A, 5.00%, 7/2/01
(FSA) 9,052,465
2,800,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1992 A, VRDN, 3.50%,
9/6/00 (FGIC) (SBBPA:
Bayerische Landesbank
Girozentrale) 2,800,000
8,000,000 Los Angeles County Wastewater
System Rev., 3.90%, 10/2/00
(SBBPA: Toronto Dominion
Bank) 8,000,000
14,000,000 Los Angeles Department of
Water & Power Electric Plant Rev.,
Series 2000 A, VRDN, 3.60%,
9/7/00 (SBBPA: Toronto
Dominion Bank) 14,000,000
6,496,000 Los Angeles Multifamily Housing
Rev., Series 1985 C, (Studio
Colony), VRDN, 3.63%, 9/7/00
(LOC: Bank One Arizona, N.A.) 6,496,000
20,000,000 Los Angeles Multifamily Housing
Rev., Series 1985 K, VRDN,
3.50%, 9/5/00 (LOC: FHLB) 20,000,000
See Notes to Financial Statements www.americancentury.com 7
California Tax-Free Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 3,350,000 Los Angeles Municipal
Improvement Corp. Lease Rev.,
Series 1999 E, (Police
Emergency), 4.00%, 9/1/00
(AMBAC) $ 3,350,000
7,055,000 Los Angeles Unified School
District GO, Series 2000 D,
5.00%, 7/1/01 7,104,879
1,250,000 Los Angeles Wastewater System
Rev., Series 1990 A, 6.80%,
2/1/01 1,262,652
3,255,000 Maywood COP, (Infrastructure
Financing), VRDN, 3.80%,
9/7/00 (LOC: Allied Irish
Banks PLC) 3,255,000
2,635,000 Maywood Public Financing Auth.
Tax Allocation Rev., VRDN,
3.80%, 9/7/00 (LOC: Allied
Irish Banks, PLC) 2,635,000
4,600,000 Metropolitan Water District Rev.,
4.00%, 12/14/00 (LOC:
Westdeutsche Landesbank
Girozentrale) 4,600,000
2,000,000 Modesto Multifamily Housing
Rev., Series 1996 A,
(Shadowbrook), VRDN, 3.80%,
9/7/00 (LOC: Bank of America
N.A.) 2,000,000
2,025,000 Modesto Special Tax Rev.,
(Community Facilities District
No. 98-1), VRDN, 3.65%,
9/7/00 (LOC: Wells Fargo
Bank, N.A.) 2,025,000
10,000,000 Northern California Transmission
Rev., 3.90%, 9/11/00 10,000,000
1,500,000 Oakland Economic Development
Rev., Series 1997 A, (Allen
Temple Family Life), VRDN,
3.60%, 9/7/00 (LOC: Wells
Fargo Bank, N.A.) 1,500,000
14,500,000 Oakland Joint Powers Financing
Auth. Lease Rev.,
Series 1998 A-2, 3.60%,
9/7/00 (FSA) (SBBPA:
Commerzbank AG) 14,500,000
3,461,000 Orange County Apartment
Development Rev.,
Series 1985 B, (Niguel Summit),
VRDN, 3.70%, 9/7/00 (LOC:
Bank of America NT & SA) 3,461,000
10,000,000 Orange County Apartment
Development Rev.,
Series 1999 C, (Bluffs
Apartments), VRDN, 3.58%,
9/7/00 (FHLMC) 10,000,000
1,200,000 Orange County Sanitation Districts COP, Series
2000 B, VRDN, 3.60%, 9/1/00 (LOC:
Dexia Public Finance Bank SA) 1,200,000
1,500,000 Orange County Transportation
Sales Tax Rev., 5.50%,
2/15/01 (AMBAC) 1,508,719
Principal Amount Value
--------------------------------------------------------------------------------
$ 7,100,000 Peninsula Corridor Joint Powers
Board Anticipation Notes,
Series 2000 B, 4.80%, 6/7/01 $ 7,126,013
6,375,000 Peninsula Corridor Joint Powers
Board Anticipation Notes,
Series 2000 B, 4.40%, 7/25/01 6,385,939
5,000,000 Rancho Water District Financing
Auth. Rev., Series 1998 A,
VRDN, 3.50%, 9/6/00 (FGIC)
(SBBPA: General Electric
Capital Corp.) 5,000,000
2,500,000 Redwood City COP, (City Hall),
VRDN, 3.75%, 9/7/00 (LOC:
KBC Bank N.V.) 2,500,000
13,000,000 Rialto Public Financing Auth.
Tax Allocation Rev., Series
1998 A, (Agua Mansa &
Industrial), VRDN, 4.15%,
9/7/00 (LOC: Union Bank of
California, N.A.) 13,000,000
5,000,000 Riverside County COP, Series
1985 B, (Public Facilities),
VRDN, 3.50%, 9/5/00 (LOC:
Commerzebank AG & National
Westminster Bank PLC) 5,000,000
1,500,000 Riverside County Transportation
Commission Rev., Series
1991 A, 6.50%, 6/1/01,
Prerefunded at 102% of Par
(AMBAC)(2) 1,556,067
1,715,000 Rohnert Park Multifamily Housing
Rev., (Crossbrook Apartments),
VRDN, 3.50%, 9/6/00 (FNMA
Collateral Agreement) 1,715,000
6,600,000 Sacramento County Multifamily
Housing Rev., Series 1996 A,
VRDN, 3.60%, 9/6/00 (LOC:
California State Teacher's
Retirement) 6,600,000
25,500,000 San Bernardino County Housing
Auth. Multifamily Housing Rev.,
6.25%, 5/1/01 (LOC: Toronto
Dominion Bank) (Acquired
4/26/00, Cost $26,031,675)(1) 25,852,508
4,620,000 San Bernardino County Housing
Auth. Multifamily Housing Rev.,
Series 1993 A, (Montclair
Heritage), 4.00%, 9/7/00
(LOC: FHLB) 4,620,000
3,230,000 San Bernardino County Housing
Auth. Multifamily Housing Rev.,
Series 1992 A, (Arrowview Park
Apartments), VRDN, 3.58%,
9/7/00 (LOC: FHLB) 3,230,000
1,800,000 San Bernardino County Housing
Auth. Multifamily Housing Rev.,
Series 1993 A, (Monterey Villas
Apartments), VRDN, 3.58%,
9/7/00 (LOC: FHLB) 1,800,000
3,890,000 San Diego County COP,
(Information Technology
Systems), 5.00%, 6/1/01
(AMBAC) 3,912,592
8 1-800-345-2021 See Notes to Financial Statements
California Tax-Free Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 7,000,000 San Diego County Regional
Transportation Commission
Sales Tax Rev., 3.85%,
9/14/00 (LOC: Landesbank
Hessen-Thuringen Girozentrale) $ 7,000,000
2,000,000 San Diego Unified School
District GO, Series 1999 A,
4.25%, 9/29/00 2,000,913
5,500,000 San Francisco Bay Area Rapid
Transit Rev., 3.80%, 9/1/00
(LOC: Bayerische Landesbank
Girozentrale) 5,500,000
3,600,000 San Francisco Bay Area Rapid
Transit Rev., 4.05%, 9/7/00
(LOC: Bayerische Landesbank
Girozentrale) 3,600,000
4,000,000 San Francisco City and County
Public Utilities Commission
Water Rev., 4.00%, 10/13/00
(LOC: Bayerische Landesbank
Girozentrale) 4,000,000
4,000,000 San Francisco City and County
Public Utilities Commission
Water Rev., 3.90%, 10/23/00 4,000,000
5,000,000 San Francisco City and County
Redevelopment Agency
Multifamily Housing Rev., Series
1985 B, (Bayside Village),
VRDN, 3.65%, 9/7/00 (LOC:
Bank One Arizona, N.A.) 5,000,000
1,665,000 San Francisco City and County
Redevelopment Financing Auth.
Rev., (Yerba Buena Garden),
VRDN, 3.65%, 9/6/00 (LOC:
National Westminster Bank PLC) 1,665,000
6,100,000 San Joaquin County Transportation
Rev., 3.90%, 9/26/00 (LOC:
Westdeutsche Landesbank
Girozentrale) 6,100,000
2,945,000 San Jose Financing Auth. Rev.,
Series 1998 B, (Hayes Mansion
Improvement), VRDN,
3.75%, 9/6/00 (AMBAC) (SBBPA:
Bank of Nova Scotia) 2,945,000
2,425,000 Santa Ana Community
Redevelopment Agency Tax
Allocation Rev., Series 1990 C,
(Santa Ana South Harbor
Boulevard), 6.50%, 12/15/00,
Prerefunded at 102% of Par(2) 2,488,851
16,300,000 Santa Barbara County GO,
Series 1999 A, 4.25%,
9/29/00 16,300,000
11,000,000 Santa Clara Unified School
District GO, 4.25%, 9/29/00 11,000,000
Principal Amount Value
--------------------------------------------------------------------------------
$ 2,500,000 Santa Paula Public Financing
Auth. Lease Rev., (Water System
Acquisition), VRDN, 3.75%,
9/6/00 (LOC: California State
Teachers' Retirement) $ 2,500,000
1,400,000 Triunfo Sanitation District Rev.,
VRDN, 3.70%, 9/6/00 (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 3,030,002
1,000,000 Upland Community
Redevelopment Agency
Multifamily Housing Rev.,
Series 2000 A, (Northwoods
156), VRDN, 3.75%, 9/6/00
(FNMA) 1,000,000
1,000,000 Upland Community
Redevelopment Agency
Multifamily Housing Rev.,
Series 2000 A, (Northwoods
168), VRDN, 3.75%, 9/6/00
(FNMA) 1,000,000
2,745,000 Vallejo Unified School District
COP, Series 1999 E, (Capital
Improvement Financing), VRDN,
3.65%, 9/7/00 (LOC:
Bayerische Hypo-Und
Vereinsbank AG) 2,745,000
4,000,000 West Basin Municipal Water
District Rev. COP, Series
1999 B, VRDN, 3.75%,
9/6/00 (LOC: Bayerische
Hypo-Und Vereinsbank AG) 4,000,000
4,100,000 Westminster COP, Series 1998 A,
(Civic Center), VRDN, 3.75%,
9/7/00 (AMBAC)(SBBPA:
First Union National Bank) 4,100,000
1,900,000 Westminster Redevelopment
Agency Tax Allocation Rev.,
(Commercial Redevelopment
Project No. 1), VRDN, 3.75%,
9/7/00 (AMBAC) (SBBPA:
Landesbank Hessen-Thuringen
Girozentrale) 1,900,000
------------
637,328,084
------------
PUERTO RICO -- 1.6%
10,099,000 Puerto Rico Commonwealth GO,
4.00%, 11/14/00 10,099,000
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $647,427,084
============
See Notes to Financial Statements www.americancentury.com 9
California Tax-Free Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corporation
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 2000.
(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 restricted securities at August 31, 2000, was
$123,007,194 which represented 19.2% of net assets. None of these
securities are considered to be illiquid.
(2) Escrowed to maturity in U.S. government securities or state and local
government securities.
10 1-800-345-2021 See Notes to Financial Statements
California Municipal Money Market--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 2000
CALIFORNIA MUNICIPAL CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS(2)
MONEY MARKET AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 1.75% 1.60% --
1 YEAR 3.19% 2.91% 5 OUT OF 52
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 3.05% 2.77% 8 OUT OF 49
5 YEARS 3.10% 2.86% 6 OUT OF 44
LIFE OF FUND 3.10% 2.86% 6 OUT OF 33
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 23-24 for information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE
8/31/00 8/31/99
NUMBER OF SECURITIES 58 54
WEIGHTED AVERAGE
MATURITY 54 DAYS 58 DAYS
EXPENSE RATIO 0.49% 0.50%
YIELDS AS OF AUGUST 31, 2000
7-DAY CURRENT YIELD 3.46%
7-DAY EFFECTIVE YIELD 3.52%
7-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 5.30%
37.42% TAX BRACKET 5.53%
41.95% TAX BRACKET 5.96%
45.22% TAX BRACKET 6.31%
Investment terms are defined in the Glossary on pages 24-25.
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.
www.americancentury.com 11
California Municipal Money Market--Q&A
--------------------------------------------------------------------------------
An interview with Todd Pardula (pictured on page 5), a portfolio manager on
the California Tax-Free and Municipal funds investment team.
HOW DID CALIFORNIA MUNICIPAL MONEY MARKET PERFORM FOR THE YEAR ENDED AUGUST 31,
2000?
The fund returned 3.19%, beating the 2.91% average return of the 52
"California Tax-Exempt Money Market Funds" tracked by Lipper Inc. The fund's
one-year return ranked in the top five of its Lipper category, and its
longer-term returns are similarly strong (see the previous page).
In addition, California Municipal Money Market's yield was consistently
higher than its Lipper category average throughout the fiscal year.
MUNICIPAL MONEY MARKET YIELDS WENT UP IN THE PAST YEAR (THE FUND'S 7-DAY CURRENT
YIELD ROSE FROM 2.67% TO 3.46%). WHY?
In general, short-term interest rates rose as the Federal Reserve raised
rates four times to slow the economy and fight inflation.
However, California municipal money market yields didn't increase as much
as you might expect given the four Fed rate hikes. Supply and demand factors,
which tend to have the biggest short-term impact on municipal money market
yields, kept California yields in check.
Demand picked up as the volatile stock market convinced many investors to
diversify into more conservative investments. Tax-free investing also appealed
to those who have been pushed into higher tax brackets by strong stock returns.
On the supply side, issuance has been lower than in years past because
municipalities are flush with cash-- the strong economy has boosted tax revenues
and reduced borrowing needs. For example, the state of California will not issue
any short-term revenue notes this year, the first time that's happened in about
20 years.
When there's increased demand for a declining number of money market
securities, yields tend to move lower.
GIVEN THIS ENVIRONMENT, HOW DID YOU KEEP THE FUND'S YIELD AHEAD OF THE PACK?
Relatively low expenses helped. California Municipal Money Market's annual
expense ratio is 0.49%, compared with the 0.61% average expense ratio of the
Lipper category.
Another factor in our favor was the fund's significant exposure to AMT
paper (securities subject to the federal alternative minimum tax), which tends
to offer higher yields than other municipal money market securities.
Actually, though, the fund currently holds less AMT paper than it did six
months ago. We bought a number of non-AMT one-year notes with very attractive
yields in June, a month when many California municipalities typically issue
one-year notes.
This caused the fund's average maturity to extend from around 30 days in
early March, when it was a little shorter than the average California municipal
money market fund, to almost 70 days by the end of June. Although we allowed the
average maturity to roll down to about 55 days by the end of August, it was
still longer than the average California municipal money market fund.
[left margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/00 2/29/00
A-1+ 71% 76%
A-1 27% 18%
A-2 2% 6%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 23
for more information.
TYPES OF INVESTMENTS IN
THE PORTFOLIO
AS OF AUGUST 31, 2000
VARIABLE-RATE NOTES 71%
MUNICIPAL NOTES 13%
PUT BONDS 9%
COMMERCIAL PAPER 4%
BONDS <1 YEAR 3%
AS OF FEBRUARY 29, 2000
VARIABLE-RATE NOTES 73%
PUT BONDS 12%
BONDS <1 YEAR 9%
MUNICIPAL NOTES 4%
COMMERCIAL PAPER 2%
Investment terms are defined in the Glossary on pages 24-25.
12 1-800-345-2021
California Municipal Money Market--Schedule of Investments
--------------------------------------------------------------------------------
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 100.0%
$ 1,120,000 Alameda County Industrial
Development Auth. Rev., (Design
Workshops), VRDN, 4.10%,
9/7/00 (LOC: Wells Fargo
Bank, N.A.) $ 1,120,000
1,500,000 Alameda County Industrial
Development Auth. Rev., Series
1994 A, (Scientific Technology),
VRDN, 3.90%, 9/6/00 (LOC:
Banque Nationale de Paris S.A.) 1,500,000
2,000,000 Alameda County Industrial
Development Auth. Rev., Series
2000 A, (United Manufacturing
Project), VRDN, 3.85%, 9/6/00
(LOC: Wells Fargo Bank N.A.) 2,000,000
4,200,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations
Multifamily Rev., Series 2000 A,
(The GAIA Building Project),
VRDN, 3.70%, 9/7/00 (LOC:
FNMA) 4,200,000
3,200,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations
Multifamily Rev., Series 1997 A,
(Mountain View Apartments),
VRDN, 3.95%, 9/7/00 (LOC:
Comerica Bank, N.A.) 3,200,000
5,000,000 California Housing Finance
Agency Rev., Series 2000 C,
(Home Mortgage), VRDN,
3.70%, 9/6/00 (FSA) (LOC:
California State Teacher's
Retirement) (SBBPA:
Commerzbank A.G.) 5,000,000
2,555,000 California Housing Finance
Agency Rev., Series 2000 I,
(Home Mortgage), 4.05%,
6/1/01 (AIG Matched Funding
Corp.) 2,555,000
2,040,000 California Infrastructure &
Economic Industrial
Development Rev., (Cunico
Corp.), VRDN, 3.90%, 9/6/00
(LOC: Comerica Bank-CA) 2,040,000
1,000,000 California Infrastructure &
Economic Industrial
Development Rev., (Roller
Bearing Co. America), VRDN,
4.10%, 9/6/00 (LOC: First
Union National Bank) 1,000,000
2,747,050 California Infrastructure &
Economic Industrial
Development Rev., Series
1999 A, VRDN, 4.00%, 9/7/00
(LOC: Comerica Bank-CA) 2,747,050
2,475,000 California Infrastructure &
Economic Industrial
Development Rev., Series
1999 A, VRDN, 4.00%, 9/7/00
(LOC: Wells Fargo Bank, N.A.) 2,475,000
Principal Amount Value
--------------------------------------------------------------------------------
$ 1,000,000 California Infrastructure &
Economic Development Bank
Indl Dev Rev., Series 2000 A,
(Adams Rite Manufacturing Co.),
VRDN, 3.85%, 9/6/00 (LOC:
Mellon 1st Business Bank) $ 1,000,000
4,000,000 California Infrastructure &
Economic Development Bank
Empowerment Rev., Series
2000 A, (Gold Coast Baking
Co.), 3.95%, 9/6/00 (LOC:
Comerica Bank-CA) 4,000,000
3,000,000 California Infrastructure &
Economic Development Bank
Industrial Development Rev.,
Series 2000 A, (Bonny Doon
Winery Inc.), VRDN, 4.00%,
9/7/00 (LOC: Comerica
Bank-CA) 3,000,000
1,950,000 California Infrastructure &
Economic Development Bank
Industrial Development Rev.,
Series 2000 A, (Standard
Abrasive Manufacturing), VRDN,
3.85%, 9/6/00 (LOC: Mellon
1st Business Bank) 1,950,000
1,980,000 California Infrastructure &
Economic Development Bank
Industrial Development Rev.,
Series 2000 A, (West Star
Industries), VRDN, 3.85%,
9/6/00 (LOC: U.S. Bank N.A.) 1,980,000
10,000,000 California Pollution Control
Financing Auth. Solid Waste
Disposal Rev., Series 1994 A,
(Western Waste Industries),
VRDN, 3.95%, 9/7/00 (LOC:
BankBoston, N.A.) 10,000,000
2,300,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, VRDN,
4.00%, 9/15/00 (LOC:
National Westminster Bank
PLC) 2,300,000
10,000,000 California School Cash Reserve
Program Auth. Rev., Series
2000 A, 5.25%, 7/3/01
(AMBAC) 10,078,464
2,800,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Applied Aerospace), VRDN,
3.85%, 9/6/00 (LOC:
American National Bank and
Trust Company of Chicago) 2,800,000
2,000,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Provena Foods Inc.), VRDN,
3.90%, 9/6/00 (LOC:
Comerica Bank-CA) 2,000,000
See Notes to Financial Statements www.americancentury.com 13
California Municipal Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 2,340,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Scientific Specialties), VRDN,
3.85%, 9/6/00 (LOC: Bank of
America N.A.) $ 2,340,000
1,368,364 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Wesflex Pipe Manufacturing),
VRDN, 3.95%, 9/7/00 (LOC:
Wells Fargo Bank, N.A.) 1,368,364
4,500,000 California State GO, 5.00%,
10/1/00 4,505,101
1,500,000 California Statewide Communities
Industrial Development Corp.
Rev., (South Bay Circle), VRDN,
4.35%, 9/6/00 (LOC: California
State Teacher's Retirement) 1,500,000
1,290,000 California Statewide Communities
Industrial Development Corp.
Rev., (Tri H Foods), VRDN,
4.30%, 9/6/00 (LOC: Union
Bank of California, N.A.) 1,290,000
1,275,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1994 A, (DV
Industries), VRDN, 4.35%,
9/6/00 (LOC: California State
Teacher's Retirement) 1,275,000
1,700,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1994 B, (American
River), VRDN, 4.35%, 9/6/00
(LOC: California State Teacher's
Retirement) 1,700,000
795,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1994 B, (J. Michelle),
VRDN, 4.35%, 9/6/00 (LOC:
California State Teacher's
Retirement) 795,000
510,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1995 A, (Staub
Metals Corp.), VRDN, 4.35%,
9/6/00 (LOC: California State
Teacher's Retirement) 510,000
1,600,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1995 E, (Johanson),
VRDN, 4.35%, 9/6/00 (LOC:
California State Teacher's
Retirement) 1,600,000
2,520,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1998 B, (Lesaint
L.P.), VRDN, 4.35%, 9/6/00
(LOC: PNC Bank Ohio N.A.) 2,520,000
3,500,000 California Statewide Communities
Development Auth. Lease Rev.,
VRDN, 4.13%, 9/7/00 (LOC:
Merrill Lynch & Co., Inc.)
(Acquired 2/17/00, Cost
$3,500,000)(1) 3,500,000
Principal Amount Value
--------------------------------------------------------------------------------
$ 1,200,000 California Statewide Communities
Development Auth. Multifamily
Rev., Series 1997 G, (Sunrise
of Moraga), VRDN, 3.70%,
9/7/00 (LOC: Commerzbank
A.G.) $ 1,200,000
3,000,000 California Statewide Communities
Development Auth. Multifamily
Rev., VRDN, 4.60%, 9/8/00
(LOC: Merrill Lynch & Co., Inc.)
(Acquired 6/29/00, Cost
$3,000,000)(1) 3,000,000
2,250,000 Chula Vista Industrial Development
Rev., (San Diego Gas & Electric
Co.), VRDN, 3.90%, 9/1/00 2,250,000
2,250,000 Chula Vista Industrial Development
Rev., (San Diego Gas & Electric
Co.), VRDN, 3.90%, 9/11/00 2,250,000
6,000,000 Fremont Union High School
District Santa Clara County GO,
4.75%, 7/5/01 6,027,124
17,528,926 Koch Certificates Trust 1999-2
Rev., VRDN, 4.23%, 9/7/00
(AMBAC) (MBIA) (SBBPA:
State Street Bank & Trust Co.)
(Acquired 2/11/00-8/21/00,
Cost $17,528,926)(1) 17,528,926
3,000,000 La Verne Industrial Development
Auth. Rev., Series 1998 A,
VRDN, 4.00%, 9/7/00 (LOC:
Fleet Bank, N.A.) (Acquired
12/21/98, Cost $3,000,000)(1) 3,000,000
1,800,000 Lassen Municipal Utility District
Rev., Series 1996 A, VRDN,
4.10%, 9/7/00 (FSA) (SBBPA:
Credit Local de France) 1,800,000
3,000,000 Long Beach Harbor Rev., 4.00%,
9/13/00 (SBBPA: Canadian
Imperial Bank of Commerce &
California State Teacher's
Retirement) 3,000,000
4,000,000 Los Angeles County GO, Series
2000 A, 5.00%, 6/29/01 4,026,915
2,925,000 Los Angeles County Industrial
Development Auth. Rev., (Caitac
& Jae Co., Inc.), VRDN, 4.30%,
9/6/00 (LOC: Union Bank of
California, N.A.) 2,925,000
3,200,000 Ontario Redevelopment Agency
Industrial Development Rev.,
(Safariland), VRDN, 4.10%,
9/6/00 (LOC: California State
Teacher's Retirement) 3,200,000
5,300,000 Orange County Sanitation
Districts COP, Series 2000 B,
VRDN, 3.60%, 9/1/00 (LOC:
Dexia Public Finance Bank SA) 5,300,000
2,400,000 Pinole Redevelopment Agency
Rev., Series 1998 A, (East
Bluff Apartments), VRDN,
3.95%, 9/7/00 (LOC:
Comerica Bank-CA) 2,400,000
14 1-800-345-2021 See Notes to Financial Statements
California Municipal Money Market--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 2,565,000 Pleasant Hill Redevelopment
Agency Multifamily Housing
Rev., Series 1996 A,
(Chateau III), VRDN, 3.70%,
9/7/00 (LOC: Commerzbank
A.G.) $ 2,565,000
2,000,000 Sacramento County GO, Series
1999 A-21, VRDN, 4.50%,
9/6/00 (SBBPA: Bank of New
York) (Acquired 8/30/00,
Cost $2,000,000)(1) 2,000,000
6,000,000 Sacramento County Housing Auth.
Rev., Issue 1992 A,
(Shadowood Apartments),
VRDN, 3.70%, 9/6/00 (LOC:
General Electric Capital Corp.) 6,000,000
2,500,000 Sacramento County Special
Facilities Airport Rev., (Cessna
Aircraft Co.), VRDN, 3.85%,
9/7/00 (LOC: Bank of America
N.A.) 2,500,000
7,500,000 San Bernardino County Housing
Auth. Multifamily Housing Rev.,
6.25%, 5/1/01 (LOC: Toronto
Dominion Bank) (Acquired
4/26/00, Cost $7,603,679)(1) 7,603,679
1,585,000 San Bernardino County Industrial
Development Auth. Rev., (Master
Halco Inc.), VRDN, 4.10%,
9/5/00 (LOC: California State
Teacher's Retirement) 1,585,000
1,090,000 San Bernardino County Industrial
Development Auth. Rev., VRDN,
4.35%, 9/6/00 (LOC: California
State Teacher's Retirement) 1,090,000
3,000,000 San Jose Multifamily Housing Rev.,
Series 1998 A, (Carlton Plaza),
VRDN, 3.81%, 9/7/00 (LOC:
Commerzbank A.G.) 3,000,000
3,500,000 Santa Barbara County GO,
Series 1999 A, 4.25%,
9/29/00 3,500,000
Principal Amount Value
--------------------------------------------------------------------------------
$ 4,700,000 Santa Cruz County Multifamily
Housing Auth. Rev., Series
1992 A, (Paloma Del Mar
Apartments), VRDN, 3.85%,
9/6/00 (LOC: Wells Fargo
Bank, N.A.) $ 4,700,000
1,445,000 South Orange County Public
Financing Auth. Special Tax
Rev., Series 1998 B, (Jr. Lien),
4.50%, 9/1/00 (AMBAC) 1,445,001
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $183,745,624
============
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 2000.
(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 restricted securities at August 31, 2000, was $36,632,605
which represented 20.5% of net assets. None of these securities are
considered to be illiquid.
See Notes to Financial Statements www.americancentury.com 15
Statement 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 payables) 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, 2000 MONEY MARKET MONEY MARKET
ASSETS
Investment securities, at value
(amortized cost and cost for
federal income tax purposes) ........... $ 647,427,084 $ 183,745,624
Interest receivable ...................... 4,378,364 1,099,367
------------- -------------
651,805,448 184,844,991
------------- -------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................. 11,041,240 6,237,543
Accrued management fees (Note 2) ......... 275,677 74,725
Dividends payable ........................ 11,165 3,957
Payable for trustees'
fees and expenses ...................... 1,240 336
------------- -------------
11,329,322 6,316,561
------------- -------------
Net Assets ............................... $ 640,476,126 $ 178,528,430
============= =============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................. 640,479,131 178,564,963
============= =============
Net Asset Value Per Share ................ $ 1.00 $ 1.00
============= =============
NET ASSETS CONSIST OF:
Capital paid in .......................... $ 640,479,131 $ 178,564,963
Undistributed net investment income ...... 275,802 122,436
Accumulated net realized loss
on investment transactions ............. (278,807) (158,969)
------------- -------------
$ 640,476,126 $ 178,528,430
============= =============
16 1-800-345-2021 See Notes to Financial Statements
Statement 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 interest income, fees and expenses,
and investment gains or losses.
TAX-FREE MUNICIPAL
YEAR ENDED AUGUST 31, 2000 MONEY MARKET MONEY MARKET
INVESTMENT INCOME
Income:
Interest ................................... $21,312,931 $ 7,048,106
----------- -----------
Expenses (Note 2):
Management fees ............................ 2,936,540 956,050
Trustees' fees and expenses ................ 19,676 6,346
----------- -----------
2,956,216 962,396
----------- -----------
Net investment income ...................... 18,356,715 6,085,710
----------- -----------
REALIZED GAIN ON INVESTMENTS
Net realized gain on investments ........... 32,827 92
----------- -----------
Net Increase in Net Assets
Resulting from Operations ................ $18,389,542 $ 6,085,802
=========== ===========
See Notes to Financial Statements www.americancentury.com 17
Statement 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, 2000 AND AUGUST 31, 1999
TAX-FREE MONEY MARKET MUNICIPAL MONEY MARKET
Increase (Decrease) in Net Assets 2000 1999 2000 1999
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income ..........$ 18,356,715 $ 13,227,530 $ 6,085,710 $ 4,834,349
Net realized gain (loss)
on investments ............... 32,827 (12,545) 92 214
------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations .... 18,389,542 13,214,985 6,085,802 4,834,563
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ..... (18,381,329) (13,226,200) (6,085,710) (4,834,349)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ...... 826,843,685 701,786,020 191,753,071 171,530,835
Proceeds from reinvestment
of distributions ............. 13,551,919 11,318,419 5,413,729 4,559,301
Payments for shares redeemed ... (758,102,192) (610,912,283) (198,623,041) (168,697,393)
------------- ------------- ------------- -------------
Net increase (decrease) in
net assets from
capital share transactions ... 82,293,412 102,192,156 (1,456,241) 7,392,743
------------- ------------- ------------- -------------
Net increase (decrease)
in net assets ................ 82,301,625 102,180,941 (1,456,149) 7,392,957
NET ASSETS
Beginning of period ............ 558,174,501 455,993,560 179,984,579 172,591,622
------------- ------------- ------------- -------------
End of period ..................$ 640,476,126 $ 558,174,501 $ 178,528,430 $ 179,984,579
============= ============= ============= =============
Undistributed net
investment income ............$ 275,802 $ 300,416 $ 122,436 $ 122,436
============= ============= ============= =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ........................... 826,843,685 701,786,020 191,753,071 171,530,835
Issued in reinvestment
of distributions ............. 13,551,919 11,318,419 5,413,729 4,559,301
Redeemed ....................... (758,102,192) (610,912,283) (198,623,041) (168,697,393)
------------- ------------- ------------- -------------
Net increase (decrease) ........ 82,293,412 102,192,156 (1,456,241) 7,392,743
============= ============= ============= =============
</TABLE>
18 1-800-345-2021 See Notes to Financial Statements
Notes to Financial Statements
--------------------------------------------------------------------------------
AUGUST 31, 2000
--------------------------------------------------------------------------------
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
policies 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, 2000, 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, 2000, accumulated net realized capital loss carryovers for
Tax-Free Money Market of $278,807 (expiring in 2004 through 2008) and for
Municipal Money Market of $158,356 (expiring in 2003 through 2006) may be used
to offset future taxable gains.
Municipal Money Market has elected to treat $609 of net capital losses
incurred in the ten month period ended August 31, 2000 as having been incurred
in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. 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, 2000,
the effective annual management fee for both funds was 0.49%.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the trust.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
www.americancentury.com 19
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 investment 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
2000 1999 1998 1997 1996
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) ............... 3.11% 2.62% 3.12% 3.17% 3.12%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......... 0.49% 0.50% 0.50% 0.49% 0.49%
Ratio of Net Investment Income
to Average Net Assets ......... 3.07% 2.59% 3.07% 3.10% 3.12%
Net Assets, End of Period
(in thousands) ................ $ 640,476 $ 558,175 $ 455,994 $ 417,784 $ 425,846
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
20 1-800-345-2021 See Notes to Financial Statements
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 investment 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
2000 1999 1998 1997 1996
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) ............... 3.19% 2.76% 3.20% 3.15% 3.23%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ......... 0.49% 0.50% 0.50% 0.52% 0.53%
Ratio of Net Investment Income
to Average Net Assets ......... 3.13% 2.73% 3.16% 3.10% 3.20%
Net Assets, End of Period
(in thousands) ................ $ 178,528 $ 179,985 $ 172,592 $ 170,477 $ 196,520
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 21
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 (the "Funds") at
August 31, 2000, and the results of their operations for the year then ended,
the changes in net assets for the two years in the period then ended, and the
financial highlights for the three years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
The financial highlights for each of the two 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. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, 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, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Kansas City, Missouri
October 13, 2000
22 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 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.
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 funds in Lipper's CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS category
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.
A-1 (which includes A-1+) is Standard & Poor's highest credit rating for
short-term securities. Here are the most common short-term credit ratings and
their definitions:
* A-1+: extremely strong ability to meet financial obligations.
* A-1: strong ability to meet financial obligations.
* A-2: satisfactory ability to meet financial obligations.
It's important to note that credit ratings are subjective. They reflect the
opinions of the rating agencies that issue them and are not absolute standards
of quality.
[right margin]
INVESTMENT TEAM LEADERS
Portfolio Manager
TODD PARDULA
MUNICIPAL CREDIT RESEARCH TEAM
Manager
STEVEN PERMUT
Municipal Credit Analysts
DAVID MOORE
BILL MCCLINTOCK
TIM BENHAM
BRAD BODE
www.americancentury.com 23
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 total returns, please refer to the "Financial
Highlights" on pages 20-21.
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 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 -- municipal 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.
24 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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 25
Notes
--------------------------------------------------------------------------------
26 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 27
Notes
--------------------------------------------------------------------------------
28 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities Technology International Discovery
Giftrust(reg.tm) Life Sciences International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text 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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0010 American Century Investment Services, Inc.
SH-ANN-22406 (c)2000 American Century Services Corporation
<PAGE>
August 31, 2000
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
California High-Yield Municipal
California Insured Tax-Free
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Get Investment Insight with Fund Advisor*
--------------------------------------------------------------------------------
They say hindsight is 20/20. But what about insight? That's what you really
want when choosing mutual funds. Now you can get the insight you need with Fund
Advisor, an online tool that helps you select the right no-load funds for
you--on a goal by goal basis. Fund Advisor helps you:
Get organized.
Compile all your investments, review their performance and see if you're on
track to meet your personal financial goals.
Get direction.
Receive recommendations based on funds available through your current fund
family or financial service provider -- not just American Century funds.
Gain confidence.
Whether you want to analyze your current investments, or find new ones, Fund
Advisor can help you feel confident with the decisions you make.
How does it work?
Just tell Fund Advisor about your investing style, your current investments
and your goals. It will analyze your investments and offer impartial
recommendations to help you get on track.
To review Fund Advisor's unique perspective, go to www.americancentury.com
and select Fund Advisor at the top of the page. For the initial set-up, you
might want to have available:
* Your latest tax return
* Your most recent investment account statements
* Printouts from any software you use to track your personal finances
To learn more about this new tool and how it can help you better manage your
financial future, select the "Demo" from the Fund Advisor introduction page.
* Patent pending. It was developed for Acumation, Inc., a registered investment
advisor and wholly owned subsidiary of American Century.
American Century does not receive sales commissions or direct compensation for
recommending any fund, although it may receive management, service or other fees
from funds recommended through Fund Advisor. These agreements are described in
Acumation, Inc.'s Form ADV Part II.
[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.
Receive Your Annual Reports Online
--------------------------------------------------------------------------------
Now you can receive documents such as annual reports, prospectuses, and
newsletters online rather than regular mail. Your link to American Century
documents is a click away with the Electronic Communication option.
* Receive links to documents by email
* Download select documents and file electronically to save space in your
file cabinets
* Read documents at your convenience
To sign up for this option, visit www.americancentury.com and log in with
your secure OnePIN. Then simply select an account on your account list and
choose the Electronic Communication link. Questions? Call 1-800-345-2021. LOG IN
AND TAKE CONTROL TODAY!
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
We're proud to report that our California High-Yield Municipal and
California Insured Tax-Free funds provided better-than-average returns during
the fiscal year ended August 31, 2000 (see pages 5 and 13). Municipal bonds
performed relatively well thanks to increased demand from an unlikely
source--California's newly minted dot-com millionaires, who sought to preserve
some of their newfound wealth in tax-free investments. The investment
professionals on our California municipal team review fund performance and the
12 months in more detail beginning on page 3.
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., which became a substantial minority
shareholder in American Century Companies, Inc. in 1998. If the transaction is
completed as expected, J.P. Morgan Chase, the new enterprise, will own the
shares of American Century currently held by Morgan. Corporate control of
American Century is not affected by this transaction. We will be exploring ways
to partner with J.P. Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we chose to divide the chairman of
the board position between the two of us and named American Century President
William M. Lyons chief executive officer, giving him ultimate management
responsibility for the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue other worthwhile endeavors. For example, Jim Stowers III will focus more
on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, he'll continue to serve on the investment teams for the
Ultra and Veedot funds.
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 Co-Chairman of the Board
[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 ................................................ 13
Management Q&A ......................................................... 14
Yields ................................................................. 14
Portfolio at a Glance .................................................. 14
Top Five Sectors ....................................................... 15
Schedule of Investments ................................................ 16
FINANCIAL STATEMENTS
Statement of Assets and
Liabilities ......................................................... 19
Statement of Operations ................................................ 20
Statement of Changes
in Net Assets ....................................................... 21
Notes to Financial
Statements .......................................................... 22
Financial Highlights ................................................... 24
Report of Independent
Accountants ......................................................... 26
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ..................................................... 27
Comparative Indices ................................................. 27
Lipper Rankings ..................................................... 27
Investment Team
Leaders .......................................................... 27
Credit Rating
Guidelines ....................................................... 27
Glossary ............................................................... 28
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The fiscal year ended August 31, 2000, saw California municipal bonds
produce solid returns.
* The year was a tale of two halves--interest rates rose in late 1999 and
early 2000, limiting performance. But interest rates reversed course in
recent months, leading to much better returns.
* Supply and demand factors worked in favor of California bonds. A healthy
state economy meant municipalities had less need to borrow, while California
investors found themselves wealthier and in need of the tax advantages
offered by municipal bonds.
CREDIT REVIEW
* Strong and sustained economic growth helped improve California's financial
health and the fiscal well-being of its municipalities.
* Municipal credit rating agencies rewarded the state and certain of its
agencies with a credit rating upgrade as a result of improved financial
conditions.
* The state's robust economy meant its tax- and revenue-backed bonds performed
well.
* About the only sector that lagged was health care. Declining receipts and
increased costs squeezed health facilities.
CALIFORNIA HIGH-YIELD MUNICIPAL
* Below-average expenses and an above-average yield helped this fund
outperform the median return of its Lipper peer group (see page 5).
* Valuable input from our credit research team steered the fund away from
bonds that experienced downgrades, and supported the decision to underweight
health care bonds, a troubled sector.
* Swapping out of lower-coupon bonds and adding insured bonds also boosted
fund performance.
* A resilient state economy and favorable supply and demand fundamentals
should provide support for California high-yield bonds through the end of
the year.
CALIFORNIA INSURED TAX-FREE
* The portfolio performed well, producing better returns and more state and
federal tax-free income than the average of the funds in its Lipper group
(see page 13).
* The two biggest reasons for our outperformance were our below-average
expenses and the way we structured the coupons of the bonds in the
portfolio.
* Municipal bond insurers remained in outstanding financial condition, which
was key to maintaining the high credit quality of the fund.
* We're generally positive on municipal bonds going forward. We think the
Federal Reserve has successfully slowed the economy and kept inflation in
check.
[left margin]
CALIFORNIA HIGH-YIELD MUNICIPAL
(BCHYX)
TOTAL RETURNS: AS OF 8/31/00
6 Months 8.76%*
1 Year 6.70%
30-DAY SEC YIELD: 5.26%
INCEPTION DATE: 12/30/86
NET ASSETS: $318.2 million
CALIFORNIA INSURED TAX-FREE
(BCINX)
TOTAL RETURNS: AS OF 8/31/00
6 Months 8.00%*
1 Year 7.90%
30-DAY SEC YIELD: 4.50%
INCEPTION DATE: 12/30/86
NET ASSETS: $198.7 million
* Not annualized.
See Total Returns on pages 5 and 13.
Investment terms are defined in the Glossary on pages 28-29.
2 1-800-345-2021
Market Perspective from Randall W. Merk
--------------------------------------------------------------------------------
[photo of Randall W. Merk]
Randall W. Merk, chief investment officer of fixed income at American Century
MUNICIPAL BONDS REBOUND
After suffering disappointing returns during the last four months of 1999
and the first month of 2000, municipal bonds rallied, particularly from mid-May
through the end of August 2000. As a result, California municipal bond returns
finished near long-term historical averages in the fiscal year ended August 31,
2000.
The fiscal year for our California municipal funds began during a period
when the markets were concerned with strong economic growth and the possibility
of higher inflation. The Federal Reserve raised short-term interest rates in
November for the third time in five months to rein in the economy.
Even though the Fed continued to raise rates through May 2000, municipal
bond prices began rising in May in anticipation that the Fed might end its
rate-raising campaign. Some economic reports indicated that pockets of the
economy were beginning to slow and inflationary pressures were fading.
LESS SUPPLY, MORE DEMAND
The municipal market's rebound was aided by favorable supply and demand. On
the supply side, refinancing of old debt was subdued as interest rates rose,
diminishing the financial rewards for refinancing. Furthermore, many issuers had
already reached the legal limit on the number of times they were allowed to
refinance. Finally, the strong economy bolstered the financial stability of many
municipal issuers, reducing their borrowing needs.
On the demand side, stock market volatility prompted many newly affluent
individuals in high tax brackets to rebalance their portfolios and buy municipal
bonds. The highest tax-equivalent yields in years also attracted investors. For
an investor in the highest combined federal and California tax bracket, a
30-year AAA-rated California municipal bond offered a tax-equivalent yield of
over 10% last spring.
HIGH-YIELD BONDS LAG
Lower-rated and non-rated bonds, which make up the high-yield sector,
lagged investment-grade municipal bonds (those rated BBB or higher). High-yield
bonds, which suffered from heavy tax-loss selling in late 1999 and early 2000,
rallied with the rest of the municipal market during the second and third
quarters of 2000, but continued to lag investment-grade bonds. That's because
high-yield bonds are less sensitive to interest rate changes (their durations
are lower) due to their higher interest coupons. As a result, high-yield bond
prices typically decline less than those of investment-grade bonds when rates
rise but gain less when rates fall, as they did at the end of the period.
[right margin]
"THE MUNICIPAL MARKET'S REBOUND WAS AIDED BY FAVORABLE SUPPLY AND DEMAND."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED AUGUST 31, 2000
LEHMAN THREE-YEAR
MUNICIPAL INDEX 4.72%
LEHMAN FIVE-YEAR GENERAL
OBLIGATION INDEX 5.33%
LEHMAN LONG-TERM
MUNICIPAL INDEX 7.34%
Source: Lipper Inc., Russell/Mellon Analytical
[line graph - data below]
"TWISTING" MUNICIPAL YIELD CURVE
YEARS TO
MATURITY 8/31/00 2/28/00 8/31/99
1 4.28% 4.19% 3.59%
2 4.35% 4.55% 3.94%
3 4.39% 4.73% 4.15%
4 4.43% 4.85% 4.27%
5 4.47% 4.94% 4.39%
6 4.52% 5.00% 4.49%
7 4.56% 5.06% 4.59%
8 4.62% 5.11% 4.69%
9 4.68% 5.16% 4.79%
10 4.74% 5.21% 4.89%
11 4.82% 5.27% 4.97%
12 4.90% 5.34% 5.05%
13 4.98% 5.40% 5.13%
14 5.07% 5.46% 5.20%
15 5.15% 5.53% 5.27%
16 5.20% 5.59% 5.31%
17 5.25% 5.64% 5.35%
18 5.30% 5.70% 5.39%
19 5.35% 5.75% 5.43%
20 5.40% 5.81% 5.47%
21 5.41% 5.82% 5.47%
22 5.42% 5.83% 5.48%
23 5.43% 5.84% 5.48%
24 5.44% 5.85% 5.49%
25 5.44% 5.85% 5.50%
26 5.45% 5.85% 5.50%
27 5.45% 5.86% 5.51%
28 5.46% 5.86% 5.51%
29 5.46% 5.87% 5.52%
30 5.47% 5.87% 5.52%
Source: Bloomberg Financial Markets
www.americancentury.com 3
California Municipal Credit Review
--------------------------------------------------------------------------------
An expanding economy bolstered California's municipal credit strength
during the year ended August 31, 2000. The state continued to outpace the nation
as whole in terms of personal income gains, employment growth, and overall
economic activity.
SECTOR ANALYSIS
Tax-backed bonds were among the primary beneficiaries of California's
ongoing economic strength. Brisk consumer spending lifted sales taxes, while
robust real estate activity boosted property tax collections. Income tax
collections also rose substantially as income levels climbed and key employment
measures grew faster than the national average. Furthermore, the state enjoyed
dramatic revenue growth from increased capital gains tax collections.
Credit trends were also favorable among bonds backed by revenue from
specific municipal projects or entities. The healthy economy helped maintain
strong revenue trends for the water and sewer, transportation, and housing
sectors. Even public power companies enjoyed better conditions. Higher rates and
increased customer usage offset the pressures of increased competition for
utilities.
About the only weak sector was health care. Reduced federal spending on
Medicare and other programs mandated by the Balanced Budget Act of 1997
continued to affect the revenues of health care facilities. The strict vigilance
of cost-conscious health insurers (particularly HMOs), combined with higher drug
and wage expenses, also squeezed the earnings of health facilities.
Worse-than-expected operating results caused several downgrades of health care
entities.
CALIFORNIA IS UPGRADED
In recognition of California's robust economy and its "increased fiscal
conservatism," two major municipal bond rating agencies recently upgraded the
credit rating of the state and some of its issuing agencies. California also was
applauded for increasing its cash and budget reserves to record levels and for
matching expenditures with cash inflows. With the new, higher credit rating, the
state's borrowing costs should be reduced, further boosting California's fiscal
health.
THE INTERNET AND SALES TAXES
The rise of Internet sales--which are not taxed by municipal issuers--has
raised questions about lost tax receipts and their impact on municipal bond
credit quality. While we are watching developments closely--including recent
efforts by legislators to levy Internet sales taxes--our view is that even if
e-commerce spending increases 10-fold over the next few years, it will represent
only about 10% of total retail transactions. At that level, we don't believe
e-commerce represents a major threat to the tax bases of most states and
municipalities, including California.
[left margin]
"TWO MAJOR MUNICIPAL BOND RATING AGENCIES UPGRADED CALIFORNIA'S CREDIT RATING."
CALIFORNIA'S IMPROVING FINANCIAL HEALTH
(FISCAL YEAR GENERAL FUND BALANCE, IN $ MILLIONS)
1994 $(1,633)
1995 $(2,556)
1996 $(1,110)
1997 $(1,330)
1998 $ 931
1999 $ 1,608
2000 $ 5,677
Source: State of California, Office of the State Controller
4 1-800-345-2021
California High-Yield Municipal--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 2000
CALIFORNIA
HIGH-YIELD LEHMAN LONG-TERM CALIFORNIA MUNICIPAL DEBT FUNDS(2)
MUNICIPAL MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 8.76% 9.56% 8.00% --
1 YEAR 6.70% 7.34% 6.47% 61 OUT OF 109
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 5.37% 5.09% 4.35% 6 OUT OF 98
5 YEARS 6.92% 6.65% 5.54% 1 OUT OF 85
10 YEARS 7.56% 8.05% 6.83% 3 OUT OF 40
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 27-28 for information about returns, the comparative index, and Lipper
fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 8/31/00
California High-Yield Municipal $20,729
Lehman Long-Term Municipal Index $21,688
California Lehman Long-Term
High-Yield Municipal Municipal Index
DATE VALUE VALUE
8/31/1990 $10,000 $10,000
8/31/1991 $11,074 $11,347
8/31/1992 $12,194 $12,776
8/31/1993 $13,731 $14,661
8/31/1994 $13,851 $14,361
8/31/1995 $14,833 $15,715
8/31/1996 $16,022 $16,796
8/31/1997 $17,722 $18,684
8/31/1998 $19,379 $20,648
8/31/1999 $19,430 $20,205
8/31/2000 $20,729 $21,688
$10,000 investment made 8/31/90
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 Lehman Long-Term
High-Yield Municipal Municipal Index
DATE RETURN RETURN
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%
8/31/2000 6.70% 7.34%
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
High-Yield Municipal fund investment team.
HOW DID CALIFORNIA HIGH-YIELD MUNICIPAL PERFORM DURING THE YEAR ENDED AUGUST 31,
2000?
The fund continued to outpace its peers, returning 6.70% compared with the
6.47% average total return of the 109 "California Municipal Debt Funds" tracked
by Lipper Inc.
The fund's below-average expenses and higher yield aided this
outperformance. For the year ended August 31, 2000, the fund's expense ratio was
0.54%, compared with the 1.07% average for its Lipper group. All else being
equal, lower expenses mean higher yields and returns. The fund's 30-day SEC
yield as of August 31, 2000, was 5.26%, compared with the 4.34% average yield of
the Lipper peer group.
WHAT OTHER FACTORS HELPED THE FUND OUTPACE ITS PEER GROUP AVERAGE DURING THE
PAST 12 MONTHS?
While the past year generally produced stable or improving credit
conditions for most municipal issuers, it also had its share of defaults and
downgrades. However, our credit team's extensive research and comprehensive
surveillance successfully steered us away from bonds that experienced downgrades
and devaluation.
The team's analysis also prompted us to underweight health care bonds,
which performed poorly. Health care facilities continued to face a host of
challenges that have become all too familiar. Among those hurdles were
reimbursement cutbacks, intensifying competition, and financial shortfalls for
some high-profile hospitals across the nation. The punishment was fairly
indiscriminate--even bonds issued by well-managed, financially-sound health care
organizations declined in value.
In choosing health care bonds for the fund, we emphasized providers that
are less dependent on federal payments, are led by strong management teams, and
have a proven track record of good financial results. We also look for providers
located in service areas with little or no competition.
WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE YEAR?
We continued to swap bonds issued when interest rates and bond coupons were
lower for comparable bonds with coupons at current interest rates. For example,
we sold some bonds with coupons in the 5% range and replaced them with bonds in
the 6% to 7% range.
One area that presented us with attractive opportunities to make these
exchanges was land-secured bonds, which typically are used to finance real
estate development. Demand for housing across California remained strong and, in
some pockets, dramatically outstripped available supply.
[left margin]
"OUR CREDIT TEAM'S EXTENSIVE RESEARCH AND COMPREHENSIVE SURVEILLANCE
SUCCESSFULLY STEERED US AWAY FROM BONDS THAT EXPERIENCED DOWNGRADES."
YIELDS AS OF AUGUST 31, 2000
30-DAY SEC YIELD 5.26%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 8.06%
37.42% TAX BRACKET 8.40%
41.95% TAX BRACKET 9.05%
45.22% TAX BRACKET 9.60%
PORTFOLIO AT A GLANCE
8/31/00 8/31/99
NUMBER OF SECURITIES 145 155
WEIGHTED AVERAGE
MATURITY 19.6 YRS 19.3 YRS
AVERAGE DURATION 8.1 YRS 7.7 YRS
EXPENSE RATIO 0.54% 0.54%
Investment terms are defined in the Glossary on pages 28-29.
6 1-800-345-2021
California High-Yield Municipal--Q&A
--------------------------------------------------------------------------------
(Continued)
INTERESTINGLY, YOU ALSO ADDED AAA INSURED BONDS. WHAT ROLE DID THEY PLAY?
At the end of August 2000, about 22% of the fund was invested in insured
bonds. Insured bonds (bonds that are insured as to timely payment of interest
and repayment of principal) served two important functions for us.
First, with municipal yields falling since mid-May, we wanted more interest
rate sensitivity. Insured bonds are much more sensitive to interest rate changes
than non-rated bonds. Our expanded insured holdings helped the fund participate
more fully in the recent municipal bond market rally.
Second, insured bonds tend to be more liquid, or easily traded, than
non-rated bonds. The insureds provided us with more flexibility to buy and sell
as we saw market opportunities arise.
SO YOU ADDED INSURED BONDS INSTEAD OF CHANGING THE FUND'S DURATION (A MEASURE OF
INTEREST RATE SENSITIVITY) SIGNIFICANTLY?
That's basically correct. We tend to avoid making large duration bets on
the direction of interest rates. In keeping with our investment approach, we
kept our duration within 10% of that of the fund's peer group.
WHAT'S YOUR OUTLOOK FOR THE CALIFORNIA HIGH-YIELD MUNICIPAL MARKET?
The supply/demand environment improved significantly during the summer, a
trend that we think is likely to continue through year end. Given the relatively
high interest rates issuers currently have to reckon with, even after the recent
rally, we think they will hold off on issuing a lot of new bonds.
At the same time, demand has begun to firm in response to recent volatility
among technology stocks. To the extent that the nervousness over stocks
continues and investors continue to seek out the high levels of tax-free income
that high-yield municipals currently offer, the California high-yield municipal
bond market could benefit. For an investor in the highest combined federal and
California tax bracket, a 30-year high-yield California municipal bond yielding
8% offers a tax-equivalent yield of almost 15%.
Another reason for optimism is that the underlying economic and financial
fundamentals of the bonds we hold remain strong. We think that trend will remain
in place unless the economy slows dramatically over the near term. Given the
demonstrated strength of the U.S. economy, we don't believe that's likely to
happen.
WITH THAT BACKDROP IN MIND, WHAT ARE YOUR PLANS FOR THE FUND?
We plan to keep California High-Yield Municipal's duration neutral, rather
than making a bet on the direction of interest rates. Instead, we'll focus
primarily on the strategy that has led to our long-term success--adding
long-term value through our security selection process and our ongoing credit
analysis, while at the same time providing very competitive levels of federal
and state tax-free income.
As always, our credit research team will thoroughly analyze our choices to
ensure that we pick bonds with a compelling balance of good long-term credit
fundamentals and appealing yields, and will continue to evaluate those
selections regularly to make sure their financial strength holds up.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/00 2/29/00
AAA 22% 18%
AA 8% 8%
A 8% 10%
BBB 4% 4%
UNRATED 58% 60%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 27
for more information.
TOP FIVE SECTORS (AS OF 8/31/00)
% OF FUND INVESTMENTS
LAND BASED 27%
COPS/LEASES 11%
HOUSING REVENUE 9%
PREREFUNDED/ETM 7%
TAX ALLOCATION REVENUE 7%
TOP FIVE SECTORS (AS OF 2/29/00)
% OF FUND INVESTMENTS
LAND BASED 33%
COPS/LEASES 9%
PREREFUNDED/ETM 9%
TAX ALLOCATION REVENUE 9%
HOUSING REVENUE 8%
Investment terms are defined in the Glossary on pages 28-29.
www.americancentury.com 7
California High-Yield Municipal--Schedule of Investments
--------------------------------------------------------------------------------
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 99.7%
$1,000,000 ABC Unified School District GO,
Series 2000 B, 6.14%, 8/1/21
(FGIC)(1) $ 318,530
2,000,000 Alameda Public Financing Auth.
Local Agency Rev., Series
1996 A, (Community Facility
District No. 1), 7.00%, 8/1/19 2,165,460
2,780,000 Alisal Unified School District,
Series 2000 A, 6.38%, 5/1/25
(FGIC)(1) 694,138
1,000,000 Anaheim Public Financing Auth.
Lease Rev., Series 1997 A,
(Public Improvements Project),
5.00%, 9/1/27 (FSA) 944,180
1,000,000 Anaheim Public Financing Auth.
Lease Rev., (Electric Systems
District Facilities), 5.00%,
10/1/23 (MBIA) 954,510
1,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Eskaton Gold River Lodge),
6.375%, 11/15/15 (Acquired
8/13/99, Cost $983,530)(2) 926,100
3,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Eskaton Gold River Lodge),
6.375%, 11/15/28 (Acquired
8/13/99, Cost $2,878,260)(2) 2,676,270
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) 2,856,750
1,000,000 Bellevue Unified School District
GO, 6.30%, 8/1/24 (FGIC)(1) 261,660
1,190,000 Berryessa Unified School District
GO, Series 2000 A, 6.18%,
8/1/21 (FSA)(1) 379,051
1,220,000 Berryessa Unified School District
GO, Series 2000 A, 6.05%,
8/1/22 (FSA)(1) 365,573
1,000,000 Berryessa Unified School District
GO, Series 2000 A, 6.06%,
8/1/23 (FSA)(1) 281,730
700,000 Bishop, Escalon & Lemoore Cities
COP, Series 1991 A, 7.70%,
5/1/11 717,248
1,000,000 Cabrillo Unified School District
GO, Series 1996 A, 5.95%,
8/1/17 (AMBAC)(1) 409,030
2,000,000 Cabrillo Unified School District
GO, Series 1996 A, 5.95%,
8/1/18 (AMBAC)(1) 766,520
3,700,000 Cabrillo Unified School District
GO, Series 1996 A, 6.00%,
8/1/21 (AMBAC)(1) 1,178,561
Principal Amount Value
--------------------------------------------------------------------------------
$1,815,000 Calaveras Unified School District
GO, 5.89%, 8/1/23 (FSA)(1) $ 507,928
1,880,000 Calaveras Unified School District
GO, 5.90%, 8/1/24 (FSA)(1) 496,527
1,950,000 Calaveras Unified School District
GO, 5.91%, 8/1/25 (FSA)(1) 484,770
2,330,000 California Educational Facilities
Auth. Rev., (Santa Clara
University), 5.25%, 9/1/26 2,302,320
1,000,000 California Educational Facilities
Auth. Rev., Series 1993 B,
(Pooled College & University
Financing), 6.125%, 6/1/09 1,051,620
3,495,000 California Educational Facilities
Auth. Rev., Series 2000 B,
(Pooled College & University),
6.75%, 6/1/30 3,694,355
4,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/12 (AMBAC)(1) 2,214,120
3,500,000 California Housing Finance
Agency Multi-Unit Rental
Housing Rev., Series 1992 C,
6.875%, 8/1/24 3,618,790
4,410,000 California Mobilehome Park
Financing Auth. Rev., Series
2000 B, (Union City Tropics),
7.30%, 8/15/35 4,349,451
400,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 A, (Pooled
Project), 8.50%, 3/1/18 405,148
2,000,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections),
5.25%, 6/1/15 (FSA) 2,082,360
7,000,000 California Public Works Board
Lease Rev., Series 1998 A,
(California Community
Colleges), 5.25%, 12/1/14 7,237,789
3,750,000 California Rural Home Mortgage
Financing Auth. Single Family
Mortgage Rev., Series 1999 A,
6.55%, 6/1/30 (GNMA/FNMA) 3,962,513
1,535,000 California State and Local
Government Financing Auth.
Rev., Series 1997 B, (Marin
Valley Mobile Country), 7.50%,
10/1/24 (Acquired 3/13/97,
Cost $1,535,000)(2) 1,588,940
3,665,000 California State GO, 6.75%,
9/1/09(1) 2,443,602
3,250,000 California Statewide Communities
Development Auth. Rev. COP,
(Sonoma County Indian Health),
6.40%, 9/1/29 (Acquired
7/20/99, Cost $3,207,035)(2) 2,955,355
2,850,000 California Statewide Communities
Development Auth. Rev. COP,
(St. Joseph Health System
Obligation Group), 5.25%,
7/1/11 2,970,384
8 1-800-345-2021 See Notes to Financial Statements
California High-Yield Municipal--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$2,000,000 California Statewide Communities
Development Auth. Rev. COP,
(Windward School), 6.90%,
9/1/23 $ 2,033,740
9,330,000 California Statewide Communities
Development Auth. Rev. COP,
Series 1999 A, (Windsor
Terrace Healthcare), 7.875%,
10/1/29 (Acquired 10/26/99,
Cost $9,330,000)(2) 9,429,923
1,000,000 California Statewide Communities
Development Auth. Rev. COP,
Series 1998 A, (Student
Residence), 5.00%, 6/1/20
(MBIA) 970,010
1,075,000 Cathedral City Public Financing
Auth. Rev., Series 2000 A,
6.00%, 8/1/23 (MBIA)(1) 302,183
1,075,000 Cathedral City Public Financing
Auth. Rev., Series 2000 A,
6.00%, 8/1/24 (MBIA)(1) 285,241
1,085,000 Cathedral City Public Financing
Auth. Rev., Series 2000 A,
6.05%, 8/1/25 (MBIA)(1) 271,044
1,085,000 Cathedral City Public Financing
Auth. Rev., Series 2000 A,
6.05%, 8/1/26 (MBIA)(1) 256,364
1,975,000 Center Unified School District
GO, Series 2000 C, 5.80%,
9/1/21 (MBIA)(1) 626,233
8,000,000 Chula Vista Special Tax Rev.,
(Community Facilities District
No. 99-1), 7.625%, 9/1/29 8,674,879
95,000 Clayton Improvement Bond Act
1915 Special Assessment,
(Oakhurst Assessment District),
8.00%, 9/2/14 98,875
25,000 Clayton Improvement Bond Act
1915 Special Assessment,
Series 1988 A, (Oakhurst
Assessment District), 8.40%,
9/2/10 26,117
4,415,000 Colton Public Financing Auth.
Rev., (Electric System), 7.50%,
10/1/03, Prerefunded at
101% of Par(3) 4,851,379
275,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev, Series 1992 A, 7.10%,
8/1/22 285,865
2,450,000 Contra Costa County Public
Financing Lease Rev., Series
1999 A, (Various Capital
Facilities), 5.00%, 6/1/28
(MBIA) 2,304,666
650,000 Corcoran COP, 8.75%, 6/1/16
(Acquired 4/28/92, Cost
$650,000)(2) 748,839
2,050,000 Corona-norco Unified School
District GO, Series 2000 B,
6.03%, 9/1/22 (FSA)(1) 611,474
Principal Amount Value
--------------------------------------------------------------------------------
$1,000,000 Davis Community Facility District
No. 1991-2 Special Tax Rev.,
Series 1992 B, 7.80%, 9/3/02,
Prerefunded at 103% of Par(3) $ 1,100,210
1,750,000 Del Mar Race Track Auth. Rev.,
6.20%, 8/15/11 1,804,495
1,010,000 Dixie Elementary School District
GO, 5.94%, 8/1/24 (FSA)(1) 268,620
1,035,000 Dixie Elementary School District
GO, 5.94%, 8/1/25 (FSA)(1) 259,174
1,150,000 Duarte Unified School District
GO, Series 1999 B, 6.08%,
11/1/23 (FSA)(1) 319,539
2,500,000 East Bay Municipal Utility District
Wastewater Treatment System
Rev, 5.00%, 6/1/26 (FGIC) 2,356,600
4,480,000 El Dorado County Special Tax
Rev., (Community Facilities
District No. 1992-1), 5.60%,
9/1/09 4,673,894
3,400,000 Fairfield Redevelopment Agency
Tax Allocation Rev., 5.00%,
8/1/04 3,422,066
2,000,000 Florin Resource Conservation
District COP, Series 1999 A,
(Elk Grove Water Works),
6.65%, 9/1/19 2,085,420
4,225,000 Florin Resource Conservation
District COP, Series 1999 A,
(Elk Grove Water Works),
6.75%, 3/1/29 4,399,788
4,000,000 Folsom Public Financing Auth.
Rev., Series 1997 A, 6.875%,
9/2/19 4,135,160
4,250,000 Folsom Special Tax Rev.,
(Community Facilities District
No. 10), 7.00%, 9/1/24 4,512,990
2,495,000 Folsom Special Tax Rev.,
(Community Facilities District
No. 7), 5.75%, 9/1/14 2,500,040
1,500,000 Folsom Special Tax Rev.,
(Community Facilities District
No. 7), 7.25%, 9/1/21 1,596,930
2,500,000 Fontana Redevelopment Agency
Tax Allocation Rev., Series
1994 B, (Jurupa Hills), 7.70%,
1/1/05, Prerefunded at 102%
of Par(3) 2,885,475
940,000 Foothill-De Anza Community
College District COP, (Campus
Center), 7.35%, 9/1/03,
Prerefunded at 100% of Par(3) 1,003,582
2,500,000 Foster City Redevelopment
Agency Tax Allocation Rev.,
(Metro Center), 6.75%, 9/1/20 2,677,100
1,185,000 Gateway Improvement Auth. Rev.,
Series 1995 A, (Marin City
Community Facility), 7.75%,
9/1/05, Prerefunded at 102%
of Par(3) 1,399,580
1,600,000 Glendale Electric Works Rev.,
5.875%, 2/1/21 (MBIA) 1,690,560
See Notes to Financial Statements www.americancentury.com 9
California High-Yield Municipal--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$2,630,000 Glendale Unified School District
GO, Series 1999 C, 6.00%,
9/1/22 (FSA) $ 2,810,444
3,745,000 Hawaiian Gardens COP, Series
2000 A, 8.00%, 6/1/23 3,764,362
2,000,000 Industry Urban Redevelopment
Agency Tax Allocation Rev.,
(Project 3), 6.90%, 11/1/16 2,104,800
1,000,000 Laguna Salada Union School
District GO, Series 2000 C,
6.12%, 8/1/29 (FGIC)(1) 195,490
4,250,000 Lake Elsinore School Financing
Auth. Rev., (Horsethief Canyon),
5.625%, 9/1/16 4,127,898
1,000,000 Lake Elsinore Unified School
District Community Facilities
Special Tax Rev., (No. 88-1),
8.25%, 9/1/01, Prerefunded at
102% of Par(3) 1,061,090
2,000,000 Los Angeles Community Facilities
District Special Tax Rev.,
(Cascades Business Park),
6.40%, 9/1/22 2,045,400
9,110,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1998 A,
(Proposition C), 5.00%, 7/1/23
(AMBAC) 8,697,680
50,000 Los Angeles County Single Family
Mortgage Rev., 9.00%,
12/1/20 (GNMA) 50,034
1,000,000 Los Angeles County Transportation
Commission Sales Tax Rev.,
Series 1991 B, 6.50%, 7/1/13 1,038,520
5,000,000 Los Angeles Harbor Department
Rev., Series 1996 B, 5.50%,
8/1/08 5,304,800
2,150,000 Los Angeles State Building Auth.
Lease Rev., Series 1993 A,
(State Department of General
Services), 5.625%, 5/1/11 2,349,176
3,500,000 Los Angeles Wastewater System
Rev., Series 1998 A, 5.00%,
6/1/28 (FGIC) 3,287,585
4,950,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1997 A, 5.00%,
7/1/26 4,685,423
3,000,000 Milpitas Improvement Bond Act
1915 Special Assessment,
Series 1996 A, (Local
Improvement District 18),
6.75%, 9/2/16 3,200,940
2,000,000 Novato Community Facility District
No. 1 Special Tax Rev., (Vintage
Oaks), 7.20%, 8/1/15 2,142,280
4,545,000 Oceanside Mobile Home Park
Financing Auth. Rev., (Laguna
Vista Mobile Estates), 5.80%,
3/1/28 4,188,763
Principal Amount Value
--------------------------------------------------------------------------------
$1,000,000 Orange County Community
Facilities District Special Tax
Rev., Series 1993 A,
(No. 87-5E), 7.30%, 8/15/02,
Prerefunded at 102% of Par(3) $ 1,078,290
1,000,000 Orange County Community
Facilities District Special Tax
Rev., Series 1999 A, (No. 99-1
Ladera Ranch), 6.50%,
8/15/21 1,045,000
1,000,000 Orange County Community
Facilities District Special Tax
Rev., Series 1999 A, (No. 99-1
Ladera Ranch), 6.70%,
8/15/29 1,053,690
2,880,000 Palomar Pomerado Health Care
District COP, (Indian Health
Council Inc.), 6.25%, 10/1/29 2,534,170
965,000 Pioneer Union Elementary School
District GO, 7.50%, 8/1/14 985,796
2,900,000 Pittsburg Redevelopment Agency
Tax Allocation Rev., (Los
Medanos Community
Development Project), 6.20%,
8/1/25 (AMBAC)(1) 724,449
1,600,000 Placer Union High School District
GO, Series 2000 A, (Capital
Appreciation), 6.28%, 8/1/18
(FGIC)(1) 611,088
2,640,000 Placer Union High School District
GO, Series 2000 A, 6.20%,
8/1/16 (FGIC)(1) 1,147,291
2,925,000 Placer Union High School District
GO, Series 2000 A, 6.35%,
8/1/21 (FGIC)(1) 927,927
2,100,000 Placer Union High School District
GO, Series 2000 A, 6.37%,
8/1/22 (FGIC)(1) 626,598
5,000,000 Pomona Improvement Bond Act
1915 Special Assessment, (Rio
Rancho Assessment District),
7.50%, 9/2/21 5,202,900
1,955,000 Poway Community Facilities
District Special Tax Rev.,
(No. 88-1, Parkway Business
Center), 6.75%, 8/1/15 2,094,665
2,000,000 Poway Redevelopment Agency
Tax Allocation Rev., (Paguay
Redevelopment), 4.75%,
12/15/03 1,995,660
2,250,000 Rancho Mirage Joint Powers
Financing Auth. COP,
(Eisenhower Memorial
Hospital), 7.00%, 3/1/02,
Prerefunded at 102% of Par(3) 2,389,905
1,815,000 Redondo Beach Public Financing
Auth. Rev., (South Bay Center
Redevelopment), 7.125%,
7/1/08 1,956,044
1,000,000 Richmond Joint Powers Financing
Auth. Rev., Series 1995 A,
5.25%, 5/15/13 1,017,350
10 1-800-345-2021 See Notes to Financial Statements
California High-Yield Municipal--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$1,700,000 Richmond Wastewater Rev.,
6.18%, 8/1/23 (FGIC)(1) $ 478,941
2,905,000 Richmond Wastewater Rev.,
6.20%, 8/1/26 (FGIC)(1) 688,136
3,765,000 Riverside Unified School District
GO, Series 2000 A,
(Community Facilities District
No. 7), 7.00%, 5/31/30 3,966,766
500,000 Roseville Special Tax Rev.,
(Community Facilities District
No. 2), 8.25%, 9/1/00,
Prerefunded at 102% of Par(3) 510,000
1,625,000 Sacramento County Airport
System Rev., Series 1998 B,
5.00%, 7/1/26 (FGIC) 1,538,144
635,000 Sacramento County Special Tax
Rev., (Community Facilities
District No. 1), 5.60%, 9/1/07 657,765
645,000 Sacramento County Special Tax
Rev., (Community Facilities
District No. 1), 5.70%, 9/1/08 672,787
1,500,000 Sacramento County Special Tax
Rev., (Community Facilities
District No. 1), 6.30%, 9/1/21 1,536,915
6,000,000 Sacramento Financing Auth. Rev.,
Series 1999 A, (Convention
Center Hotel), 6.25%, 1/1/30 5,811,540
3,970,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 3,956,343
1,910,000 Salinas Improvement Bond Act
1915 Special Assessment,
Series A-179, (Harden Ranch
Assessment District 94-1),
6.875%, 9/2/11 1,994,518
3,990,000 San Diego County Improvement
Bond Act 1915 Special
Assessment, 6.25%, 9/2/12 4,122,827
1,000,000 San Diego Special Tax Rev.,
Series 1995 B, (Community
Facilities District No. 1), 7.10%,
9/1/05, Prerefunded at 102%
of Par(3) 1,151,940
1,500,000 San Dieguito Public Facilities
Auth. Rev., Series 1998 A,
5.00%, 8/1/30 (AMBAC) 1,408,215
2,410,000 San Francisco City & County
Redevelopment Agency Hotel
Tax Rev., 5.00%, 7/1/25 (FSA) 2,283,571
1,250,000 San Francisco City & County
Redevelopment Agency Lease
Rev., (George R. Moscone),
7.05%, 7/1/13(1) 653,750
1,780,000 San Jose Financing Auth. Rev.,
Series 1993 C, (Convention
Center), 6.30%, 9/1/09 1,848,014
5,000,000 San Jose Multifamily Housing
Rev., Series 1999 A, (Helzer
Courts Apartments), 6.40%,
12/1/41 (LOC: Union Bank of
California) (Acquired 6/3/99,
Cost $5,000,000)(2) 4,665,500
Principal Amount Value
--------------------------------------------------------------------------------
$1,580,000 San Juan Unified School District
GO, 5.94%, 8/1/24 (FGIC)(1) $ 417,294
1,595,000 San Juan Unified School District
GO, 5.94%, 8/1/25 (FGIC)(1) 396,517
5,000,000 San Marcos Public Facilities Auth.
Rev., Series 1993 A, (Civic
Center), 6.20%, 8/1/22 5,028,750
5,000,000 Santa Ana Financing Auth. Rev.,
Series 1998 A, (South Harbor
Boulevard), 5.00%, 9/1/19
(MBIA) 4,883,150
4,284,000 Santa Clara County Multifamily
Housing Auth. Rev., Series
1999 A, (The Willows
Apartments), 6.40%, 6/1/30 4,024,475
1,505,000 Santa Clara Electric Rev., Series
1998 A, 5.00%, 7/1/27
(AMBAC) 1,420,088
3,820,000 Saratoga Union School District
GO, Series 1997 A, 5.48%,
9/1/22 (FGIC)(1) 1,139,430
2,500,000 Solano County COP, (Capital
Improvement Program), 5.00%,
11/15/19 (AMBAC) 2,441,000
1,615,000 South San Francisco
Redevelopment Agency Tax
Allocation Rev., 7.60%, 9/1/02,
Prerefunded at 102% of Par(3) 1,755,699
270,000 Southern California Housing
Finance Auth. Single Family
Mortgage Rev., Series 1991 A,
7.35%, 9/1/24 (GNMA/FNMA) 276,704
500,000 Southern California Public Power
Auth. Rev., (Pooled Project),
6.75%, 7/1/10 (FSA) 594,480
2,400,000 Southern California Public Power
Auth. Rev., (Transmission),
6.35%, 7/1/14 (MBIA)(1) 1,194,984
1,250,000 Southern California Public Power
Auth. Rev., (Transmission),
6.35%, 7/1/15 (MBIA)(1) 583,300
7,000,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 5.80%, 9/1/14 7,087,010
2,935,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 6.00%, 9/1/24 2,933,151
12,500,000 Sunnyvale Rev. Anticipation
Notes, (Community Facilities
District No. 1), 6.75%, 8/1/02 12,636,375
1,770,000 Tehama Community COP, (Social
Services Building), 7.00%,
10/3/05, Prerefunded at
102% of Par(3) 2,034,296
2,175,000 Tracy Operating Partnership
Joint Powers Auth. Rev., (Jr.
Lien Assessment District 87-3),
6.375%, 9/2/11 2,229,571
2,000,000 Tustin Unified School District GO,
(Community Facilities District
No. 97-1), 6.375%, 9/1/35 2,020,020
See Notes to Financial Statements www.americancentury.com 11
California High-Yield Municipal--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$5,000,000 Vallejo Hiddenbrooke
Improvement District No. 1
Rev., 6.50%, 9/1/31 $ 5,005,500
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)(2) 1,663,227
2,000,000 West Contra Costa Unified
School District COP, 7.125%,
1/1/24 2,113,540
3,235,000 West Sacramento Special Tax
Rev., (Community Facilities
District No. 10), 6.75%, 9/1/26 3,369,544
Principal Amount Value
--------------------------------------------------------------------------------
$2,895,000 Yuba City Unified School District
GO, 6.05%, 9/1/24 (FGIC)(1) $ 766,392
1,500,000 Yuba City Unified School District
GO, 6.05%, 3/1/25 (FGIC)(1) 384,420
------------
TOTAL MUNICIPAL SECURITIES 313,919,435
------------
(Cost $304,001,000)
SHORT-TERM MUNICIPAL SECURITIES -- 0.3%
1,000,000 Orange County Sanitation
Districts COP, Series 2000 B,
VRDN, 3.60%, 9/1/00 1,000,000
------------
(Cost $1,000,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $314,919,435
============
(Cost $305,001,000)
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Association
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 2000.
(1) Security is a zero-coupon municipal bond. The yield to maturity at purchase
is indicated. Zero-coupon securities are purchased at a substantial
discount from their value at maturity.
(2) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at August 31, 2000, was
$24,654,154 which represented 7.7% of net assets.
(3) Escrowed to maturity in U.S. government securities or state and local
government securities.
12 1-800-345-2021 See Notes to Financial Statements
California Insured Tax-Free--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 2000
CALIFORNIA CALIFORNIA INSURED
INSURED LEHMAN LONG-TERM MUNICIPAL DEBT FUNDS(2)
TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 8.00% 9.56% 7.74% --
1 YEAR 7.90% 7.34% 6.99% 3 OUT OF 23
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.94% 5.09% 4.47% 4 OUT OF 23
5 YEARS 6.12% 6.65% 5.65% 4 OUT OF 22
10 YEARS 7.35% 8.05% 7.26% 3 OUT OF 7
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 27-28 for information about returns, the comparative index, and Lipper
fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 8/31/00
California Insured Tax-Free $20,324
Lehman Long-Term Municipal Index $21,688
California Lehman Long-Term
Insured Tax-Free Municipal Index
DATE VALUE VALUE
8/31/1990 $10,000 $10,000
8/31/1991 $11,187 $11,347
8/31/1992 $12,493 $12,776
8/31/1993 $14,209 $14,661
8/31/1994 $13,970 $14,361
8/31/1995 $15,100 $15,715
8/31/1996 $16,097 $16,796
8/31/1997 $17,586 $18,684
8/31/1998 $19,162 $20,648
8/31/1999 $18,834 $20,205
8/31/2000 $20,324 $21,688
$10,000 investment made 8/31/90
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 Lehman Long-Term
Insured Tax-Free Municipal Index
DATE RETURN RETURN
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%
8/31/2000 7.90% 7.34%
www.americancentury.com 13
California Insured Tax-Free--Q&A
--------------------------------------------------------------------------------
[photo of Dave MacEwen]
An interview with Dave MacEwen, a portfolio manager on the California
Insured Tax-Free fund investment team.
HOW DID CALIFORNIA INSURED TAX-FREE PERFORM DURING THE YEAR ENDED AUGUST 31,
2000?
The fund returned 7.90%, beating the 6.99% average return of 23 "California
Insured Municipal Debt Funds" tracked by Lipper Inc.
California Insured Tax-Free's longer-term returns also compared favorably.
For the three- and five-year periods ended August 31, 2000, the fund ranked in
the top 18% of its peer group (see the previous page for more performance
comparisons).
HOW DID THE FUND'S EXPENSES AND YIELDS COMPARE?
On August 31, 2000, the fund had an annualized expense ratio of 0.51%.
That's less than half the 1.22% average expense ratio for the Lipper category.
As a result, California Insured Tax-Free produced more state and federal
tax-free income than the peer group average. As of August 31, the portfolio had
a 30-day SEC yield of 4.50%, while the average California insured fund yielded
4.15%, according to Lipper. The fund's yield translated to an 8.21%
tax-equivalent yield for California investors in the highest combined state and
federal tax bracket.
HOW DID THE FUND BEAT ITS PEER GROUP AVERAGES?
A key factor in the fund's outperformance was its below-average expenses.
All else being equal, lower expenses mean higher yields and returns.
Our "coupon barbell" strategy also boosted performance. We positioned the
fund with larger-than-average weightings in premium and discount bonds. Premiums
trade above par (face value) and carry interest payments above prevailing market
rates. Discount bonds trade below par and carry interest payments below
prevailing market rates.
We favored premium bonds because they raised the fund's yield. The discount
bond side of the barbell resulted from when we bought discounts in early 1999.
At the time, we expected falling interest rates in response to global economic
weakness. We believed that the discount bonds would provide "call protection" if
interest rates fell and calls (bond redemptions by issuers before maturity)
became prevalent. This call protection effectively lengthened the duration
(heightened the interest rate sensitivity) of the portfolio last year.
The increasingly long duration of our discount bond holdings detracted from
performance when interest rates and bond yields rose. Even so, we were reluctant
to sell our discount bonds at distressed prices and abandon a strategy we
believed would ultimately benefit the fund.
HOW DID YOU DECIDE TO PURSUE THAT STRATEGY?
In selecting strategies, we typically start with a scenario analysis that
tells us how a given type of bond might perform in various market environments.
After that, we determine which bonds would give us the best risk-adjusted
returns based on our view of future market conditions.
[left margin]
"CALIFORNIA INSURED TAX-FREE PRODUCED MORE STATE AND FEDERAL TAX-FREE INCOME
THAN THE PEER GROUP AVERAGE."
YIELDS AS OF AUGUST 31, 2000
30-DAY SEC YIELD 4.50%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 6.89%
37.42% TAX BRACKET 7.19%
41.95% TAX BRACKET 7.75%
45.22% TAX BRACKET 8.21%
PORTFOLIO AT A GLANCE
8/31/00 8/31/99
NUMBER OF SECURITIES 67 72
WEIGHTED AVERAGE
MATURITY 17.2 YRS 18.1 YRS
AVERAGE DURATION 8.5 YRS 8.9 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 28-29.
14 1-800-345-2021
California Insured Tax-Free--Q&A
--------------------------------------------------------------------------------
(Continued)
WAS THE ONSET OF SPRING KINDER TO THE COUPON BARBELL POSITIONING?
Yes. The duration of par bonds began to extend dramatically (their interest
rate sensitivity increased) as interest rates climbed. Meanwhile, the duration
of discount bonds--which had already extended in earlier months--remained
relatively stable. At the same time, the duration of premium bonds extended less
than par bonds. As a result, both discounts and premiums outpaced par bonds and
helped the fund outperform its peers.
The market's recent rally also favored our coupon barbell strategy. During
the rally, bond yields declined and par bonds started "trading to their call
date"--meaning their prices reflected the likelihood that their issuers would
redeem them at the first possible call date. That essentially limited par bonds'
gains. In contrast, longer-duration discount bonds continued to rally.
WHAT'S THE FINANCIAL STATUS OF THE MUNICIPAL BOND INSURERS WHO INSURE THE FUND'S
BONDS?
They're in great shape. The major insurers have AAA credit ratings, thanks
to a wealth of business activity and good overall operating results in 1999. The
demand for municipal bond insurance has declined in 2000 as debt issuance has
dropped in response to rising interest rates, but the insurers have identified
other areas of the bond market--such as asset-backed and international
securities--that are expected to drive future bond insurance growth.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND BONDS?
We're reasonably optimistic that the Federal Reserve's six interest rate
hikes during the last year or so will have the intended effect of slowing the
economy and keeping inflation under wraps. Rising interest rates around the
world also reinforce this view. Increasing worker productivity is another factor
to be reckoned with. Even the Fed has begun to support the view that, thanks to
productivity gains, the economy can enjoy good growth without inflation
spiraling out of control. Higher oil prices, a weak euro, lower corporate
earnings projections, a wavering stock market, and the presidential election
also make another rate hike increasingly unlikely.
Municipal supply and demand also offer reasons for optimism. Given
municipal issuers' reduced debt issuance needs and the refinancing deterrent
caused by higher interest rates earlier this year, we expect the supply of
municipals to remain relatively low. If demand remains strong, municipal bond
prices should rise.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS?
We're likely to keep the fund's duration slightly longer than that of its
peers while our long-term outlook for interest rates remains favorable. As
always, we'll continue to adhere to our preference for bonds that offer good
value since that's the philosophy that's helped lead to our long-term success.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/00 2/29/00
AAA 100% 100%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 27
for more information.
TOP FIVE SECTORS (AS OF 8/31/00)
% OF FUND INVESTMENTS
COPS/LEASES 24%
TRANSPORTATION REVENUE 11%
GO 11%
ELECTRIC REVENUE 10%
TAX ALLOCATION REVENUE 10%
TOP FIVE SECTORS (AS OF 2/29/00)
% OF FUND INVESTMENTS
COPS/LEASES 25%
WATER AND SEWER REVENUE 10%
TAX ALLOCATION REVENUE 10%
ELECTRIC REVENUE 9%
TRANSPORTATION REVENUE 9%
Investment terms are defined in the Glossary on pages 28-29.
www.americancentury.com 15
California Insured Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 97.9%
$2,345,000 Alameda Corridor Transportation
Auth. Rev., Series 1999 A,
5.00%, 10/1/29 (MBIA) $ 2,206,434
1,000,000 Banning COP, (Wastewater
System, Refunding &
Improvement), 8.00%, 1/1/19
(AMBAC) 1,277,610
1,500,000 Big Bear Lake Water Rev., 6.00%,
4/1/22 (MBIA) 1,645,215
900,000 Brea Redevelopment Agency Tax
Allocation, (Project AB),
6.125%, 8/1/13 (MBIA) 953,424
1,250,000 California Health Facilities
Financing Auth. Rev., Series
1991 A, (Adventist Health),
7.00%, 3/1/13 (MBIA) 1,292,738
4,560,000 California Housing Finance
Agency Single Family Mortgage
Rev., Series 1998 C-4, 5.65%,
8/1/16 (FHA/VA) 4,697,484
1,435,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 B, (Pooled
Project), 8.10%, 3/1/18 (BIGI) 1,453,741
4,000,000 California Public Works Board
Lease Rev., Series 1993 A,
(Department of Corrections),
5.00%, 12/1/19 (AMBAC) 3,919,760
4,000,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections),
5.25%, 6/1/15 (FSA) 4,164,720
2,565,000 California State GO, 4.50%,
12/1/21 (FGIC) 2,267,691
6,035,000 California State GO, 4.50%,
12/1/24 (FGIC) 5,257,149
3,500,000 California State GO, 4.25%,
10/1/26 (MBIA) 2,903,915
3,135,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) 3,316,485
3,925,000 California Statewide Communities
Development Auth. Rev. COP,
(Gemological Institute), 6.75%,
5/1/10 (Connie Lee) 4,656,542
7,000,000 California Statewide Communities
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/22 (AMBAC,
California Mortgage Insurance) 6,672,680
1,520,000 Castaic Lake Water Agency COP,
Series 1994 A, (Water System
Improvement), 7.00%, 8/1/12
(MBIA) 1,860,358
1,000,000 Contra Costa County Public
Financing Lease Rev., Series
1999 A, (Various Capital
Facilities), 5.00%, 6/1/28
(MBIA) 940,680
Principal Amount Value
--------------------------------------------------------------------------------
$1,200,000 Contra Costa Water District Rev.,
Series 1992 E, 6.25%,
10/1/12 (AMBAC) $ 1,389,780
2,000,000 East Bay Municipal Utility District
Wastewater Treatment System
Rev., 5.50%, 6/1/13 (AMBAC) 2,044,220
1,000,000 East Valley Water District COP,
(Treatment Plant), 6.60%,
12/1/14 (AMBAC) 1,068,230
2,000,000 Escondido Joint Powers
Financing Auth. Rev., 6.125%,
9/1/11 (AMBAC) 2,074,020
2,620,000 Escondido Unified School District
COP, 4.75%, 7/1/19 (MBIA) 2,459,839
1,695,000 Escondido Unified School District
COP, 4.75%, 7/1/23 (MBIA) 1,556,502
3,100,000 Foothill-De Anza Community
College District COP, 6.25%,
9/1/13 (Connie Lee) 3,301,748
1,975,000 Fresno Sewer Rev., Series 1993
A-1, 6.25%, 9/1/14 (AMBAC) 2,272,159
5,000,000 Glendale Hospital Rev., Series
1991 A, (Adventist Health),
6.75%, 3/1/13 (MBIA) 5,162,300
4,830,000 Glendale Unified School District
COP, Series 1994 A, 6.50%,
3/1/12 (AMBAC) 5,242,772
1,340,000 Kern High School District GO,
Series 1992 C, 6.25%,
8/1/13 (MBIA)(1) 1,523,285
3,630,000 Kern High School District GO,
Series 1993 D, 7.00%, 8/1/17
(MBIA)(1) 3,931,181
1,500,000 Lakewood Redevelopment
Agency Tax Allocation, Series
1992 A, (Project No. 1),
6.50%, 9/1/17 (FSA) 1,583,175
1,335,000 Little Lake City School District
GO, Series 2000 A, 6.125%,
7/1/25 (FSA) 1,425,914
400,000 Los Angeles Community
Redevelopment Agency
Housing Rev., Series 1994 C,
7.00%, 1/1/14 (AMBAC) 425,224
3,500,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 3,788,015
4,000,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/15
(FSA) 4,330,440
1,000,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1991 B,
6.50%, 7/1/13 (AMBAC) 1,039,360
1,915,000 Mid-Peninsula Regional Open
Space District Financing Auth.
Rev., 5.90%, 9/1/14 (AMBAC) 2,043,420
16 1-800-345-2021 See Notes to Financial Statements
California Insured Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$5,000,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan),
6.75%, 7/1/20 (MBIA)(1) $ 5,810,350
1,065,000 Mountain View School District
Santa Clara County GO, Series
2000 B, 6.125%, 7/1/25 (FSA) 1,148,933
2,810,000 Oakland Redevelopment Agency
Tax Allocation, (Central District),
5.50%, 2/1/14 (AMBAC) 3,012,882
2,700,000 Orange County Financing Auth.
Tax Allocation, Series 1992 A,
6.25%, 9/1/14 (MBIA) 2,810,187
1,000,000 Pomona Unified School District
GO, Series 2000 A, 6.55%,
8/1/29 (MBIA) 1,182,660
1,950,000 Ramona Municipal Water District
COP, 7.20%, 10/1/10
(AMBAC) 1,993,407
1,100,000 Redlands Unified School District
COP, 6.00%, 9/1/12 (FSA) 1,123,958
1,000,000 Redwood City Elementary School
District GO, 5.00%, 8/1/16
(FGIC) 1,004,870
1,500,000 Sacramento City Financing
Authority COP, Series 1993 A,
5.40%, 11/1/20 (AMBAC) 1,536,150
17,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 17,439,799
295,000 Sacramento Redevelopment
Agency Tax Allocation, Series
1990 A, 6.50%, 11/1/13
(MBIA) 302,160
1,000,000 San Bernardino County GO,
5.50%, 9/28/01 1,012,950
1,345,000 San Diego Community College
District Lease Rev., 6.125%,
12/1/06, Prerefunded at
102% of Par (MBIA)(1) 1,515,788
7,000,000 San Diego County COP, 5.625%,
9/1/12 (AMBAC) 7,509,040
1,000,000 San Diego Public Facilities
Financing Auth. Sewer Rev.,
5.00%, 5/15/25 (FGIC) 945,050
2,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 15B, 4.50%,
5/1/25 (MBIA) 1,737,680
1,670,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 2, 6.75%,
5/1/03, Prerefunded at 102%
of Par (MBIA)(1) 1,815,674
8,330,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 2, 6.75%,
5/1/20 (MBIA) 8,970,659
3,500,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 20, 4.50%,
5/1/26 (MBIA) 3,036,635
Principal Amount Value
--------------------------------------------------------------------------------
$6,000,000 San Francisco City and County
Airport Commission International
Airport Rev., Issue 21, 4.50%,
5/1/23 (MBIA) $ 5,245,200
3,535,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 6.50%,
7/1/15 (MBIA) 4,144,505
3,500,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 5.00%,
7/1/21 (MBIA) 3,374,665
1,000,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/18
(MBIA) 1,021,410
3,500,000 Santa Ana Financing Auth. Rev.,
Series 1999 B, (South Harbor
Boulevard), 5.125%, 9/1/19
(MBIA) 3,470,635
2,000,000 Santa Margarita-Dana Point Auth.
Rev., Series 1994 B,
(Improvement Districts 3, 3A, 4,
4A), 7.25%, 8/1/14 (MBIA) 2,497,800
2,500,000 South Coast Air Quality
Management District Building
GO, (Installment Sale
Headquarters), 6.00%, 8/1/11
(AMBAC) 2,830,950
2,500,000 Ukiah Electric Rev., 6.25%,
6/1/18 (MBIA) 2,843,950
1,445,000 Walnut Valley Unified School
District GO, Series 1992 B,
6.00%, 8/1/10 (AMBAC)(1) 1,634,713
4,525,000 Woodland COP, (Wastewater
System Reference), 5.75%,
3/1/12 (AMBAC) 5,000,624
------------
TOTAL MUNICIPAL SECURITIES 192,121,494
------------
(Cost $184,663,291)
MUNICIPAL DERIVATIVES(2) -- 2.1%
1,000,000 San Diego County Water Auth.
Rev. COP, (Registration Rites),
Yield Curve Notes, Inverse
Floater, 7.13%, 4/22/09
(FGIC) 1,140,000
3,000,000 Southern California Public Power
Auth. Rev., Yield Curve Notes,
Inverse Floater, 5.96%, 7/1/17
(FGIC)(1) 3,063,750
------------
TOTAL MUNICIPAL DERIVATIVES 4,203,750
------------
(Cost $4,036,380)
TOTAL INVESTMENT SECURITIES -- 100.0% $196,325,244
============
(Cost $188,699,671)
See Notes to Financial Statements www.americancentury.com 17
California Insured Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
NOTES TO SCHEDULE OF INVESTMENTS
AMBAC = AMBAC Assurance Corporation
BIGI = Bond Investor's Guaranty Inc.
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FHA = Federal Housing Authority
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
VA = Veteran's Administration
(1) Escrowed to maturity in U.S. government securities or state and local
government securities.
(2) 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.
18 1-800-345-2021 See Notes to Financial Statements
Statement 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 payables) 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, 2000 MUNICIPAL TAX-FREE
ASSETS
Investment securities, at value
(identified cost of $305,001,000,
and $188,699,671, respectively)
(Note 3) ................................. $ 314,919,435 $ 196,325,244
Receivable for investments sold ............ 292,607 996,520
Interest receivable ........................ 5,973,818 3,135,717
------------- -------------
321,185,860 200,457,481
------------- -------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................... 2,547,916 592,612
Payable for investments purchased .......... -- 949,124
Accrued management fees (Note 2) ........... 142,225 84,741
Dividends payable .......................... 297,880 157,691
Payable for trustees' fees and expenses .... 558 369
Accrued expenses and other liabilities ..... 20 --
------------- -------------
2,988,599 1,784,537
------------- -------------
Net Assets ................................. $ 318,197,261 $ 198,672,944
============= =============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) .................... 33,722,081 19,621,139
============= =============
Net Asset Value Per Share .................. $ 9.44 $ 10.13
============= =============
NET ASSETS CONSIST OF:
Capital paid in ............................ $ 319,826,982 $ 192,849,527
Undistributed net investment income ........ 1,337 609
Accumulated net realized loss
on investment transactions ............... (11,549,493) (1,802,765)
Net unrealized appreciation
on investments (Note 3) .................. 9,918,435 7,625,573
------------- -------------
$ 318,197,261 $ 198,672,944
============= =============
See Notes to Financial Statements www.americancentury.com 19
Statement 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 interest income, fees and expenses,
and investment gains or losses.
HIGH-YIELD INSURED
YEAR ENDED AUGUST 31, 2000 MUNICIPAL TAX-FREE
INVESTMENT INCOME
Income:
Interest ................................. $ 19,104,041 $ 11,182,751
------------ ------------
Expenses (Note 2):
Management fees .......................... 1,660,548 1,006,819
Trustees' fees and expenses .............. 10,855 7,000
------------ ------------
1,671,403 1,013,819
------------ ------------
Net investment income .................... 17,432,638 10,168,932
------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments ......... (8,233,096) (1,412,516)
Change in net unrealized
appreciation on investments ............ 9,780,323 5,695,420
------------ ------------
Net realized and unrealized
gain on investments .................... 1,547,227 4,282,904
------------ ------------
Net Increase in Net Assets
Resulting from Operations .............. $ 18,979,865 $ 14,451,836
============ ============
20 1-800-345-2021 See Notes to Financial Statements
Statement 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, 2000 AND AUGUST 31, 1999
HIGH-YIELD MUNICIPAL INSURED TAX-FREE
Increase (Decrease) in Net Assets 2000 1999 2000 1999
OPERATIONS
<S> <C> <C> <C> <C>
Net investment income .........$ 17,432,638 $ 16,883,593 $ 10,168,932 $ 10,600,219
Net realized gain (loss)
on investments .............. (8,233,096) (1,869,375) (1,412,516) 98,190
Change in net unrealized
appreciation
on investments .............. 9,780,323 (15,057,989) 5,695,420 (14,425,798)
------------- ------------- ------------- -------------
Net increase (decrease)
in net assets resulting
from operations ............. 18,979,865 (43,771) 14,451,836 (3,727,389)
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income .... (17,432,638) (16,902,404) (10,168,932) (10,600,219)
From net realized gains on
investment transactions ..... -- (113,197) -- (779,876)
In excess of net realized
gains on
investment transactions ..... -- (3,316,396) -- (389,640)
------------- ------------- ------------- -------------
Decrease in net assets
from distributions .......... (17,432,638) (20,331,997) (10,168,932) (11,769,735)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ..... 172,991,105 183,401,537 56,784,848 78,766,649
Proceeds from reinvestment
of distributions ............ 12,309,762 14,343,428 6,851,470 8,188,008
Payments for shares redeemed .. (210,619,110) (139,242,460) (81,183,690) (75,029,338)
------------- ------------- ------------- -------------
Net increase (decrease) in
net assets from capital
share transactions .......... (25,318,243) 58,502,505 (17,547,372) 11,925,319
------------- ------------- ------------- -------------
Net increase (decrease)
in net assets ............... (23,771,016) 38,126,737 (13,264,468) (3,571,805)
NET ASSETS
Beginning of period ........... 341,968,277 303,841,540 211,937,412 215,509,217
------------- ------------- ------------- -------------
End of period .................$ 318,197,261 $ 341,968,277 $ 198,672,944 $ 211,937,412
============= ============= ============= =============
Undistributed net
investment income ...........$ 1,337 -- $ 609 --
============= ============= ============= =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold .......................... 18,974,933 18,760,200 5,847,868 7,534,351
Issued in reinvestment
of distributions ............ 1,348,647 1,469,140 703,467 785,177
Redeemed ...................... (23,142,289) (14,282,754) (8,371,917) (7,203,629)
------------- ------------- ------------- -------------
Net increase (decrease) ....... (2,818,709) 5,946,586 (1,820,582) 1,115,899
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements www.americancentury.com 21
Notes to Financial Statements
--------------------------------------------------------------------------------
AUGUST 31, 2000
--------------------------------------------------------------------------------
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 (the 1940
Act) 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 policies may
require the use of estimates by fund management.
SECURITY VALUATIONS -- Portfolio securities are valued through a commercial
pricing service or at the mean of the most recent bid and asked prices. When
valuations are not readily available, securities are valued at fair value as
determined in accordance with procedures adopted by the Board of Trustees.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Net realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
INCOME TAX STATUS -- It is the funds' policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
for the funds are declared daily and distributed monthly. Distributions from net
realized gains for the funds are declared and paid annually.
The character of distributions made during the year from net investment
income or net realized gains may differ from their ultimate characterization for
federal income tax purposes. These differences reflect the differing character
of certain income items and net realized gains and losses for financial
statement and tax purposes and may result in reclassification among certain
capital accounts.
At August 31, 2000, High-Yield and Insured had accumulated net realized
capital loss carryovers for federal income tax purposes of $5,122,430 (expiring
2008) and $476,531 (expiring 2008), respectively, which may be used to offset
future taxable gains.
High-Yield and Insured have elected to treat $6,426,841 and $1,326,227,
respectively, of net capital losses incurred in the ten month period ended
August 31, 2000, as having been incurred in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. 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 1940 Act
(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, 2000, the effective annual management fee was 0.54% and 0.51% for
High-Yield and Insured, respectively.
Effective March 13, 2000, American Century Services, Inc. (ACIS), became a
distributor of the trust.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
22 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
--------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Purchases of investment securities, excluding short-term investments, for
High-Yield and Insured totaled $155,408,761 and $39,763,963, respectively. Sales
of investment securities, excluding short-term investments, for High-Yield and
Insured totaled $178,363,713 and $57,277,428, respectively.
As of August 31, 2000, accumulated net unrealized appreciation for
High-Yield and Insured was $9,918,435 and $7,625,573, respectively, which
consisted of unrealized appreciation of $12,303,416 and $9,446,700,
respectively, and unrealized depreciation of $2,384,981 and $1,821,127,
respectively. The aggregate cost of investments for federal income tax purposes
was the same as the cost for financial reporting purposes.
--------------------------------------------------------------------------------
4. BANK LOANS
The funds, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during the
period ended August 31, 2000.
www.americancentury.com 23
California High-Yield Municipal--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), EXPENSE RATIO (operating expenses as a percentage of average net
assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ..............$ 9.36 $ 9.93 $ 9.68 $ 9.27 $ 9.11
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............ 0.52 0.49 0.51 0.55 0.56
Net Realized and Unrealized Gain
(Loss) on Investments ............ 0.08 (0.46) 0.37 0.41 0.16
----------- ----------- ----------- ----------- -----------
Total From Investment Operations . 0.60 0.03 0.88 0.96 0.72
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ....... (0.52) (0.49) (0.51) (0.55) (0.56)
From Net Realized Gains on
Investment Transactions .......... -- --(1) (0.12) -- --
In Excess of Net Realized Gains .. -- (0.11) -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions .............. (0.52) (0.60) (0.63) (0.55) (0.56)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .....$ 9.44 $ 9.36 $ 9.93 $ 9.68 $ 9.27
=========== =========== =========== =========== ===========
Total Return(2) .................. 6.70% 0.26% 9.35% 10.61% 8.02%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.54% 0.54% 0.54% 0.50% 0.51%
Ratio of Net Investment Income
to Average Net Assets ............ 5.64% 5.08% 5.23% 5.77% 5.99%
Portfolio Turnover Rate ............ 52% 59% 36% 46% 36%
Net Assets, End of Period
(in thousands) ...................$ 318,197 $ 341,968 $ 303,842 $ 192,831 $ 144,675
</TABLE>
(1) Per share amount was less than $0.005.
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
24 1-800-345-2021 See Notes to Financial Statements
California Insured Tax-Free--Financial Highlights
--------------------------------------------------------------------------------
This table itemizes investment results and distributions on a per-share basis to
illustrate share price changes for each of the last five fiscal years. It also
includes several key statistics for each reporting period, including TOTAL
RETURN, INCOME RATIO (net investment income as a percentage of average net
assets), EXPENSE RATIO (operating expenses as a percentage of average net
assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31
2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period ..............$ 9.88 $ 10.60 $ 10.37 $ 10.00 $ 9.89
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............ 0.50 0.50 0.51 0.53 0.53
Net Realized and Unrealized Gain
(Loss) on Investments ............ 0.25 (0.66) 0.39 0.37 0.11
----------- ----------- ----------- ----------- -----------
Total From Investment Operations . 0.75 (0.16) 0.90 0.90 0.64
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ....... (0.50) (0.50) (0.51) (0.53) (0.53)
From Net Realized Gains on
Investment Transactions .......... -- (0.04) (0.16) -- --
In Excess of Net Realized Gains .. -- (0.02) -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions .............. (0.50) (0.56) (0.67) (0.53) (0.53)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .....$ 10.13 $ 9.88 $ 10.60 $ 10.37 $ 10.00
=========== =========== =========== =========== ===========
Total Return(1) .................. 7.90% (1.71)% 8.96% 9.25% 6.60%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.51% 0.51% 0.48% 0.49%
Ratio of Net Investment Income
to Average Net Assets ............ 5.12% 4.78% 4.91% 5.23% 5.30%
Portfolio Turnover Rate ............ 20% 32% 31% 46% 43%
Net Assets, End of Period
(in thousands) ...................$ 198,673 $ 211,937 $ 215,509 $ 189,145 $ 191,811
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 25
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 (the "Funds") at August 31, 2000,
and the results of their operations for the year then ended, the changes in net
assets for the two years in the period then ended, and the financial highlights
for the three years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. The financial
highlights for each of the two 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. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, 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, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Kansas City, Missouri
October 13, 2000
26 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 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.
[right 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.
www.americancentury.com 27
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 total returns, please refer to the "Financial
Highlights" on pages 24-25.
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).
28 1-800-345-2021
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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 29
Notes
--------------------------------------------------------------------------------
30 1-800-345-2021
Notes
--------------------------------------------------------------------------------
www.americancentury.com 31
Notes
--------------------------------------------------------------------------------
32 1-800-345-2021
[inside back cover]
===============================================================================
INVESTMENT OBJECTIVE - CAPITAL PRESERVATION
===============================================================================
RISK LEVEL - CONSERVATIVE
TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS
Premium Capital Reserve FL Municipal Money Market
Prime Money Market CA Municipal Money Market
Premium Government Reserve CA Tax-Free Money Market
Government Agency Tax-Free Money Market
Money Market
Capital Preservation
===============================================================================
INVESTMENT OBJECTIVE - INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
TAXABLE BONDS TAX-FREE BONDS
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
RISK LEVEL - MODERATE
TAXABLE BONDS TAX-FREE BONDS
Long-Term Treasury CA Long-Term Tax-Free
Target 2005* Long-Term Tax-Free
Bond CA Insured Tax-Free
Premium Bond
RISK LEVEL - CONSERVATIVE
TAXABLE BONDS TAX-FREE BONDS
Intermediate-Term Bond CA Intermediate-Term Tax-Free
Intermediate-Term Treasury AZ Intermediate-Term Municipal
GNMA FL Intermediate-Term Municipal
Inflation-Adjusted Treasury Intermediate-Term Tax-Free
Limited-Term Bond CA Limited-Term Tax-Free
Target 2000* Limited-Term Tax-Free
Short-Term Government
Short-Term Treasury
===============================================================================
INVESTMENT OBJECTIVE - GROWTH AND INCOME
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY
Small Cap Quantitative
Small Cap Value
RISK LEVEL - MODERATE
ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY
Strategic Allocation -- Equity Growth Utilities
Aggressive Equity Index Real Estate
Balanced Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities Technology International Discovery
Giftrust(reg.tm) Life Sciences International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text 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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0010 American Century Investment Services, Inc.
SH-ANN-22407 (c)2000 American Century Services Corporation
<PAGE>
August 31, 2000
AMERICAN CENTURY(reg.sm)
ANNUAL REPORT
California Limited-Term Tax-Free
California Intermediate-Term Tax-Free
California Long-Term Tax-Free
[american century logo and text logo (reg.sm)]
American
Century
[inside front cover]
Get Investment Insight with Fund Advisor*
--------------------------------------------------------------------------------
They say hindsight is 20/20. But what about insight? That's what you really
want when choosing mutual funds. Now you can get the insight you need with Fund
Advisor, an online tool that helps you select the right no-load funds for
you--on a goal by goal basis. Fund Advisor helps you:
Get organized.
Compile all your investments, review their performance and see if you're on
track to meet your personal financial goals.
Get direction.
Receive recommendations based on funds available through your current fund
family or financial service provider -- not just American Century funds.
Gain confidence.
Whether you want to analyze your current investments, or find new ones, Fund
Advisor can help you feel confident with the decisions you make.
How does it work?
Just tell Fund Advisor about your investing style, your current investments
and your goals. It will analyze your investments and offer impartial
recommendations to help you get on track.
To review Fund Advisor's unique perspective, go to www.americancentury.com
and select Fund Advisor at the top of the page. For the initial set-up, you
might want to have available:
* Your latest tax return
* Your most recent investment account statements
* Printouts from any software you use to track your personal finances
To learn more about this new tool and how it can help you better manage your
financial future, select the "Demo" from the Fund Advisor introduction page.
* Patent pending. It was developed for Acumation, Inc., a registered investment
advisor and wholly owned subsidiary of American Century.
American Century does not receive sales commissions or direct compensation for
recommending any fund, although it may receive management, service or other fees
from funds recommended through Fund Advisor. These agreements are described in
Acumation, Inc.'s Form ADV Part II.
[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.
Receive Your Annual Reports Online
--------------------------------------------------------------------------------
Now you can receive documents such as annual reports, prospectuses, and
newsletters online rather than regular mail. Your link to American Century
documents is a click away with the Electronic Communication option.
* Receive links to documents by email
* Download select documents and file electronically to save space in your
file cabinets
* Read documents at your convenience
To sign up for this option, visit www.americancentury.com and log in with
your secure OnePIN. Then simply select an account on your account list and
choose the Electronic Communication link. Questions? Call 1-800-345-2021. LOG IN
AND TAKE CONTROL TODAY!
Our Message to You
--------------------------------------------------------------------------------
[photo of James E. Stowers, Jr. and James E. Stowers III]
James E. Stowers, Jr., standing, with James E. Stowers III
We're proud to report that our California Limited-, Intermediate-, and
Long-Term Tax-Free funds provided better-than-average returns in the fiscal year
ended August 31, 2000 (see pages 5, 11, and 19). Municipal bonds performed
relatively well thanks to an upsurge in demand from an unlikely
source--California's newly minted dot-com millionaires, who were seeking to
preserve some of their newfound wealth in a tax-free investment. Our investment
professionals review fund performance and the period in more detail beginning on
page 3.
Turning to corporate matters, Chase Manhattan Corp. recently announced
plans to acquire J.P. Morgan & Co., which became a substantial minority
shareholder in American Century Companies, Inc. in 1998. If the transaction is
completed as expected, J.P. Morgan Chase, the new enterprise, will own the
shares of American Century currently held by Morgan. Corporate control of
American Century is not affected by this transaction. We will be exploring ways
to partner with J.P. Morgan Chase for the benefit of fund shareholders.
In other corporate news, some American Century executives have assumed
important new responsibilities. For example, we chose to divide the chairman of
the board position between the two of us and named American Century President
William M. Lyons chief executive officer, giving him ultimate management
responsibility for the entire company.
These changes, plus the promotion of some key investment professionals,
strengthen the leadership of our investment management area and allow us to
pursue other worthwhile endeavors. For example, Jim Stowers III will focus more
on product innovation (in particular, leveraging our earnings-acceleration
screening system to build the next generation of portfolio management
technologies). However, he'll continue to serve on the investment teams for the
Ultra and Veedot funds.
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 Co-Chairman of the Board
[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
Statement of Assets and
Liabilities .......................................................... 25
Statement of Operations ................................................. 26
Statement of Changes
in Net Assets ........................................................ 27
Notes to Financial
Statements ........................................................... 28
Financial Highlights .................................................... 30
Report of Independent
Accountants .......................................................... 33
OTHER INFORMATION
Background Information
Investment Philosophy
and Policies ...................................................... 34
Comparative Indices .................................................. 34
Lipper Rankings ...................................................... 34
Investment Team
Leaders ........................................................... 34
Credit Rating
Guidelines ........................................................ 34
Glossary ................................................................ 35
www.americancentury.com 1
Report Highlights
--------------------------------------------------------------------------------
MARKET PERSPECTIVE
* The fiscal year ended August 31, 2000, saw California municipal bonds
produce solid returns.
* The year was a tale of two halves--interest rates rose in late 1999 and
early 2000, limiting bond performance. But interest rates reversed course in
recent months, leading to much better returns.
* Supply and demand factors worked in favor of California bonds. A healthy
state economy meant municipalities had less need to borrow, while California
investors found themselves wealthier and in need of the tax advantages
offered by municipal bonds.
CREDIT REVIEW
* Rapid economic growth helped improve the financial health and well-being of
California's municipalities.
* Municipal credit rating agencies rewarded the state and certain of its
agencies with a credit rating upgrade as a result of improved economic
fundamentals.
* The state's robust economy meant its tax-backed and revenue-backed bonds
performed well.
CALIFORNIA LIMITED-TERM TAX-FREE
* California Limited-Term Tax-Free was the top-performing fund in its Lipper
category for the year (see page 5).
* The portfolio performed so well relative to its Lipper group because of our
lower-than-average expenses and because we made good calls on the fund's
duration and maturity structure.
* Our maturity structure also allowed us to increase the fund's yield, as did
our decision to add select BBB bonds.
* We think the outlook for the economy and interest rates is positive, but we
wouldn't be surprised if short-term municipal bonds took a bit of a breather
after performing so well in recent months.
CALIFORNIA INTERMEDIATE-TERM TAX-FREE
* The portfolio performed very well, ranking in the top quarter of its Lipper
group for the year (see page 11).
* We enhanced performance by carefully managing the fund's duration, as well
as its coupon and maturity structures.
* Many of the changes we made to the portfolio were designed to add return as
interest rates declined.
* We like the outlook for municipal bonds. We think the Federal Reserve has
done a good job on the economy and interest rates, while supply and demand
also look to be positives.
CALIFORNIA LONG-TERM TAX-FREE
* The portfolio performed well, producing better returns and more state and
federal tax-free income than the average of the funds in its Lipper group
(see page 19).
* The two biggest reasons for our outperformance were our below-average
expenses and the way we structured the coupons of the bonds in the
portfolio.
* We're generally positive on long-term municipal bonds going forward. We
think the Federal Reserve has successfully slowed the economy and kept
inflation in check.
[left margin]
CALIFORNIA
LIMITED-TERM TAX-FREE
(BCSTX)
TOTAL RETURNS: AS OF 8/31/00
6 Months 4.18%*
1 Year 5.44%
30-DAY SEC YIELD: 3.79%
INCEPTION DATE: 6/1/92
NET ASSETS: $142.2 million
CALIFORNIA
INTERMEDIATE-TERM TAX-FREE
(BCITX)
TOTAL RETURNS: AS OF 8/31/00
6 Months 6.00%*
1 Year 6.95%
30-DAY SEC YIELD: 4.01%
INCEPTION DATE: 11/9/83
NET ASSETS: $444.6 million
CALIFORNIA
LONG-TERM TAX-FREE
(BCLTX)
TOTAL RETURNS: AS OF 8/31/00
6 Months 8.60%*
1 Year 7.79%
30-DAY SEC YIELD: 4.66%
INCEPTION DATE: 11/9/83
NET ASSETS: $303.5 million
* Not annualized.
See Total Returns on pages 5, 11, and 19. Investment terms are defined in the
Glossary on pages 35-36.
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 at American Century
MUNICIPAL BONDS REBOUND
After suffering disappointing returns during the last four months of 1999
and the first month of 2000, municipal bonds rallied, particularly from mid-May
through the end of August 2000. As a result, California municipal bond returns
finished near long-term historical averages in the fiscal year ended August 31,
2000.
The fiscal year for our California municipal funds began during a period
when the markets were concerned with strong economic growth and the possibility
of higher inflation. The Federal Reserve raised short-term interest rates in
November for the third time in five months to rein in the economy.
Even though the Fed continued to raise rates through May 2000, municipal
bond prices began rising in May in anticipation that the Fed might end its
rate-raising campaign. Some economic reports indicated that pockets of the
economy were beginning to slow and inflationary pressures were fading.
LESS SUPPLY, MORE DEMAND
The municipal market's rebound was aided by favorable supply and demand. On
the supply side, refinancing of old debt was subdued as interest rates rose,
diminishing the financial rewards for refinancing. Furthermore, many issuers had
already reached the legal limit on the number of times they were allowed to
refinance. Finally, the strong economy bolstered the financial stability of many
municipal issuers, reducing their borrowing needs.
On the demand side, stock market volatility prompted many newly affluent
individuals in high tax brackets to rebalance their portfolios and buy municipal
bonds. The highest tax-equivalent yields in years also attracted investors. For
an investor in the highest combined federal and California tax bracket, a
30-year AAA-rated California municipal bond offered a tax-equivalent yield of
over 10% last spring.
HIGH-YIELD BONDS LAG
Lower-rated and non-rated bonds, which make up the high-yield sector,
lagged investment-grade municipal bonds (those rated BBB or higher). High-yield
bonds, which suffered from heavy tax-loss selling in late 1999 and early 2000,
rallied with the rest of the municipal market during the second and third
quarters of 2000, but continued to lag investment-grade bonds. That's because
high-yield bonds are less sensitive to interest rate changes (their durations
are lower) due to their higher interest coupons. As a result, high-yield bond
prices typically decline less than those of investment-grade bonds when rates
rise but gain less when rates fall, as they did at the end of the period.
[right margin]
"THE MUNICIPAL MARKET'S REBOUND WAS AIDED BY FAVORABLE SUPPLY AND DEMAND."
MUNICIPAL BOND INDEX RETURNS
FOR THE YEAR ENDED AUGUST 31, 2000
LEHMAN THREE-YEAR
MUNICIPAL INDEX 4.72%
LEHMAN FIVE-YEAR GENERAL
OBLIGATION INDEX 5.33%
LEHMAN LONG-TERM
MUNICIPAL INDEX 7.34%
Source: Lipper Inc., Russell/Mellon Analytical
[line graph - data below]
"TWISTING" MUNICIPAL YIELD CURVE
YEARS TO
MATURITY 8/31/00 2/28/00 8/31/99
1 4.28% 4.19% 3.59%
2 4.35% 4.55% 3.94%
3 4.39% 4.73% 4.15%
4 4.43% 4.85% 4.27%
5 4.47% 4.94% 4.39%
6 4.52% 5.00% 4.49%
7 4.56% 5.06% 4.59%
8 4.62% 5.11% 4.69%
9 4.68% 5.16% 4.79%
10 4.74% 5.21% 4.89%
11 4.82% 5.27% 4.97%
12 4.90% 5.34% 5.05%
13 4.98% 5.40% 5.13%
14 5.07% 5.46% 5.20%
15 5.15% 5.53% 5.27%
16 5.20% 5.59% 5.31%
17 5.25% 5.64% 5.35%
18 5.30% 5.70% 5.39%
19 5.35% 5.75% 5.43%
20 5.40% 5.81% 5.47%
21 5.41% 5.82% 5.47%
22 5.42% 5.83% 5.48%
23 5.43% 5.84% 5.48%
24 5.44% 5.85% 5.49%
25 5.44% 5.85% 5.50%
26 5.45% 5.85% 5.50%
27 5.45% 5.86% 5.51%
28 5.46% 5.86% 5.51%
29 5.46% 5.87% 5.52%
30 5.47% 5.87% 5.52%
Source: Bloomberg Financial Markets
www.americancentury.com 3
California Municipal Credit Review
--------------------------------------------------------------------------------
An expanding economy bolstered California's municipal credit strength
during the year ended August 31, 2000. The state continued to outpace the nation
as whole in terms of personal income gains, employment growth, and overall
economic activity.
SECTOR ANALYSIS
Tax-backed bonds were among the primary beneficiaries of California's
ongoing economic strength. Brisk consumer spending lifted sales taxes, while
robust real estate activity boosted property tax collections. Income tax
collections also rose substantially as income levels climbed and key employment
measures grew faster than the national average. Furthermore, the state enjoyed
dramatic revenue growth from increased capital gains tax collections.
Credit trends were also favorable among bonds backed by revenue from
specific municipal projects or entities. The healthy economy helped maintain
strong revenue trends for the water and sewer, transportation, and housing
sectors. Even public power companies enjoyed better conditions. Higher rates and
increased customer usage offset the pressures of increased competition for
utilities.
About the only weak sector was health care. Reduced federal spending on
Medicare and other programs mandated by the Balanced Budget Act of 1997
continued to affect the revenues of health care facilities. The strict vigilance
of cost-conscious health insurers (particularly HMOs), combined with higher drug
and wage expenses, also squeezed the earnings of health facilities.
Worse-than-expected operating results caused several downgrades of health care
entities.
CALIFORNIA IS UPGRADED
In recognition of California's robust economy and its "increased fiscal
conservatism," two major municipal bond rating agencies recently upgraded the
credit rating of the state and some of its issuing agencies. California also was
applauded for increasing its cash and budget reserves to record levels and for
matching expenditures with cash inflows. With the new, higher credit rating, the
state's borrowing costs should be reduced, further boosting California's fiscal
health.
THE INTERNET AND SALES TAXES
The rise of Internet sales--which are not taxed by municipal issuers--has
raised questions about lost tax receipts and their impact on municipal bond
credit quality. While we are watching developments closely--including recent
efforts by legislators to levy Internet sales taxes--our view is that even if
e-commerce spending increases 10-fold over the next few years, it will represent
only about 10% of total retail transactions. At that level, we don't believe
e-commerce represents a major threat to the tax bases of most states and
municipalities, including California.
[left margin]
"TWO MAJOR MUNICIPAL BOND RATING AGENCIES UPGRADED CALIFORNIA'S CREDIT RATING."
[bar graph - data below]
CALIFORNIA'S IMPROVING FINANCIAL HEALTH
(FISCAL YEAR GENERAL FUND BALANCE, IN $ MILLIONS)
1994 $(1,633)
1995 $(2,556)
1996 $(1,110)
1997 $(1,330)
1998 $ 931
1999 $ 1,608
2000 $ 5,677
Source: State of California, Office of the State Controller
4 1-800-345-2021
California Limited-Term Tax-Free--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 2000
CALIFORNIA CALIF. SHORT-INTERM.
LIMITED-TERM LEHMAN 3-YEAR MUNICIPAL DEBT FUNDS(2)
TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 4.18% 3.51% 3.37% --
1 YEAR 5.44% 4.72% 4.19% 1 OUT OF 13
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.36% 4.46% 3.63% 2 OUT OF 13
5 YEARS 4.47% 4.59% 3.85% 2 OUT OF 10
LIFE OF FUND 4.60% 5.00% 4.69%(3) 2 OUT OF 2(3)
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 34-35 for information about returns, the comparative index, and Lipper
fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER LIFE OF FUND
Value on 8/31/00
California Limited-Term Tax-Free $14,493
Lehman 3-Year Municipal Index $14,887
California
Limited-Term Lehman 3-Year
Tax-Free Municipal Index
DATE VALUE VALUE
6/1/1992 $10,000 $10,000
6/30/1992 $10,074 $10,122
9/30/1992 $10,277 $10,357
12/31/1992 $10,413 $10,451
3/31/1993 $10,616 $10,662
6/30/1993 $10,754 $10,822
9/30/1993 $10,913 $10,976
12/31/1993 $11,029 $11,100
3/31/1994 $10,880 $10,951
6/30/1994 $10,941 $11,070
9/30/1994 $11,036 $11,175
12/31/1994 $10,961 $11,176
3/31/1995 $11,289 $11,489
6/30/1995 $11,517 $11,732
9/30/1995 $11,682 $11,982
12/31/1995 $11,872 $12,167
3/31/1996 $11,902 $12,235
6/30/1996 $11,993 $12,334
9/30/1996 $12,161 $12,497
12/31/1996 $12,339 $12,708
3/31/1997 $12,383 $12,759
6/30/1997 $12,626 $12,995
9/30/1997 $12,842 $13,217
12/31/1997 $12,997 $13,405
3/31/1998 $13,127 $13,543
6/30/1998 $13,247 $13,696
9/30/1998 $13,573 $13,967
12/31/1998 $13,636 $14,035
3/31/1999 $13,776 $14,191
6/30/1999 $13,668 $14,129
9/30/1999 $13,813 $14,270
12/31/1999 $13,789 $14,311
3/31/2000 $14,013 $14,456
6/30/2000 $14,212 $14,655
8/31/2000 $14,493 $14,887
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
8/31/1992* 2.22% 2.73%
8/31/1993 6.15% 6.38%
8/31/1994 1.90% 2.51%
8/31/1995 5.33% 6.68%
8/31/1996 3.87% 3.95%
8/31/1997 5.42% 5.65%
8/31/1998 5.40% 5.76%
8/31/1999 2.26% 2.92%
8/31/2000 5.44% 4.72%
* 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 Todd Pardula, a portfolio manager on the California
Tax-Free and Municipal funds investment team.
HOW DID CALIFORNIA LIMITED-TERM TAX-FREE PERFORM DURING THE YEAR ENDED AUGUST
31, 2000?
The fund returned 5.44%, well ahead of the 4.19% average return of the 13
"California Short-Intermediate Municipal Debt Funds" tracked by Lipper Inc. The
fund's one-year performance ranked #1 in its Lipper category, and its
longer-term returns are also very strong (see the previous page).
WHY DID THE FUND PERFORM SO WELL?
Expenses were one factor--California Limited-Term Tax-Free's expense ratio
is significantly lower than the average expense ratio of the Lipper category.
That gives the fund a head start on the rest of the group.
We also made some timely investment decisions that worked in our favor. We
had the good fortune of being in the right places at the right times.
CAN YOU GIVE AN EXAMPLE OF YOUR "GOOD FORTUNE?"
The most important thing was our duration positioning. Duration measures
the fund's share-price volatility as interest rates change. A shorter duration
means less price volatility; a longer duration means greater price fluctuations.
For the California Limited-Term Tax-Free fund, we usually keep duration in
a range between 2.75 and 3.25 years, with a "neutral" position being about three
years. This means the fund's duration is usually close to the average duration
of its Lipper category.
In the second half of 1999, we kept duration toward the lower end of its
range, which helped limit price declines as municipal yields rose. In 2000, we
shifted gears and extended duration out to the upper end of the range. That gave
us some nice price gains as yields came down significantly.
WHY HAVE MUNICIPAL BOND YIELDS FALLEN SO MUCH THIS YEAR?
Demand for municipal bonds has picked up significantly in the past year.
Many investors have accumulated a great deal of wealth in the stock market, but
now they're looking to protect some of their gains by shifting into a more
conservative investment, like bonds. And the tax-free status of municipal bonds
has been a big draw for "Internet millionaires" and others who have moved into
the upper tax brackets.
At the same time, new issuance has been less than in years past because
municipalities are flush with cash-- the strong economy has boosted tax revenues
and reduced borrowing needs. When there's a lot of demand for a declining number
of bonds, yields tend to move lower.
This effect has been especially dramatic in California, where short- and
intermediate-term bond yields are 30-40 basis points (0.30%-0.40%) below yields
in the rest of the country. Ordinarily, California yields are more like 5-10
basis points lower.
[left margin]
"THE FUND'S ONE-YEAR PERFORMANCE RANKED #1 IN ITS LIPPER CATEGORY, AND ITS
LONGER-TERM RETURNS ARE ALSO VERY STRONG."
YIELDS AS OF AUGUST 31, 2000
30-DAY SEC YIELD 3.79%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 5.80%
37.42% TAX BRACKET 6.06%
41.95% TAX BRACKET 6.53%
45.22% TAX BRACKET 6.92%
PORTFOLIO AT A GLANCE
8/31/00 8/31/99
NUMBER OF SECURITIES 76 77
WEIGHTED AVERAGE
MATURITY 3.5 YRS 3.5 YRS
AVERAGE DURATION 3.0 YRS 2.9 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 35-36.
6 1-800-345-2021
California Limited-Term Tax-Free--Q&A
--------------------------------------------------------------------------------
(Continued)
It's also made for a fairly flat California yield curve (see page 3). The
gap between the yields of one-year municipal bonds and six-year bonds is about
20 basis points, compared with almost 60 basis points six months ago.
DID YOU MAKE ANY ADJUSTMENTS TO CALIFORNIA LIMITED-TERM TAX-FREE'S PORTFOLIO
BASED ON THIS ENVIRONMENT?
We shifted to more of a "barbell" maturity position in June in anticipation
of a flattening yield curve. A barbell is heavy on the ends and light in the
middle, so a barbell position in the portfolio is heavy in shorter- and
longer-term bonds and light in intermediate-term bonds.
We sold a number of our four- and five-year municipal bonds and split the
proceeds between 15-month notes--which were yielding about the same as the
five-year bonds at the time--and bonds maturing in 8-9 years. The fund got a big
pick-up in yield from the longer-term bonds, and the short-term notes kept the
fund's duration steady.
Best of all, yields in the eight- to 10-year area fell faster than other
maturities, so we earned more price gains than we would have gotten if we'd
stayed with five-year bonds.
YOU NEARLY DOUBLED YOUR HOLDINGS OF BBB-RATED BONDS IN THE PAST YEAR (FROM 7%
TO 13% OF THE PORTFOLIO). WHAT'S THE ATTRACTION?
It was another way to add yield to the portfolio. The yield difference
between AAA bonds and bonds rated AA and A has narrowed, but you can still pick
up quite a bit of extra yield on BBB bonds.
For example, we recently bought some BBB hospital bonds. Hospital bonds
have been under pressure for the past couple of years, and it pays to be
selective in this area of the market. But our credit research team has very high
standards, so the bonds we've added are solid from a credit standpoint, and they
have yields that are more than 100 basis points (1%) higher than AAA bonds.
LOOKING AHEAD, WHAT ARE YOUR PLANS FOR CALIFORNIA LIMITED-TERM TAX-FREE?
We're in the process of shortening the fund's duration back to a neutral
position. A fair amount of new supply is being issued in California this fall,
which should push yields a little higher. In addition, shorter-term municipal
bonds have performed very well in the last six months and now look relatively
expensive compared with other bonds, such as corporate and government agency
securities.
Longer term, though, we think interest rates are likely to trend lower.
After six short-term interest rate hikes since the middle of last year, the
Federal Reserve appears to be on hold. We also expect the rising price of oil,
which recently hit a 10-year high, to crimp consumer and business spending,
which in turn should slow economic growth both here and abroad.
With that scenario in mind, we'll look to extend the fund's duration back
out to the upper end of its range later this year.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/00 2/29/00
AAA 50% 57%
AA 22% 17%
A 15% 16%
BBB 13% 10%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 34
for more information.
TOP FIVE SECTORS (AS OF 8/31/00)
% OF FUND INVESTMENTS
COPS/LEASES 22%
GO 20%
HOSPITAL REVENUE 9%
HOUSING REVENUE 8%
ELECTRIC REVENUE 6%
TOP FIVE SECTORS (AS OF 2/29/00)
% OF FUND INVESTMENTS
COPS/LEASES 21%
GO 18%
HOSPITAL REVENUE 10%
PREREFUNDED/ETM 8%
ELECTRIC REVENUE 8%
Investment terms are defined in the Glossary on pages 35-36.
www.americancentury.com 7
California Limited-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 94.3%
CALIFORNIA -- 84.1%
$1,235,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.50%, 7/1/03 $ 1,226,344
2,450,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.80%, 7/1/06 2,435,447
400,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Odd Fellows Home), 4.40%,
8/15/02 400,772
400,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Odd Fellows Home), 4.55%,
8/15/03 402,464
425,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Odd Fellows Home), 4.65%,
8/15/04 429,348
1,145,000 California Educational Facilities
Auth. Rev., (Pepperdine
University), 5.125%, 1/15/02
(AMBAC) 1,162,816
1,710,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern
California), 5.60%, 10/1/01 1,740,575
1,910,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern
California), 5.60%, 10/1/03 1,999,732
395,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.45%, 4/1/02 400,953
420,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.55%, 4/1/03 430,571
440,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.65%, 4/1/04 455,743
465,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.75%, 4/1/05 485,776
1,000,000 California Health Facilities
Financing Auth. Rev., (Sisters
Providence), 5.25%, 10/1/01 1,011,550
Principal Amount Value
--------------------------------------------------------------------------------
$1,750,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.50%, 11/1/01(1) $ 1,780,695
1,965,000 California Mobilehome Park
Financing Auth. Rev., Series
2000 A, (Union City Tropics),
4.80%, 8/15/06 (ACA) 1,977,085
1,000,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Community Colleges),
5.00%, 4/1/02 1,015,080
2,325,000 California State GO, 6.10%,
2/1/02 (AMBAC) 2,392,960
2,000,000 California State GO, 6.35%,
11/1/04 (FGIC) 2,176,600
1,000,000 California State GO, 7.50%,
10/1/07 (MBIA) 1,201,690
4,275,000 California State GO, 6.50%,
2/1/08 4,888,548
7,000,000 California State GO, 5.00%,
6/1/08 7,359,659
1,485,000 California State Public Works
Board Lease Rev., Series
1994 A, (Community College
Projects), 9.00%, 10/1/03 1,692,039
1,750,000 Central California Joint Powers
Health Financing Auth. COP,
(Community Hospitals of Central
California), 5.25%, 2/1/04 1,755,285
2,825,000 Central Valley Financing Auth.
Cogeneration Project Rev.,
(Carson Ice General), 4.50%,
7/1/01 (MBIA) 2,838,758
6,200,000 East Bay-Delta Housing &
Finance Agency Lease Rev.,
Series 2000 A, (Lease
Purchase Project), 4.75%,
6/1/05 (MBIA) 6,361,199
1,000,000 Encinitas Unified School District
COP, 5.00%, 9/1/01 1,007,800
1,000,000 Foothill/Eastern Corridor Agency
Toll Road Rev., 5.00%,
1/15/06 (MBIA) 1,043,200
2,000,000 Lake Elsinore Recreation Auth.
Rev., Series 2000 A, (Public
Facilities Project), 4.60%,
2/1/02 (LOC: California State
Teacher's Retirement System) 1,999,920
2,955,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 5.30%,
5/1/01 2,979,940
500,000 Los Angeles Community
Redevelopment Agency Parking
System Rev., (Cinerama Dome
Public Parking Project), 4.75%,
7/1/07 (ACA) 505,640
615,000 Los Angeles Community
Redevelopment Agency Parking
System Rev., (Cinerama Dome
Public Parking Project),
4.875%, 7/1/08 (ACA) 625,375
8 1-800-345-2021 See Notes to Financial Statements
California Limited-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$4,875,000 Los Angeles Community
Redevelopment Agency Tax
Allocation Rev., Series 1997 I,
(Central Business District),
5.00%, 11/15/01 $ 4,903,226
1,750,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1998 B, (California Equipment
Program), 4.00%, 12/1/00 1,747,830
2,380,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1999 A, (California Equipment
Program), 4.70%, 6/1/02 2,388,378
1,045,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1999 A, (California Equipment
Program), 4.875%, 12/1/02 1,052,451
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/02
(AMBAC) 1,034,120
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/05
(AMBAC) 1,080,000
2,645,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A,
(Proposition A), 5.50%, 7/1/02
(MBIA) 2,716,891
1,360,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1996 A, 6.00%, 9/1/04
(MBIA) 1,457,811
4,000,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1997 A, (Regional Park
and Open Space District),
5.00%, 10/1/01 4,045,880
1,000,000 Los Angeles County Schools
Pooled Financing Program GO,
Series 2000 B, 5.00%, 10/2/01 1,005,050
1,110,000 Los Angeles Wastewater System
Rev., Series 1996 A, 6.00%,
2/1/03 (FGIC) 1,160,738
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.375%, 7/1/02 1,039,100
2,000,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1997 G, (San Juan),
5.50%, 7/1/01 (MBIA) 2,025,960
1,500,000 Murrieta Valley Unified School
District GO, Series 1998 A,
5.15%, 9/1/13 (FGIC)(2) 790,860
2,970,000 Orange County Recovery COP,
Series 1996 A, 6.00%, 7/1/08
(MBIA) 3,322,480
1,230,000 Orange County Rev., Series
1995 A, (Recovery), 6.00%,
6/1/08 (MBIA) 1,373,787
Principal Amount Value
--------------------------------------------------------------------------------
$2,300,000 Pacific Housing & Finance Agency
Lease Rev., Series 1999 A,
(Pass Thru Obligation-Lease
Purchase), 4.625%, 12/1/04
(MBIA) $ 2,315,548
2,000,000 Poway Unified School District
Special Tax Rev., (Community
Facilities District No. 1), 5.00%,
10/1/07 (MBIA) 2,105,220
1,500,000 Riverside Electric Rev., 6.00%,
10/1/01, Prerefunded at
100% of Par(1) 1,532,475
1,475,000 Riverside Water Rev., 6.00%,
10/1/01, Prerefunded at
100% of Par(1) 1,506,934
1,000,000 Sacramento County Sanitation
District Auth. Rev., Series
2000 A, 4.60%, 12/1/02 1,014,350
1,000,000 Sacramento County Sanitation
District Auth. Rev., Series
2000 A, 4.70%, 12/1/03 1,022,460
3,800,000 Sacramento County Sanitation
District Auth. Rev., Series
2000 A, 5.10%, 12/1/09 4,046,164
1,000,000 Sacramento Schools Insurance
Auth. Rev., Series 1993 C,
(Workers Compensation
Program), 5.75%, 6/1/03(1) 1,017,980
1,000,000 San Bernardino County COP,
Series 1995 A, (Medical
Center Financing), 5.20%,
8/1/04 (MBIA) 1,042,520
5,000,000 San Diego Unified School District
GO, Series 2000 A, 5.25%,
10/4/01 5,051,100
1,085,000 Santa Barbara County COP,
4.90%, 3/1/01 1,089,329
3,120,000 Santa Clara County Financing
Auth. Lease Rev., Series
2000 B, (Multiple Facilities),
5.50%, 5/15/04 (AMBAC) 3,278,964
2,000,000 Santa Clara County Financing
Auth. Lease Rev., Series
2000 B, (Multiple Facilities),
5.50%, 5/15/07 (AMBAC) 2,158,320
1,025,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hospital Association), 5.00%,
12/1/01 1,026,333
1,075,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hospital Association), 4.80%,
12/2/02 1,071,162
1,240,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hospital Association), 5.00%,
12/1/05 1,213,390
1,070,000 Tehachapi COP, (Installment Sale),
4.80%, 11/1/04 (FSA) 1,101,875
3,175,000 Whittier Health Facility Rev.,
(Presbyterian Intercommunity),
5.50%, 6/1/02 (MBIA) 3,254,788
------------
122,177,038
------------
See Notes to Financial Statements www.americancentury.com 9
California Limited-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
PUERTO RICO -- 7.7%
$1,000,000 Puerto Rico Electric Power Auth.
Rev., Series 1995 W, 6.50%,
7/1/05 (MBIA) $ 1,101,660
1,500,000 Puerto Rico Electric Power Auth.
Rev., Series 1999 FF, 5.25%,
7/1/09 (MBIA) 1,596,345
1,775,000 Puerto Rico Municipal Finance
Agency GO, Series 1999 A,
5.00%, 8/1/02 1,799,034
3,300,000 Puerto Rico Municipal Finance
Agency GO, Series 1999 A,
5.00%, 8/1/03 (FSA) 3,381,213
1,000,000 Puerto Rico Municipal Finance
Agency GO, Series 1999 B,
5.00%, 8/1/01 1,007,130
2,250,000 Puerto Rico Municipal Finance
Agency GO, Series 1999 B,
5.00%, 8/1/05 (FSA) 2,334,690
------------
11,220,072
------------
U.S. VIRGIN ISLANDS -- 2.5%
1,000,000 Virgin Islands Public Finance
Auth. Rev., Series 1992 A,
(Matching Fund Loan Notes),
7.25%, 10/1/02, Prerefunded
at 102% of Par(1) 1,080,300
Principal Amount Value
--------------------------------------------------------------------------------
$1,500,000 Virgin Islands Public Finance
Auth. Rev., Series 1998 C,
5.50%, 10/1/07 $ 1,530,315
1,000,000 Virgin Islands Water & Power
Auth. Electric System Rev.,
5.00%, 7/1/02 1,004,010
------------
3,614,625
------------
TOTAL MUNICIPAL SECURITIES 137,011,735
------------
(Cost $134,633,877)
SHORT-TERM MUNICIPAL SECURITIES -- 5.7%
CALIFORNIA -- 5.7%
4,000,000 Koch Certificates Trust 1999-2
Rev., VRDN, 4.23%, 9/7/00
(AMBAC) (SBBPA: State Street
Bank & Trust Co.) (Acquired
8/30/00, Cost $4,000,000)(3) 4,000,000
4,300,000 Orange County Sanitation
Districts COP, Series 2000 B,
VRDN, 3.60%, 9/1/00 4,300,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 8,300,000
------------
(Cost $8,300,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $145,311,735
============
(Cost $142,933,877)
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 2000.
(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 restricted securities at August 31, 2000, was $4,000,000
which represented 2.8% of net assets.
10 1-800-345-2021 See Notes to Financial Statements
California Intermediate-Term Tax-Free--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 2000
CALIFORNIA CALIF. INTERMEDIATE
INT.-TERM LEHMAN 5-YEAR MUNICIPAL DEBT FUNDS(2)
TAX-FREE GO INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 6.00% 4.71% 5.92% --
1 YEAR 6.95% 5.33% 6.55% 7 OUT OF 29
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.86% 4.77% 4.63% 11 OUT OF 27
5 YEARS 5.35% 4.95% 5.18% 8 OUT OF 20
10 YEARS 6.39% 6.31% 6.18% 1 OUT OF 2
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 34-35 for information about returns, the comparative index, and Lipper
fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 8/31/00
California Intermediate-Term
Tax-Free $18,586
Lehman 5-Year GO Index $18,433
California
Intermediate-Term Lehman 5-Year
Tax-Free GO Index
DATE VALUE VALUE
8/31/1990 $10,000 $10,000
8/31/1991 $10,974 $11,009
8/31/1992 $11,981 $12,103
8/31/1993 $13,230 $13,173
8/31/1994 $13,377 $13,389
8/31/1995 $14,325 $14,476
8/31/1996 $15,011 $15,026
8/31/1997 $16,121 $16,030
8/31/1998 $17,249 $17,122
8/31/1999 $17,377 $17,501
8/31/2000 $18,586 $18,433
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
8/31/1991 9.74% 10.09%
8/31/1992 9.18% 9.93%
8/31/1993 10.42% 8.83%
8/31/1994 1.11% 1.64%
8/31/1995 7.09% 8.12%
8/31/1996 4.79% 3.80%
8/31/1997 7.39% 6.10%
8/31/1998 7.00% 6.80%
8/31/1999 0.74% 2.21%
8/31/2000 6.95% 5.33%
www.americancentury.com 11
California Intermediate-Term Tax-Free--Q&A
--------------------------------------------------------------------------------
[photo of Robert Miller]
An interview with Robert Miller, a portfolio manager on the California
Tax-Free and Municipal funds investment team. Robert--who has 12 years
experience in municipal finance, including 10 years as a credit
analyst--replaced Colleen Denzler, who was promoted to take on greater
management responsibilities.
HOW DID CALIFORNIA INTERMEDIATE-TERM TAX-FREE PERFORM IN THE FISCAL YEAR ENDED
AUGUST 31, 2000?
The portfolio performed well, returning 6.95% and ranking in the top
quartile of the 29 "California Intermediate Municipal Debt Funds" tracked by
Lipper Inc. California Intermediate-Term Tax-Free's returns also compared
favorably with those of the Lipper group for the three-, five-, and 10-year time
horizons (see the previous page).
WHAT WERE THE KEYS TO THE FUND'S OUTPERFORMANCE?
One key factor was that our expenses were lower than average, which gave us
a leg up on the competition. In addition, we enhanced performance by actively
managing the portfolio's duration and maturity structure to capitalize on supply
and demand imbalances in the market. Lastly, our value-oriented approach to
security selection meant we were able to purchase high-quality, uninsured bonds
that enhanced the fund's yield.
CAN YOU TELL US A LITTLE MORE ABOUT DURATION AND HOW YOU MANAGED IT?
Duration measures the price sensitivity of a bond or bond fund to changes
in interest rates. The longer the duration, the more a bond or fund's price
fluctuates when rates change. So ideally, you want a longer duration when rates
fall and a shorter duration when rates rise.
Earlier in 2000, we managed our duration conservatively in anticipation of
rising rates. But as rates rose, we began to see more attractive values and
better return potential in bonds with longer maturities. In addition, the summer
months typically see fairly tight supply, which often leads to higher prices on
California bonds. As a result, we began extending the portfolio's duration in
March. Having a longer duration helped returns in recent months, when interest
rates fell and California municipal bond prices rose.
WHAT TYPES OF BONDS DID YOU BUY TO EXTEND DURATION?
We purchased both 20-year non-callable zero-coupon bonds and discount bonds
(securities that trade below par and have interest coupons below prevailing
market rates). These bonds tend to have better performance characteristics in a
declining interest rate environment. That's because zero-coupon bonds tend to
have longer durations, while non-callable and discount bonds give us "call
protection."
Call protection is important because many municipal bonds can be "called,"
or paid off by the issuer before their maturity date. That means that when
market rates fall below a bond's coupon rate, the bond trades to its call date,
effectively shortening its duration. So having this call protection helped us
maintain a longer duration as rates declined.
[left margin]
"HAVING A LONGER DURATION HELPED RETURNS IN RECENT MONTHS, WHEN INTEREST RATES
FELL."
YIELDS AS OF AUGUST 31, 2000
30-DAY SEC YIELD 4.01%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 6.14%
37.42% TAX BRACKET 6.41%
41.95% TAX BRACKET 6.91%
45.22% TAX BRACKET 7.32%
PORTFOLIO AT A GLANCE
8/31/00 8/31/99
NUMBER OF SECURITIES 147 153
WEIGHTED AVERAGE
MATURITY 8.4 YRS 8.3 YRS
AVERAGE DURATION 5.5 YRS 5.7 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 35-36.
12 1-800-345-2021
California Intermediate-Term Tax-Free--Q&A
--------------------------------------------------------------------------------
(Continued)
But the flip side to this strategy is that zeros can have a very large
impact on duration, while discount bonds lose their attractive characteristics
as their coupons get closer to the prevailing interest rate. Consequently, we
limited our purchase of zeros and sold our discount bonds as they approached
par. We used the proceeds from these sales to buy securities with better yield
and performance characteristics and to adjust the fund's maturity structure.
HOW DID YOU STRUCTURE THE PORTFOLIO?
Early in the period, we used a bullet maturity structure, clustering the
maturities of the bonds in the portfolio between seven and 12 years. That
benefited the fund as rates rose through about mid-May because bonds with
maturities in this part of the curve held their value better than longer-term
securities.
But in the last several months, we moved to a barbell structure, or one
that's light in bonds with maturities from seven to 12 years and heavy in
securities with three- and 20-year maturities. The longer-term discount bonds
enhanced returns as rates declined, while our shorter-term premium securities
(bonds with coupons above the prevailing rate) helped us balance out our
duration and increase our tax-free income distribution to shareholders.
YOU ALSO MENTIONED YOUR VALUE-ORIENTED APPROACH TO MANAGING THE FUND. CAN YOU
GIVE US AN EXAMPLE OF A VALUE PLAY YOU MADE?
Sure. We use a team-oriented management approach--portfolio managers work
hand-in-hand with our municipal credit analysts to try to find what we think are
the best values in the market. A good example of how our credit and management
teams work together is our approach to health care bonds. We generally avoided
hospital and other health care bonds in recent years--the financial health of
these institutions was damaged as they struggled to deal with industry reforms.
But in recent months, we began to see what we believe are compelling values
in a handful of select health care issues. As a result, we've taken a modest
position in health care bonds, carefully picking over this beaten-up sector to
selectively add yield and find what we think are some very good values.
WHAT'S YOUR OUTLOOK FOR THE CALIFORNIA MUNICIPAL MARKET?
We're generally optimistic about the market. First, we've begun to see
signs that economic growth is moderating, so it's possible the Fed's work on
interest rates is done for the rest of the year. Second, supply and demand
trends should continue to be positive for California bonds.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD?
Our strategy going forward will be to continue to look for opportunities to
enhance returns by actively managing the fund's duration and maturity structure.
In addition, we'll continue to work with our experienced credit research team to
look for value in high-quality, uninsured bonds.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/00 2/29/00
AAA 73% 66%
AA 17% 22%
A 8% 10%
BBB 2% 2%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 34
for more information.
TOP FIVE SECTORS (AS OF 8/31/00)
% OF FUND INVESTMENTS
COPS/LEASES 24%
GO 17%
WATER AND SEWER REVENUE 12%
ELECTRIC REVENUE 8%
SALES TAX REVENUE 6%
TOP FIVE SECTORS (AS OF 2/29/00)
% OF FUND INVESTMENTS
COPS/LEASES 26%
GO 20%
WATER AND SEWER REVENUE 10%
SALES TAX REVENUE 10%
ELECTRIC REVENUE 8%
Investment terms are defined in the Glossary on pages 35-36.
www.americancentury.com 13
California Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 97.4%
CALIFORNIA -- 90.4%
$4,845,000 Alameda County COP, (Santa Rita
Jail), 5.375%, 6/1/09 (MBIA) $ 5,234,005
2,685,000 Alisal Unified School District GO,
Series 2000 A, 6.38%, 5/1/24
(FGIC)(1) 712,492
2,450,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.80%, 7/1/06 2,435,447
4,060,000 Burbank Redevelopment Agency
Tax Allocation Rev., (West Olive),
6.50%, 12/1/01 (AMBAC) 4,186,510
2,145,000 California Educational Facilities
Auth. Rev., (University of San
Diego), 6.75%, 10/1/00 ,
Prerefunded at 102% of Par
(MBIA)(2) 2,192,662
1,240,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 6.125%, 4/1/13 1,315,454
1,605,000 California Educational Facilities
Auth. Rev., Series 2000 B,
(Pooled College & University
Projects), 6.625%, 6/1/20 1,695,169
1,045,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/03 (MBIA) 1,076,998
1,745,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.625%, 11/1/02(2) 1,803,737
3,145,000 California Health Facilities
Financing Auth. Rev., Series
1995 A, (Insured Health
Facility), 6.00%, 7/1/04
(AMBAC) 3,356,501
1,000,000 California Infrastructure &
Economic Development Bank
Rev., Series 2000 A, (Scripps
Research Institute), 5.625%,
7/1/20 1,023,420
1,075,000 California Mobilehome Park
Financing Auth. Rev., Series
2000 A, (Union City Tropics),
5.375%, 8/15/14 (ACA) 1,071,313
4,520,000 California Public Works Board
Lease Rev. COP, Series
1992 A, (Archives Building
Project), 6.20%, 12/1/05
(AMBAC) 4,969,514
1,000,000 California Public Works Board
Lease Rev. COP, Series
1992 A, (Various University of
California Projects), 5.90%,
12/1/03 (AMBAC) 1,057,950
Principal Amount Value
--------------------------------------------------------------------------------
$3,000,000 California Public Works Board
Lease Rev. COP, Series
1994 A, (Various University of
California Projects), 6.15%,
11/1/04 $ 3,264,870
4,000,000 California Public Works Board
Lease Rev. COP, Series
1998 A, (California Community
Colleges), 5.25%, 12/1/12
(AMBAC) 4,211,040
1,270,000 California Public Works Board
Lease Rev. COP, Series
1993 B, (Various California
Universities), 5.55%, 6/1/10
(MBIA) 1,388,377
5,000,000 California Rural Home Mortgage
Financing Auth. Lease Rev.,
Series 1996 A, 4.45%, 8/1/01
(MBIA) 5,012,300
4,795,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1992 J-2,
5.80%, 12/1/04 5,127,965
2,200,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1995 O,
5.00%, 12/1/22 2,101,726
2,000,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1998 U,
5.125%, 12/1/12 2,082,060
1,000,000 California State Department of
Water Resources Center Valley
Project Rev., Series 1997 S,
(Water Systems), 5.00%,
12/1/22 957,840
1,855,000 California State GO, 7.00%,
11/1/06 (FGIC) 2,140,447
2,000,000 California State GO, 6.40%,
9/1/07 2,269,020
4,000,000 California State GO, 7.50%,
10/1/07 (MBIA) 4,806,760
2,475,000 California State GO, 8.00%,
11/1/07 (FGIC) 2,899,166
4,080,000 California State GO, 6.00%,
10/1/09 4,605,014
3,350,000 California State GO, 5.75%,
4/1/10 3,707,311
3,725,000 California State GO, 5.00%,
10/1/17 3,697,361
2,500,000 California State GO, 5.00%,
10/1/18 (AMBAC) 2,466,225
8,000,000 California Statewide Communities
Development Auth. COP,
(California Lutheran Homes),
5.375%, 11/15/06(2) 8,528,559
2,385,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 6.50%,
7/1/03(2) 2,542,720
14 1-800-345-2021 See Notes to Financial Statements
California Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$2,500,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.25%,
7/1/11 $ 2,605,600
2,180,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.00%,
7/1/12 2,202,345
2,545,000 Capistrano Unified Public
Financing Auth. Special Tax
Rev., Series 1996 A, (First Lien),
6.00%, 9/1/06 (AMBAC) 2,796,344
5,000,000 Central Coast Water Auth. Rev.,
Series 1996 A, (State Water
Regulation Facilities), 5.00%,
10/1/22 (AMBAC) 4,847,000
2,075,000 Chabot Las Positas Community
College District COP, 5.50%,
12/1/10 (FSA) 2,244,611
2,465,000 Claremont Unified School District
GO, Series 2000 A, 5.25%,
8/1/24 (MBIA) 2,430,194
2,000,000 Contra Costa County COP, 5.25%,
2/1/21 (AMBAC) 1,991,220
5,435,000 Contra Costa Transportation Auth.
Sales Tax Rev., Series 1993 A,
6.00%, 3/1/05 (FGIC) 5,863,549
1,065,000 Contra Costa Water District Rev.,
Series 1990 A, 7.00%,
10/1/00, Prerefunded at
102% of Par(2) 1,088,856
1,220,000 Coronado Community
Development Agency Tax
Allocation Rev., 6.00%, 9/1/08
(FSA) 1,348,588
2,570,000 East Bay Municipal Utility District
Water System Rev., 6.00%,
06/1/05 2,696,213
10,000,000 East Bay-Delta Housing &
Finance Agency Lease Rev.,
Series 2000 A, (Lease
Purchase Project), 4.75%,
6/1/05 (MBIA) 10,259,999
1,150,000 Fairfield GO, 5.25%, 9/28/01 1,158,982
5,420,000 Fresno Special Tax Rev.,
(Community Facilities District
No. 3), 4.75%, 9/1/05 (LOC:
Rabobank International) 5,423,577
1,285,000 Garden Grove Agency Community
Development Tax Allocation
Rev., 5.30%, 10/1/02 1,300,870
2,000,000 Hayward COP, (Civic Center),
5.25%, 8/1/26 (MBIA) 1,962,420
7,350,000 Imperial Irrigation District COP,
(Electrical System), 6.50%,
11/1/07 (MBIA) 8,408,326
1,010,000 Inglewood Redevelopment
Agency Tax Allocation Rev.,
Series 1998 A, (Merged
Redevelopment), 5.25%,
5/1/23 (AMBAC) 1,007,930
Principal Amount Value
--------------------------------------------------------------------------------
$2,715,000 Irvine Unified School District
Special Tax Rev., (Community
Facilities District No. 86-1),
5.50%, 11/1/10 (AMBAC) $ 2,944,309
2,300,000 Los Angeles Airport Rev., Series
1995 A, 6.00%, 5/15/05
(FGIC) 2,487,680
4,000,000 Los Angeles Capital Asset Lease
Rev. COP, 5.875%, 12/1/05
(AMBAC) 4,336,920
1,030,000 Los Angeles Community
Redevelopment Agency Parking
System Rev., (Cinerama Dome
Public Parking Project), 5.30%,
7/1/13 (ACA) 1,048,025
1,085,000 Los Angeles Community
Redevelopment Agency Parking
System Rev., (Cinerama Dome
Public Parking Project),
5.375%, 7/1/14 (ACA) 1,102,740
1,260,000 Los Angeles Community
Redevelopment Agency Tax
Allocation Rev., Series 1998 C,
(Hollywood Redevelopment
Project), 5.50%, 7/1/17
(MBIA) 1,324,424
1,155,000 Los Angeles Convention and
Exhibition Center Auth. Lease
Rev. COP, Series 1993 A,
6.00%, 8/15/10 (MBIA) 1,306,132
1,300,000 Los Angeles COP, Series
2000 A, (American Academy
of Dramatic Arts), 4.70%,
11/1/05 (LOC: Allied Irish
Bank PLC) 1,311,791
2,785,000 Los Angeles County Capital
Asset Leasing Corp. Rev. COP,
Series 1999 A, (California
Equipment Program), 4.60%,
12/1/01 2,788,342
3,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A,
(Proposition A), 5.25%,
7/2/12 (MBIA) 3,131,850
2,000,000 Los Angeles County Sanitation
Districts Financing Auth. Rev.,
Series 1993 A, (Capital),
5.20%, 10/2/05 2,100,420
2,900,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.00%,
7/1/01 2,943,674
4,665,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.20%,
7/1/03 4,910,846
2,000,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.25%,
7/1/04 2,106,000
See Notes to Financial Statements www.americancentury.com 15
California Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$2,500,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1991 A,
(Proposition A), 6.40%,
7/2/01, Prerefunded at 102%
of Par(2) $ 2,598,700
3,515,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
(Proposition C), 6.20%, 7/1/04 3,763,194
3,765,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
(Proposition C), 6.40%, 7/1/06 4,171,884
1,000,000 Los Angeles Department of Water
and Power Waterworks Rev.,
6.30%, 4/15/06 (FGIC) 1,052,290
1,000,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/15 (FGIC) 1,119,990
3,115,000 Los Angeles Unified School
District GO, Series 1999 C,
5.50%, 7/1/12 (MBIA)(2) 3,353,702
8,000,000 Los Angeles Unified School
District GO, Series 2000 D,
5.625%, 7/1/14 (FGIC) 8,573,519
4,780,000 Los Angeles Wastewater System
Rev., Series 1992 B, 6.20%,
6/1/02, Prerefunded at 102%
of Par (AMBAC)(2) 5,047,823
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.625%, 7/1/01,
Prerefunded at 102% of Par(2) 1,041,130
3,500,000 Metropolitan Water District of
Southern California Waterworks
Rev., 8.00%, 7/1/08 4,373,075
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1993 A, 5.75%,
7/1/21 1,064,770
2,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1999 A, 5.40%,
7/1/14 2,109,680
1,700,000 Modesto Irrigation District
Financing Auth. Rev., Series
1996 A, 5.80%, 10/1/11
(MBIA) 1,847,560
1,100,000 Mojave Water Agency
Improvement District GO,
(Morongo Basin), 5.40%,
9/1/08 (FGIC) 1,185,602
1,900,000 Morgan Hill Unified School District
GO, 5.75%, 8/1/17 (FGIC) 2,029,409
1,110,000 Ontario Redevelopment Financing
Auth. Local Agency Rev., Series
1995 A, 5.80%, 9/2/06 (FSA) 1,181,972
5,000,000 Orange County Recovery COP,
Series 1996 A, 6.00%, 7/1/06
(MBIA) 5,481,349
Principal Amount Value
--------------------------------------------------------------------------------
$1,500,000 Orange County Recovery COP,
Series 1996 A, 6.00%, 7/1/07
(MBIA) $ 1,663,065
1,330,000 Oxnard Harbor District Rev.,
7.00%, 8/1/04 (FSA) 1,470,475
2,645,000 Petaluma City Joint Union High
School District GO, Series
2000 F, 5.25%, 8/1/24 (FSA) 2,607,653
1,650,000 Placer Union High School District
GO, Series 2000 A, 6.33%,
8/1/20 (FGIC)(1) 556,199
2,125,000 Placer Union High School District
GO, Series 2000 A, 6.37%,
8/1/22 (FGIC)(1) 634,058
1,000,000 Ramona Municipal Water District
COP, 6.90%, 10/1/01
(AMBAC) 1,022,300
2,500,000 Rancho Water District Financing
Auth. Rev., 4.70%, 9/15/01
(LOC: Toronto-Dominion Bank) 2,494,700
1,060,000 Redding Joint Powers Financing
Auth. Electric System Rev.,
Series 1996 A, 6.25%, 6/1/07
(MBIA) 1,190,126
1,010,000 Richmond Joint Powers Financing
Auth. Rev., Series 1995 A,
5.30%, 5/15/06 1,052,511
2,080,000 Riverside County Public Financing
Auth. Special Tax Rev., Series
1995 A, 5.25%, 9/1/04
(MBIA) 2,174,848
1,225,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.60%,
6/1/05 (AMBAC) 1,306,487
1,025,000 Rocklin Unified School District
Community Facilities District
Special Tax Rev., (Project
No. 1), 5.20%, 9/1/09 (MBIA) 1,089,380
2,890,000 Rocklin Unified School District
Community Facilities District
Special Tax Rev., (Project
No. 1), 6.05%, 9/1/21
(AMBAC)(1) 916,361
1,835,000 Rocklin Unified School District
Community Facilities District
Special Tax Rev., (Project
No. 1), 6.07%, 9/1/22
(AMBAC)(1) 547,344
15,000,000 Sacramento City Financing Auth.
COP, Series 1993 A, 5.40%,
11/1/20 (AMBAC) 15,361,499
1,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 A, 6.25%, 8/15/10
(MBIA) 1,149,990
1,890,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 C, 5.75%, 11/15/07
(MBIA)(2) 1,984,009
16 1-800-345-2021 See Notes to Financial Statements
California Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$2,820,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 C, 5.75%, 11/15/07
(MBIA) $ 2,965,174
3,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1994 H, 5.75%, 1/2/11
(MBIA) 3,700,270
3,105,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.70%, 7/1/17
(AMBAC) 3,348,308
5,000,000 San Bernardino County COP,
Series 1995 A, (Medical
Center), 5.75%, 8/1/07 (MBIA) 5,478,099
5,000,000 San Bernardino County GO,
5.50%, 9/28/01 5,064,750
7,200,000 San Diego County Water Auth.
Rev. COP, Series 1991 A,
6.125%, 5/1/03 7,430,255
4,000,000 San Diego Regional
Transportation Commission
Sales Tax Rev., Series 1994 A,
6.00%, 4/1/04 (FGIC) 4,261,000
10,000,000 San Diego Unified School District
GO, Series 2000 A, 5.25%,
10/4/01 10,102,199
2,255,000 San Francisco City and County
Educational Facilities Unified
School District GO, Series
1999 B, 5.50%, 6/15/12 2,412,805
3,405,000 San Francisco Port Commission
Rev., 5.625%, 7/1/02 3,490,466
4,580,000 San Jose Financing Auth. Rev.,
Series 1993 A, (Convention
Center), 6.10%, 9/1/06 4,742,361
3,950,000 San Jose Financing Auth. Rev.,
Series 1993 C, (Convention
Center), 6.00%, 9/1/05 4,088,171
3,875,000 San Jose Redevelopment Agency
Tax Allocation Rev., Series
1992 A, (Merged Area
Redevelopment), 6.00%,
8/1/02 (MBIA)(2) 3,965,249
2,680,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/18
(MBIA) 2,737,379
2,500,000 Santa Ana Financing Auth. Rev.,
Series 1999 B, (South Harbor
Boulevard), 5.125%, 9/1/19
(MBIA) 2,479,025
1,015,000 Santa Ana Police Administration
COP, Series 1994 A, 5.50%,
7/1/07 (MBIA) 1,080,569
2,825,000 Santa Clara County Financing
Auth. Lease Rev., Series
2000 B, (Multiple Facilities
Projects), 5.00%, 5/15/02
(AMBAC) 2,873,986
Principal Amount Value
--------------------------------------------------------------------------------
$2,975,000 Santa Clara County Financing
Auth. Lease Rev., Series
2000 B, (Multiple Facilities
Projects), 5.00%, 5/15/03
(AMBAC) $ 3,053,094
2,075,000 Santa Clara Valley Water District
COP, Series 2000 A, 5.20%,
2/1/13 2,164,993
1,250,000 Santa Monica-Malibu Unified
School District GO, 5.25%,
8/1/13 1,321,538
4,825,000 Sonoma Valley Unified School
District GO, 5.125%, 8/1/25
(FGIC) 4,660,226
1,785,000 South Sutter Water District
Hydroelectric Rev. COP, 6.80%,
8/1/01 (FGIC) 1,806,509
2,285,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/01 2,327,524
3,090,000 Southern California Public Power
Auth. Rev., (Transmission),
5.625%, 7/1/03 (MBIA) 3,225,157
4,065,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.20%,
7/1/02 (MBIA) 4,194,633
5,000,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.40%,
7/1/04 (MBIA) 5,159,750
2,000,000 Stanislaus County COP, 5.50%,
5/1/06 (MBIA) 2,139,660
1,800,000 Sweetwater Auth. Water Rev.,
5.25%, 4/1/10 (AMBAC) 1,925,064
1,150,000 Taft Public Financing Auth. Lease
Rev., Series 1997 A,
(Community Correctional
Facility), 5.50%, 1/1/06 1,191,883
1,950,000 University of California Rev.,
(University Medical Center),
5.60%, 7/1/09 (AMBAC) 2,091,005
2,000,000 University of California Rev.,
Series 1994 D, (Multiple
Purpose Projects), 6.375%,
9/1/02, Prerefunded at 102%
of Par (MBIA)(2) 2,128,780
1,100,000 University of California Rev.,
Series 1994 D, (Multiple
Purpose Projects), 6.375%,
9/1/02, Prerefunded at 102%
of Par (MBIA)(2) 1,170,829
9,500,000 University of California Rev.,
Series 1998 F, (Multiple
Purpose Projects), 5.00%,
9/1/22 (FGIC) 9,114,490
1,735,000 Watsonville Hospital Insured Rev.,
Series 1996 A, (Watsonville
Community Hospital), 5.45%,
7/1/03 (California Mortgage
Insurance)(2) 1,796,714
3,980,000 Whittier Health Facility Rev.,
(Presbyterian Intercommunity),
6.00%, 6/1/06 (MBIA) 4,343,374
See Notes to Financial Statements www.americancentury.com 17
California Intermediate-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$1,465,000 Woodland Wastewater System
COP, 6.00%, 3/1/06 (AMBAC) $ 1,598,945
2,500,000 Yuba City Unified School District
GO, 6.02%, 9/1/21 (FGIC)(1) 792,700
2,625,000 Yuba City Unified School District
GO, 6.04%, 9/1/22 (FGIC)(1) 782,985
------------
401,846,283
------------
PUERTO RICO -- 7.0%
3,000,000 Puerto Rico Commonwealth
Infrastructure Financing Auth.
Special Tax Rev., Series
1998 A, 5.50%, 7/1/08
(AMBAC) 3,236,040
5,790,000 Puerto Rico Electric Power Auth.
Rev., Series 1998 DD, 4.50%,
7/1/19 (FSA) 5,168,907
2,500,000 Puerto Rico Municipal Finance
Agency GO, Series 1999 A,
5.00%, 8/1/02 2,533,850
3,000,000 Puerto Rico Municipal Finance
Agency GO, Series 1999 A,
5.00%, 8/1/03 (FSA) 3,073,830
7,000,000 Puerto Rico Municipal Finance
Agency GO, Series 1999 B,
5.00%, 8/1/05 (FSA) 7,263,480
1,450,000 Puerto Rico Municipal Finance
Agency GO, Series 1999 B,
6.00%, 8/1/15 (FSA) 1,581,689
Principal Amount Value
--------------------------------------------------------------------------------
$3,090,000 Puerto Rico Public Buildings
Auth. Rev., Series 1995 A,
6.25%, 7/1/09 (AMBAC) $ 3,510,488
5,000,000 University of Puerto Rico Auth.
Rev., Series 1995 M, 5.25%,
6/1/25 (MBIA) 4,907,850
------------
31,276,134
------------
TOTAL MUNICIPAL SECURITIES 433,122,417
------------
(Cost $417,403,101)
SHORT-TERM MUNICIPAL SECURITIES -- 2.6%
5,300,000 Irvine Ranch Water District Rev.,
Series 1985 B, VRDN, 3.50%,
9/1/00 (LOC: KBC Bank, N.V.) 5,300,000
5,000,000 Koch Certificates Trust 1999-2
Rev., VRDN, 4.23%, 9/7/00
(AMBAC) (MBIA) (SBBPA:
State Street Bank & Trust Co.)
(Acquired 8/15/00-8/21/00,
Cost $5,000,000)(3) 5,000,000
1,300,000 Orange County Sanitation
Districts COP, Series 2000 B,
VRDN, 3.60%, 9/1/00 1,300,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 11,600,000
------------
(Cost $11,600,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $444,722,417
============
(Cost $429,003,101)
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 2000.
(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) Security was purchased under Rule 144A of the Securities Act of 1933 or is
a private placement and, unless registered under the Act or exempted from
registration, may only be sold to qualified institutional investors. The
aggregate value of restricted securities at August 31, 2000, was $5,000,000
which represented 1.1% of net assets.
18 1-800-345-2021 See Notes to Financial Statements
California Long-Term Tax-Free--Performance
--------------------------------------------------------------------------------
TOTAL RETURNS AS OF AUGUST 31, 2000
CALIFORNIA
LONG-TERM LEHMAN LONG-TERM CALIFORNIA MUNICIPAL DEBT FUNDS(2)
TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING
================================================================================
6 MONTHS(1) 8.60% 9.56% 8.00% --
1 YEAR 7.79% 7.34% 6.47% 23 OUT OF 109
================================================================================
AVERAGE ANNUAL RETURNS
3 YEARS 4.94% 5.09% 4.35% 25 OUT OF 98
5 YEARS 6.24% 6.65% 5.54% 15 OUT OF 85
10 YEARS 7.38% 8.05% 6.83% 8 OUT OF 40
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 34-35 for information about returns, the comparative index, and Lipper
fund rankings.
[mountain graph - data below]
GROWTH OF $10,000 OVER 10 YEARS
Value on 8/31/00
California Long-Term Tax-Free $20,382
Lehman Long-Term Municipal Index $21,687
California
Long-Term Lehman Long-Term
Tax-Free Municipal Index
DATE VALUE VALUE
8/31/1990 $10,000 $10,000
8/31/1991 $11,226 $11,347
8/31/1992 $12,414 $12,775
8/31/1993 $14,154 $14,661
8/31/1994 $14,044 $14,361
8/31/1995 $15,056 $15,715
8/31/1996 $16,076 $16,795
8/31/1997 $17,635 $18,684
8/31/1998 $19,266 $20,647
8/31/1999 $18,910 $20,205
8/31/2000 $20,382 $21,687
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
8/31/1991 12.26% 13.47%
8/31/1992 10.58% 12.60%
8/31/1993 14.02% 14.76%
8/31/1994 -0.78% -2.05%
8/31/1995 7.21% 9.43%
8/31/1996 6.77% 6.88%
8/31/1997 9.70% 11.26%
8/31/1998 9.25% 10.51%
8/31/1999 -1.85% -2.14%
8/31/2000 7.79% 7.34%
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 THE YEAR ENDED AUGUST 31,
2000?
California Long-Term Tax-Free returned 7.79%, beating the 6.47% average
return of the 109 "California Municipal Debt Funds" tracked by Lipper Inc.
The fund's longer-term results were also better than most of its peers. For
the three-, five-, and 10-year periods ended August 31, 2000, the fund ranked in
at least the top 26% of its peer group (see the previous page for more fund
performance comparisons).
Additionally, California Long-Term Tax-Free produced more federal and state
tax-free income than its peers. The fund's 30-day SEC yield as of August 31,
2000, was 4.66%, compared with the 4.34% average of the Lipper category. The
fund's yield translates into a tax-equivalent yield of 8.51% for investors in
the highest combined state and federal income tax bracket (see the table at
left).
WHY DID THE FUND BEAT ITS PEER AVERAGES DURING THE PAST YEAR?
A key factor in the fund's outperformance was its below-average expenses.
For the fiscal year ended August 31, 2000, the fund's expense ratio was 0.51%,
compared with the 1.07% average for its Lipper category. All else being equal,
lower expenses mean higher yields and returns.
The fund's performance also was aided by our "coupon barbell" strategy
--larger-than-average weightings in premium and discount bonds. Premiums trade
above par (face value) and carry interest payments above prevailing market
rates. Discount bonds trade below par and carry interest payments below
prevailing market rates.
WHAT WAS THE ATTRACTION OF THESE BONDS?
We favored premium bonds because they boosted the fund's yield. The
discount bond side of the barbell resulted from when we bought discounts in
early 1999. At the time, we expected falling interest rates in response to
global economic weakness. We believed that the discount bonds would provide
"call protection" if interest rates fell and calls (bond redemptions by issuers
before maturity) became prevalent. This call protection effectively lengthened
the duration (heightened the interest rate sensitivity) of the portfolio last
year.
The increasingly long duration of our discount bond holdings detracted from
performance when interest rates and bond yields rose for most of 1999. Even so,
we were reluctant to sell our discount bonds at distressed prices and abandon a
strategy we believed ultimately would benefit the fund.
WAS YOUR PATIENCE REWARDED?
Yes, it was when the duration of par bonds began to extend dramatically
(their interest rate sensitivity increased) as interest rates climbed.
Meanwhile, the duration of discount bonds-- which had already extended in
earlier months--remained relatively stable, and the duration of premium bonds
[left margin]
"THE FUND'S LONGER-TERM RESULTS WERE BETTER THAN THOSE OF MOST OF ITS PEERS."
YIELDS AS OF AUGUST 31, 2000
30-DAY SEC YIELD 4.66%
30-DAY TAX-EQUIVALENT YIELDS
34.70% TAX BRACKET 7.14%
37.42% TAX BRACKET 7.45%
41.95% TAX BRACKET 8.03%
45.22% TAX BRACKET 8.51%
PORTFOLIO AT A GLANCE
8/31/00 8/31/99
NUMBER OF SECURITIES 81 90
WEIGHTED AVERAGE
MATURITY 17.2 YRS 19.3 YRS
AVERAGE DURATION 8.5 YRS 9.4 YRS
EXPENSE RATIO 0.51% 0.51%
Investment terms are defined in the Glossary on pages 35-36.
20 1-800-345-2021
California Long-Term Tax-Free--Q&A
--------------------------------------------------------------------------------
(Continued)
extended less than par bonds. As a result, both discounts and premiums outpaced
par bonds and helped the fund outperform its peers.
The market's spring and summer rally also favored our coupon barbell
strategy. Here's why: During the rally, par bonds started "trading to their call
date," meaning their prices reflected the likelihood that their issuers would
redeem them at the first possible call date. That essentially limited par bonds'
gains. In contrast, longer-duration discount bonds continued to rally.
WHY DID YOU SELL SOME DISCOUNT BONDS TOWARD THE END OF THE PERIOD?
We wanted to lock in some of their strong performance and look for more
attractive values elsewhere. One place we found value was with bonds rated BBB.
In our view, BBB bonds gave us enough additional yield--as much as one half of
one percentage point more than an AAA security with a comparable maturity--to
compensate for increased credit risk. Although these additions brought the
fund's stake in BBB bonds to 9% of net assets, we maintained a high-quality
focus with approximately 90% in bonds rated A or higher. The average credit
quality of the portfolio as of August 31, 2000, was better than AA.
WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND BONDS?
We're reasonably optimistic that the Federal Reserve's six interest rate
hikes during the last year or so will have their intended effect of slowing the
economy and keeping inflation under wraps. Rising interest rates around the
world also reinforce this view. Increasing worker productivity is another factor
to be reckoned with. Even the Fed has begun to support the view that, thanks to
productivity gains, the economy can enjoy good growth without inflation
spiraling out of control.
The Fed could raise interest rates again before the end of the year if
consumer confidence and spending remain persistently strong. However, as oil
prices rise, the euro weakens, corporate earnings come under pressure, and the
stock market wavers, another rate hike grows increasingly unlikely.
Municipal supply and demand also offer reasons for optimism. Given
municipal issuers' reduced debt issuance needs and the refinancing deterrent
caused by higher interest rates earlier this year, we expect the supply of
municipals to remain relatively low. If demand remains strong, municipal bond
prices should rise.
GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS?
We're likely to keep the fund's duration slightly longer than that of our
peers as long as the Fed appears unlikely to raise rates further. We're also
comfortable with the fund's credit quality, with the majority of our holdings
invested in AAA securities and a small amount in BBB bonds. As always, we'll
adhere to our preference for bonds that offer good value since that's the
philosophy that's helped us achieve our long-term success.
[right margin]
PORTFOLIO COMPOSITION BY
CREDIT RATING
% OF FUND INVESTMENTS
AS OF AS OF
8/31/00 2/29/00
AAA 62% 59%
AA 12% 15%
A 17% 18%
BBB 9% 8%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 34
for more information.
TOP FIVE SECTORS (AS OF 8/31/00)
% OF FUND INVESTMENTS
COPS/LEASES 20%
TAX ALLOCATION REVENUE 13%
GO 10%
HOSPITAL REVENUE 9%
PREREFUNDED/ETM 7%
TOP FIVE SECTORS (AS OF 2/29/00)
% OF FUND INVESTMENTS
COPS/LEASES 21%
GO 14%
TAX ALLOCATION REVENUE 13%
HOSPITAL REVENUE 9%
PREREFUNDED/ETM 7%
Investment terms are defined in the Glossary on pages 35-36.
www.americancentury.com 21
California Long-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 96.1%
CALIFORNIA -- 94.8%
$ 2,300,000 Alameda County COP, 6.80%,
6/15/17 (MBIA)(1) $ 945,599
5,400,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
5.125%, 7/1/18 4,872,744
1,000,000 Blythe Redevelopment No. 1 Tax
Allocation, 5.80%, 5/1/28 973,720
2,700,000 Brea Public Finance Auth. Rev.
Tax Allocation, (Project AB),
7.00%, 8/1/15 (MBIA) 2,818,530
1,220,000 Brea Redevelopment Agency Tax
Allocation, (Project AB),
6.125%, 8/1/13 (MBIA) 1,292,419
4,000,000 California Educational Facilities
Auth. Rev., (Pepperdine
University), 5.75%, 9/15/30 4,107,080
1,500,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 6.30%, 4/1/21 1,555,905
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) 1,504,635
3,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/09(1) 1,943,820
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1991 B, (Adventist Health),
6.75%, 3/1/14 (MBIA) 2,578,350
2,000,000 California Health Facilities
Financing Auth. Rev., Series
1992 A, (California Mortgage
Insurance), 6.75%, 3/1/20 2,089,040
1,290,000 California Health Facilities
Financing Auth. Rev., Series
1992 C, (AIDS Healthcare
Foundation), 6.25%, 9/1/17
(California Mortgage Insurance) 1,343,329
5,165,000 California Health Facilities
Financing Auth. Rev., Series
1993 C, (St. Francis Memorial
Hospital), 5.875%, 11/1/23(2) 5,447,939
3,770,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1994 G, 7.25%, 8/1/17 3,861,686
1,115,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1995 C, 6.80%, 8/1/17 1,150,490
1,290,000 California Housing Finance
Agency Multi-Unit Rental
Housing Rev., 6.875%, 2/1/22 1,309,337
Principal Amount Value
--------------------------------------------------------------------------------
$14,100,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections),
5.25%, 6/1/15 (FSA) $ 14,680,638
3,000,000 California State GO, 6.125%,
10/1/11 (AMBAC) 3,434,340
9,000,000 California State GO, 4.50%,
12/1/21 (FGIC) 7,956,810
4,655,000 California State GO, 4.50%,
12/1/24 (FGIC) 4,055,017
7,500,000 California State GO, 4.25%,
10/1/26 (MBIA) 6,222,675
1,410,000 California State GO, Series
1984 B, (New Prison
Construction), 10.00%, 8/1/03 1,636,629
9,000,000 California Statewide Communities
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/22 (AMBAC,
California Mortgage Insurance) 8,579,160
5,695,000 Capistrano Unified School District
Community Facilities Special
Tax, (Refunding Issue 1988-1),
6.50%, 9/1/14 (FSA) 6,348,217
1,000,000 Coachella Valley Water District
#71 COP, (Flood Control),
6.75%, 10/1/02, Prerefunded
at 102% of Par(2) 1,073,130
1,320,000 Coalinga Public Financing Auth.
Local Obligation Rev., Series
1998 A, 6.375%, 9/15/21
(AMBAC) 1,512,337
13,500,000 Compton Redevelopment Agency
Tax Allocation, Series 1995 A,
6.50%, 8/1/13 (FSA) 14,930,054
2,580,000 Concord Joint Power Financing
Auth. Lease Rev., (Police
Facilities), 5.25%, 8/1/13 2,697,029
3,605,000 Inglewood Redevelopment
Agency Tax Allocation, Series
1998 A, (Merged
Redevelopment), 5.25%,
5/1/23 (AMBAC) 3,597,610
1,815,000 Kern County High School District
GO, 7.15%, 8/1/14 (MBIA)(2) 2,214,119
1,000,000 Long Beach Industrial
Development Rev., Series
1998 A, (CSU Foundation),
5.25%, 2/1/23 903,040
1,305,000 Los Altos Association of Bay Area
Governments COP, 5.90%,
5/1/27 1,332,614
3,475,000 Los Angeles Community
Redevelopment Agency
Housing Rev., Series 1994 A,
6.45%, 7/1/17 (AMBAC) 3,572,995
5,000,000 Los Angeles Community
Redevelopment Agency Parking
System Rev., (Cinerama Dome
Public Parking Project), 5.80%,
7/1/32 (ACA) 4,962,200
22 1-800-345-2021 See Notes to Financial Statements
California Long-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 2,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1996 A,
(Proposition A), 6.00%, 7/1/06,
Prerefunded at 101% of Par
(MBIA)(2) $ 2,212,680
1,000,000 Los Angeles County
Transportation Commission
Sales Tax Rev., 6.50%, 7/1/13
(MBIA) 1,039,360
3,340,000 Los Angeles Department of Water
and Power Waterworks Rev.,
4.50%, 10/15/24 2,890,570
1,865,000 Mendocino Coast District Health
Care Facility Rev., (California
Mortgage Insurance), 5.875%,
2/1/20 1,932,849
8,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 5.75%, 8/10/18 8,509,040
3,050,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1996 B, 4.75%,
7/1/21 (MBIA) 2,798,284
5,150,000 Mid-Peninsula Regional Open
Space District GO, 7.00%,
9/1/14 5,618,908
5,830,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan),
6.75%, 7/1/20 (MBIA)(2) 6,774,868
3,000,000 Oakland Redevelopment Agency
Tax Allocation, (Central District),
5.50%, 2/1/14 (AMBAC) 3,216,600
1,855,000 Pacifica Financing Auth. Sewer
Rev., 6.20%, 8/1/26 1,867,224
2,950,000 Pasadena COP, (Old Pasadena
Parking Facility), 6.25%,
1/1/18 3,300,018
4,475,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.20%, 8/1/19 4,568,349
5,000,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.25%, 8/1/26 5,090,200
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) 2,216,718
4,075,000 Riverside County Asset Leasing
Corp. Leasehold Rev., Series
1997 B, (Riverside County
Hospital), 5.00%, 6/1/19
(MBIA) 3,946,964
8,705,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 8,675,054
Principal Amount Value
--------------------------------------------------------------------------------
$ 1,000,000 Saddleback Valley Unified School
District Public Financing Auth.
Special Tax, Series 1997 A,
6.00%, 9/1/16 (FSA) $ 1,116,880
4,000,000 San Bernardino County GO,
5.50%, 9/28/01 4,051,800
3,400,000 San Diego County COP, 5.625%,
9/1/12 (AMBAC) 3,647,248
3,700,000 San Diego County COP,
(Burnham Institute), 6.25%,
9/1/29 3,796,200
3,500,000 San Diego County Regional
Transportation Commission
Sales Tax Rev., Series 1991 A,
6.95%, 4/1/04(1)(2) 3,015,145
2,000,000 San Diego Public Facilities
Financing Auth. Sewer Rev.,
5.00%, 5/15/25 (FGIC) 1,890,100
5,000,000 San Diego Unified School District
GO, Series 2000 A, 5.25%,
10/4/01 5,051,100
9,000,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 20, 4.50%, 5/1/23
(MBIA) 7,867,800
4,200,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 20, 4.50%, 5/1/26
(MBIA) 3,643,962
1,000,000 San Francisco City and County
Redevelopment Hotel Tax Rev.,
6.75%, 7/1/04, Prerefunded at
102% of Par (FSA)(2) 1,113,380
3,000,000 San Jose Financing Auth. Rev.,
Series 1993 C, (Convention
Center), 6.375%, 9/1/13 3,120,060
7,575,000 San Jose Financing Auth. Rev.,
Series 1993 D, (Central Service
Yard), 5.25%, 10/15/23 7,237,837
2,715,000 San Marcos Public Facilities Auth.,
Series 2000 A, (Tax Increment
Project Area 3), 6.75%,
10/1/30 2,807,799
3,975,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 6.50%,
7/1/16 (MBIA) 4,652,658
4,000,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 6.00%,
7/1/19 (MBIA) 4,419,280
3,500,000 Santa Ana Financing Auth. Lease
Rev., 6.25%, 7/1/15 (MBIA) 4,011,700
4,830,000 Santa Monica Community College
District COP, Series 1997 A,
5.90%, 2/1/27 4,957,850
3,260,000 Southern California Public Power
Auth. Rev., 6.00%, 7/1/18 3,261,858
7,315,000 Southern California Public Power
Auth. Rev., (Multiple Projects),
6.75%, 7/1/12 (FSA) 8,778,145
See Notes to Financial Statements www.americancentury.com 23
California Long-Term Tax-Free--Schedule of Investments
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
Principal Amount Value
--------------------------------------------------------------------------------
$ 3,730,000 Southern California Public Power
Auth. Rev., (Multiple Projects),
6.75%, 7/1/13 (FSA) $ 4,478,350
1,425,000 Southern California Public Power
Auth. Rev., (Transmission),
7.00%, 7/1/09 1,456,293
3,000,000 Southern California Public Power
Auth. Rev., Series 1989 A,
7.15%, 7/1/04 (AMBAC)(1) 2,551,890
2,000,000 Southern Orange County Finance
Auth. Special Tax Rev., Series
1994 A, 7.00%, 9/1/11
(MBIA) 2,436,900
2,850,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hospital Association), 5.70%,
12/1/14 2,624,964
2,000,000 Taft Public Financing Auth. Lease
Rev., Series 1997 A,
(Community Correctional
Facility), 6.05%, 1/1/17 2,102,480
1,400,000 Torrance Redevelopment Agency
Tax Allocation, Series 1998 A,
(Downtown Redevelopment),
5.60%, 9/1/28 1,319,977
3,020,000 Watsonville Insured Hospital Rev.,
Series 1996 A, (Watsonville
Community Hospital), 6.20%,
7/1/12 (California Mortgage
Insurance)(2) 3,373,461
------------
290,946,040
------------
PUERTO RICO -- 1.3%
$ 2,000,000 Puerto Rico Highway &
Transportation Authority
Highway Rev., Series 1993 X,
5.00%, 7/1/22 $ 1,886,980
2,000,000 Puerto Rico Municipal Finance
Agency, Series 1999 A, 5.00%,
8/1/02 2,027,080
------------
3,914,060
------------
TOTAL MUNICIPAL SECURITIES 294,860,100
------------
(Cost $283,288,494)
MUNICIPAL DERIVATIVES(3) -- 1.3%
CALIFORNIA -- 1.3%
4,000,000 Northern California Transmission
Rev., Inverse Floater, 6.05%,
4/29/24 (MBIA) 3,925,000
------------
(Cost $3,963,920)
SHORT-TERM MUNICIPAL SECURITIES -- 2.6%
CALIFORNIA -- 2.6%
8,000,000 Orange County Sanitation
Districts COP, Series 2000 B,
VRDN, 3.60%, 9/1/00 8,000,000
------------
(Cost $8,000,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $306,785,100
============
(Cost $295,252,414)
NOTES TO SCHEDULE OF INVESTMENTS
ACA = American Capital Access
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
August 31, 2000.
(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.
24 1-800-345-2021 See Notes to Financial Statements
Statement 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 payables) 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, 2000 TAX-FREE TAX-FREE TAX-FREE
ASSETS
<S> <C> <C> <C>
Investment securities, at value
(identified cost of $142,933,877,
$429,003,101 and $295,252,414,
respectively) (Note 3) ................$ 145,311,735 $ 444,722,417 $ 306,785,100
Receivable for investments sold ......... -- 4,977,280 --
Interest receivable ..................... 1,693,781 6,060,927 3,757,719
------------- ------------- -------------
147,005,516 455,760,624 310,542,819
------------- ------------- -------------
LIABILITIES
Disbursements in excess
of demand deposit cash ................ 4,644,188 9,652,594 6,688,219
Payable for investments purchased ....... -- 1,015,727 --
Accrued management fees (Note 2) ........ 60,934 188,423 128,375
Dividends payable ....................... 94,960 332,061 245,921
Payable for trustees' fees and expenses . 265 819 558
------------- ------------- -------------
4,800,347 11,189,624 7,063,073
------------- ------------- -------------
Net Assets ..............................$ 142,205,169 $ 444,571,000 $ 303,479,746
============= ============= =============
CAPITAL SHARES
Outstanding (unlimited number
of shares authorized) ................. 13,678,629 40,131,474 27,313,536
============= ============= =============
Net Asset Value Per Share ...............$ 10.40 $ 11.08 $ 11.11
============= ============= =============
NET ASSETS CONSIST OF:
Capital paid in .........................$ 140,436,216 $ 432,008,188 $ 297,013,654
Undistributed net investment income ..... -- 4,403 --
Accumulated net realized loss
on investment transactions ............ (608,905) (3,160,907) (5,066,594)
Net unrealized appreciation
on investments (Note 3) ............... 2,377,858 15,719,316 11,532,686
------------- ------------- -------------
$ 142,205,169 $ 444,571,000 $ 303,479,746
============= ============= =============
</TABLE>
See Notes to Financial Statements www.americancentury.com 25
Statement 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 interest income, fees and expenses,
and investment gains or losses.
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
YEAR ENDED AUGUST 31, 2000 TAX-FREE TAX-FREE TAX-FREE
INVESTMENT INCOME
Income:
Interest .......................... $ 6,421,112 $ 22,633,496 $ 17,363,990
------------ ------------ ------------
Expenses (Note 2):
Management fees ................... 714,414 2,230,933 1,532,838
Trustees' fees and expenses ....... 4,985 15,509 10,643
------------ ------------ ------------
719,399 2,246,442 1,543,481
------------ ------------ ------------
Net investment income ............. 5,701,713 20,387,054 15,820,509
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 3)
Net realized loss on investments .. (163,569) (2,376,556) (4,159,995)
Change in net unrealized
appreciation on investments ..... 1,834,226 11,126,025 10,026,558
------------ ------------ ------------
Net realized and unrealized
gain on investments ............. 1,670,657 8,749,469 5,866,563
------------ ------------ ------------
Net Increase in Net Assets
Resulting from Operations ....... $ 7,372,370 $ 29,136,523 $ 21,687,072
============ ============ ============
26 1-800-345-2021 See Notes to Financial Statements
Statement 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, 2000 AND AUGUST 31, 1999
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
TAX-FREE TAX-FREE TAX-FREE
Increase (Decrease) in
Net Assets 2000 1999 2000 1999 2000 1999
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income ....... $ 5,701,713 $ 5,576,900 $ 20,387,054 $ 21,015,700 $ 15,820,509 $ 16,920,555
Net realized gain (loss)
on investments ............ (163,569) 135,223 (2,376,556) 1,469,341 (4,159,995) 178,811
Change in net unrealized
appreciation
on investments ............ 1,834,226 (2,294,647) 11,126,025 (19,090,647) 10,026,558 (23,792,754)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets resulting
from operations ........... 7,372,370 3,417,476 29,136,523 3,394,394 21,687,072 (6,693,388)
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment income .. (5,701,713) (5,576,900) (20,387,054) (21,023,720) (15,820,509) (16,929,588)
From net realized gains on
investment transactions ... -- -- -- (4,068,589) -- (1,834,114)
In excess of net
realized gains on
investment transactions ... -- -- -- (779,994) -- (906,606)
------------- ------------- ------------- ------------- ------------- -------------
Decrease in net assets
from distributions ........ (5,701,713) (5,576,900) (20,387,054) (25,872,303) (15,820,509) (19,670,308)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ... 80,207,316 65,637,307 186,926,843 161,571,112 91,451,486 159,063,547
Proceeds from reinvestment
of distributions .......... 3,898,141 3,592,859 14,352,082 19,097,750 10,703,334 13,437,962
Payments for shares
redeemed .................. (85,120,393) (55,657,881) (225,316,598) (158,935,588) (137,168,850) (138,704,256)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
net assets from capital
share transactions ........ (1,014,936) 13,572,285 (24,037,673) 21,733,274 (35,014,030) 33,797,253
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease)
in net assets ............. 655,721 11,412,861 (15,288,204) (744,635) (29,147,467) 7,433,557
NET ASSETS
Beginning of period ......... 141,549,448 130,136,587 459,859,204 460,603,839 332,627,213 325,193,656
------------- ------------- ------------- ------------- ------------- -------------
End of period ............... $ 142,205,169 $ 141,549,448 $ 444,571,000 $ 459,859,204 $ 303,479,746 $ 332,627,213
============= ============= ============= ============= ============= =============
Undistributed net
investment income ......... -- -- $ 4,403 -- -- --
============= ============= ============= ============= ============= =============
TRANSACTIONS IN SHARES
OF THE FUNDS
Sold ........................ 7,842,692 6,293,053 17,387,158 14,367,915 8,594,787 13,855,858
Issued in reinvestment
of distributions .......... 380,842 344,983 1,331,536 1,699,082 1,003,841 1,167,760
Redeemed .................... (8,327,211) (5,337,253) (20,974,523) (14,186,136) (12,925,328) (12,126,150)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) ..... (103,677) 1,300,783 (2,255,829) 1,880,861 (3,326,700) 2,897,468
============= ============= ============= ============= ============= =============
</TABLE>
See Notes to Financial Statements www.americancentury.com 27
Notes to Financial Statements
--------------------------------------------------------------------------------
AUGUST 31, 2000
--------------------------------------------------------------------------------
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 (the 1940
Act) 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 policies 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, 2000, 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, 2000, accumulated net realized capital loss carryovers of
$565,637 for Limited-Term (expiring 2004 through 2008), $1,267,880 for
Intermediate-Term (expiring in 2008), and $1,238,946 for Long-Term (expiring in
2008) may be used to offset future taxable gains.
Limited-Term, Intermediate-Term, and Long-Term have elected to treat
$43,337, $1,894,101, and $3,827,649, respectively, of net capital losses
incurred in the ten month period ended August 31, 2000, as having been incurred
in the following fiscal year.
ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is a distributor of
the trust. 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 1940 Act
(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, 2000, the effective annual management fee was 0.51%, for
Limited-Term, Intermediate-Term, and Long-Term.
Effective March 13, 2000, American Century Investment Services, Inc. (ACIS),
became a distributor of the trust.
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, a
distributor of the trust, ACIS, and the trust's transfer agent, American Century
Services Corporation.
28 1-800-345-2021
Notes to Financial Statements
--------------------------------------------------------------------------------
(Continued)
AUGUST 31, 2000
--------------------------------------------------------------------------------
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 .... $136,183,184 $317,013,369 $72,973,175
PROCEEDS FROM SALES
Municipal Obligations .... $139,941,739 $350,401,046 $109,338,587
On August 31, 2000, 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 ............. $2,409,369 $15,997,196 $14,116,308
Depreciation ............. (31,511) (277,880) (2,583,622)
--------------- --------------- ---------------
Net ...................... $2,377,858 $15,719,316 $11,532,686
=============== =============== ===============
The aggregate cost of investments for federal income tax purposes was the
same as the cost for financial reporting purposes.
--------------------------------------------------------------------------------
4. BANK LOANS
The funds, along with certain other funds managed by ACIM, entered into an
unsecured $620,000,000 bank line of credit agreement with Chase Manhattan Bank.
The funds may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at the
Federal Funds rate plus 0.50%. The funds did not borrow from the line during the
period ended August 31, 2000.
www.americancentury.com 29
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 investment 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
2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period .............. $ 10.27 $ 10.43 $ 10.30 $ 10.19 $ 10.23
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............ 0.41 0.39 0.42 0.43 0.43
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions .......... 0.13 (0.16) 0.13 0.11 (0.04)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations . 0.54 0.23 0.55 0.54 0.39
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ....... (0.41) (0.39) (0.42) (0.43) (0.43)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ..... $ 10.40 $ 10.27 $ 10.43 $ 10.30 $ 10.19
=========== =========== =========== =========== ===========
Total Return(1) .................. 5.44% 2.26% 5.40% 5.42% 3.87%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.51% 0.52% 0.49% 0.49%
Ratio of Net Investment Income
to Average Net Assets ............ 4.05% 3.78% 4.02% 4.20% 4.20%
Portfolio Turnover Rate ............ 97% 57% 44% 47% 44%
Net Assets, End of Period
(in thousands) ................... $ 142,205 $ 141,549 $ 130,137 $ 126,631 $ 103,707
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
30 1-800-345-2021 See Notes to Financial Statements
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 investment 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
2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period .............. $ 10.85 $ 11.37 $ 11.27 $ 11.05 $ 11.06
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............ 0.50 0.49 0.52 0.54 0.54
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions .......... 0.23 (0.41) 0.25 0.25 (0.01)
----------- ----------- ----------- ----------- -----------
Total From Investment Operations . 0.73 0.08 0.77 0.79 0.53
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ....... (0.50) (0.49) (0.52) (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 .............. (0.50) (0.60) (0.67) (0.57) (0.54)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ..... $ 11.08 $ 10.85 $ 11.37 $ 11.27 $ 11.05
=========== =========== =========== =========== ===========
Total Return(1) .................. 6.95% 0.74% 7.00% 7.39% 4.79%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.51% 0.51% 0.48% 0.48%
Ratio of Net Investment Income
to Average Net Assets ............ 4.64% 4.41% 4.60% 4.81% 4.87%
Portfolio Turnover Rate ............ 73% 54% 28% 42% 36%
Net Assets, End of Period
(in thousands) ................... $ 444,571 $ 459,859 $ 460,604 $ 435,440 $ 430,950
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
See Notes to Financial Statements www.americancentury.com 31
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 investment 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
2000 1999 1998 1997 1996
PER-SHARE DATA
Net Asset Value,
<S> <C> <C> <C> <C> <C>
Beginning of Period .............. $ 10.86 $ 11.72 $ 11.48 $ 11.06 $ 10.94
----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ............ 0.56 0.57 0.59 0.61 0.61
Net Realized and Unrealized
Gain (Loss) on
Investment Transactions .......... 0.25 (0.76) 0.44 0.44 0.12
----------- ----------- ----------- ----------- -----------
Total From Investment Operations . 0.81 (0.19) 1.03 1.05 0.73
----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ....... (0.56) (0.57) (0.59) (0.61) (0.61)
From Net Realized Gains on
Investment Transactions .......... -- (0.07) (0.20) (0.02) --
In Excess of Net Realized Gains .. -- (0.03) -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions .............. (0.56) (0.67) (0.79) (0.63) (0.61)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ..... $ 11.11 $ 10.86 $ 11.72 $ 11.48 $ 11.06
=========== =========== =========== =========== ===========
Total Return(1) .................. 7.79% (1.85)% 9.25% 9.70% 6.77%
RATIOS/SUPPLEMENTAL DATA
Ratio of Operating Expenses
to Average Net Assets ............ 0.51% 0.51% 0.51% 0.48% 0.48%
Ratio of Net Investment Income
to Average Net Assets ............ 5.24% 4.94% 5.07% 5.40% 5.48%
Portfolio Turnover Rate ............ 24% 52% 36% 50% 42%
Net Assets, End of Period
(in thousands) ................... $ 303,480 $ 332,627 $ 325,194 $ 304,671 $ 288,022
</TABLE>
(1) Total return assumes reinvestment of dividends and capital gains
distributions, if any.
32 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 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 (the "Funds") at August 31, 2000, and the results of
their operations for the year then ended, the changes in net assets for the two
years in the period then ended, and the financial highlights for the three years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. The financial highlights for each of
the two 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. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, 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, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Kansas City, Missouri
October 13, 2000
www.americancentury.com 33
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.
[left margin]
INVESTMENT TEAM LEADERS
Portfolio Managers
COLLEEN DENZLER
DAVE MACEWEN
ROBERT MILLER
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.
34 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 total returns, please refer to the "Financial
Highlights" on pages 30-32.
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
maturityand yield for fixed-income securities.
STATISTICAL TERMINOLOGY
* NUMBER OF SECURITIES -- the number of different securities held by a fund ona
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 expensesand 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 35
Glossary
--------------------------------------------------------------------------------
(Continued)
FUND CLASSIFICATIONS
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.
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.
* 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.
36 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 Large Cap Value
Strategic Allocation -- Tax-Managed Value
Moderate Income & Growth
Strategic Allocation -- Value
Conservative Equity Income
===============================================================================
INVESTMENT OBJECTIVE - GROWTH
===============================================================================
RISK LEVEL - AGGRESSIVE
DOMESTIC EQUITY SPECIALTY INTERNATIONAL
Veedot(reg.sm) Global Gold Emerging Markets
New Opportunities Technology International Discovery
Giftrust(reg.tm) Life Sciences International Growth
Vista Global Growth
Heritage
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]
Who we are
American Century offers investors more than 70 mutual funds that span the
investment spectrum. We currently manage $100 billion for roughly 2 million
individuals, institutions and corporations, with a range of services designed to
make investing easy and convenient.
For four decades, American Century has been a leader in performance, service and
innovation. From pioneering the use of computer technology in investing to
allowing investors to conduct transactions and receive financial advice over the
Internet, we have remained committed to building long-term relationships and to
helping investors achieve their dreams.
In a very real sense, investors put their future in our hands. With so much at
stake, our work continues to be guided by one central belief, shared by every
person at American Century: WE SUCCEED ONLY IF OUR INVESTORS SUCCEED.
[left margin]
[american century logo and text 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 PRSRT STD
P.O. Box 419200 U.S. POSTAGE PAID
Kansas City, MO 64141-6200 AMERICAN CENTURY
www.americancentury.com COMPANIES
0010 American Century Investment Services, Inc.
SH-ANN-22408 (c)2000 American Century Services Corporation
