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February 29, 2000
AMERICAN CENTURY®
Semiannual Report
[GRAPHIC OMITTED]
California Tax-Free Money Market
California Municipal Money Market
[AMERICAN CENTURY LOGO]
California Tax-Free Money Market
(BCTXX)
California Municipal Money Market
(BNCXX)
Turn to the inside back
cover of this report to
see a list of American
Century funds classified
by objective and risk.
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Our Message to You
[PHOTO OMITTED]
James E. Stowers III, seated, with James E. Stowers, Jr.
The six months ended February 29, 2000, reminded California shareholders of the importance of their tax-free money market fund investment. The incredible growth of the state's "e-conomy" created unprecedented demand for tax-advantaged investments. In addition, stock market volatility made money market fund stability look attractive for investors with near-term financial goals.
In the broader U.S. economy, the Federal Reserve raised short-term interest rates twice in the last six months in an attempt to keep U.S. economic growth and inflation under control. While rates rose, inflation remained low, which helped money market instruments maintain their purchasing power.
The American Century California money market funds continued to shine in that environment. According to Lipper Inc., an independent mutual fund ranking service that evaluated 55 California money market funds, California Tax-Free and Municipal Money Market had above-average yields and below-average expenses. (See pages 4 and 11 for more performance information.)
We are proud of our funds' performance and the numerous ways we can help you meet your financial goals, but we are equally proud of our dedication to creating a positive, safe, and productive work environment for American Century staff. This commitment to the idea that "we're only as good as the way we treat our most junior team members" was recognized and rewarded in 1999, when American Century ranked in the top 40 of Fortune magazine's "100 Best Companies to Work For."
We do not take this recognition lightly — acknowledgements like this allow us to recruit talented and dedicated people, from service representatives to investment professionals. This "intellectual capital" is our most valuable resource and an essential one in our effort to provide you with excellent investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/ James E. Stowers
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/ James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and
Chief Executive Officer
Table of Contents
Report Highlights
Frequently Asked Questions
California Tax-Free Money Market
Performance Information
Portfolio at a Glance
Yields
Management Q&A
Portfolio Composition by Credit Rating
Types of Investments
Schedule of Investments
California Municipal Money Market
Performance Information
Portfolio at a Glance
Yields
Management Q&A
Portfolio Composition by Credit Rating
Types of Investments
Schedule of Investments
Financial Statements
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Other Information
Background Information
Investment Philosophy and Policies
Lipper Rankings
Credit Rating Guidelines
Investment Team Leaders
Glossary
Report Highlights
------------------------------------
California Tax-Free
Money Market
(BCTXX)
------------------------------------
Total Returns: AS OF 2/29/00
------------------------------------
6 Months ............ 1.37%*
1 Year .............. 2.69%
7-Day Current Yield: 2.51%
Inception Date: 11/9/83
------------------------------------
Net Assets: $595.7 million
------------------------------------
------------------------------------
California Municipal
Money Market
(BNCXX)
------------------------------------
Total Returns: AS OF 2/29/00
6 Months ............ 1.41%*
1 Year .............. 2.82%
7-Day Current Yield: 2.68%
Inception Date: 12/31/90
------------------------------------
Net Assets: $194.5 million
------------------------------------
* Not annualized.
See Total Returns on pages 4 and 11.
Investment terms are defined in the Glossary on pages 23-24.
California Tax-Free
Money Market
California Municipal
Money Market
Money Market Funds — Frequently Asked Questions
Can I make direct deposits into my money market fund account?
Yes. You can arrange for direct deposit of your paycheck, Social Security check, Treasury Direct interest payment, military allotment, or payments from other government agencies. Give us a call, and we'll 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:
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 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.
Highlighting the difference between the California Tax-Free and Municipal Money Market funds
The AMT applies primarily to corporations and high-income individuals who are able to substantially reduce their regular tax liability with passive income, deductions, and exemptions. Because of their potential tax liability, AMT securities typically offer higher yields than non-AMT paper.
What it means for you — California Tax-Free Money Market may be more appropriate for investors who file under the AMT, while investors who aren't subject to the AMT may want to consider the California Municipal Money Market fund.
* Before you can make an exchange by calling an Investor Relations Representative, using our Automated Information Line, or visiting our Web site, you first must have provided us with written authorization to do so.
California Tax-Free Money Market — Performance
Total Returns as of February 29, 2000
California Tax-Exempt
California Money Market Funds(2)
Tax-Free ----------------------------------
Money Market Average Return Fund's Ranking
------------ -------------- --------------
6 Months(1) .......... 1.37% 1.28% --
1 Year ............... 2.69% 2.52% 12 out of 53
--------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
--------------------------------------------------------------------------
3 Years .............. 2.91% 2.72% 11 out of 51
5 Years .............. 3.03% 2.87% 11 out of 46
10 Years ............. 3.07% 3.05% 13 out of 29
The fund's inception date was 11/9/83.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 22-23 for more information about returns and Lipper fund rankings.
Portfolio at a Glance
--------------------------------------------------------------------------
2/29/00 8/31/99
--------------------------------------------------------------------------
Number of Securities 112 96
Weighted Average Maturity 35 days 51 days
Expense Ratio 0.49%* 0.50%
* Annualized.
Investment terms are defined in the Glossary on pages 23-24.
Yields as of February 29, 2000
-----------------------------------
7-Day Current Yield
-----------------------------------
2.51%
-----------------------------------
7-Day Effective Yield
-----------------------------------
2.54%
-----------------------------------
7-Day Tax-Equivalent Yields
-----------------------------------
34.70% Tax Bracket 3.84%
37.42% Tax Bracket 4.01%
41.95% Tax Bracket 4.32%
45.22% Tax Bracket 4.58%
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.
California Tax-Free Money Market — Q&A
[PHOTO OMITTED]
An interview with Todd Pardula, a portfolio manager on the California Tax-Free Money Market fund investment team.
How did California Tax-Free Money Market perform during the six months ended February 29, 2000?
California Tax-Free Money Market produced a total return of 1.37%, beating the 1.28% average return of the 55 "California Tax-Exempt Money Market Funds" tracked by Lipper Inc. The portfolio's longer-term performance is also better than average (see the previous page).
How does the portfolio's yield compare?
The fund provided shareholders with more state and federal tax-free income than the average California money market fund. The portfolio's 7-day effective yield at the end of February was 2.54%, while the average yield of the funds in the Lipper group was 2.32%.
Why did California Tax-Free Money Market produce better yields and total returns than its Lipper group?
We have lower-than-average management fees. Other things being equal, lower expenses mean higher yields and returns for our shareholders. In addition, we work hard to maintain excellent business relationships with securities dealers who offer good rates on California money market securities.
Finally, we boosted our yield by increasing our weighting in tax-exempt commercial paper late last year, when it offered attractive yields compared with variable-rate notes. We also liked commercial paper because it gives us more flexibility in choosing our maturity date, and because it's backed by a letter of credit from a bank.
Can you talk a little more about California Tax-Free Money Market's yield, which was little changed even though interest rates rose?
The Federal Reserve increased short-term interest rates several times since last summer. However, tax-exempt money market fund yields don't necessarily move in lock-step with Fed policy. Supply and demand factors are also very important in determining yields for tax-exempt securities.
The dramatic growth of California's economy in recent years has created an imbalance in supply and demand for tax-free investments. The state's excellent economic health has reduced municipal borrowing needs, which in turn reduced new bond issuance. In addition, low unemployment and rising wages have pushed taxpayers into higher tax brackets and fueled demand for tax-exempt investments. Low supply and surging demand held down California money market yields, particularly in the last several months.
What's your outlook for the fund?
We expect to see continued strong demand for California money market securities, while supply should remain tight because new issuance is low. So even though we think the Fed will raise interest rates again in the coming months, yields on California securities aren't likely to rise significantly.
Portfolio Composition by Credit Rating
------------------------------------------------
% of fund investments
------------------------------------------------
As of As of
2/29/00 8/31/99
------- --------
A-1+ 82% 85%
A-1 12% 7%
A-2 6% 8%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 22 for more information.
Types of Investments in the Portfolio
------------------------------------------------
As of February 29, 2000
------------------------------------------------
Variable-Rate Notes 68%
Bonds Less Than 1 Year 10%
Municipal Notes 8%
Put Bonds 8%
Commercial Paper 6%
------------------------------------------------
As of August 31, 1999
------------------------------------------------
Variable-Rate Notes 74%
Put Bonds 10%
Municipal Notes 7%
Commercial Paper 6%
Bonds Less Than 1 Year 3%
Investment terms are defined in the Glossary on pages 23-24.
California Tax-Free Money Market — Schedule of Investments
FEBRUARY 29, 2000 (UNAUDITED)
Principal Amount Value
=========================================================================
-------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
-------------------------------------------------------------------------
$ 7,000,000 ABN Amro Munitops Certificates
Trust Receipts, Series 1998-10,
VRDN, 3.50%, 3/1/00 (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, 3.50%, 3/1/00 (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, 3.20%, 3/1/00 (FGIC)
(SBBPA: ABN Amro Bank N.V.)
(Acquired 12/2/98, Cost
$5,000,000)(1) 5,000,000
5,385,000 Adelanto Public Utility Auth. Rev.,
Series 2000 B, (Utility System),
VRDN, 2.35%, 3/2/00 (LOC:
California State Teacher's
Retirement) 5,385,000
5,895,000 Apple Valley COP, (Public
Facilities Financing), VRDN,
2.65%, 3/2/00 (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, 2.65%,
3/1/00 (LOC: Banque
Nationale de Paris S.A.) 2,000,000
10,500,000 Avalon Community Improvement
Agency Tax Allocation Rev.,
(Community Improvement Area),
VRDN, 2.95%, 3/2/00 (LOC:
Union Bank of California, N.A.) 10,500,000
1,600,000 California Educational Facilities
Auth. Rev., (Mount St. Marys
College), VRDN, 2.70%,
3/1/00 (LOC: Allied Irish
Banks PLC) 1,600,000
2,250,000 California Educational Facilities
Auth. Rev., (Point Loma
Nazarene University), VRDN,
2.50%, 3/2/00 (LOC: Allied
Irish Banks PLC) 2,250,000
3,500,000 California Educational Facilities
Auth. Rev., Series 1998 A,
(University Judaism), VRDN,
2.50%, 3/2/00 (LOC: Allied
Irish Banks PLC) 3,500,000
7,300,000 California Health Facilities Auth.
Rev., (Episcopal Home), VRDN,
3.25%, 3/1/00 (LOC: Union
Bank of California, N.A.) 7,300,000
4,800,000 California Health Facilities
Financing Auth. Rev., Series
1985 C, (Santa Barbara
Cottage), VRDN, 2.50%,
3/2/00 (LOC: Bank of
America N.A.) 4,800,000
3,680,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Health Dimensions),
7.375%, 5/1/00, Prerefunded
at 102% of Par(2) 3,776,725
12,300,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Health Dimensions),
7.50%, 5/1/00, Prerefunded at
102% of Par(2) 12,625,802
490,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Pooled Project),
VRDN, 2.25%, 3/1/00 (LOC:
Rabobank Nederland N.V.) 490,000
9,000,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1999 P, VRDN, 2.35%,
3/1/00 (SBBPA: Commerz-
bank A.G., California State
Teacher's Retirement) 9,000,000
7,925,000 California Housing Finance
Agency Rev., Series 1999 I,
VRDN, 2.35%, 3/1/00 (MBIA)
(SBBPA: Westdeutsche
Landesbank Girozentral) 7,925,000
10,500,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA Inc.), VRDN, 3.10%,
5/15/00 (Guaranteed:
Chevron Corp.) 10,500,000
1,000,000 California Pollution Control
Financing Auth. Rev., (Chevron
USA Inc.), VRDN, 3.80%,
11/15/00 (Guaranteed:
Chevron Corp.) 1,000,000
2,600,000 California Pollution Control
Financing Auth. Rev., Series
1986 A, (Southern California
Edison), VRDN, 3.35%,
3/1/00 (Guaranteed: Southern
California Edison Company) 2,600,000
25,000,000 California Public Capital
Improvements Financing Auth.
Rev. Floating Rate Trust
Receipts, Series 1999 D,
2.45%, 3/1/00 (MBIA) (LOC:
Bank of New York)(3) 25,000,000
5,000,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, VRDN,
3.70%, 3/15/00 (LOC:
National Westminster Bank
PLC) 5,000,000
7,000,000 California School Cash Reserve
Program Auth. Rev., Series
1999 A, 4.00%, 7/3/00
(AMBAC) 7,010,439
1,400,000 California School Facilities
Financing Corp. COP, Series
1998 A, (Capital Improvement
Financing Projects), VRDN,
2.60%, 3/1/00 (LOC:
Bayerische Vareinsbank A.G.) 1,400,000
5,700,000 California State Economic
Development Financing Auth.
Rev., Series 1998 C,
(Independent Systems), VRDN,
2.30%, 3/2/00 (LOC: Bank of
America N.A.) 5,700,000
13,500,000 California State GO, 5.00%,
10/1/00 13,609,159
1,300,000 California State GO, VRDN,
3.11%, 3/2/00 (LOC: Merrill
Lynch & Co., Inc.) (Acquired
1/6/00, Cost $1,300,000)(1) 1,300,000
3,875,000 California State GO, VRDN,
3.11%, 3/2/00 (MBIA)
(SBBPA: Merrill Lynch & Co.,
Inc.) (Acquired 5/3/99, Cost
$3,875,000)(1) 3,875,000
2,000,000 California State Rev. Floating Rate
Trust Receipts, Series 1999 D,
2.45%, 3/1/00 (SBBPA: Bank
of New York) (Acquired
2/29/00, Cost $2,000,000)(1)(3) 2,000,000
7,600,000 California Statewide COP,
(Covenant Retirement
Community), VRDN, 2.75%,
3/2/00 (LOC: LaSalle National
Bank) 7,600,000
7,900,000 California Transportation Finance
Auth. Rev., VRDN, 2.25%,
3/1/00 (FSA) (SBBPA: Credit
Suisse First Boston) 7,900,000
6,840,000 Contra Costa County COP,
Floating Rate Trust Receipts,
Series 1999-1, 2.45%, 3/1/00
(MBIA) (SBBPA: Bank of New
York) (Acquired 6/10/99, Cost
$6,840,000)(1)(3) 6,840,000
3,000,000 Davis Special Tax, (Community
Facilities District No. 1999-2),
VRDN, 2.55%, 3/2/00 (LOC:
Wells Fargo Bank, N.A.) 3,000,000
6,500,000 East Bay Municipal Utility District
Commercial Paper, 2.90%,
4/12/00 (SBBPA:
Westdeutsche Landesbank
Girozentrale) 6,500,000
2,500,000 Elsinore Valley Municipal Water
District COP, Series 2000 A,
VRDN, 2.40%, 3/1/00 (FGIC) 2,500,000
2,990,000 Fillmore Public Financing Auth.
Tax Allocation, Series 1998 B,
(Central City Redevelopment),
VRDN, 2.65%, 3/2/00 (LOC:
California State Teacher's
Retirement) 2,990,000
2,000,000 Fremont Unified High School
District Santa Clara County Tax
& Rev. Anticipation Notes,
3.25%, 6/30/00 1,992,658
5,210,000 Fresno Unified School District
COP, Series 1992 B,
(Phase IX), 6.70%, 5/1/00,
Prerefunded at 102% of Par(2) 5,341,111
2,000,000 Glendale Industrial Development
Auth. Rev., (Reliance
Development), VRDN, 3.05%,
3/15/00 (LOC: Bank of
Montreal) 2,000,000
5,400,000 Golden Empire Schools Financing
Auth. Rev., Series 1995 A,
(Kern High School District),
VRDN, 2.30%, 3/1/00 (LOC:
Canadian Imperial Bank of
Commerce) 5,400,000
2,000,000 Hacienda La Puente Unified
School District COP, VRDN,
3.00%, 3/2/00 (LOC: Union
Bank of California, N.A.) 2,000,000
1,120,000 Hanford COP, (Public IMPC
Corp.), VRDN, 2.95%, 3/2/00
(LOC: Union Bank of California,
N.A.) 1,120,000
6,055,000 Hanford Sewer Rev., Series
1996 A, VRDN, 2.95%,
3/2/00 (LOC: Union Bank of
California, N.A.) 6,055,000
1,200,000 Helix Water District COP, Series
1999 A, 7.25%, 4/1/00 (FSA) 1,203,611
4,100,000 Hemet Multifamily Housing Auth.
Rev., (West Acacia), VRDN,
2.40%, 3/2/00 (LOC: FHLB) 4,100,000
7,434,000 Irvine Improvement Bond Act
1915 Special Assessment,
(District No. 87-8), VRDN,
3.25%, 3/1/00 (LOC: KBC
Bank N.V.) 7,434,000
2,200,000 Irvine Improvement Bond Act
1915 Special Assessment,
(District No. 97-17), VRDN,
3.25%, 3/1/00 (LOC:
Bayerische Hypo-Und
Vereinsbank A.G.) 2,200,000
2,500,000 Irvine Ranch Water District Rev.,
(Consolidated Bonds), VRDN,
3.25%, 3/1/00 (LOC:
Landesbank Hessen-Thuringen
Girozentrale) 2,499,971
7,700,000 Irvine Ranch Water District Rev.,
Series 1985 B, VRDN, 3.25%,
3/1/00 (LOC: Landesbank
Hessen-Thuringen Girozentrale) 7,700,000
2,600,000 Kern County Superintendent of
Schools COP, Series 1996 A,
VRDN, 2.55%, 3/2/00 (LOC:
Anchor National Life Insurance
Company) 2,600,000
5,000,000 Koch Certificates Trust 1999-2
Rev., VRDN, 3.86%, 3/2/00
(AMBAC) (SBBPA: State Street
Bank & Trust Co.) (Acquired
2/11/00, Cost $5,000,000)(1) 5,000,000
4,250,000 Lancaster Redevelopment Agency
Rev., Series 1996 C, (20th
Street Apartments), VRDN,
2.40%, 3/2/00 (LOC: FHLB) 4,250,000
2,000,000 Lemore COP, (Golf Course),
VRDN, 2.85%, 3/2/00 (LOC:
Union Bank of California, N.A.) 2,000,000
2,900,000 Loma Linda Water Rev., VRDN,
3.00%, 3/1/00 (LOC: Union
Bank of California, N.A.) 2,900,000
8,305,000 Los Angeles Community
Redevelopment Agency Rev.,
(Promenade Towers), VRDN,
2.30%, 3/2/00 (LOC: Barclays
Bank PLC) 8,305,000
5,250,000 Los Angeles Convention and
Exhibition Center Auth. Lease
Rev., VRDN, 2.45%, 3/1/00
(MBIA) (SBBPA: Bank of New
York) (Acquired 2/4/00-
2/8/00, Cost $5,250,000)(1) 5,250,000
3,505,000 Los Angeles COP, (Equipment &
Real Property Acquisition
Program AE), 4.00%, 12/1/00
(AMBAC) 3,510,356
5,810,000 Los Angeles County COP,
(Correctional Facilities), 6.50%,
9/1/00 (MBIA), Prerefunded at
102% of Par(2) 5,998,178
3,500,000 Los Angeles County Public Works
Financing Auth. Rev. Floating
Rate Trust Receipts, Series
1999 D, 2.45%, 3/1/00
(SBBPA: Bayerische Hypo-Und
Vereinsbank AG) (Acquired
11/30/99, Cost $3,500,000)(1)(3) 3,500,000
2,800,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
VRDN, 2.45%, 3/1/00 (FGIC)
(SBBPA: Bayerische
Landesbank Girozentrale) 2,800,000
6,496,000 Los Angeles Multifamily Housing
Rev., Series 1985 C, (Studio
Colony), VRDN, 2.45%,
3/2/00 (LOC: Bank One,
Arizona) 6,496,000
32,500,000 Los Angeles Multifamily Housing
Rev., Series 1985 K, VRDN,
2.75%, 3/7/00 (LOC: FHLB) 32,500,000
3,350,000 Los Angeles Municipal
Improvement Corp. Lease Rev.,
Series 1999 E, (Police
Emergency), 4.00%, 9/1/00
(AMBAC) 3,359,009
1,500,000 Los Angeles Unified School
District Floating Rate Trust
Receipts, 2.45%, 3/1/00
(SBBPA: Bank of New York)
(Acquired 7/1/99, Cost
$1,500,000)(1)(3) 1,500,000
3,255,000 Maywood COP, (Infrastructure
Financing), VRDN, 2.70%,
3/2/00 (LOC: Allied Irish
Banks PLC) 3,255,000
2,635,000 Maywood Public Financing Auth.
Tax Allocation, VRDN, 2.70%,
3/2/00 (LOC: Allied Irish
Banks PLC) 2,635,000
5,000,000 Metropolitan Water District
Commercial Paper, 3.60%,
3/10/00 (LOC: Westdeutsche
Landesbank Girozentrale) 5,000,000
7,000,000 Metropolitan Water District
Commercial Paper, 3.60%,
3/16/00 (LOC: Westdeutsche
Landesbank Girozentrale) 7,000,000
2,000,000 Modesto Multifamily Housing Rev.,
Series 1996 A, (Shadowbrook),
VRDN, 2.60%, 3/2/00 (LOC:
Bank of America N.A.) 2,000,000
2,025,000 Modesto Special Tax, (Community
Facilities District No. 98-1),
VRDN, 2.55%, 3/2/00 (LOC:
Wells Fargo Bank, N.A.) 2,025,000
1,805,000 Moreno Valley COP, (City Hall
Refinancing), VRDN, 2.95%,
3/2/00 (LOC: Union Bank of
California, N.A.) 1,805,000
2,000,000 Northern California Transmission
Rev., Series 1990 A, (Oregon
Transmission), 7.00%, 5/1/00,
Prerefunded at 101.5% of Par(2) 2,041,175
1,500,000 Oakland Economic Development
Rev., Series 1997 A, (Allen
Temple Family Life), VRDN,
2.50%, 3/2/00 (LOC: Wells
Fargo Bank, N.A.) 1,500,000
14,000,000 Oceanside Multifamily Housing
Rev., (Lakeridge Apartments),
VRDN, 4.00%, 3/1/00
(Guaranteed: Continental
Casualty Co.) 14,000,000
10,000,000 Orange County Apartment
Development Rev., Series
1999 C, (Bluffs Apartments),
VRDN, 2.40%, 3/2/00
(FHLMC) 10,000,000
7,000,000 Orange County Sanitation
Districts COP, VRDN, 3.25%,
3/1/00 (LOC: National
Westminster Bank PLC) 7,000,000
5,000,000 Rancho Water District Financing
Auth. Rev., Series 1998 A,
VRDN, 2.40%, 3/1/00 (FGIC)
(SBBPA: General Electric
Capital Corp.) 5,000,000
2,500,000 Redwood City COP, (City Hall),
VRDN, 2.55%, 3/2/00 (LOC:
KBC Bank N.V.) 2,500,000
13,000,000 Rialto Public Financing Auth. Tax
Allocation, Series 1998 A,
(Agua Mansa & Industrial), VRDN,
3.30%, 3/2/00 (LOC:
Union Bank of California, N.A.) 13,000,000
5,000,000 Riverside County COP, Series
1985 B, (Public Facilities),
VRDN, 2.75%, 3/7/00 (LOC:
National Westminster Bank
PLC) 5,000,000
3,270,000 Riverside County Multifamily
Housing Rev., Series 1992 A,
(Ambergate Apartments), VRDN,
2.75%, 3/2/00 (LOC: Union
Bank of California, N.A.) 3,270,000
3,250,000 Riverside County Teeter Notes,
2.90%, 4/3/00 (LOC:
Westdeutsche Landesbank
Girozentrale) 3,250,000
1,715,000 Rohnert Park Multifamily Housing
Rev., (Crossbrook Apartments),
VRDN, 2.45%, 3/1/00 (FNMA
Collateral Agreement) 1,715,000
6,600,000 Sacramento County Multifamily
Housing Rev., Series 1996 A,
VRDN, 2.50%, 3/1/00 (LOC:
California State Teacher's
Retirement) 6,600,000
2,000,000 San Bernardino County COP,
(Medical Center Financing),
VRDN, 2.35%, 3/1/00 (MBIA)
(SBBPA: Landesbank
Hessen-Thuringen Girozentrale) 2,000,000
3,875,000 San Bernardino County COP,
VRDN, 3.11%, 3/2/00 (MBIA)
(SBBPA: Merrill Lynch & Co.,
Inc.) (Acquired 6/28/95, Cost
$3,875,000)(1) 3,875,000
25,500,000 San Bernardino County Multifamily
Housing Auth. Rev., 4.80%,
5/1/00 (LOC: National
Westminster Bank PLC)
(Acquired 4/27/99, Cost
$25,846,035)(1) 25,557,988
3,230,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1992 A, (Arrowview Park
Apartments), VRDN, 2.40%,
3/2/00 (LOC: FHLB) 3,230,000
1,800,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1993 A, (Monterey Villas
Apartments), VRDN, 2.40%,
3/2/00 (LOC: FHLB) 1,800,000
2,800,000 San Bernardino County Multifamily
Housing Auth. Rev., Series
1997 A, (Mountain View),
VRDN, 2.40%, 3/2/00 (LOC:
FHLB) 2,800,000
10,000,000 San Diego Certificates of
Undivided Interest, VRDN,
3.11%, 3/2/00 (FGIC)
(SBBPA: Bank of America
N.A.) (Acquired 1/19/00, Cost
$10,000,000)(1) 10,000,000
7,800,000 San Diego Teeter Notes, 3.45%,
3/7/00 (LOC: Landesbank
Hessen-Thuringen Girozentrale) 7,800,000
2,000,000 San Diego Unified School District
GO, Series 1999 A, 4.25%,
9/29/00 2,006,878
4,000,000 San Francisco City and County
Public Utilities Commission
Water Commercial Paper,
2.60%, 3/9/00 (LOC:
Bayerische Landesbank
Girozentrale) 4,000,000
5,000,000 San Francisco City and County
Redevelopment Agency
Multifamily Housing Rev., Series
1985 B, (Bayside Village),
VRDN, 2.50%, 3/2/00 (LOC:
Bank One, Arizona) 5,000,000
1,665,000 San Francisco City and County
Redevelopment Financing Auth.
Rev., (Yerba Buena Garden),
VRDN, 2.30%, 3/1/00 (LOC:
National Westminster Bank
PLC) 1,665,000
2,945,000 San Jose Financing Auth. Rev.,
Series 1998 B, (Hayes
Mansion Improvement), VRDN,
2.55%, 3/1/00 (AMBAC)
(SBBPA: Bank of Nova Scotia) 2,945,000
3,075,000 Simi Valley Multifamily Housing
Rev., Series 1993 A, VRDN,
2.40%, 3/2/00 (LOC: FHLMC) 3,075,000
35,000,000 South Coast Local Education
Agencies Tax & Rev.
Anticipation Notes, 4.00%,
6/30/00 (MBIA) 35,074,338
1,400,000 Triunfo Sanitation District Rev.,
VRDN, 2.35%, 3/1/00 (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 3,045,167
1,000,000 Upland Community
Redevelopment Agency
Multifamily Housing Rev.,
Series 2000 A, (Northwoods
156), VRDN, 2.65%, 3/2/00
(FNMA) 1,000,000
1,000,000 Upland Community
Redevelopment Agency
Multifamily Housing Rev.,
Series 2000 A, (Northwoods
168), VRDN, 2.65%, 3/2/00
(FNMA) 1,000,000
9,300,000 Vacaville Multifamily Mortgage
Rev., (Quail Run), VRDN,
2.35%, 3/1/00 (FNMA) 9,300,000
2,750,000 Vallejo Unified School District
COP, Series 1999 E, (Capital
Improvement Financing), 3.60%,
4/5/00 (LOC: Bayerische
Hypo-Und Vereinsbank AG) 2,750,000
1,880,000 Vallejo Unified School District GO,
7.75%, 8/1/00 (FSA) 1,911,723
4,000,000 West Basin Municipal Water
District Rev. COP, Series
1999 B, VRDN, 2.45%,
3/1/00 (LOC: Bayerische
Hypo-Und Vereinsbank AG) 4,000,000
1,900,000 West Hollywood COP, VRDN,
2.95%, 3/2/00 (LOC: Union
Bank of California, N.A.) 1,900,000
4,300,000 Westminster COP, Series 1998 A,
(Civic Center), VRDN, 2.55%,
3/2/00 (AMBAC) (SBBPA:
First Union National Bank) 4,300,000
1,900,000 Westminster Redevelopment
Agency Tax Allocation Rev.,
(Commercial Redevelopment
Project No. 1), VRDN, 2.55%,
3/2/00 (AMBAC) (SBBPA:
Landesbank Hessen-Thuringen
Girozentrale) 1,900,000
1,895,000 Whittier Health Facility Rev.,
(Presbyterian Intercommunity),
6.00%, 6/1/00 (MBIA) 1,904,761
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $592,136,049
============
Notes to Schedule of Investments
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FHLB = Federal Home Loan Bank
FHLMC = Federal Home Loan Mortgage Corp.
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used
in calculating the weighted average portfolio maturity. Rate shown is effective
February 29, 2000.
California Municipal Money Market — Performance
Total Returns as of February 29, 2000
California Tax-Exempt
California Money Market Funds(2)
Municipal ----------------------------------
Money Market Average Return Fund's Ranking
------------ -------------- --------------
6 Months(1) 1.41% 1.28% --
1 Year 2.82% 2.52% 6 out of 53
--------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
--------------------------------------------------------------------------
3 Years 3.00% 2.72% 7 out of 51
5 Years 3.10% 2.87% 7 out of 46
Life of Fund 3.08% 2.84% 6 out of 35
The fund's inception date was 12/31/90.
(1) Returns for periods less than one year are not annualized.
(2) According to Lipper Inc., an independent mutual fund ranking service.
See pages 22-23 for more information about returns and Lipper fund rankings.
Portfolio at a Glance
--------------------------------------------------------------------------
2/29/00 8/31/99
--------------------------------------------------------------------------
Number of Securities 61 54
Weighted Average Maturity 34 days 58 days
Expense Ratio 0.49%* 0.50%
Yields as of February 29, 2000
-----------------------------------
7-Day Current Yield
-----------------------------------
2.68%
-----------------------------------
7-Day Effective Yield
-----------------------------------
2.72%
-----------------------------------
7-Day Tax-Equivalent Yields
-----------------------------------
34.70% Tax Bracket 4.10%
37.42% Tax Bracket 4.28%
41.95% Tax Bracket 4.62%
45.22% Tax Bracket 4.89%
* Annualized.
Investment terms are defined in the Glossary on pages 23-24.
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.
California Municipal Money Market — Q&A
Portfolio Composition by Credit Rating
------------------------------------------------
% of fund investments
------------------------------------------------
As of As of
2/29/00 8/31/99
------------------------------------------------
A-1+ 76% 72%
A-1 18% 15%
A-2 6% 13%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 22 for more information.
Types of Investments in the Portfolio
------------------------------------------------
As of February 29, 2000
------------------------------------------------
Variable-Rate Notes 73%
Put Bonds 12%
Bonds Less Than 1 Year 9%
Municipal Notes 4%
Commercial Paper 2%
------------------------------------------------
As of August 31, 1999
------------------------------------------------
Variable-Rate Notes 79%
Put Bonds 17%
Municipal Notes 4%
Investment terms are defined in the Glossary on pages 23-24.
An interview with Todd Pardula (pictured on page 5), a portfolio manager on the California Municipal Money Market fund investment team.
How did California Municipal Money Market perform during the six months ended February 29, 2000?
California Municipal Money Market produced a total return of 1.41%, beating the 1.28% average return of the 55 "California Tax-Exempt Money Market Funds" tracked by Lipper Inc.
In addition, California Municipal Money Market's return for the last 12 months ranked in the top 15% of its Lipper category. The portfolio's longer-term performance is also significantly better than average (see the previous page).
How does the portfolio's yield compare?
The fund provided shareholders with more state and federal tax-free income than the average California money market fund. The average yield of the funds in the Lipper group was 2.32%, while the portfolio's 7-day effective yield at the end of February was 2.72%. That's good enough to place in the top 10% of the Lipper group.
Why did California Municipal Money Market produce better yields and total returns than the Lipper group average?
We have lower-than-average management fees. Other things being equal, lower expenses mean higher yields and returns for our shareholders. In addition, we work hard to maintain excellent business relation ships with securities dealers who offer good rates on California money market securities.
California Municipal Money Market also tends to hold a greater percentage of securities subject to the federal alternative minimum tax (AMT) than do the other funds in the Lipper group. AMT securities typically offer higher yields than non-AMT paper.
Finally, we boosted our yield by adding some tax-exempt commercial paper late last year, when it offered attractive yields compared with variable-rate notes. We also liked commercial paper because it gives us more flexibility in choosing our maturity date, and because it's backed by a letter of credit from a bank.
Can you talk a little more about California Municipal Money Market's yield, which was little changed even though interest rates rose?
The Federal Reserve increased short-term interest rates several times since last summer. However, tax-exempt money market fund yields don't necessarily move in lock-step with Fed policy. Supply and demand factors are also very important in determining yields for tax-exempt securities.
The dramatic growth of California's economy in recent years has created an imbalance in supply and demand for tax-free investments. The state's excellent economic health has reduced municipal borrowing needs, which in turn reduced new bond issuance. In addition, low unemployment and rising wages have pushed taxpayers into higher tax brackets and fueled demand for tax-exempt investments. Low supply and surging demand held down California money market yields, particularly in the last several months.
What's your outlook for the fund?
We expect to see continued strong demand for California money market securities, while supply should remain tight because new issuance is low. So even though we think the Fed will raise interest rates again in the coming months, yields on California securities aren't likely to rise significantly.
California Municipal Money Market — Schedule of Investments
FEBRUARY 29, 2000 (UNAUDITED)
Principal Amount Value
=========================================================================
-------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES
-------------------------------------------------------------------------
$ 3,010,000 Alameda County Industrial
Development Auth. Rev., (Bat
Properties), VRDN, 2.55%,
3/2/00 (LOC: Wells Fargo
Bank, N.A.) $ 3,010,000
1,160,000 Alameda County Industrial
Development Auth. Rev.,
(Design Workshops), VRDN,
2.85%, 3/2/00 (LOC: Wells
Fargo Bank, N.A.) 1,160,000
1,600,000 Alameda County Industrial
Development Auth. Rev., Series
1994 A, (Scientific Technology),
VRDN, 2.70%, 3/1/00 (LOC:
Banque Nationale de Paris S.A.) 1,600,000
1,700,000 Alameda County Industrial
Development Auth. Rev., Series
1996 A, (Edward L. Shimmon
Inc.), VRDN, 2.55%, 3/2/00
(LOC: Banque Nationale de
Paris S.A.) 1,700,000
1,150,000 Alameda County Industrial
Development Auth. Rev., Series
1997 A, (Tool Family
Partnership), VRDN, 2.55%,
3/2/00 (LOC: Wells Fargo
Bank, N.A.) 1,150,000
3,000,000 Alameda County Industrial
Development Auth. Rev., Series
1999 A, (West Coast Pack LLC),
VRDN, 2.55%, 3/2/00 (LOC:
LaSalle National Bank) 3,000,000
3,200,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations
Multifamily Rev., Series 1997 A,
(Mountain View Apartments),
VRDN, 2.75%, 3/2/00 (LOC:
Comerica Bank-Michigan) 3,200,000
4,395,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Health Dimensions),
7.00%, 5/1/00, Prerefunded at
102% of Par(1) 4,510,879
4,175,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Health Dimensions),
7.25%, 5/1/00, Prerefunded at
102% of Par(1) 4,286,389
3,095,000 California Housing Finance
Agency Rev., Series 1996 A,
Class A, VRDN, 3.16%,
3/2/00 (LOC: Caisse Des
Depots et Consignations)
(Acquired 2/4/98, Cost
$3,095,000)(2) 3,095,000
8,290,000 California Housing Finance
Agency Single Family Mortgage
Rev., Series 1999 E, 3.40%,
8/1/00 8,290,000
2,040,000 California Infrastructure &
Economic Industrial
Development Rev., (Cunico
Corp.), VRDN, 2.70%, 3/1/00
(LOC: Comerica Bank-Michigan) 2,040,000
1,000,000 California Infrastructure &
Economic Industrial
Development Rev., (Roller
Bearing Co. America), VRDN,
2.80%, 3/1/00 (LOC: First
Union National Bank) 1,000,000
2,747,050 California Infrastructure &
Economic Industrial
Development Rev., Series
1999 A, VRDN, 2.75%,
3/2/00 (LOC: Comerica
Bank-California) 2,747,050
2,475,000 California Infrastructure &
Economic Industrial
Development Rev., Series
1999 A, VRDN, 2.75%,
3/2/00 (LOC: Wells Fargo
Bank, N.A.) 2,475,000
12,000,000 California Pollution Control
Financing Auth. Solid Waste
Disposal Rev., Series 1994 A,
(Western Waste Industries),
VRDN, 2.80%, 3/2/00 (LOC:
BankBoston, N.A.) 12,000,000
2,500,000 California Public Capital
Improvements Financing Auth.
Rev. Floating Rate Trust
Receipts, Series 1999 D,
2.45%, 3/1/00 (MBIA) (LOC:
Bank of New York)(3) 2,500,000
2,300,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 C, VRDN,
3.70%, 3/15/00 (LOC:
National Westminster Bank
PLC) 2,300,000
2,000,000 California School Cash Reserve
Program Auth. Rev., Series
1999 A, 4.00%, 7/3/00
(AMBAC) 2,003,276
3,100,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Applied Aerospace), VRDN,
2.65%, 3/1/00 (LOC:
American National Bank and
Trust Company) 3,100,000
2,000,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Provena Foods Inc.), VRDN,
2.70%, 3/1/00 (LOC:
Comerica Bank-California) 2,000,000
2,400,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Scientific Specialties), VRDN,
2.65%, 3/1/00 (LOC: Bank of
America N.A.) 2,400,000
3,040,000 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Vortech Engineering Inc.),
VRDN, 3.20%, 3/1/00 (LOC:
Bank of Hawaii) 3,040,000
1,418,364 California State Economic
Development Financing Auth.
Industrial Development Rev.,
(Wesflex Pipe Manufacturing),
VRDN, 2.75%, 3/2/00 (LOC:
Wells Fargo Bank, N.A.) 1,418,364
4,500,000 California State GO, 5.00%,
10/1/00 4,536,386
5,600,000 California State Rev. Floating Rate
Trust Receipts, Series 1999 D,
2.45%, 3/1/00 (SBBPA: Bank
of New York) (Acquired
10/4/99-11/26/99, Cost
$5,600,000)(2)(3) 5,600,000
3,500,000 California State Veterans GO,
VRDN, 3.11%, 3/2/00 (LOC:
Merrill Lynch & Co., Inc.)
(Acquired 2/17/00, Cost
$3,500,000)(2) 3,500,000
3,500,000 California Statewide Communities
Development Auth. Lease Rev.,
VRDN, 3.54%, 3/2/00 (LOC:
Merrill Lynch & Co., Inc.)
(Acquired 2/17/00, Cost
$3,500,000)(2) 3,500,000
5,000,000 California Statewide Communities
Development Auth. Multifamily
Housing Rev., Series 1997 A,
(Plaza Club Apartments), VRDN,
2.47%, 3/2/00 (LOC: FNMA) 5,000,000
1,200,000 California Statewide Communities
Development Auth. Multifamily
Housing Rev., Series 1997 G,
(Sunrise of Moraga), VRDN,
2.55%, 3/2/00 (LOC:
Commerzbank A.G.) 1,200,000
1,650,000 California Statewide Communities
Development Corp. Rev., (South
Bay Circle), VRDN, 2.60%,
3/1/00 (LOC: California State
Teacher's Retirement) 1,650,000
1,445,000 California Statewide Communities
Development Corp. Rev., (Tri H
Foods), VRDN, 2.70%, 3/1/00
(LOC: Union Bank of California,
N.A.) 1,445,000
1,450,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1994 A, (DV
Industries), VRDN, 2.60%,
3/1/00 (LOC: California State
Teacher's Retirement) 1,450,000
795,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1994 B, (J. Michelle),
VRDN, 2.60%, 3/1/00 (LOC:
California State Teacher's
Retirement) 795,000
765,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1995 A, (Staub
Metals Corp.), VRDN, 2.60%,
3/1/00 (LOC: California State
Teacher's Retirement) 765,000
1,600,000 California Statewide Communities
Industrial Development Corp.
Rev., Series 1995 E,
(Johanson), VRDN, 2.60%,
3/1/00 (LOC: California State
Teacher's Retirement) 1,600,000
2,500,000 Elsinore Valley Municipal Water
District COP, Series 2000 A,
VRDN, 2.40%, 3/1/00 (FGIC)
(SBBPA: Securities Purchase,
Inc.) 2,500,000
4,450,000 Koch Certificates Trust 1999-2
Rev., VRDN, 3.86%, 3/2/00
(AMBAC) (SBBPA: State
Street Bank & Trust Co.)
(Acquired 2/11/00, Cost
$4,450,000)(2) 4,450,000
3,000,000 La Verne Industrial Development
Auth. Rev., Series 1998 A,
VRDN, 2.80%, 3/2/00 (LOC:
Fleet Bank, N.A.) (Acquired
12/21/98, Cost $3,000,000)(2) 3,000,000
2,000,000 Lassen Municipal Utility District
Rev., Series 1996 A, VRDN,
2.75%, 3/2/00 (FSA) (SBBPA:
Credit Local de France) 2,000,000
3,000,000 Long Beach Harbor Rev.
Commercial Paper, Series
1994 A, VRDN, 3.35%,
5/1/00 (LOC: Canadian
Imperial Bank of Commerce) 3,000,000
2,925,000 Los Angeles County Industrial
Development Auth. Rev., (Caitac
& Jae Co., Inc.), VRDN, 2.70%,
3/1/00 (LOC: Union Bank of
California, N.A.) 2,925,000
1,985,000 Los Angeles Industrial
Development Auth. Rev.,
(Kairak Inc.), VRDN, 3.05%,
3/1/00 (LOC: Bank of Hawaii) 1,985,000
1,235,000 Los Angeles Industrial
Development Auth. Rev.,
(Keystone Engineering
Company), VRDN, 3.05%,
3/1/00 (LOC: Bank of Hawaii) 1,235,000
3,400,000 Ontario Redevelopment Agency
Industrial Development Rev.,
(Safariland), VRDN, 2.30%,
3/1/00 (LOC: California State
Teacher's Retirement) 3,400,000
2,400,000 Pinole Redevelopment Agency,
Series 1998 A, (East Bluff
Apartments), VRDN, 2.75%,
3/2/00 (LOC: Comerica
Bank-California) 2,400,000
2,565,000 Pleasant Hill Redevelopment
Agency Multifamily Housing
Rev., Series 1996 A,
(Chateau III), VRDN, 2.55%,
3/2/00 (LOC: Commerzbank
A.G.) 2,565,000
3,000,000 Port of Oakland Rev. Floating
Rate Trust Receipts, Series
1999 A24, 2.55%, 3/1/00
(MBIA) (SBBPA: Commerzbank
A.G.) (Acquired 7/21/99, Cost
$3,000,000)(2)(3) 3,000,000
3,400,000 Port of Oakland Rev. Floating
Rate Trust Receipts, Series
1999 A24, 2.55%, 3/1/00
(MBIA) (SBBPA: Commerzbank
A.G.) (Acquired 4/12/99, Cost
$3,400,000)(2)(3) 3,400,000
1,000,000 Puerto Rico Commonwealth GO,
Series 1997 B, (Public
Improvement), 5.50%, 7/1/00
(AMBAC) 1,005,717
10,000,000 Sacramento County Housing
Auth. Rev., Issue 1992 A,
(Shadowood Apartments),
VRDN, 2.60%, 3/1/00 (LOC:
General Electric Capital Corp.) 10,000,000
2,500,000 Sacramento County Special
Facilities Airport Rev., (Cessna
Aircraft Co.), VRDN, 2.65%,
3/2/00 (LOC: Bank of America
N.A.) 2,500,000
1,585,000 San Bernardino County Industrial
Development Auth. Rev., (Master
Halco Inc.), VRDN, 2.55%,
3/7/00 (LOC: California State
Teacher's Retirement) 1,585,000
1,200,000 San Bernardino County Industrial
Development Auth. Rev., VRDN,
2.60%, 3/1/00 (LOC: California
State Teacher's Retirement) 1,200,000
7,500,000 San Bernardino County Multifamily
Housing Auth. Rev., 4.80%,
5/1/00 (LOC: National
Westminster Bank PLC)
(Acquired 4/27/99, Cost
$7,601,775)(2) 7,517,058
5,514,151 San Bernardino County Single
Family Mortgage Rev., Series
1999 A-2, 5.16%, 6/1/00
(AMBAC) 5,540,667
3,000,000 San Jose Multifamily Housing
Rev., Series 1998 A, (Carlton
Plaza), VRDN, 2.62%, 3/2/00
(LOC: Commerzbank A.G.) 3,000,000
2,700,000 San Marcos Industrial
Development Auth. Rev.,
(Sunclipse Inc.), VRDN, 2.60%,
3/1/00 (LOC: Bank of
America N.A.) 2,700,000
4,700,000 Santa Cruz County Multifamily
Housing Auth. Rev., Series
1992 A, (Paloma Del Mar
Apartments), VRDN, 2.85%,
3/1/00 (LOC: Wells Fargo
Bank, N.A.) 4,700,000
7,000,000 South Coast Local Education
Agencies Tax & Rev.
Anticipation Notes, 4.00%,
6/30/00 (MBIA) 7,014,759
1,445,000 South Orange County Public
Financing Auth. Special Tax Rev.,
Series 1998 B, (Jr. Lien), 4.50%,
9/1/00 (AMBAC) 1,448,555
------------
TOTAL INVESTMENT SECURITIES-- 100.0% $189,139,100
============
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.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used
in calculating the weighted average portfolio maturity. Rate shown is effective
February 29, 2000.
Statements of Assets and Liabilities
This statement breaks down the fund's assets (such as securities, cash, and other receivables) and liabilities (money owed for securities purchased, management fees, and other liabilities) as of the last day of the reporting period. Subtracting the liabilities from the assets results in the fund's net assets. The net assets divided by shares outstanding is the share price, or net asset value per share. This statement also breaks down the fund's net assets into capital (shareholder investments) and performance (investment income and gains/losses).
TAX-FREE MUNICIPAL
FEBRUARY 29, 2000 (UNAUDITED) MONEY MARKET MONEY MARKET
-----------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------
Investment securities, at value (amortized cost and cost
for federal income tax purposes) ..................... $ 592,136,049 $ 189,139,100
Cash ................................................... -- 4,002,151
Interest receivable .................................... 5,087,378 1,437,923
------------- -------------
597,223,427 194,579,174
-----------------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash ......... 1,258,066 --
Accrued management fees (Note 2) ....................... 237,761 76,748
Accrued trustees' fees and expenses .................... 990 319
Accrued expenses and other liabilities ................. 110 60
------------- -------------
1,496,927 77,127
------------- -------------
Net Assets ............................................. $ 595,726,500 $ 194,502,047
============= =============
-----------------------------------------------------------------------------------------
CAPITAL SHARES
-----------------------------------------------------------------------------------------
Outstanding (unlimited number of shares authorized) .... 595,736,009 194,537,655
============= =============
Net Asset Value Per Share .............................. $ 1.00 $ 1.00
============= =============
-----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
-----------------------------------------------------------------------------------------
Capital paid in ........................................ $ 595,736,009 $ 194,537,655
Undistributed net investment income .................... 275,802 122,436
Accumulated net realized loss on investment transactions (285,311) (158,044)
------------- -------------
$ 595,726,500 $ 194,502,047
============= =============
Statements of Operations
This statement shows how the fund's net assets changed during the reporting period as a result of the fund's operations. In other words, it shows how much money the fund made or lost as a result of interest income, fees and expenses, and investment gains or losses.
TAX-FREE MUNICIPAL
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) MONEY MARKET MONEY MARKET
-----------------------------------------------------------------------------------------
INVESTMENT INCOME
-----------------------------------------------------------------------------------------
Income:
Interest ................................................ $9,169,923 $3,380,923
---------- ----------
Expenses (Note 2):
Management fees ......................................... 1,400,293 499,783
Trustees' fees and expenses ............................. 6,769 2,479
---------- ----------
1,407,062 502,262
---------- ----------
Net investment income ................................... 7,762,861 2,878,661
---------- ----------
-----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
-----------------------------------------------------------------------------------------
Net realized gain on investments ........................ 1,709 1,017
---------- ----------
Net Increase in Net Assets Resulting from Operations .... $7,764,570 $2,879,678*
========== ==========
Statements of Changes in Net Assets
This statement shows how the fund's net assets changed over the past two reporting periods. It details how much a fund grew or shrank as a result of operations (as detailed on the previous page for the most recent period), income distributions, and shareholder investments and redemptions.
SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) AND YEAR ENDED AUGUST 31, 1999*
------------------------------- -------------------------------
TAX-FREE MONEY MARKET MUNICIPAL MONEY MARKET
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
Increase in Net Assets
-----------------------------------------------------------------------------------------------------------------
OPERATIONS
-----------------------------------------------------------------------------------------------------------------
Net investment income ..................... $ 7,762,861 $ 13,227,530 $ 2,878,661 $ 4,834,349
Net realized gain (loss) on investments ... 1,709 (12,545) 1,017 214
------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations ......................... 7,764,570 13,214,985 2,879,678 4,834,563
------------- ------------- ------------- -------------
-----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------------
From net investment income ................ (7,762,861) (13,226,200) (2,878,661) (4,834,349)
------------- ------------- ------------- -------------
-----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
-----------------------------------------------------------------------------------------------------------------
Proceeds from shares sold ................. 369,010,685 701,786,020 127,030,148 171,530,835
Proceeds from reinvestment of distributions 5,770,753 11,318,419 2,436,222 4,559,301
Payments for shares redeemed .............. (337,231,148) (610,912,283) (114,949,919) (168,697,393)
------------- ------------- ------------- -------------
Net increase in net assets from capital
share transactions ...................... 37,550,290 102,192,156 14,516,451 7,392,743
------------- ------------- ------------- -------------
Net increase in net assets ................ 37,551,999 102,180,941 14,517,468 7,392,957
-----------------------------------------------------------------------------------------------------------------
NET ASSETS
-----------------------------------------------------------------------------------------------------------------
Beginning of period ....................... 558,174,501 455,993,560 179,984,579 172,591,622
------------- ------------- ------------- -------------
End of period ............................. $ 595,726,500 $ 558,174,501 $ 194,502,047 $ 179,984,579
============= ============= ============= =============
Undistributed net investment income ....... $ 275,802 $ 300,416 $ 122,436 $ 122,436
============= ============= ============= =============
-----------------------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF THE FUNDS
-----------------------------------------------------------------------------------------------------------------
Sold ...................................... 369,010,685 701,786,020 127,030,148 171,530,835
Issued in reinvestment of distributions ... 5,770,753 11,318,419 2,436,222 4,559,301
Redeemed .................................. (337,231,148) (610,912,283) (114,949,919) (168,697,393)
------------- ------------- ------------- -------------
Net increase .............................. 37,550,290 102,192,156 14,516,451 7,392,743
============= ============= ============= =============
Notes to Financial Statements
FEBRUARY 29, 2000 (UNAUDITED)
1. Organization and Summary of Significant Accounting Policies
Organization — American Century California Tax-Free and Municipal Funds (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act) 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.
The character of distributions made during the year from net investment income or net realized capital gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net capital gains and losses for financial statement and tax purposes and may result in reclassification among certain capital accounts.
At August 31, 1999, accumulated net realized capital loss carryovers for Tax-Free Money Market of $274,509 (expiring in 2004 through 2007) and for Municipal Money Market of $159,057 (expiring in 2003 through 2006) may be used to offset future taxable gains.
Tax-Free Money Market has elected to treat $12,510 of net capital losses incurred in the ten month period ended August 31, 1999, as having been incurred in the following fiscal year.
Additional Information — Funds Distributor, Inc. (FDI) is 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) that provides each fund with investment advisory and management services in exchange for a single, unified management fee. Expenses excluded from this agreement are brokerage, taxes, portfolio insurance, interest, fees and expenses of the trustees who are not considered "interested persons" as defined in the 1940 Act (including counsel fees) and extraordinary expenses. The fee is calculated daily and paid monthly. It consists of an Investment Category Fee based on the average net assets of the funds in a specific fund's investment category and a Complex Fee based on the average net assets of all the funds managed by ACIM. The rates for the Investment Category Fee range from 0.1570% to 0.2700% and the rates for the Complex Fee range from 0.2900% to 0.3100%. For the six months ended February 29, 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.
California Tax-Free Money Market — Financial Highlights
This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including total return, income ratio (net income as a percentage of average net assets), and expense ratio (operating expenses as a percentage of average net assets).
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
2000(1) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
-----------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income ............... 0.01 0.03 0.03 0.03 0.03 0.03
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income .......... (0.01) (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 $ 1.00
======== ======== ======== ======== ======== ========
Total Return(2) ..................... 1.37% 2.62% 3.12% 3.17% 3.12% 3.31%
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets ............... 0.49%(3) 0.50% 0.50% 0.49% 0.49% 0.52%
Ratio of Net Investment Income
to Average Net Assets ............... 2.73%(3) 2.59% 3.07% 3.10% 3.12% 3.28%
Net Assets, End of Period (in thousands) $595,727 $558,175 $455,994 $417,784 $425,846 $414,099
(1) Six months ended February 29, 2000 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains distributions,
if any. Total returns for periods less than one year are not annualized.
(3) Annualized.
California Municipal Money Market — Financial Highlights
This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including total return, income ratio (net income as a percentage of average net assets), and expense ratio (operating expenses as a percentage of average net assets).
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
2000(1) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
-----------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income .............. 0.01 0.03 0.03 0.03 0.03 0.03
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ......... (0.01) (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 $ 1.00
======== ======== ======== ======== ======== ========
Total Return(2) .................... 1.41% 2.76% 3.20% 3.15 3.23% 3.35%
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets .............. 0.49%(3) 0.50% 0.50% 0.52% 0.53% 0.53%
Ratio of Net Investment Income
to Average Net Assets .............. 2.83%(3) 2.73% 3.16% 3.10% 3.20% 3.31%
Net Assets, End of Period (in thousands) $194,502 $179,985 $172,592 $170,477 $196,520 $191,722
(1) Six months ended February 29, 2000 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains distributions,
if any. Total returns for periods less than one year are not annualized.
(3) Annualized.
Background Information
Investment Philosophy and Policies
American Century offers 38 fixed-income funds, ranging from money market portfolios to long-term bond funds and including both taxable and tax-exempt funds. Each is managed to provide a "pure play" on a specific sector of the fixed-income market.
To ensure adherence to this principle, the basic structure of each portfolio is tied to a specific market index. Fund managers attempt to add value by making modest portfolio adjustments based on their analysis of prevailing market conditions.
Investment decisions are made by management teams, which meet regularly to discuss market analysis and investment strategies.
In addition to these principles, each fund has its own investment policies:
California Tax-Free Money Market and California Municipal Money Market seek to provide interest income exempt from both federal and California state income taxes while maintaining a stable share price. The funds invest in high-quality California municipal money market securities with remaining maturities of 13 months or less.
An investment in these funds is neither insured nor guaranteed by the FDIC or any other government agency. Yields will fluctuate, and although the funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the funds.
Lipper Rankings
Lipper Inc. is an independent mutual fund ranking service that groups funds according to their investment objectives. Rankings are based on average annual returns for each fund in a given category for the periods indicated. Rankings are not included for periods less than one year.
The Lipper category for the California Tax-Free Money Market and Municipal Money Market is:
California Tax-Exempt Money Market Funds — funds that invest in high-quality California municipal obligations with dollar-weighted average maturities of less than 90 days.
Credit Rating Guidelines
Credit quality (the issuer's financial strength and the likelihood of timely payment of interest and principal) is a key factor in fixed-income investment analysis. Credit ratings issued by independent rating and research companies such as Standard & Poor's help quantify credit quality — the stronger the issuer, the higher the credit rating.
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:
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.
Investment Team Leaders
Portfolio Manager
Todd Pardula
Credit Research Director
Steven Permut
Glossary
Returns
Yields
Investment Terms
Statistical Terminology
Types of Municipal Securities
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.
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.
INVESTMENT OBJECTIVE
----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
----------------------------------------------------------------------------------------------
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
----------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
-------------------------------------------------------------------------------------------------------------------------
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
-------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
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.
[AMERICAN CENTURY LOGO]
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
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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.
[GRAPHIC OMITTED]
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.
American Century Investments BULK RATE P.O. Box 419200 U.S. POSTAGE PAID Kansas City, MO 64141-6200 AMERICAN CENTURY www.americancentury.com COMPANIES 0004 American Century Investment Services, Inc. SH-SAN-20079 (C)2000 American Century Services Corporation
February 29, 2000
AMERICAN CENTURY®
Semiannual Report
[GRAPHIC OMITTED]
California High-Yield Municipal
California Insured Tax-Free
[AMERICAN CENTURY LOGO]
California High-Yield Municipal
(BCHYX)
California Insured Tax-Free
(BCINX)
Turn to the inside back
cover of this report to
see a list of American
Century funds classified
by objective and risk.
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You always want to do what's best for both your business and your employees, but you may not know where to turn for answers and assistance. American Century can help with our personalized attention that caters to business retirement planning. With the new American Century 401(k), your retirement plan can grow as your business grows.
In addition to this plan, you can choose from five other business retirement plans that also give you the affordability, variety, and assistance you may need. Your benefits range from tax-deferred investing and tax-deductible contributions, to retaining good employees. Give us a call today at 1-800-345-3533, ext. 4001 and let our knowledgeable team of Business Retirement Specialists help you set up the right business retirement plan for you.
Our Message to You
[PHOTO OMITTED]
James E. Stowers III, seated, with James E. Stowers, Jr.
Rising interest rates, falling bond prices, and a supply/demand imbalance at the long maturity end of the market presented difficult hurdles for American Century's California municipal bond funds during the six months ended February 29, 2000. In this environment, California High-Yield Municipal and Insured Tax-Free produced negative total returns, similar to other California municipal bond funds.
Despite challenging market conditions, the American Century California funds continued to provide competitive yields with low expenses — key factors that remain consistent no matter how bond market conditions may change.
As a result, these funds have typically beaten the average returns of their Lipper peer groups for the last 10 years. (See pages 4 and 12 for more performance information.)
We are proud of our funds' performance and the numerous ways we can help you meet your financial goals, but we are equally proud of our dedication to creating a positive, safe, and productive work environment for American Century staff. This commitment to the idea that "we're only as good as the way we treat our most junior team members" was recognized and rewarded in 1999, when American Century ranked in the top 40 of Fortune magazine's "100 Best Companies to Work For."
We do not take this recognition lightly — acknowledgements like this allow us to recruit talented and dedicated people, from service representatives to investment professionals. This "intellectual capital" is our most valuable resource and an essential one in our effort to provide you with excellent investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely,
/s/ James E. Stowers
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/ James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and
Chief Executive Officer
Table of Contents
Report Highlights
Market Perspective
California High-Yield Municipal
Performance Information
Management Q&A
Yields
Portfolio at a Glance
Top Five Sectors
Schedule of Investments
California Insured Tax-Free
Performance Information
Management Q&A
Yields
Portfolio at a Glance
Top Five Sectors
Schedule of Investments
Financial Statements
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Other Information
Background Information
Investment Philosophy and Policies
Comparative Indices
Lipper Rankings
Investment Team Leaders
Credit Rating Guidelines
Glossary
Report Highlights
Market Perspective
California High-Yield Municipal
California Insured Tax-Free
------------------------------------
California
High-Yield Municipal
(BCHYX)
------------------------------------
Total Returns: AS OF 2/29/00
------------------------------------
6 Months ........ -1.89%*
1 Year .......... -3.94%
30-Day SEC Yield: 5.56%
Inception Date: 12/30/86
------------------------------------
Net Assets: $293.5 million
------------------------------------
------------------------------------
California
Insured Tax-Free
(BCINX)
------------------------------------
Total Returns: AS OF 2/29/00
6 Months ........ -0.09%*
1 Year .......... -3.93%
30-Day SEC Yield: 5.00%
Inception Date: 12/30/86
------------------------------------
Net Assets: $194.7 million
------------------------------------
* Not annualized.
See Total Returns on pages 4 and 12.
Investment terms are defined in the Glossary on pages 26-27.
Market Perspective from Randall W. Merk
[PHOTO OMITTED]
Randall W. Merk, chief investment officer of fixed income at American Century
Lower Prices, Higher Yields
Strong economic growth, rising interest rates, and a booming stock market muted California municipal bond returns during the six months ended February 29, 2000. The short- and intermediate-term sectors of the municipal market posted small gains, while long-term bonds finished in negative territory (see the index returns table at right). Long-term municipal bonds also suffered in comparison with long-term Treasurys, which posted attractive returns amid government plans to reduce Treasury issuance and supply.
Continued strong U.S. economic growth fanned inflation fears and triggered higher interest rates. The U.S. economy grew at a 7.3% annual rate in the fourth quarter of 1999, its fastest rate in over 15 years, and unemployment remained near 30-year lows. In response, the Federal Reserve (the U.S. central bank) continued to raise short-term interest rates, pushing municipal bond yields higher and their prices lower.
As a result of the difficult municipal bond environment, yields are as high as they've been in several years. For an investor in the highest combined federal and California state tax bracket, a 30-year AAA-rated California municipal bond that yielded approximately 5.8% on February 29 (up from about 5.5% on August 31, 1999) offered a tax-equivalent yield of more than 10%. That compared very favorably with the 6.15% yield of the 30-year U.S. Treasury bond on February 29.
Technical Factors Turn Favorable
In the California municipal market, supply and demand conditions continued to improve. California's strong economy bolstered the financial stability of many municipal issuers and curtailed their borrowing needs. In addition, refinancing of old debt came to a virtual standstill as higher interest rates eliminated the financial incentive to retire old debt.
Meanwhile, investor demand firmed as municipals offered attractive prices and the highest tax-equivalent yields in several years. This was especially true among short- and intermediate-term California bonds — strong demand from individual investors held down California yields relative to the national municipal market.
High-Quality Bonds Outperform
Investment-grade municipal bonds outpaced lower-rated and non-rated bonds — the so-called "high-yield sector" — during the period. Much of this sector's underperformance can be attributed to heavy tax-loss selling in late 1999 and concerns about health care bonds, which tainted the entire high-yield market. We think the high-yield sell-off was overdone — California's economic strength lifted the credit quality of the high-yield sector, as well as the financial strength of the California municipal market as a whole.
"The Federal Reserve continued to raise short-term interest rates, pushing municipal bond yields higher and prices lower."
Municipal Bond Index Returns
For the six months ended February 29, 2000
------------------------------------------ Lehman Three-Year Municipal Index 1.17% ------------------------------------------ Lehman Five-Year General Obligation Index 0.59% ------------------------------------------ Lehman Long-Term Municipal Index -2.03%
Source: Lipper Inc., Russell/Mellon Analytical
Rising Municipal Yield Curve
[GRAPHIC OMITTED]
[The following table was depicted as a mountain graph in the printed material.]
YEARS TO MATURITY 2/29/00 8/31/99
----------------- ------- -------
1 4.19% 3.59%
2 4.55% 3.94%
3 4.73% 4.15%
4 4.85% 4.27%
5 4.94% 4.39%
6 5.00% 4.49%
7 5.06% 4.59%
8 5.11% 4.69%
9 5.16% 4.79%
10 5.21% 4.89%
11 5.27% 4.97%
12 5.34% 5.05%
13 5.40% 5.13%
14 5.46% 5.20%
15 5.53% 5.27%
16 5.59% 5.31%
17 5.64% 5.35%
18 5.70% 5.39%
19 5.75% 5.43%
20 5.81% 5.47%
21 5.82% 5.47%
22 5.83% 5.48%
23 5.84% 5.48%
24 5.85% 5.49%
25 5.85% 5.50%
26 5.85% 5.50%
27 5.86% 5.51%
28 5.86% 5.51%
29 5.87% 5.52%
30 5.87% 5.52%
Source: Bloomberg Financial Markets
California High-Yield Municipal — Performance
Total Returns as of February 29, 2000
------------------------
--------- California Municipal
---------- Lehman Debt Funds(2)
California Long-Term ------------------------
High-Yield Municipal Average Fund's
Municipal Index Return Ranking
--------- ------- ------- -------------
6 Months(1) . -1.89% -2.03% -1.40% --
1 Year ...... -3.94% -6.23% -4.88% 45 out of 108
-----------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
-----------------------------------------------------------------------
3 Years ..... 4.24% 3.60% 3.05% 6 out of 92
5 Years ..... 6.30% 5.85% 4.87% 2 out of 78
10 Years .... 6.84% 7.28% 6.18% 5 out of 39
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 25-26 for more information about returns, the comparative index, and
Lipper fund rankings.
Growth of $10,000 Over 10 Years
[GRAPHIC OMITTED]
[The following table was depicted as a mountain graph in the printed material.]
Value on 2/29/00
California High-Yield Municipal $19,386
Lehman Long-Term Municipal Index $20,191
California High- Lehman Long-Term
Year Yield Municipal Municipal Index
------- -------------------- ----------------
'90 $ 10,000 $ 10,000
'91 $ 10,672 $ 10,929
'92 $ 11,686 $ 12,173
'93 $ 13,177 $ 14,158
'94 $ 14,236 $ 15,047
'95 $ 14,279 $ 15,192
'96 $ 15,994 $ 17,100
'97 $ 17,109 $ 18,156
'98 $ 18,926 $ 20,237
'99 $ 20,173 $ 21,533
'00 $ 19,386 $ 20,191
$10,000 investment made 2/28/90
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.
One-Year Returns Over 10 Years (Periods ended February 28 or 29)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
California High- Lehman Long-Term
Date Yield Municipal Municipal Index
----- -------------------- ----------------
2/91 6.72 % 9.30 %
2/92 9.50 % 11.37 %
2/93 12.76 % 16.33 %
2/94 8.04 % 6.27 %
2/95 0.30 % 0.96 %
2/96 12.01 % 12.56 %
2/97 6.97 % 6.18 %
2/98 10.62 % 11.47 %
2/99 6.59 % 6.40 %
2/00 (3.94)% (6.23)%
California High-Yield Municipal — Q&A
[PHOTO OMITTED]
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 six months ended February 29, 2000?
Rising interest rates and heavy tax-loss selling put pressure on the performance of high-yield municipal bonds and the fund. The fund returned -1.89%, compared with the -1.40% average total return of 110 "California Municipal Debt Funds" tracked by Lipper Inc.
The fund's longer-term results remained solid. For the three-, five-, and ten-year periods ended February 29, 2000, the fund ranked in the top 15% of its peer group.
The portfolio's below-average expenses and above-average yield helped build this track record. The fund's 30-day SEC yield as of February 29, 2000, was 5.56%, compared with the 4.74% average yield of the Lipper peer group.
Why did the fund trail its peers during the past six months?
The Lipper peer group for this fund includes many funds that emphasize investment-grade bonds. Higher-rated bonds outpaced lower-rated and unrated bonds — our main focus — during the past six months. These bonds were plagued primarily by "technical" supply and demand challenges (as opposed to "fundamental" economic or financial difficulties). The biggest problem was that they bore much of the brunt of year-end "tax-loss" selling. That's when investors sold underperforming municipal bonds to lock in losses and offset capital gains incurred elsewhere in their portfolios.
Tax-loss selling helped expand the available supply of high-yield bonds at a time when demand was very weak. This technical imbalance put pressure on high-yield bond prices.
What about the high-yield market's fundamental credit quality?
The overall credit quality of the high-yield sector continued to strengthen. Thanks to the state's strong economy, defaults by municipal issuers in California fell dramatically. The state enjoyed significant gains in job growth and personal wealth, which translated into a big jump in tax receipts. Despite all this good news, the unfavorable technical background overwhelmed the improvement in credit quality.
Perhaps the only exceptions to improving credit quality trends were health care bonds, which were beset by a variety of ills. The possible bankruptcy of a large, well-known HMO in Boston cast a pall over the entire national municipal health care sector. In addition, concerns about cutbacks in federal Medicare and Medicaid payments in response to the Balanced Budget Act of 1997 spread like a virus through the health care sector, raising questions about the industry's long-term profitability.
Fortunately, the fund was underweighted in health care bonds, which was a plus for performance. Among our few health care holdings, we emphasized hospitals and other providers who face little or no competition within their immediate geographic region. We also concentrated on those that receive limited federal payments, have a history of good financial performance, and a strong management team.
How did the fund's stake in land-secured bonds — the fund's largest sector concentration — hold up in this environment?
Even though housing supply, demand, and pricing trends were the strongest they've been in many years, housing bonds succumbed to the negative technical factors we discussed earlier.
Despite their recent difficulties, we continued to hold onto most of our land-secured bonds. We believe they are poised to perform better once technical imbalances in the bond market disappear. Housing is in short supply, with only one housing unit being built for every two new jobs created in California. Clearly, demand is quickly outstripping supply. Supply should be restricted further by the fact that many cities are reluctant to approve new housing developments because they require additional expenditures on roads, water, sewer, and other services.
How did you manage the fund's interest rate sensitivity?
As always, we made only modest adjustments to the fund's duration — a measure of its sensitivity to changes in interest rates — generally keeping it within 10% of the duration of the fund's peer group. Throughout the past six months, the fund's duration was a bit shorter than the average of its peer group.
What is your market outlook and how will it affect your strategy?
Because of our long-term value orientation, we focus primarily on the strength of the California economy, the financial health of high-yield municipal bond issuers, and the economic viability of the projects they're financing. As a result, we're pretty bullish on the high-yield market — technical factors will come and go, but the underlying economic and financial fundamentals of the bonds we're buying still appear strong.
We intend to keep California High-Yield Municipal's duration neutral, avoiding a significant bet on the direction of interest rates. Instead, we'll aim to add value through our security selection process, picking the bonds we think have the best long-term credit fundamentals and offer the most appealing yields. This is the same strategy that has been successful for us since the fund's inception.
As long as economic growth remains solid, which appears likely, we'll continue to emphasize land-secured bonds. If, however, the economy appears headed toward a sustained period of weakness, we would try to reduce our holdings in these bonds. At the same time, we'd likely increase our holdings in essential service revenue bonds — such as water and sewer bonds — which are typically affected less by the ebbs and flows of the economy.
"The overall credit quality of the high-yield sector continued to strengthen."
Yields as of February 29, 2000
------------------------------
30-Day SEC Yield
------------------------------
5.56%
------------------------------
30-Day Tax-Equivalent Yields
------------------------------
34.70% Tax Bracket 8.51%
37.42% Tax Bracket 8.88%
41.95% Tax Bracket 9.57%
45.22% Tax Bracket 10.15%
Portfolio at a Glance
-------------------------------------------------
2/29/00 8/31/99
-------------------------------------------------
Number of Securities 133 155
Weighted Average Maturity 18.0 yrs 19.3 yrs
Average Duration 8.3 yrs 7.7 yrs
Expense Ratio 0.54%* 0.54%
* Annualized.
Investment terms are defined in the Glossary on pages 26-27.
Portfolio Composition by Credit Rating
-----------------------------------------------
% of fund investments
-----------------------------------------------
As of As of
2/29/00 8/31/99
AAA 18% 19%
AA 8% 3%
A 10% 11%
BBB 4% 10%
Unrated 60% 57%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 25 for more information.
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%
Top Five Sectors (as of 8/31/99)
-----------------------------------------------
% of fund investments
-----------------------------------------------
Land Based 33%
Tax Allocation Revenue 12%
Prerefunded/ETM 11%
Housing Revenue 10%
COPs/Leases 9%
Investment terms are defined in the Glossary on pages 26-27.
California High-Yield Municipal — Schedule of Investments
FEBRUARY 29, 2000 (UNAUDITED)
Principal Amount Value
=======================================================================
-----------------------------------------------------------------------
MUNICIPAL SECURITIES -- 96.0%
-----------------------------------------------------------------------
$ 2,000,000 Alameda Public Financing Auth.
Local Agency Rev., Series
1996 A, (Community Facility
District No. 1), 7.00%, 8/1/19 $ 2,067,200
1,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Eskaton Gold River Lodge),
6.375%, 11/15/15 902,140
3,000,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Eskaton Gold River Lodge),
6.375%, 11/15/28 2,596,080
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) 2,580,930
2,535,000 Bakersfield COP, (Convention
Center Expansion), 5.875%,
4/1/22 (MBIA) 2,538,067
700,000 Bishop, Escalon & Lemoore Cities
COP, Series 1991 A, 7.70%,
5/1/11 717,598
550,000 Blythe Redevelopment No. 1 Tax
Allocation, 5.80%, 5/1/28 477,477
7,000,000 Bonita Canyon Public Facilities
Financing Auth. Special Tax,
(Community Facilities District
No. 98-1), 5.375%, 9/1/28 5,581,940
3,000,000 Brawley COP, (Water System
Improvement), 6.40%, 12/1/06,
Prerefunded at 102% of Par(1) 3,318,360
1,540,000 Brisbane COP, (Capital
Improvement Refinancing),
6.00%, 4/1/18 1,483,205
1,000,000 Cabrillo Unified School District
GO, Series 1996 A, 5.95%,
8/1/17 (AMBAC)(2) 357,930
500,000 California Educational Facilities
Auth. Rev., (California Lutheran
University), 7.375%, 12/1/00,
Prerefunded at 102% of Par(1) 522,245
1,000,000 California Educational Facilities
Auth. Rev., (Mills College),
6.875%, 9/1/02, Prerefunded
at 102% of Par(1) 1,074,760
2,330,000 California Educational Facilities
Auth. Rev., (Santa Clara
University), 5.25%, 9/1/26 2,112,378
1,000,000 California Educational Facilities
Auth. Rev., (University of San
Diego), 4.98%, 10/1/15
(AMBAC)(2) 407,960
1,000,000 California Educational Facilities
Auth. Rev., Series 1993 B,
(Pooled College & University
Financing), 6.125%, 6/1/09 1,017,830
4,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/12 (AMBAC)(2) 1,972,640
205,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1990 C, 7.60%, 8/1/30 206,550
3,500,000 California Housing Finance
Agency Multi-Unit Rental
Housing Rev., Series 1992 C,
6.875%, 8/1/24 3,606,260
400,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 A, (Pooled
Project), 8.50%, 3/1/18 405,108
2,000,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections),
5.25%, 6/1/15 (FSA) 1,939,620
7,000,000 California Public Works Board
Lease Rev., Series 1998 A,
(California Community
Colleges), 5.25%, 12/1/14 6,765,780
3,755,000 California Rural Home Mortgage
Financing Auth. Single Family
Mortgage Rev., Series 1999 A,
5.20%, 6/1/30
(GNMA/FNMA) 3,886,315
1,535,000 California State and Local
Government Financing Auth.
Rev., (Marin Valley Mobile
Country-B), 7.50%, 10/1/24
(Acquired 3/13/97, Cost
$1,535,000)(3) 1,514,508
3,665,000 California State GO, 6.75%,
9/1/09(2) 2,223,922
3,250,000 California Statewide Communities
Development Auth. COP,
(Sonoma County Indian Health),
6.40%, 9/1/29 2,876,315
2,850,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.25%,
7/1/11 2,789,067
2,000,000 California Statewide Communities
Development Auth. COP,
(Windward School), 6.90%,
9/1/23 1,989,640
9,330,000 California Statewide Communities
Development Auth. COP, Series
1999 A, (Windsor Terrace
Healthcare), 7.875%, 10/1/29
(Acquired 10/26/99, Cost
$9,330,000)(3) 9,105,706
1,000,000 California Statewide Communities
Development Auth. Rev. COP,
Series 1998 A, (Student
Residence), 5.00%, 6/1/20
(MBIA) 889,470
115,000 Clayton Improvement Bond Act
1915 Special Assessment,
(Oakhurst Assessment District),
8.00%, 9/2/14 119,185
30,000 Clayton Improvement Bond Act
1915 Special Assessment,
Series 1988 A, (Oakhurst
Assessment District), 8.40%,
9/2/10 31,197
4,415,000 Colton Public Financing Auth. Rev.,
(Electric System), 7.50%,
10/1/03, Prerefunded at 101%
of Par(1) 4,827,714
275,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev., Series 1992 A, 7.10%,
8/1/22 290,397
475,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev., Series 1992 A, 7.10%,
8/1/02, Prerefunded at 102%
of Par(1) 501,595
660,000 Corcoran COP, 8.75%, 6/1/16
(Acquired 4/28/92, Cost
$660,000)(3) 696,161
1,750,000 Corona Community Facilities
District Special Tax, (Eagle Glen),
5.875%, 9/1/23 1,538,215
1,000,000 Davis Community Facility District
No. 1991-2 Special Tax, Series
1992 B, 7.80%, 9/1/02,
Prerefunded at 103% of Par(1) 1,104,860
1,750,000 Del Mar Race Track Auth. Rev.,
6.20%, 8/15/11 1,776,145
4,500,000 El Dorado County Special Tax,
(Community Facilities District
No. 1992-1), 5.60%, 9/1/09 4,278,780
275,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.50%,
9/1/12 254,810
300,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.55%,
9/1/13 276,915
340,000 Fairfield Housing Auth. Rev.,
(Creekside Estates), 5.55%,
9/1/14 311,148
3,400,000 Fairfield Redevelopment Agency
Tax Allocation, 5.00%, 8/1/04 3,284,162
2,310,000 Fillmore Unified School District,
Series 1997 A, 5.60%, 7/1/22
(FGIC) 2,234,671
2,000,000 Florin Resource Conservation
District COP, Series 1999 A,
(Elk Grove Water Works),
6.65%, 9/1/19 1,954,980
4,225,000 Florin Resource Conservation
District COP, Series 1999 A,
(Elk Grove Water Works),
6.75%, 3/1/29 4,104,799
4,000,000 Folsom Public Financing Auth.
Rev., Series 1997 A, 6.875%,
9/2/19 4,050,200
2,495,000 Folsom Special Tax, (Community
Facilities District No. 7), 5.75%,
9/1/14 2,256,852
1,500,000 Folsom Special Tax, (Community
Facilities District No. 7), 7.25%,
9/1/21 1,549,290
2,500,000 Folsom Special Tax, (Community
Facilities District No. 7), 6.00%,
9/1/24 2,234,400
4,250,000 Folsom Special Tax, (Community
Facilities District No. 10),
7.00%, 9/1/24 4,222,885
2,000,000 Folsom Special Tax, (Community
Facilities District No. 11),
5.65%, 9/1/18 1,744,500
2,500,000 Fontana Redevelopment Agency
Tax Allocation, Series 1994 B,
(Jurupa Hills), 7.70%, 1/1/05,
Prerefunded at 102% of Par(1) 2,846,575
1,040,000 Foothill-De Anza Community
College District COP, (Campus
Center), 7.35%, 9/1/03,
Prerefunded at 100% of Par(1) 1,112,550
2,500,000 Foster City Redevelopment
Agency Tax Allocation, (Metro
Center), 6.75%, 9/1/20 2,570,200
1,185,000 Gateway Improvement Auth. Rev.,
Series 1995 A, (Marin City
Community Facility), 7.75%,
9/1/05, Prerefunded at 102%
of Par(1) 1,374,067
1,600,000 Glendale Electric Works Rev.,
5.875%, 2/1/21 (MBIA) 1,605,024
1,520,000 Glendale Health Facilities Rev.,
Series 1995 A, (Memorial
Hospital and Health Center),
5.625%, 11/15/15 (Connie
Lee) 1,516,717
2,630,000 Glendale Unified School District,
Series 1999 C, 6.00%,
9/1/22 (FSA) 2,657,536
1,250,000 High Desert Memorial Health
Care District Rev., 5.50%,
10/1/15 1,067,362
2,000,000 Industry Urban Redevelopment
Agency Tax Allocation,
(Project 3), 6.90%, 11/1/16 2,095,460
1,700,000 Inglewood Unified School District,
Series 1999 A, 5.60%,
10/1/24 (FGIC) 1,637,780
4,250,000 Lake Elsinore School Financing
Auth. Rev., (Horsethief Canyon),
5.625%, 9/1/16 3,681,435
1,000,000 Lake Elsinore Unified School
District Community Facilities
Special Tax, (No. 88-1), 8.25%,
9/1/01, Prerefunded at 102%
of Par(1) 1,076,150
1,000,000 Long Beach Industrial
Development Rev., Series
1998 A, (CSU Foundation),
5.25%, 2/1/13 893,790
2,000,000 Los Angeles Community
Facilities District Special Tax,
(Cascades Business Park),
6.40%, 9/1/22 1,903,380
60,000 Los Angeles County Single
Family Mortgage Rev., (GNMA
Mortgage, Issue B), 9.00%,
12/1/20 (GNMA) 58,991
1,000,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1991 B,
6.50%, 7/1/13 1,040,280
5,000,000 Los Angeles Harbor Development
Rev., Series 1996 B, 5.50%,
8/1/08 5,133,600
10,000 Los Angeles Home Mortgage
Rev., 9.00%, 6/15/18 10,094
2,150,000 Los Angeles State Building Auth.
Lease Rev., Series 1993 A,
(State Department of General
Services), 5.625%, 5/1/11 2,217,316
750,000 Los Angeles Unified School
District COP, Series 1996 A,
5.50%, 10/1/16 (FSA) 739,140
4,950,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1997 A, 5.00%,
7/1/26 4,272,147
4,145,000 Milpitas Improvement Bond Act
1915 Special Assessment,
(Local Improvement District 18),
5.65%, 9/2/14 3,776,965
3,000,000 Milpitas Improvement Bond Act
1915 Special Assessment,
Series 1996 A, (Local
Improvement District 18),
6.75%, 9/2/16 3,017,730
2,000,000 Novato Community Facility
District No. 1 Special Tax,
(Vintage Oaks), 7.20%, 8/1/15 2,082,300
4,930,000 Oceanside Mobile Home Park
Financing Auth. Rev., (Laguna
Vista Mobile Estates), 5.80%,
3/1/28 4,361,029
1,000,000 Orange County Community
Facilities District Special Tax,
Series 1993 A, (No. 87-5E),
7.30%, 8/15/02, Prerefunded
at 102% of Par(1) 1,081,540
1,000,000 Orange County Community
Facilities District Special Tax,
Series 1999 A, (No. 99-1
Ladera Ranch), 6.50%,
8/15/21 979,040
1,000,000 Orange County Community
Facilities District Special Tax,
Series 1999 A, (No. 99-1
Ladera Ranch), 6.70%,
8/15/29 990,190
2,880,000 Palomar Pomerado Health Care
District COP, (Indian Health
Council Inc.), 6.25%, 10/1/29 2,452,608
1,000,000 Pioneer Union Elementary School
District GO, 7.50%, 8/1/14 1,025,900
5,000,000 Pomona Improvement Bond Act
1915, (Rio Rancho Assessment
District), 7.50%, 9/2/21 5,160,900
475,000 Pomona Public Financing Auth.
Rev., Series 1994 L,
(Southwest Pomona
Redevelopment), 5.70%,
2/1/04, Prerefunded at 102%
of Par(1) 500,868
1,025,000 Pomona Public Financing Auth.
Rev., Series 1994 L,
(Southwest Pomona
Redevelopment), 5.70%,
2/1/13 1,023,555
1,955,000 Poway Community Facilities
District Special Tax, (No. 88-1,
Parkway Business Center),
6.75%, 8/15/15 1,979,046
2,000,000 Poway Redevelopment Agency
Tax Allocation, (Paguay
Redevelopment), 4.75%,
12/15/03 1,940,780
2,250,000 Rancho Mirage Joint Powers
Financing Auth. COP,
(Eisenhower Memorial
Hospital), 7.00%, 3/1/02,
Prerefunded at 102% of Par(1) 2,401,245
1,815,000 Redondo Beach Public Financing
Auth. Rev., (South Bay Center
Redevelopment), 7.125%,
7/1/26 1,877,254
1,000,000 Richmond Joint Powers Financing
Auth. Rev., Series 1995 A,
5.25%, 5/15/13 962,570
2,350,000 Roseville Special Tax, (Central
Community District No. 1),
4.85%, 9/1/03 2,272,215
2,720,000 Roseville Special Tax, (Central
Community District No. 1),
5.20%, 9/1/06 2,582,450
500,000 Roseville Special Tax, (Community
Facilities District No. 2), 8.25%,
9/1/00, Prerefunded at 102%
of Par(1) 520,410
6,000,000 Sacramento City Financing Auth.
Rev., Series 1999 A,
(Convention Center Hotel),
6.25%, 1/1/30 5,410,080
2,230,000 Sacramento County Improvement
Bond Act 1915 Special
Assessment, (Sunrise/Cordova
Reassessment), 5.20%,
9/2/08 2,111,743
2,200,000 Sacramento County Improvement
Bond Act 1915 Special
Assessment, (Sunrise/Cordova
Reassessment), 5.30%,
9/2/09 2,083,378
635,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.60%, 9/1/07 613,918
645,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.70%, 9/1/08 623,392
2,250,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 5.70%, 12/1/20 1,909,688
1,500,000 Sacramento County Special Tax,
(Community Facilities District
No. 1), 6.30%, 9/1/21 1,415,715
3,970,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 3,645,691
1,915,000 Salinas Improvement Bond Act
1915 Special Assessment,
Series A-179, (Harden Ranch
Assessment District 94-1),
6.875%, 9/2/11 1,986,564
750,000 Salinas Improvement Bond Act
1915 Special Assessment,
Series C-185, (District No.
90-1), 5.45%, 9/2/13 676,718
1,000,000 Salinas Improvement Bond Act
1915 Special Assessment,
Series C-185, (District No.
90-1), 5.50%, 9/2/14 895,290
1,000,000 San Diego Community Facilities
District No. 1 Special Tax, Series
1995 B, 7.10%, 9/1/05,
Prerefunded at 102% of Par(1) 1,129,210
3,990,000 San Diego County Improvement
Bond Act 1915 GO, 6.25%,
9/2/12 3,997,062
1,250,000 San Francisco City and County
Redevelopment Agency Lease
Rev., (George R. Moscone),
7.05%, 7/1/13(2) 575,150
1,780,000 San Jose Financing Auth. Rev.,
Series 1993 C, (Convention
Center), 6.30%, 9/1/09 1,856,593
5,000,000 San Jose Multifamily Housing Rev.,
Series 1999 A, (Helzer Courts
Apartments), 6.40%, 12/1/41
(LOC: Union Bank of California) 4,425,400
5,000,000 San Marcos Public Facilities Auth.
Rev., Series 1993 A, (Civic
Center), 6.20%, 8/1/22 4,742,150
5,000,000 San Marcos Public Facilities Auth.
Rev., Series 1999 A, (Area
No. 3), 6.00%, 8/1/31 4,392,100
1,575,000 San Marcos Redevelopment
Agency Tax Allocation Rev.,
(Area No. 1), 6.00%, 8/1/29 1,391,119
2,365,000 San Marcos Redevelopment
Agency Tax Allocation, Series
1998 A, (Affordable Housing),
5.65%, 10/1/28 2,101,350
5,000,000 Santa Ana Financing Auth. Rev.,
Series 1998 A, (South Harbor
Boulevard), 5.00%, 9/1/19
(MBIA) 4,479,950
4,284,000 Santa Clara County Multifamily
Housing Auth. Rev., Series
1999 A, (The Willows
Apartments), 6.40%, 6/1/30 3,927,014
1,505,000 Santa Clara Electric Rev., Series
1998 A, 5.00%, 7/1/27
(AMBAC) 1,295,414
2,500,000 Solano County COP, (Capital
Improvement Program), 5.00%,
11/15/19 (AMBAC) 2,238,300
1,615,000 South San Francisco
Redevelopment Agency Tax
Allocation, 7.60%, 9/1/02,
Prerefunded at 102% of Par(1) 1,762,643
315,000 Southern California Housing
Finance Auth. Single Family
Mortgage Rev., Series 1991 A,
(GNMA & FNMA Mortgage-
Backed Securities), 7.35%,
9/1/24 (GNMA/FNMA) 323,149
500,000 Southern California Public Power
Auth. Rev., (Pooled Project),
6.75%, 7/1/10 (FSA) 568,415
2,400,000 Southern California Public Power
Auth. Rev., (Transmission),
6.35%, 7/1/14 (MBIA)(2) 1,063,872
1,250,000 Southern California Public Power
Auth. Rev., (Transmission),
6.35%, 7/1/15 (MBIA)(2) 516,562
7,000,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 5.80%, 9/1/14 6,432,720
2,935,000 Stockton Community Facilities
District Special Tax Rev., Series
1998 A, (Mello Roos-Weston
Ranch), 6.00%, 9/1/24 2,623,186
1,770,000 Tehama Community COP, (Social
Services Building), 7.00%,
10/1/05, Prerefunded at
102% of Par(1) 1,992,932
1,610,000 Torrance Hospital Rev., (Little
County of Mary Hospital),
6.875%, 7/1/02, Prerefunded
at 102% of Par(1) 1,718,240
2,175,000 Tracy Operating Partnership Joint
Powers Auth. Rev., (Jr. Lien
Assessment District 87-3),
6.375%, 9/2/11 2,220,827
5,000,000 Vallejo Hiddenbrooke
Improvement District No. 1
Rev., 6.50%, 9/1/31 4,669,950
1,645,000 Vallejo Multifamily Housing Rev.,
Series 1998 B, (Solano
Affordable Housing), 8.25%,
4/1/39 (Acquired 10/21/98,
Cost $1,598,134)(3) 1,483,116
2,000,000 West Contra Costa Unified School
District COP, 7.125%, 1/1/24 2,046,900
3,235,000 West Sacramento Special Tax,
(Community Facilities District
No. 10), 6.75%, 9/1/26 3,153,284
------------
TOTAL MUNICIPAL SECURITIES 280,567,836
------------
(Cost $289,270,867)
-----------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES -- 4.0%
-----------------------------------------------------------------------
$ 1,800,000 California Health Facilities
Finance Auth. Rev. Floating
Rate Trust Receipts, Series
1998-17, 2.45%, 3/1/00
(MBIA) (SBBPA: Bank of New
York) (Acquired 2/7/00, Cost
$1,800,000)(3)(4) $ 1,800,000
10,000,000 Los Angeles Unified School
District Floating Rate Trust
Receipts, 2.45%, 3/1/00
(SBBPA: Bank of New York)
(Acquired 2/18/00-2/24/00,
Cost $10,000,000)(3)(4) 10,000,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 11,800,000
------------
(Cost $11,800,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $292,367,836
============
(Cost $301,070,867)
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.
SBBPA = Standby Bond Purchase Agreement
(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 February 29, 2000, was $24,599,491 which represented
8.4% of net assets. None of these securities is considered to be illiquid.
(4) Interest reset date is indicated and used in calculating the weighted
average portfolio maturity. Rate shown is effective February 29, 2000.
California Insured Tax-Free — Performance
Total Returns as of February 29, 2000
------------------------
--------- California Municipal
---------- Lehman Debt Funds(2)
California Long-Term ------------------------
Insured Municipal Average Fund's
Tax-Free Index Return Ranking
--------- ------- ------- -------------
6 Months(1) . -0.09% -2.03% -0.70% --
1 Year ...... -3.93% -6.23% -4.23% 7 out of 23
-----------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
-----------------------------------------------------------------------
3 Years ..... 3.68% 3.60% 3.21% 3 out of 22
5 Years ..... 5.43% 5.85% 4.96% 3 out of 20
10 Years .... 6.65% 7.28% 6.60% 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 25-26 for more information about returns, the comparative index, and Lipper fund rankings.
Growth of $10,000 Over 10 Years
[GRAPHIC OMITTED]
[The following table was depicted as a mountain graph in the printed material.]
Value on 2/29/00
California Insured Tax-Free $19,046
Lehman Long-Term Municipal Index $20,191
California Lehman Long-Term
Year Insured Tax-Free Municipal Index
------- -------------------- ----------------
'90 $10,000 $10,000
'91 $10,841 $10,929
'92 $11,861 $12,173
'93 $13,780 $14,158
'94 $14,464 $15,047
'95 $14,614 $15,192
'96 $16,305 $17,100
'97 $17,084 $18,156
'98 $18,687 $20,237
'99 $19,819 $21,533
'00 $19,046 $20,191
$10,000 investment made 2/28/90
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.
One-Year Returns Over 10 Years (Periods ended February 28 or 29)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
California Lehman Long-Term
Date Insured Tax-Free Municipal Index
----- -------------------- ----------------
2/91 8.41 % 9.30 %
2/92 9.41 % 11.37 %
2/93 16.18 % 16.33 %
2/94 4.96 % 6.27 %
2/95 1.04 % 0.96 %
2/96 11.57 % 12.56 %
2/97 4.78 % 6.18 %
2/98 9.38 % 11.47 %
2/99 6.06 % 6.40 %
2/00 (3.93)% (6.23)%
California Insured Tax-Free — Q&A
[PHOTO OMITTED]
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 six months ended February 29, 2000?
The fund outperformed its peers in a difficult period for municipal bond funds. California Insured Tax-Free returned -0.09%, beating the -0.70% 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 one-, three-, and five-year periods ended February 29, 2000, the fund ranked in the top third of its peer group (see page 12 for more performance comparisons). The fund's below-average expenses and above-average yield helped build this track record.
On February 29, 2000, the fund had an annualized expense ratio of 0.51%. That's less than half the 1.21% average expense ratio for the Lipper category. Helped by these low expenses, California Insured Tax-Free produced more state and federal tax-free income than the peer group average. As of February 29, the portfolio had a 30-day SEC yield of 5.00%, while the average California insured fund yielded 4.47%, according to Lipper. The fund's yield translated to a 9.13% tax-equivalent yield for California investors in the highest combined state and federal tax bracket.
Were there any other factors besides yield and expenses that helped the fund beat its peers during the past six months?
The portfolio's duration — a measure of its sensitivity to changes in interest rates — was slightly longer than the average duration of its peers. (The longer a fund's duration, the more the share price will rise and fall in response to interest rate changes.)
Shareholders may recall from the annual report six months ago that the fund had a large stake in discount bonds. These "discounts" trade below face value (par) because their interest coupons are below prevailing market rates. Since they're less likely to be refinanced, discounts tend to have a longer duration than par or premium bonds.
California Insured Tax-Free's longer duration and focus on discount bonds hurt performance in the final months of 1999 (when interest rates were rising and prices were falling). But they've boosted performance so far in 2000 as long-term municipal bonds have rallied.
Did any other strategic moves you made affect fund performance?
As the prices of discount bonds rebounded, we sold some to lock in their relatively strong performance. In addition, we continued to "barbell" the portfolio, balancing our remaining long-duration discount bonds with short-term investments. This helped prevent the fund's duration from extending further.
Certificates of participation securities (COPs) made up 25% of the fund's portfolio as of February 29. What made them attractive?
COPs aren't as easily understood as other types of municipal bonds, so their prices are more attractive and their yields are higher relative to other bonds. COPs are an alternative to general obligation financing — they don't require voter approval. They are used to finance many public facilities, such as city halls, convention centers, schools, prisons, and police stations. Moscone Center in San Francisco and the Los Angeles Convention Center were financed with COPs. With input from our credit research team, we focus on COPs issued by strong municipalities to finance essential facilities. For example, the fund owned a Foothill-De Anza Community College District COP used to finance much-needed educational facilities. This community college district benefits from the financial strength of one of California's wealthiest counties.
Many bond investors earned gains during this period, particularly if they invested in Treasury bonds. Why didn't municipal bonds keep pace with Treasurys?
Comparing Treasury and municipal bonds is like comparing computer-related stocks to pharmaceutical stocks — they're related, in a way, but the performance of one isn't necessarily going to mirror the other. Even among municipal securities there were large performance discrepancies, with shorter-term bonds and those with higher credit ratings clearly outperforming longer-term securities or those with less underlying financial strength.
While rising interest rates and a booming stock market caused demand for municipal bonds to decline, investors rushed to buy long-term Treasurys in advance of government plans to trim sales of new 30-year bonds. In addition, the Treasury bought back more than $1 billion of long-term bonds. This combination of strong demand and reduced supply kept Treasury yields lower than they might normally have been in a rising rate environment. While the supply of municipals also dwindled in 2000, the reduction wasn't as dramatic, and demand for municipals didn't rival the frenzy for Treasurys.
What's your outlook?
Over the long-term, we're optimistic. Rising interest rates have helped keep a lid on inflationary pressures, even in the wake of much better-than-expected economic growth. In an environment characterized by non-inflationary, moderate economic growth, municipal bonds could perform well. Over the short-term, however, market conditions may be choppy in anticipation of possible Federal Reserve rate hikes down the road.
Technical market factors also are a reason for optimism — firm demand is butting up against a shrinking supply of municipal bonds. Municipals currently offer attractive values relative to Treasurys. To the extent that investors embrace that value and boost demand, municipals are poised to benefit.
With that backdrop in mind, how will you position the fund?
We'll continue to work closely with our credit research team to look for attractively valued, financially strong securities, particularly in the COP sector. As for our duration, we may shorten it a bit if we feel that interest rates are poised to move substantially higher. Absent that scenario, however, we're likely to maintain our current duration position.
"The fund's yield translated to a 9.13% tax-equivalent yield for California investors in the highest combined state and federal tax bracket."
Yields as of February 29, 2000
------------------------------
30-Day SEC Yield
------------------------------
5.00%
------------------------------
30-Day Tax-Equivalent Yields
------------------------------
34.70% Tax Bracket 7.66%
37.42% Tax Bracket 7.99%
41.95% Tax Bracket 8.61%
45.22% Tax Bracket 9.13%
-------------------------------------------------
2/29/00 8/31/99
-------------------------------------------------
Number of Securities 67 72
Weighted Average Maturity 16.8 yrs 18.1 yrs
Average Duration 8.5 yrs 8.9 yrs
Expense Ratio 0.51%* 0.51%
* Annualized.
Investment terms are defined in the Glossary on pages 26-27
Portfolio Composition by Credit Rating
-----------------------------------------------
% of fund investments
-----------------------------------------------
As of As of
2/29/00 8/31/99
AAA 100% 100%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 25 for more information.
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%
Top Five Sectors (as of 8/31/99)
-----------------------------------------------
% of fund investments
-----------------------------------------------
COPs/Leases 25%
Electric Revenue 13%
Transportation Revenue 11%
Water and Sewer Revenue 10%
Tax Allocation Revenue 10%
Investment terms are defined in the Glossary on pages 26-27.
California Insured Tax-Free — Schedule of Investments
FEBRUARY 29, 2000 (UNAUDITED)
Principal Amount Value
=======================================================================
-----------------------------------------------------------------------
MUNICIPAL SECURITIES -- 94.3%
-----------------------------------------------------------------------
$ 1,000,000 Banning COP, (Wastewater
System, Refunding &
Improvement), 8.00%, 1/1/19
(AMBAC) $ 1,219,250
1,500,000 Big Bear Lake Water Rev., 6.00%,
4/1/22 (MBIA) 1,543,620
1,000,000 Brea Olinda Unified School
District, Series 1999 A, 5.60%,
8/1/20 (FGIC) 971,420
900,000 Brea Redevelopment Agency Tax
Allocation, (Project AB), 6.125%,
8/1/13 (MBIA) 932,625
1,250,000 California Health Facilities
Financing Auth. Rev., Series
1991 A, (Adventist Health),
7.00%, 3/1/13 (MBIA) 1,299,075
4,745,000 California Housing Finance
Agency Single Family Mortgage
Rev., Series 1998 C-4, 5.65%,
8/1/16 (FHA/VA) 4,678,902
1,470,000 California Public Capital
Improvements Financing Auth.
Rev., Series 1988 B, (Pooled
Project), 8.10%, 3/1/18 (BIGI) 1,489,066
4,000,000 California Public Works Board
Lease Rev., Series 1993 A,
(Department of Corrections),
5.00%, 12/1/19 (AMBAC) 3,550,880
6,000,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections),
5.25%, 6/1/15 (FSA) 5,818,860
3,500,000 California State GO, 4.25%,
10/1/26 (MBIA) 2,643,830
2,565,000 California State GO, 4.50%,
12/1/21 (FGIC) 2,070,058
6,035,000 California State GO, 4.50%,
12/1/24 (FGIC) 4,799,454
4,135,000 California State Universities and
Colleges Rev., 5.75%, 11/1/15
(FGIC) 4,189,583
3,925,000 California Statewide Communities
Development Auth. Rev. COP,
(Gemological Institute), 6.75%,
5/1/10 (Connie Lee) 4,448,674
7,000,000 California Statewide Communities
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/22 (AMBAC,
California Mortgage Insurance) 6,131,230
1,520,000 Castaic Lake Water Agency COP,
Series 1994 A, (Water System
Improvement), 7.00%, 8/1/12
(MBIA) 1,743,151
1,200,000 Contra Costa Water District Rev.,
Series 1992 E, 6.25%,
10/1/12 (AMBAC) 1,320,516
1,000,000 East Valley Water District COP,
(Treatment Plant), 6.60%,
12/1/14 (AMBAC) 1,058,470
2,000,000 Escondido Joint Powers
Financing Auth. Rev., 6.125%,
9/1/11 (AMBAC) 2,082,500
2,620,000 Escondido Unified School District
COP, 4.75%, 7/1/19 (MBIA) 2,243,951
1,695,000 Escondido Unified School District
COP, 4.75%, 7/1/23 (MBIA) 1,425,936
2,000,000 Fontana Unified School District
GO, Series 1997 D, 5.85%,
5/1/22 (FGIC)(1) 1,884,480
3,100,000 Foothill-De Anza Community
College District COP, 6.25%,
9/1/13 (Connie Lee) 3,217,335
1,975,000 Fresno Sewer Rev., Series
1993 A-1, 6.25%, 9/1/14
(AMBAC) 2,157,984
1,240,000 Fresno Sewer Rev., Series
1993 A-1, 4.75%, 9/1/21
(AMBAC) 1,050,801
5,000,000 Glendale Hospital Rev., Series
1991 A, (Adventist Health),
6.75%, 3/1/13 (MBIA) 5,184,150
4,830,000 Glendale Unified School District
COP, Series 1994 A, 6.50%,
3/1/12 (AMBAC) 5,128,542
1,340,000 Kern High School District GO,
Series 1992 C, 6.25%,
8/1/13 (MBIA)(2) 1,451,019
3,630,000 Kern High School District GO,
Series 1993 D, 7.00%, 8/1/17
(MBIA)(2) 3,950,747
1,500,000 Lakewood Redevelopment
Agency Tax Allocation, Series
1992 A, (Project No. 1), 6.50%,
9/1/17 (FSA) 1,583,055
400,000 Los Angeles Community
Redevelopment Agency
Housing Rev., Series 1994 C,
7.00%, 1/1/14 (AMBAC) 418,648
3,500,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/14
(FSA) 3,732,435
4,000,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1993 H,
(Bunker Hill), 6.50%, 12/1/15
(FSA) 4,258,560
1,000,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1991 B,
6.50%, 7/1/13 (AMBAC) 1,040,940
3,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1996 B, 4.75%,
7/1/21 (MBIA) 2,527,920
1,915,000 Mid-Peninsula Regional Open
Space District Financing Auth.
Rev., 5.90%, 9/1/14 (AMBAC) 1,960,922
$ 5,000,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan),
6.75%, 7/1/20 (MBIA)(2) $ 5,549,050
2,810,000 Oakland Redevelopment Agency
Tax Allocation, (Central District),
5.50%, 2/1/14 (AMBAC) 2,844,001
2,700,000 Orange County Financing Auth.
Tax Allocation, Series 1992 A,
6.25%, 9/1/14 (MBIA) 2,808,567
1,950,000 Ramona Municipal Water District
COP, 7.20%, 10/1/10
(AMBAC) 2,022,735
1,100,000 Redlands Unified School District
COP, 6.00%, 9/1/12 (FSA) 1,121,329
17,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 16,070,424
295,000 Sacramento Redevelopment
Agency Tax Allocation, Series
1990 A, 6.50%, 11/1/13
(MBIA) 304,555
1,345,000 San Diego Community College
District Lease Rev., 6.125%,
12/1/06, Prerefunded at
102% of Par (MBIA)(2) 1,469,870
7,000,000 San Diego County COP, 5.625%,
9/1/12 (AMBAC) 7,110,040
3,250,000 San Francisco Bay Area Rapid
Transportation District Sales Tax
Rev., 6.75%, 7/1/00,
Prerefunded at 102% of Par
(AMBAC)(2) 3,345,745
8,330,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 2, 6.75%, 5/1/20
(MBIA) 8,904,603
1,670,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 2, 6.75%, 5/1/03,
Prerefunded at 102% of Par
(MBIA)(2) 1,808,176
2,000,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 15B, 4.50%, 5/1/25
(MBIA) 1,587,600
3,500,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 20, 4.50%, 5/1/26
(MBIA) 2,766,435
6,000,000 San Francisco City and County
Airport Commission
International Airport Rev.,
Issue 21, 4.50%, 5/1/23
(MBIA) 4,801,020
3,535,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 6.50%,
7/1/15 (MBIA) 3,907,448
3,500,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 5.00%,
7/1/21 (MBIA) 3,079,685
1,000,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/18
(MBIA) 940,080
3,500,000 Santa Ana Financing Auth. Rev.,
Series 1999 B, (South Harbor
Boulevard), 5.125%, 9/1/19
(MBIA) 3,197,600
2,000,000 Santa Margarita-Dana Point Auth.
Rev., Series 1994 B,
(Improvement Districts 3, 3A,
4, 4A), 7.25%, 8/1/14 (MBIA) 2,376,220
1,150,000 Simi Valley Unified School District
COP, (Refunding & Capital
Improvement Projects), 5.25%,
8/1/17 (AMBAC) 1,091,430
1,800,000 Simi Valley Unified School District
COP, (Refunding & Capital
Improvement Projects), 5.25%,
8/1/22 (AMBAC) 1,662,804
2,500,000 South Coast Air Quality
Management District Building
GO, (Installment Sale
Headquarters), 6.00%, 8/1/11
(AMBAC) 2,673,850
2,500,000 Ukiah Electric Rev., 6.25%,
6/1/18 (MBIA) 2,661,825
1,445,000 Walnut Valley Unified School
District GO, Series 1992 B,
6.00%, 8/1/10 (AMBAC)(2) 1,543,636
4,525,000 Woodland COP, (Wastewater
System Reference), 5.75%,
3/1/12 (AMBAC) 4,690,298
--------------
TOTAL MUNICIPAL SECURITIES 185,547,615
--------------
(Cost $187,920,626)
-----------------------------------------------------------------------
MUNICIPAL DERIVATIVES(3) -- 2.9%
-----------------------------------------------------------------------
2,000,000 East Bay Municipal Utility District
Wastewater Treatment System
Rev., Yield Curve Notes, Inverse
Floater, 6.62%, 6/1/13
(AMBAC) 1,967,500
1,000,000 San Diego County Water Auth.
Rev. COP, (Registration Rites),
Yield Curve Notes, Inverse
Floater, 7.59%, 4/22/09 (FGIC) 1,065,000
2,750,000 Southern California Public Power
Auth. Rev., Yield Curve Notes,
Inverse Floater, 6.02%, 7/1/17
(FGIC)(2) 2,643,438
--------------
TOTAL MUNICIPAL DERIVATIVES 5,675,938
--------------
(Cost $5,828,434)
-----------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES -- 2.8%
-----------------------------------------------------------------------
1,550,000 California Health Facilities
Financing Auth. Rev., Series
1996 B, VRDN, 3.20%,
3/1/00 (AMBAC) (SBBPA:
ABN Amro Bank N.V.) 1,550,000
4,000,000 Covina Redevelopment Agency
Multifamily Housing Rev.,
(Shadowhills Apartments),
VRDN, 2.50%, 3/2/00 (FNMA
Collateral Agreement) 4,000,000
--------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES 5,550,000
--------------
(Cost $5,550,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $ 196,773,553
==============
(Cost $199,299,060)
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
FNMA = Federal National Mortgage Association
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
VA = Veteran's Administration
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used
in calculating the weighted average portfolio maturity. Rate shown is effective
February 29, 2000.
(1) Step-coupon security. Yield to maturity at purchase is indicated. These
securities become interest bearing at a predetermined rate and future date and
are purchased at a substantial discount from their value at maturity.
(2) Escrowed to maturity in U.S. government securities or state and local
government securities.
(3) Inverse floaters have interest rates that move inversely to market interest
rates. Inverse floaters typically have durations longer than long-term bonds,
which may cause their value to be more volatile than long-term bonds when interest
rates change.
Statements of Assets and Liabilities
This statement breaks down the fund's assets (such as securities, cash, and other receivables) and liabilities (money owed for securities purchased, management fees, and other liabilities) as of the last day of the reporting period. Subtracting the liabilities from the assets results in the fund's net assets. The net assets divided by shares outstanding is the share price, or net asset value per share. This statement also breaks down the fund's net assets into capital (shareholder investments) and performance (investment income and gains/losses).
------------- -------------
HIGH-YIELD INSURED
FEBRUARY 29, 2000 (UNAUDITED) MUNICIPAL TAX-FREE
-----------------------------------------------------------------------------------------------------
ASSETS
-----------------------------------------------------------------------------------------------------
Investment securities, at value (identified cost of $301,070,867
and $199,299,060, respectively) (Note 3) ....................... $ 292,367,836 $ 196,773,553
Receivable for investments sold .................................. 4,392,856 --
Interest receivable .............................................. 6,323,844 3,151,003
------------- -------------
303,084,536 199,924,556
------------- -------------
-----------------------------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash ................... 9,321,588 5,007,761
Accrued management fees (Note 2) ................................. 124,207 77,784
Dividends payable ................................................ 186,737 111,182
Payable for trustees' fees and expenses .......................... 473 314
Accrued expenses and other liabilities ........................... 18 39
------------- -------------
9,633,023 5,197,080
------------- -------------
Net Assets $ 293,451,513 $ 194,727,476
============= =============
-----------------------------------------------------------------------------------------------------
CAPITAL SHARES
-----------------------------------------------------------------------------------------------------
Outstanding (unlimited number of shares authorized) .............. 32,866,910 20,252,426
============= =============
Net Asset Value Per Share ........................................ $ 8.93 $ 9.62
============= =============
-----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
-----------------------------------------------------------------------------------------------------
Capital paid in .................................................. $ 311,798,597 $ 198,997,523
Accumulated net realized loss on investment transactions ......... (9,644,053) (1,744,540)
Net unrealized depreciation on investments (Note 3) .............. (8,703,031) (2,525,507)
------------- -------------
$ 293,451,513 $ 194,727,476
============= =============
Statements of Operations
This statement shows how the fund's net assets changed during the reporting period as a result of the fund's operations. In other words, it shows how much money the fund made or lost as a result of interest income, fees and expenses, and investment gains or losses.
------------- -------------
HIGH-YIELD INSURED
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) MUNICIPAL TAX-FREE
-----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
-----------------------------------------------------------------------------------------------------
Income:
Interest ......................................................... $ 9,683,871 $ 5,745,222
------------ ------------
Expenses (Note 2):
Management fees .................................................. 846,474 510,771
Trustees' fees and expenses ...................................... 4,636 2,960
------------ ------------
851,110 513,731
------------ ------------
Net investment income ............................................ 8,832,761 5,231,491
------------ ------------
-----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3)
-----------------------------------------------------------------------------------------------------
Net realized loss on investments ................................. (6,327,656) (1,354,900)
Change in net unrealized appreciation on investments ............. (8,841,143) (4,455,660)
------------ ------------
Net realized and unrealized loss on investments .................. (15,168,799) (5,810,560)
------------ ------------
Net Decrease in Net Assets Resulting from Operations ............. $ (6,336,038) $ (579,069)
============ ============
Statements of Changes in Net Assets
This statement shows how the fund's net assets changed over the past two reporting periods. It details how much a fund grew or shrank as a result of operations (as detailed on the previous page for the most recent period), income and capital gain distributions, and shareholder investments and redemptions.
SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) AND YEAR ENDED AUGUST 31, 1999
-------------------------------- --------------------------------
HIGH-YIELD MUNICIPAL INSURED TAX-FREE
-------------------------------- --------------------------------
Increase (Decrease) in Net Assets 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
OPERATIONS
----------------------------------------------------------------------------------------------------------------------
Net investment income ....................... $ 8,832,761 $ 16,883,593 $ 5,231,491 $ 10,600,219
Net realized gain (loss) on investments ..... (6,327,656) (1,869,375) (1,354,900) 98,190
Change in net unrealized appreciation
on investments ............................ (8,841,143) (15,057,989) (4,455,660) (14,425,798)
------------- ------------- ------------- -------------
Net decrease in net assets resulting
from operations ........................... (6,336,038) (43,771) (579,069) (3,727,389)
------------- ------------- ------------- -------------
----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------------------------------------------------------------------
From net investment income .................. (8,832,761) (16,902,404) (5,231,491) (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 ... (8,832,761) (20,331,997) (5,231,491) (11,769,735)
------------- ------------- ------------- -------------
----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
----------------------------------------------------------------------------------------------------------------------
Proceeds from shares sold ................... 128,181,392 183,401,537 37,055,977 78,766,649
Proceeds from reinvestment of distributions . 6,242,800 14,343,428 3,568,332 8,188,008
Payments for shares redeemed ................ (167,772,157) (139,242,460) (52,023,685) (75,029,338)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
capital share transactions ................ (33,347,965) 58,502,505 (11,399,376) 11,925,319
------------- ------------- ------------- -------------
Net increase (decrease) in net assets ....... (48,516,764) 38,126,737 (17,209,936) (3,571,805)
----------------------------------------------------------------------------------------------------------------------
NET ASSETS
----------------------------------------------------------------------------------------------------------------------
Beginning of period ......................... 341,968,277 303,841,540 211,937,412 215,509,217
------------- ------------- ------------- -------------
End of period ............................... $ 293,451,513 $ 341,968,277 $ 194,727,476 $ 211,937,412
============= ============= ============= =============
----------------------------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF THE FUNDS
----------------------------------------------------------------------------------------------------------------------
Sold ........................................ 14,077,369 18,760,200 3,832,043 7,534,351
Issued in reinvestment of distributions ..... 687,273 1,469,140 369,499 785,177
Redeemed .................................... (18,438,522) (14,282,754) (5,390,837) (7,203,629)
------------- ------------- ------------- -------------
Net increase (decrease) ..................... (3,673,880) 5,946,586 (1,189,295) 1,115,899
============= ============= ============= =============
Notes to Financial Statements
FEBRUARY 29, 2000 (UNAUDITED)
1. Organization and Summary of Significant Accounting Policies
Organization — American Century California Tax-Free and Municipal Funds (the trust) is registered under the Investment Company Act of 1940 (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.
High-Yield and Insured have elected to treat $3,315,692 and $390,233, respectively, of net capital losses incurred in the ten month period ended August 31, 1999, as having been incurred in the following fiscal year.
Futures Contracts — The funds may buy and sell interest rate futures contracts relating to debt securities. Futures transactions may be used to maintain cash reserves while remaining fully invested, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns when a futures contract is priced more attractively than its underlying security or index. One of the risks of entering into futures contracts may include the possibility that the changes in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the funds are required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the funds. The variation margin is equal to the daily change in the contract value and is recorded as an unrealized gain or loss. The funds recognize a realized gain or loss when the contract is closed or expired. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of realized gain (loss) on investments and unrealized appreciation (depreciation) on investments, respectively. There were no open futures contracts at February 29, 2000.
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 six months ended February 29, 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.
3. Investment Transactions
Purchases of investment securities, excluding short-term investments, for High-Yield and Insured totaled $67,841,570 and $8,934,362, respectively. Sales of investment securities, excluding short-term investments, for High-Yield and Insured totaled $107,149,233 and $21,576,718, respectively.As of February 29, 2000, accumulated net unrealized depreciation for High-Yield and Insured was $8,703,031 and $2,525,507, respectively, which consisted of unrealized appreciation of $4,551,029 and $4,694,115, respectively, and unrealized depreciation of $13,254,060 and $7,219,622, 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 February 29, 2000.California High-Yield Municipal — Financial Highlights
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
2000(1) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ....... $ 9.36 $ 9.93 $ 9.68 $ 9.27 $ 9.11 $ 9.06
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................... 0.25 0.49 0.51 0.55 0.56 0.56
Net Realized and Unrealized Gain (Loss)
on Investments .......................... (0.43) (0.46) 0.37 0.41 0.16 0.05
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations ........ (0.18) 0.03 0.88 0.96 0.72 0.61
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income .............. (0.25) (0.49) (0.51) (0.55) (0.56) (0.56)
From Net Realized Gains ................. -- --(2) (0.12) -- -- --
In Excess of Net Realized Gains ......... -- (0.11) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions ..................... (0.25) (0.60) (0.63) (0.55) (0.56) (0.56)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ............. $ 8.93 $ 9.36 $ 9.93 $ 9.68 $ 9.27 $ 9.11
=========== =========== =========== =========== =========== ===========
Total Return(3) ......................... (1.89)% 0.26% 9.35% 10.61% 8.02% 7.09%
-------------------------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets ...................... 0.54%(4) 0.54% 0.54% 0.50% 0.51% 0.51%
Ratio of Net Investment Income
to Average Net Assets ...................... 5.60%(4) 5.08% 5.23% 5.77% 5.99% 6.30%
Portfolio Turnover Rate .................... 22% 59% 36% 46% 36% 40%
Net Assets, End of Period (in thousands) ... $ 293,452 $ 341,968 $ 303,842 $ 192,831 $ 144,675 $ 116,166
(1) Six months ended February 29, 2000 (unaudited).
(2) Per share amount was less than $0.005.
(3) Total return assumes reinvestment of dividends and capital gains distributions,
if any. Total returns for periods less than one year are not annualized.
(4) Annualized.
California Insured Tax-Free — Financial Highlights
This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including total return, income ratio (net income as a percentage of average net assets), expense ratio (operating expenses as a percentage of average net assets), and portfolio turnover (a gauge of the fund's trading activity).
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
2000(1) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
-------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period .... $ 9.88 $ 10.60 $ 10.37 $ 10.00 $ 9.89 $ 9.67
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment Operations
Net Investment Income ................ 0.25 0.50 0.51 0.53 0.53 0.53
Net Realized and Unrealized Gain (Loss)
on Investments ....................... (0.26) (0.66) 0.39 0.37 0.11 0.22
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment Operations ..... (0.01) (0.16) 0.90 0.90 0.64 0.75
----------- ----------- ----------- ----------- ----------- -----------
Distributions
From Net Investment Income ........... (0.25) (0.50) (0.51) (0.53) (0.53) (0.53)
From Net Realized Gains .............. -- (0.04) (0.16) -- -- --
In Excess of Net Realized Gains ...... -- (0.02) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions .................. (0.25) (0.56) (0.67) (0.53) (0.53) (0.53)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period .......... $ 9.62 $ 9.88 $ 10.60 $ 10.37 $ 10.00 $ 9.89
=========== =========== =========== =========== =========== ===========
Total Return(2) ...................... (0.09)% (1.71)% 8.96% 9.25% 6.60% 8.09%
-------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets ................... 0.51%(3) 0.51% 0.51% 0.48% 0.49% 0.50%
Ratio of Net Investment Income
to Average Net Assets ................... 5.19%(3) 4.78% 4.91% 5.23% 5.30% 5.54%
Portfolio Turnover Rate ................. 4% 32% 31% 46% 43% 40%
Net Assets, End of Period (in thousands) $ 194,727 $ 211,937 $ 215,509 $ 189,145 $ 191,811 $ 178,913
(1) Six months ended February 29, 2000 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains distributions,
if any. Total returns for periods less than one year are not annualized.
(3) Annualized.
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.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 Inc. is an independent mutual fund ranking service that groups funds according to their investment objectives. Rankings are based on average annual returns for each fund in a given category for the periods indicated. Rankings are not included for periods less than one year.
The Lipper categories for the California High-Yield Municipal and Insured Tax-Free funds are:
California Municipal Debt Funds (High-Yield Municipal) — funds that invest at least 65% of assets in securities that are exempt from taxation in California.
California Insured Municipal Debt Funds (Insured Tax-Free) — funds that invest at least 65% of assets in securities that are exempt from taxation in California and insured as to timely payment of interest and repayment of principal.
Investment Team Leaders
Portfolio Managers
Dave MacEwen
Steven Permut
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. 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:
It's important to note that credit ratings are subjective, reflecting the opinions of the rating agencies; they are not absolute standards of quality.
Glossary
Returns
Yields
Investment Terms
Statistical Terminology
Types of Municipal Securities
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.
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.
Notes
INVESTMENT OBJECTIVE
----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
----------------------------------------------------------------------------------------------
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
----------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
-------------------------------------------------------------------------------------------------------------------------
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
-------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
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.
[AMERICAN CENTURY LOGO]
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.
[GRAPHIC OMITTED]
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.
American Century Investments BULK RATE P.O. Box 419200 U.S. POSTAGE PAID Kansas City, MO 64141-6200 AMERICAN CENTURY www.americancentury.com COMPANIES 0004 American Century Investment Services, Inc. SH-SAN-20080 (C)2000 American Century Services Corporation
February 29, 2000
AMERICAN CENTURY®
Semiannual Report
[GRAPHIC OMITTED]
California Limited-Term Tax-Free
California Intermediate-Term Tax-Free
California Long-Term Tax-Free
[AMERICAN CENTURY LOGO]
California Limited-Term Tax-Free
(BCSTX)
California Intermediate-Term Tax-Free
(BCITX)
California Long-Term Tax-Free
(BCLTX)
Turn to the inside back
cover of this report to
see a list of American
Century funds classified
by objective and risk.
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In addition to this plan, you can choose from five other business retirement plans that also give you the affordability, variety, and assistance you may need. Your benefits range from tax-deferred investing and tax-deductible contributions, to retaining good employees. Give us a call today at 1-800-345-3533, ext. 4001 and let our knowledgeable team of Business Retirement Specialists help you set up the right business retirement plan for you.
Our Message to You
[PHOTO OMITTED]
James E. Stowers III, seated, with James E. Stowers, Jr.
Rising interest rates and falling bond prices presented difficult hurdles for American Century's California municipal bond funds during the six months ended February 29, 2000. In this environment, the California Limited-Term and Intermediate-Term Tax-Free funds managed to produce modestly positive total returns, but the California Long-Term Tax-Free fund's greater interest-rate sensitivity resulted in a slightly negative return.
Despite challenging market conditions, these funds continued to provide competitive yields with low expenses—key factors that remain consistent no matter how bond market conditions may change. As a result, these funds have consistently beaten the average returns of their Lipper peer groups. (See pages 4, 11, and 19 for more performance information.)
We are proud of our funds' performance and the numerous ways we can help you meet your financial goals, but we are equally proud of our dedication to creating a positive, safe, and productive work environment for American Century staff. This commitment to the idea that "we're only as good as the way we treat our most junior team members" was recognized and rewarded in 1999, when American Century ranked in the top 40 of Fortune magazine's "100 Best Companies to Work For."
We do not take this recognition lightly — acknowledgements like this allow us to recruit talented and dedicated people, from service representatives to investment professionals. This "intellectual capital" is our most valuable resource and an essential one in our effort to provide you with excellent investment management and service.
As always, we appreciate your continued confidence in American Century.
Sincerely
/s/ James E. Stowers
James E. Stowers, Jr.
Chairman of the Board and Founder
/s/ James E. Stowers III
James E. Stowers III
Vice Chairman of the Board and
Chief Executive Officer
Table of Contents
Report Highlights
Market Perspective
California Limited-Term Tax-Free
Performance Information
Management Q&A
Portfolio at a Glance
Schedule of Investments
California Intermediate-Term Tax-Free
Performance Information
Management Q&A
Portfolio at a Glance
Schedule of Investments
California Long-Term Tax-Free
Performance Information
Management Q&A
Portfolio at a Glance
Schedule of Investments
Financial Statements
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Financial Highlights
Other Information
Background Information
Investment Philosophy and Policies
Comparative Indices
Lipper Rankings
Investment Team Leaders
Credit Rating Guidelines
Glossary
Report Highlights
-----------------------------------------
California
Limited-Term Tax-Free
(BCSTX)
-----------------------------------------
Total Returns: AS OF 2/29/00
6 Months ..................... 1.21*
1 Year ....................... 1.20%
30-Day SEC Yield: 4.11%
Inception Date: 6/1/92
-----------------------------------------
Net Assets: $140.4 million
-----------------------------------------
-----------------------------------------
California
Intermediate-Term Tax-Free
(BCITX)
-----------------------------------------
Total Returns: AS OF 2/29/00
6 Months ..................... 0.90%*
1 Year ....................... -0.84%
30-Day SEC Yield: 4.40%
Inception Date: 11/9/83
-----------------------------------------
Net Assets: $432.0 million
-----------------------------------------
-----------------------------------------
California
Long-Term Tax-Free
(BCLTX)
-----------------------------------------
Total Returns: AS OF 2/29/00
6 Months ..................... -0.74%*
1 Year ....................... -4.68%
30-Day SEC Yield: 5.19%
Inception Date: 11/9/83
-----------------------------------------
Net Assets: $291.8 million
-----------------------------------------
* Not annualized.
Investment terms are defined in the Glossary on pages 34-35.
Market Perspective
California Limited-Term Tax-Free
California Intermediate-Term Tax-Free
California Long-Term Tax-Free
Market Perspective from Randall W. Merk
[PHOTO OMITTED]
Randall W. Merk, chief investment officer of fixed income at American Century
Lower Prices, Higher Yields
Strong economic growth, rising interest rates, and a booming stock market muted California municipal bond returns during the six months ended February 29, 2000. The short- and intermediate-term sectors of the municipal market posted small gains, while long-term bonds finished in negative territory (see the index returns table at right). Long-term municipal bonds also suffered in comparison with long-term Treasurys, which posted attractive returns amid government plans to reduce Treasury issuance and supply.
Continued strong U.S. economic growth fanned inflation fears and triggered higher interest rates. The U.S. economy grew at a 7.3% annual rate in the fourth quarter of 1999, its fastest rate in over 15 years, and unemployment remained near 30-year lows. In response, the Federal Reserve (the U.S. central bank) continued to raise short-term interest rates, pushing municipal bond yields higher and prices lower.
As a result of the difficult municipal bond environment, yields are as high as they've been in several years. For an investor in the highest combined federal and California state tax bracket, a 30-year AAA-rated California municipal bond that yielded approximately 5.8% on February 29 (up from about 5.5% on August 31, 1999) offered a tax-equivalent yield of more than 10%. That compared very favorably with the 6.15% yield of the 30-year U.S. Treasury bond on February 29.
Technical Factors Remain Favorable
In the California municipal market, supply and demand conditions continued to improve. California's strong economy strengthened the financial stability of many municipal issuers and curtailed their borrowing needs. In addition, refinancing of old debt came to a virtual standstill as higher interest rates eliminated the financial incentive to retire old debt.
Meanwhile, investor demand firmed as municipals offered attractive prices and the highest tax-equivalent yields in several years. This was especially true among short- and intermediate-term California bonds—strong demand from individual investors held down California yields relative to the national municipal market.
High-Quality Bonds Outperform
Investment-grade municipal bonds outpaced lower-rated and non-rated bonds—the so-called "high-yield sector"—during the period. Much of high-yield's underperformance can be attributed to heavy tax-loss selling in late 1999 and concerns about healthcare bonds, which tainted the entire high-yield market. We think the high-yield sell-off was overdone—California's economic strength lifted the credit quality of the high-yield sector, as well as the financial strength of the California municipal market as a whole.
"The Federal Reserve continued to raise short-term interest rates, pushing municipal bond yields higher and prices lower."
Municipal Bond Index Returns
For the six months ended February 29, 2000
---------------------------------------------------- Lehman Three-Year Municipal Index 1.17% ---------------------------------------------------- Lehman Five-Year General Obligation Index 0.59% ---------------------------------------------------- Lehman Long-Term Municipal Index -2.03% ----------------------------------------------------
Source: Lipper Inc., Russell/Mellon Analytical
Rising Municipal Yield Curve
[GRAPHIC OMITTED]
[The following table was depicted as a mountain graph in the printed material.]
YEARS TO MATURITY 2/29/00 8/31/99 -------------------------------------- 1 4.19% 3.59% 2 4.55% 3.94% 3 4.73% 4.15% 4 4.85% 4.27% 5 4.94% 4.39% 6 5.00% 4.49% 7 5.06% 4.59% 8 5.11% 4.69% 9 5.16% 4.79% 10 5.21% 4.89% 11 5.27% 4.97% 12 5.34% 5.05% 13 5.40% 5.13% 14 5.46% 5.20% 15 5.53% 5.27% 16 5.59% 5.31% 17 5.64% 5.35% 18 5.70% 5.39% 19 5.75% 5.43% 20 5.81% 5.47% 21 5.82% 5.47% 22 5.83% 5.48% 23 5.84% 5.48% 24 5.85% 5.49% 25 5.85% 5.50% 26 5.85% 5.50% 27 5.86% 5.51% 28 5.86% 5.51% 29 5.87% 5.52% 30 5.87% 5.52%
Source: Bloomberg Financial Markets
California Limited-Term Tax-Free — Performance
Total Returns as of February 29, 2000
Calif. Short-Interm.
California Lehman 3-Year Municipal Debt Funds(2)
Limited-Term Municipal --------------------------------
Tax-Free Index Average Return Fund's Ranking
--------------- --------------- -------------- ---------------
6 Months(1) .......... 1.21% 1.17% 0.79% --
1 Year ............... 1.20% 1.44% 0.25% 2 out of 13
----------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
----------------------------------------------------------------------------------------
3 Years .............. 3.80% 4.06% 3.23% 2 out of 12
5 Years .............. 4.42% 4.88% 4.03% 3 out of 10
Life of Fund ......... 4.35% 4.86% 4.48%(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 33-34 for more information about returns, the comparative index,
and Lipper fund rankings.
Growth of $10,000 Over Life of Fund
[GRAPHIC OMITTED]
[The following table was depicted as a mountain graph in the printed material.]
Value on 2/29/00
California Limited-Term Tax-Free $13,911
Lehman 3-Year Municipal Index $14,383
California
Limited-Term Lehman 3-Year
Year Tax-Free Municipal Index
-------- ------------ ---------------
6/1/92 $ 10,000 $ 10,000
6/30/92 $ 10,074 $ 10,122
9/30/92 $ 10,277 $ 10,357
12/31/92 $ 10,413 $ 10,451
3/31/93 $ 10,616 $ 10,662
6/30/93 $ 10,754 $ 10,822
9/30/93 $ 10,913 $ 10,976
12/31/93 $ 11,029 $ 11,100
3/31/94 $ 10,880 $ 10,951
6/30/94 $ 10,941 $ 11,070
9/30/94 $ 11,036 $ 11,175
12/31/94 $ 10,961 $ 11,176
3/31/95 $ 11,289 $ 11,489
6/30/95 $ 11,517 $ 11,732
9/30/95 $ 11,682 $ 11,982
12/31/95 $ 11,872 $ 12,167
3/31/96 $ 11,902 $ 12,235
6/30/96 $ 11,993 $ 12,334
9/30/96 $ 12,161 $ 12,497
12/31/96 $ 12,339 $ 12,708
3/31/97 $ 12,383 $ 12,759
6/30/97 $ 12,626 $ 12,995
9/30/97 $ 12,842 $ 13,217
12/31/97 $ 12,997 $ 13,405
3/31/98 $ 13,127 $ 13,543
6/30/98 $ 13,247 $ 13,696
9/30/98 $ 13,573 $ 13,967
12/31/98 $ 13,636 $ 14,035
3/31/99 $ 13,776 $ 14,191
6/30/99 $ 13,668 $ 14,129
9/30/99 $ 13,813 $ 14,270
12/31/99 $ 13,789 $ 14,311
2/29/00 $ 13,911 $ 14,383
$10,000 investment made 6/1/92
The graph at left shows the growth of a $10,000 investment over the life of the fund, while the graph below shows the fund's year-by-year performance. The Lehman 3-Year Municipal Bond Index is provided for comparison in each graph. California Limited-Term Tax-Free's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost.
One-Year Returns Over Life of Fund (Periods ended February 28 or 29)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
California
Limited-Term Lehman 3-Year
Date Tax-Free Municipal Index
---- ------------ ---------------
2/93 6.73% 6.94%
2/94 2.93% 3.67%
2/95 2.00% 2.72%
2/96 6.82% 7.71%
2/97 3.90% 4.56%
2/98 5.40% 5.42%
2/99 4.86% 5.24%
2/00 1.20% 1.44%
* From 6/1/92 (the fund's inception date) to 2/28/93.
California Limited-Term Tax-Free—Q&A
[PHOTO OMITTED]
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 six months ended February 29, 2000?
Despite a difficult environment for fixed-income securities, California Limited-Term Tax-Free produced a 1.21% total return. That's significantly higher than the 0.79% average return of the 13 "California Short-Intermediate Municipal Debt Funds" tracked by Lipper Inc.
The portfolio's one-, three-, and five-year returns are also much better than average (see the previous page for detailed fund performance comparisons).
What about the portfolio's yield? How does it compare?
California Limited-Term Tax-Free also provided shareholders with more state and federal tax-free income than the average California short-intermediate bond fund. As of February 29, the portfolio's 30-day SEC yield was 4.11%, while the Lipper group average was 3.45%.
The portfolio's SEC yield translates into a tax-equivalent yield of 7.5% for California taxpayers in the highest in come tax bracket (see the table at right). By comparison, at the end of February, two- and five-year Treasury notes were yielding 6.58% and 6.64%, respectively.
Why did California Limited-Term Tax-Free produce better yields and total returns than its Lipper group?
One reason is that our management expenses are quite a bit lower than those of the average California short-intermediate municipal bond fund. Other things being equal, lower expenses should translate into higher yields and returns.
But perhaps the biggest reason for our solid relative performance was the way we managed the fund's duration over the last six months.
Can you tell us what duration is and how you managed it?
Duration measures a bond or bond fund's sensitivity to changes in interest rates. The shorter a bond or fund's duration, the less its price fluctuates when interest rates change. A longer duration signals greater price sensitivity to rate changes. Interest rates and bond prices move in opposite directions, so you want a shorter duration when interest rates are rising and a longer duration when interest rates fall.
We kept duration relatively short, around three years, for much of the last year. That positioning helped fund performance, particularly during the last several months of 1999, when interest rates rose.
Are higher interest rates why the fund's yield increased in recent months?
Yes. Unprecedented U.S. economic growth and a tight labor market led the Federal Reserve to raise short-term interest rates several times since last summer. The Fed has been trying to tap the brakes on the economy and bring growth back below its speed limit for inflation.
That policy goes a long way toward explaining why the fund's yield rose from 3.72% to 4.11% in the past six months. But another reason for the fund's higher yield is that we added what we think are good bonds with attractive yields.
Can you give examples of some of the bonds you liked?
In the last six months, we bought some Puerto Rico municipals with attractive yields. We added these bonds because they offered a good yield pick-up over California securities with a comparable maturity and credit rating. Interest payments by bonds issued by Puerto Rico and other United States territories are free from state and federal taxes for investors in all 50 states.
In addition, we held a modest position in municipal hospital bonds. These bonds offered significantly higher yields than most other municipal securities. That's because the hospital industry is out of favor with many investors, thanks to shrinking profit margins. However, our experienced credit research team believes that the issues we own are "diamonds in the rough"—solid credits that have been tarred unfairly with the same broad brush as the rest of the industry.
California's economy has been very strong. How has that affected the fund?
The tremendous growth of California's economy is generally holding down California municipal bond fund yields. The supply of new bonds is scarce because municipalities' borrowing needs decrease as their financial health improves.
In addition, low unemployment and unprecedented wealth creation have pushed taxpayers into higher tax brackets, and that has fueled greater demand for tax-exempt investments. Less supply and more demand have caused yields on California municipal bonds to decrease relative to national market rates.
A red-hot economy has also led to healthier municipal balance sheets. In general, that means improved credit quality for California state and local municipal bond issuers.
What's your outlook for interest rates?
We expect the Federal Reserve to continue to raise interest rates through the first half of 2000 or so. But we don't see the fundamentals of the California municipal market changing anytime soon, so we're likely to continue to see strong demand for California bonds. In addition, we expect supply to remain tight because issuers have limited borrowing needs. That means that the fund's yield is likely to increase only modestly going forward even if we're right and the Fed raises rates again.
Given that outlook, how will you position the portfolio?
In terms of duration, we expect to position the fund a little closer to neutral because we think it's unlikely short-term California municipal rates will rise sharply. As far as sector allocation is concerned, we'll continue to monitor the spread, or difference in yield, between California and Puerto Rico bonds. We'll hang on to the Puerto Rico municipals as long as the yield spread remains relatively wide. But if spreads narrow—meaning Puerto Rico bonds outperform California securities—we'd likely take some profits by selling these securities and moving back into California bonds.
"The portfolio's SEC yield translates into a tax-equivalent yield of 7.5% for California taxpayers in the highest income tax bracket."
Yields as of February 29, 2000
------------------------------
30-Day SEC Yield
------------------------------
4.11%
------------------------------
30-Day Tax-Equivalent Yields
------------------------------
34.70% Tax Bracket 6.29%
37.42% Tax Bracket 6.57%
41.95% Tax Bracket 7.07%
45.22% Tax Bracket 7.50%
Portfolio at a Glance
-------------------------------------------------
2/29/00 8/31/99
-------------------------------------------------
Number of Securities 86 77
Weighted Average Maturity 3.6 yrs 3.5 yrs
Average Duration 3.0 yrs 2.9 yrs
Expense Ratio 0.51%* 0.51%
* Annualized.
Investment terms are defined in the Glossary on pages 34-35.
Portfolio Composition by Credit Rating
-----------------------------------------------
% of fund investments
-----------------------------------------------
As of As of
2/29/00 8/31/99
AAA 57% 55%
AA 17% 15%
A 16% 23%
BBB 10% 7%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 33 for more information.
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%
Top Five Sectors (as of 8/31/99)
-----------------------------------------------
% of fund investments
-----------------------------------------------
COPs/Leases 26%
GO 14%
Hospital Revenue 12%
Electric Revenue 6%
Sales Tax Revenue 6%
Investment terms are defined in the Glossary on pages 34-35.
California Limited-Term Tax-Free — Schedule of Investments
FEBRUARY 29, 2000 (UNAUDITED)
Principal Amount Value
==============================================================
--------------------------------------------------------------
MUNICIPAL SECURITIES -- 97.0%
--------------------------------------------------------------
CALIFORNIA -- 81.2%
$1,235,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.50%, 7/1/03 $ 1,198,262
2,450,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.80%, 7/1/06 2,311,600
400,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Odd Fellows Home), 4.40%,
8/15/02 397,648
400,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Odd Fellows Home), 4.55%,
8/15/03 397,656
425,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Odd Fellows Home), 4.65%,
8/15/04 422,208
1,245,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Rhoda Haas Goldman Plaza),
5.00%, 5/15/07 (California
Mortgage Insurance) 1,239,323
1,145,000 California Educational Facilities
Auth. Rev., (Pepperdine
University), 5.125%, 1/15/02
(AMBAC) 1,161,293
1,710,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern
California), 5.60%, 10/1/01 1,746,491
1,910,000 California Educational Facilities
Auth. Rev., Series 1997 A,
(University of Southern
California), 5.60%, 10/1/03 1,983,000
395,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.45%, 4/1/02 396,825
420,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.55%, 4/1/03 422,827
440,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.65%, 4/1/04 444,013
465,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 5.75%, 4/1/05 470,175
1,000,000 California Health Facilities
Financing Auth. Rev., (Sisters
Providence), 5.25%, 10/1/01 1,012,640
1,180,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/02 (MBIA) 1,200,933
1,750,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.50%, 11/1/01(1) 1,784,020
1,245,000 California Health Facilities
Financing Auth. Rev., Series
1998 A, (Kaiser Permanente),
5.00%, 6/1/06 (FSA) 1,263,936
250,000 California Public Works Board
Lease Rev., Series 1999 A,
(Department of Health
Services), 4.60%, 11/1/06
(MBIA) 248,215
1,600,000 California Public Works Board
Lease Rev., Series 1995 A,
(Department of Justice
Building), 5.50%, 5/1/00(2) 1,604,576
3,000,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Community Colleges),
5.00%, 4/1/02 3,033,330
2,325,000 California State GO, 6.10%,
2/1/02 (AMBAC)(2) 2,398,516
1,095,000 California State GO, 7.00%,
10/1/04 1,201,357
1,515,000 California State GO, 5.50%,
12/1/05 1,580,418
1,000,000 California State GO, 7.50%,
10/1/07 (MBIA) 1,163,410
4,275,000 California State GO, 6.50%,
2/1/08 4,700,277
1,750,000 Central California Joint Powers
Health Financing Auth. COP,
(Community Hospitals of
Central California), 5.25%,
2/1/04 1,708,158
1,500,000 Central Coast Water Auth. Rev.,
(State Water Project Regional
Facilities), 6.60%, 10/1/02,
Prerefunded at 102% of Par
(AMBAC)(1) 1,605,885
4,825,000 Central Valley Financing Auth.
Cogeneration Project Rev.,
(Carson Ice General), 4.50%,
7/1/01 (MBIA) 4,848,112
1,000,000 Encinitas Unified School District
COP, 5.00%, 9/1/01 1,008,080
1,740,000 Escondido Joint Powers Financing
Auth. Lease Rev., Series
1992 B, (Escondido Civic
Center), 6.00%, 9/1/06
(AMBAC)(1) 1,859,990
100,000 Foothill/Eastern Corridor Agency
Toll Road Rev., 4.375%,
1/15/07 (MBIA) 97,559
1,000,000 Foothill/Eastern Corridor Agency
Toll Road Rev., 5.00%,
1/15/06 (MBIA) 1,016,480
1,400,000 Intermodal Container Transfer
Facility Joint Powers Auth. Rev.,
Series 1999 A, 4.00%,
11/1/00 (AMBAC) 1,402,814
1,775,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.25%, 11/1/01 (AMBAC) 1,804,909
1,400,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.25%, 11/1/05 (AMBAC) 1,445,948
2,955,000 Los Angeles Building Auth. Lease
Rev., Series 1995 A, 5.30%,
5/1/01 2,993,267
4,875,000 Los Angeles Community
Redevelopment Agency Tax
Allocation, Series 1997 I,
(Central Business District),
5.00%, 11/15/01 4,889,674
2,500,000 Los Angeles COP, (Equipment &
Real Estate Acquisition Program
AC), 4.25%, 10/1/01 2,495,925
425,000 Los Angeles COP, (Equipment &
Real Estate Acquisition Program
AC), 4.50%, 10/1/04 421,600
1,265,000 Los Angeles County Capital Asset
Leasing Corp. Rev., 5.625%,
12/1/03 (AMBAC) 1,311,147
1,750,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1998 B, (California Equipment
Program), 4.00%, 12/1/00 1,746,605
2,380,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1999 A, (California Equipment
Program), 4.70%, 6/1/02 2,370,075
1,045,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1999 A, (California Equipment
Program), 4.875%, 12/1/02 1,043,328
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/02
(AMBAC) 1,033,350
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/05
(AMBAC) 1,059,350
2,645,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A,
(Proposition A), 5.50%, 7/1/02
(MBIA) 2,710,305
2,360,000 Los Angeles County Public Works
Financing Auth. Lease Rev.,
Series 1996 A, 6.00%, 9/1/04
(MBIA) 2,497,494
4,000,000 Los Angeles County Public Works
Financing Auth. Rev., Series
1997 A, (Regional Park and
Open Space District), 5.00%,
10/1/01 4,048,240
2,600,000 Los Angeles Unified School
District GO, Series 1997 A,
5.00%, 7/1/04 (FGIC) 2,653,144
1,250,000 Los Angeles Wastewater System
Rev., Series 1990 A, 6.80%,
2/1/01 1,277,662
1,110,000 Los Angeles Wastewater System
Rev., Series 1996 A, 6.00%,
2/1/03 (FGIC) 1,156,154
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.375%, 7/1/02 1,043,930
2,000,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1997 G, (San Juan),
5.50%, 7/1/01 (MBIA) 2,034,040
1,365,000 Ontario Redevelopment Financing
Auth. Rev., (Center City
Cimarron), 5.70%, 8/1/01
(MBIA) 1,393,269
1,230,000 Orange County Rev., Series
1995 A, (Recovery), 6.00%,
6/1/08 (MBIA) 1,316,973
1,500,000 Orange County Transportation
Sales Tax Rev., 5.50%,
2/15/01 (AMBAC) 1,522,545
1,160,000 Oroville Hospital Rev., Series
1997 A, 4.75%, 12/1/04
(California Mortgage Insurance) 1,159,675
5,000,000 Pacific Housing & Finance
Agency Lease Rev., Series
1999 A, (Pass Thru Obligation-
Lease Purchase), 4.625%,
12/1/04 (MBIA) 4,977,550
2,000,000 Poway Unified School District
Special Tax, (Community
Facilities District No. 1),
5.00%, 10/1/07 (MBIA) 2,028,280
1,500,000 Riverside Electric Rev., 6.00%,
10/1/01, Prerefunded at
100% of Par(1) 1,539,735
1,475,000 Riverside Water Rev., 6.00%,
10/1/01, Prerefunded at
100% of Par(1) 1,514,073
1,750,000 Sacramento Schools Insurance
Auth. Rev., Series 1993 C,
(Workers Compensation
Program), 5.75%, 6/1/03(1) 1,778,752
1,000,000 San Bernardino County COP,
Series 1995 A, (Medical Center
Financing), 5.20%, 8/1/04
(MBIA) 1,027,310
2,000,000 San Francisco Bay Area
Transportation Financing Auth.
Rev., (Bridge Toll Notes),
5.75%, 2/1/07 (ACA) 2,049,740
1,085,000 Santa Barbara County COP,
4.90%, 3/1/01 1,093,723
2,000,000 Santa Clara County Financing
Auth. Lease Rev., Series
2000 B, (Multiple Facilities),
5.50%, 5/15/07 (AMBAC)(3) 2,050,600
1,075,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hopital Association), 4.80%,
12/1/02 1,053,876
1,070,000 Tehachapi COP, (Installment Sale),
4.80%, 11/1/04 (FSA)(3) 1,083,097
1,000,000 University of California COP,
(UCLA Center Chiller/Cogen),
10.00%, 11/1/03 1,172,130
1,000,000 University of California Rev.,
(Multi-Purpose), 6.875%,
9/1/02, Prerefunded at 102%
of Par (MBIA)(1) 1,075,750
1,040,000 Victor Valley Joint Union High
School District GO, 5.60%,
9/1/04 (MBIA)(1) 1,081,798
2,100,000 West & Central Basin Financing
Auth. Rev., Series 1993 B,
5.25%, 8/1/08 (AMBAC) 2,130,576
3,175,000 Whittier Health Facility Rev.,
(Presbyterian Intercommunity),
5.50%, 6/1/02 (MBIA) 3,247,072
------------
121,662,698
------------
PUERTO RICO -- 13.7%
3,000,000 Puerto Rico Commonwealth
Aqueduct & Sewer Auth. Rev.,
Series 1985 A, 9.00%,
7/1/05, Prerefunded at 100%
of Par (FSA)(1) 3,468,480
4,100,000 Puerto Rico Commonwealth GO,
(Public Improvement), 5.00%,
7/1/05 (MBIA) 4,135,055
2,000,000 Puerto Rico Commonwealth GO,
7.50%, 7/1/04 (MBIA) 2,211,120
1,000,000 Puerto Rico Commonwealth
Highway and Transportation
Auth. Rev., Series 1996 Y,
6.25%, 7/1/06 (MBIA) 1,071,320
2,000,000 Puerto Rico Electric Power Auth.
Rev., Series 1995 W, 6.50%,
7/1/05 (MBIA) 2,154,880
1,000,000 Puerto Rico Electric Power Auth.
Rev., Series 1995 Y, 7.00%,
7/1/07 (MBIA) 1,120,540
1,775,000 Puerto Rico Municipal Finance
Agency, Series 1999 A, 5.00%,
8/1/02 1,783,556
1,000,000 Puerto Rico Municipal Finance
Agency, Series 1999 B, 5.00%,
8/1/01 1,005,500
3,500,000 Puerto Rico Municipal Finance
Agency, Series 1999 B, 5.00%,
8/1/05 (FSA) 3,528,770
------------
20,479,221
------------
U.S. VIRGIN ISLANDS -- 2.1%
2,000,000 Virgin Islands Public Finance
Auth. Rev., Series 1992 A,
(Matching Fund Loan Notes),
7.25%, 10/1/02, Prerefunded
at 102% of Par(1) 2,169,040
1,000,000 Virgin Islands Water & Power
Auth. Electric System Rev.,
5.00%, 7/1/02 993,520
------------
3,162,560
------------
TOTAL MUNICIPAL SECURITIES 145,304,479
------------
(Cost $145,536,621)
--------------------------------------------------------------
SHORT--TERM MUNICIPAL SECURITIES
--------------------------------------------------------------
CALIFORNIA -- 3.0%
1,500,000 California Health Facilities
Finance Auth. Rev. Floating
Rate Trust Receipts, Series
1998-17, VRDN, 2.45%,
3/1/00 (MBIA) (SBBPA:
Bank of New York) (Acquired
2/29/00, Cost $1,500,000)(4) 1,500,000
3,000,000 San Bernardino County COP,
VRDN, 3.11%, 3/2/00 (MBIA)
(SBBPA: Merrill Lynch & Co.,
Inc.) (Acquired 2/22/00, Cost
$3,000,000)(4) 3,000,000
------------
TOTAL SHORT--TERM MUNICIPAL SECURITIES 4,500,000
------------
(Cost $4,500,000)
TOTAL INVESTMENT SECURITIES -- 100.0% $149,804,479
============
(Cost $150,036,621)
FEBRUARY 29, 2000 (UNAUDITED)
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.
SBBPA = Standby Bond Purchase Agreement
VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective February
29, 2000.
(1) Escrowed to maturity in U.S. government or state and local government securities.
(2) Security, or a portion thereof, has been segregated at the custodian bank
for a when-issued security.
(3) When-issued security.
(4) Security was purchased under rule 144A of the Securities Act of 1933 or
is a private placement, and unless registered under the Act or exempted from registration,
may only be sold to qualified institutional investors. The aggregate value of
these securities at February 29, 2000 was $4,500,000 which represented 3.2% of
net assets. None of these securities are considered to be illiquid.
California Intermediate-Term Tax-Free—Performance
Total Returns as of February 29, 2000
[GRAPHIC OMITTED]
[The following table was depicted as a mountain graph in the printed material.]
Calif. Interm.
California Municipal Debt Funds(2)
Intermediate-Term Lehman 5-Year --------------------------------
Tax-Free GO Index Average Return Fund's Ranking
--------------- --------------- -------------- ---------------
6 Months(1) .......... 0.90% 0.59% 0.58% —
1 Year ............... -0.84% 0.09% -1.11% 15 out of 27
----------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
----------------------------------------------------------------------------------------
3 Years .............. 4.01% 4.06% 3.71% 9 out of 22
5 Years .............. 5.27% 5.35% 5.06% 7 out of 19
10 Years.............. 6.02% 6.11% 6.02% 1 out of 1
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 33—34 for more information about returns, the comparative index,
and Lipper fund rankings.
Growth of $10,000 Over 10 Years
[GRAPHIC OMITTED]
[The following table was depicted as a mountain graph in the printed material.]
Value on 2/29/00
California Intermediate-Term Tax-Free $17,940
Lehman 5-Year GO Index $18,093
California Lehman
Intermediate-Term 5-Year
Year Tax-Free GO Index
---- ----------------- ---------
'90 $ 10,000 $ 10,000
'91 $ 10,856 $ 10,895
'92 $ 11,688 $ 11,868
'93 $ 13,167 $ 13,190
'94 $ 13,695 $ 13,674
'95 $ 13,881 $ 13,944
'96 $ 15,302 $ 15,325
'97 $ 15,946 $ 16,055
'98 $ 17,158 $ 17,099
'99 $ 18,094 $ 18,077
'00 $ 17,940 $ 18,093
$10,000 investment made 2/28/90
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 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.
One-Year Returns Over 10 Years (Periods ended February 28 or 29)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
California Lehman
Intermediate-Term 5-Year
Date Tax-Free GO Index
---- ----------------- --------
2/91 8.56% 8.96%
2/92 7.66% 8.92%
2/93 12.66% 11.12%
2/94 4.01% 3.67%
2/95 1.36% 1.97%
2/96 10.23% 9.91%
2/97 4.21% 4.76%
2/98 7.60% 6.50%
2/99 5.46% 5.72%
2/00 -0.84% 0.09%
California Intermediate-Term Tax-Free—Q&A
[PHOTO OMITTED]
An interview with Colleen Denzler, a portfolio manager on the California Tax-Free and Municipal funds investment team.
How did California Intermediate-Term Tax-Free perform during the six months ended February 29, 2000?
The fund posted a positive return despite rising interest rates. For the six-month period, California Intermediate-Term Tax-Free returned 0.90%, which beat the 0.58% average return of the 28 "California Intermediate Municipal Debt Funds" tracked by Lipper Inc.
The fund has consistently outperformed the average California intermediate municipal fund over longer time periods as well (see the previous page).
Why did the fund beat its Lipper group average?
It's partly because of the fund's low expenses. California Intermediate-Term Tax-Free has an annual expense ratio of 0.51%, while its Lipper group averages 0.75%.
Another factor was some adjustments we made to the fund's duration, shortening it in the fourth quarter of 1999.
What was the advantage of a shorter duration?
Duration is a measure of the fund's price volatility as interest rates change. When interest rates rise—as they did over the past six months—the fund's share price typically falls, so we wanted a shorter duration because it helps minimize price declines.
California Intermediate-Term Tax-Free's duration was 5.7 years at the start of the six-month period, but we shortened it to 5.2 years by the end of 1999. We added some shorter-term bonds to the portfolio in December when their yields spiked higher.
Why did their yields jump?
It was a Y2K effect. In mid-December, trading in the California municipal market slowed to a crawl because investors were afraid to commit cash ahead of any possible problems at year-end. The lack of demand in some parts of the market caused yields to rise dramatically, and we were able to find a number of short-term bonds with very attractive yields. These purchases helped shorten the fund's duration and increase its yield at the same time.
Once January rolled around and everything turned out fine, the situation reversed—yields fell back down to previous levels, and our bonds got some nice price gains.
Puerto Rico bonds now make up 11% of California Intermediate-Term Tax-Free's portfolio. Why are these bonds such a large part of the portfolio?
They help boost the fund's yield. Puerto Rico bonds have all the same benefits of California bonds—the interest is free from both federal and state taxes (this is true in all 50 states). But we've been able to get higher yields on Puerto Rico bonds than we could on comparable California bonds.
Among short- and intermediate-term bonds, California municipal yields were lower than municipal yields nationally for most of 1999, and this disparity has become even more pronounced so far in 2000.
Why are California yields so low?
It's a supply and demand imbalance. Issuance of municipal bonds in California has been very light—huge tax revenues produced by a strong economy have reduced the state's borrowing needs.
In contrast, demand for short- and intermediate-term California municipal bonds is extremely heavy. It's mainly individual investors, not institutions or mutual funds. Many of these individuals are taking some of the wealth they've amassed in the technology or entertainment industries and socking it away in municipal bonds.
The combination of high demand and low supply has kept California yields down relative to other states. By the end of February, yields on intermediate-term California municipal bonds were more than 30 basis points (0.30%) lower than the national municipal market, compared with about 10 basis points six months ago.
Do you expect this situation to continue?
More than likely, at least in the near future. Demand from individual investors hasn't shown any sign of slowing down, and it may even pick up if the stock market continues to do well.
The California economy is as healthy as it's been in at least a decade, so issuance will probably continue to be on the low side. It's also good news for the state's credit quality.
The national economy is in great shape, too, and that means the Federal Reserve will almost certainly raise short-term interest rates several more times to slow it down.
Nonetheless, municipal yields have gone up quite a bit in the past year, and we think that most of the rise in yields is behind us.
How do you plan to position the portfolio going forward?
We may look to extend the fund's duration a little in the next six months. That would put the fund in a better position if and when yields peak and start to come back down.
Right now, the fund holds a balance of longer-term bonds and short-term bonds. This is known as a "barbell" because we're heavy at both ends of the maturity scale. The reason for this is the big yield gap that currently exists between intermediate- and long-term California bonds. We bought longer-term bonds to pick up that extra yield, and we offset them with short-term bonds to keep the fund's duration from extending.
Recently, though, that yield gap has started to narrow, and if it continues to do so, we may unwind the barbell position and focus our purchases on intermediate-term bonds.
"The fund has consistently outperformed the average California intermediate municipal fund."
------------------------------
30-Day SEC Yield
------------------------------
4.40%
------------------------------
30-Day Tax-Equivalent Yields
------------------------------
34.70% Tax Bracket 6.74%
37.42% Tax Bracket 7.03%
41.95% Tax Bracket 7.57%
45.22% Tax Bracket 8.03%
Portfolio at a Glance
-------------------------------------------------
2/29/00 8/31/99
-------------------------------------------------
Number of Securities 150 153
Weighted Average Maturity 7.6 yrs 8.3 yrs
Average Duration 5.4 yrs 5.7 yrs
Expense Ratio 0.51%* 0.51%
* Annualized.
Investment terms are defined in the Glossary on pages 34-35.
Portfolio Composition by Credit Rating
-----------------------------------------------
% of fund investments
-----------------------------------------------
As of As of
2/29/00 8/31/99
AAA 66% 63%
AA 22% 20%
A 10% 16%
BBB 2% 1%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 33 for more information.
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%
Top Five Sectors (as of 8/31/99)
-----------------------------------------------
% of fund investments
-----------------------------------------------
COPs/Leases 27%
GO 19%
Sales Tax Revenue 11%
Water and Sewer Revenue 11%
Electric Revenue 10%
Investment terms are defined in the Glossary on pages 34-35.
California Intermediate-Term Tax-Free — Schedule of Investments
FEBRUARY 29, 2000 (UNAUDITED)
Principal Amount Value
==============================================================
--------------------------------------------------------------
MUNICIPAL SECURITIES
--------------------------------------------------------------
CALIFORNIA -- 88.8%
$1,350,000 Alameda Corridor Transportation
Auth. Rev., Series 1999 A,
5.00%, 10/1/10 (MBIA) $ 1,343,910
4,845,000 Alameda County COP, (Santa Rita
Jail), 5.375%, 6/1/09 (MBIA) 4,983,325
2,450,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
4.80%, 7/1/06 2,311,600
4,060,000 Burbank Redevelopment Agency
Tax Allocation, (West Olive),
6.50%, 12/1/01 (AMBAC) 4,211,316
280,000 California Educational Facilities
Auth. Rev., (Santa Clara
University), 5.25%, 9/1/10
(MBIA) 282,965
2,145,000 California Educational Facilities
Auth. Rev., (University of San
Diego), 6.75%, 10/1/00,
Prerefunded at 102% of Par
(MBIA)(1) 2,222,992
1,045,000 California Health Facilities
Financing Auth. Rev., (Valley
Presbyterian Hospital), 5.25%,
5/1/03 (MBIA) 1,069,035
1,745,000 California Health Facilities
Financing Auth. Rev., Series
1993 A, (St. Francis Memorial
Hospital), 5.625%, 11/1/02(1) 1,795,169
3,145,000 California Health Facilities
Financing Auth. Rev., Series
1995 A, (Insured Health
Facility), 6.00%, 7/1/04
(AMBAC) 3,316,811
1,320,000 California Public Works Board
Energy Efficiency Rev., Series
1998 A, 5.00%, 10/1/11
(AMBAC) 1,301,124
4,520,000 California Public Works Board
Lease Rev., Series 1992 A,
(Archives Building Project),
6.20%, 12/1/05 (AMBAC) 4,867,226
1,000,000 California Public Works Board
Lease Rev., Series 1992 A,
(Various University of California
Projects), 5.90%, 12/1/03
(AMBAC) 1,049,530
3,000,000 California Public Works Board
Lease Rev., Series 1994 A,
(Various University of California
Projects), 6.15%, 11/1/04,
Prerefunded at 102% of Par(1) 3,244,830
1,470,000 California Public Works Board
Lease Rev., Series 1996 C,
(Department of Corrections),
5.125%, 9/1/11 (MBIA) 1,462,430
1,010,000 California Public Works Board
Lease Rev., Series 1997 A,
(California Science Center),
4.60%, 10/1/05 1,005,778
8,355,000 California Public Works Board
Lease Rev., Series 1998 A,
(California Community
Colleges), 5.25%, 12/1/12
(AMBAC) 8,350,405
7,825,000 California Rural Home Mortgage
Financing Auth. Lease Rev.,
Series 1996 A, 4.45%, 8/1/01
(MBIA) 7,792,683
4,795,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1992 J-2,
5.80%, 12/1/04 5,057,766
3,260,000 California State Department of
Water Resource Central Valley
Project Rev., Series 1998 T,
5.00%, 12/1/10 3,245,004
2,000,000 California State Department of
Water Resource Center Valley
Project Rev., Series 1998 U,
5.125%, 12/1/12 1,975,880
1,855,000 California State GO, 7.00%,
11/1/06 (FGIC) 2,087,172
2,050,000 California State GO, 5.00%,
10/1/07 2,075,092
4,000,000 California State GO, 7.50%,
10/1/07 (MBIA) 4,653,640
4,080,000 California State GO, 6.00%,
10/1/09 4,369,925
3,350,000 California State GO, 5.75%,
4/1/10 3,515,858
7,000,000 California State GO, 6.60%,
2/1/11 (MBIA) 7,855,050
5,625,000 California State GO, 4.75%,
9/1/11 5,321,588
3,700,000 California State GO, 5.00%,
10/1/11 3,640,763
6,000,000 California State GO, 5.25%,
6/1/16 5,755,620
8,000,000 California Statewide Communities
Development Auth. COP,
(California Lutheran Homes),
5.375%, 11/15/06(1) 8,262,960
2,385,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 6.50%,
7/1/03(1) 2,526,240
2,500,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.25%,
7/1/11 2,446,550
2,180,000 California Statewide Communities
Development Auth. COP, (St.
Joseph Health System
Obligation Group), 5.00%,
7/1/12 2,076,559
2,545,000 Capistrano Unified Public
Financing Auth. Special Tax
Rev., Series 1996 A, (First
Lien), 6.00%, 9/1/06 (AMBAC) 2,720,503
2,075,000 Chabot Las Positas Community
College District COP, 5.50%,
12/1/10 (FSA) 2,144,616
1,575,000 Contra Costa Transportation Auth.
Sales Tax Rev., Series 1993 A,
5.50%, 3/1/03 (FGIC) 1,622,612
5,435,000 Contra Costa Transportation Auth.
Sales Tax Rev., Series 1993 A,
6.00%, 3/1/05 (FGIC) 5,763,057
1,065,000 Contra Costa Water District Rev.,
Series 1990 A, 7.00%,
10/1/00, Prerefunded at 102%
of Par(1) 1,105,129
1,110,000 Contra Costa Water District Rev.,
Series 1999 J, 5.125%,
10/1/10 (FGIC) 1,116,260
1,170,000 Contra Costa Water District Rev.,
Series 1999 J, 5.125%,
10/1/11 (FGIC) 1,167,917
1,220,000 Coronado Community
Development Agency Tax
Allocation, 6.00%, 9/1/08
(FSA) 1,299,776
2,570,000 East Bay Municipal Utility District
Water System Rev., 6.00%,
6/1/05 2,695,262
2,665,000 East Bay Municipal Utility District
Water System Rev., 4.50%,
6/1/12 2,437,249
4,015,000 East Bay Regional Park District
GO, 5.00%, 9/1/11 3,971,758
1,000,000 East Bay Regional Park District
GO, 5.00%, 9/1/12 978,630
5,730,000 Fresno Special Tax, (Community
Facilities District No. 3), 4.75%,
9/1/05 (LOC: Rabobank
International) 5,679,404
1,285,000 Garden Grove Agency Community
Development Tax Allocation,
5.30%, 10/1/02 1,295,897
7,350,000 Imperial Irrigation District COP,
(Electrical System), 6.50%,
11/1/07 (MBIA) 8,116,164
1,000,000 Intermodal Container Transfer
Facility Joint Powers Auth. Rev.,
Series 1999 A, 4.25%,
11/1/04 (AMBAC) 987,650
2,715,000 Irvine Unified School District
Special Tax, (Community
Facilities District No. 86-1),
5.50%, 11/1/10 (AMBAC) 2,802,124
1,090,000 Kings River Conservation District
Pine Flat Power Rev., Series
1999 E, 5.125%, 1/1/15 1,032,415
2,300,000 Los Angeles Airport Rev., Series
1995 A, 6.00%, 5/15/05
(FGIC) 2,441,496
4,000,000 Los Angeles Capital Asset Lease
Rev., 5.875%, 12/1/05
(AMBAC) 4,229,120
1,155,000 Los Angeles Convention and
Exhibition Center Auth. Lease
Rev., Series 1993 A, 6.00%,
8/15/10 (MBIA) 1,238,922
3,255,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1999 A, (California Equipment
Program), 4.50%, 6/1/01 3,247,904
2,785,000 Los Angeles County Capital Asset
Leasing Corp. Rev., Series
1999 A, (California Equipment
Program), 4.60%, 12/1/01 2,775,587
1,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1995 A,
(Proposition C), 5.90%, 7/1/06
(AMBAC) 1,062,970
3,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1997 A,
(Proposition A), 5.25%, 7/1/12
(MBIA) 2,995,740
1,000,000 Los Angeles County Public
Properties COP, 6.25%,
4/1/00 (BIGI) 1,002,200
2,625,000 Los Angeles County Sanitation
Districts Financing Auth. Rev.,
Series 1993 A, (Capital),
5.20%, 10/1/05 2,700,311
2,900,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.00%,
7/1/01 2,960,813
4,665,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.20%,
7/1/03 4,883,695
2,000,000 Los Angeles County
Transportation Commission
COP, Series 1992 B, 6.25%,
7/1/04 2,105,920
2,500,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1991 A,
(Proposition A), 6.40%, 7/1/01,
Prerefunded at 102% of Par(1) 2,618,500
3,515,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
(Proposition C), 6.20%, 7/1/04 3,720,206
3,765,000 Los Angeles County
Transportation Commission
Sales Tax Rev., Series 1992 A,
(Proposition C), 6.40%, 7/1/06 4,066,915
4,780,000 Los Angeles County Wastewater
System Rev., Series 1992 B,
6.20%, 6/1/02, Prerefunded at
102% of Par (AMBAC)(1) 5,049,927
2,140,000 Los Angeles Department of Water
and Power Waterworks Rev.,
5.00%, 10/15/14 (FGIC) 2,032,251
1,000,000 Los Angeles Department of Water
and Power Waterworks Rev.,
6.30%, 4/15/06 (FGIC) 1,048,690
2,245,000 Los Angeles GO, Series 1999 B,
5.375%, 9/1/18 2,136,364
1,790,000 Los Angeles Municipal
Improvement Corp. Lease Rev.,
Series 1999 D, (Police
Emergency), 4.375%, 9/1/10 1,657,236
2,915,000 Los Angeles Municipal
Improvement Corp. Lease Rev.,
Series 1999 D, (Police
Emergency), 4.50%, 9/1/11 2,702,963
1,900,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/11 (FGIC) 2,031,347
1,000,000 Los Angeles Unified School
District GO, Series 1997 A,
6.00%, 7/1/15 (FGIC) 1,053,930
3,115,000 Los Angeles Unified School
District GO, Series 1999 C,
5.50%, 7/1/12 (MBIA) 3,175,026
1,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 6.625%, 7/1/01,
Prerefunded at 102% of Par(1) 1,050,030
5,505,000 Mid-Peninsula Regional Open
Space District Financing Auth.
Rev., 5.25%, 8/1/17 (AMBAC) 5,230,466
2,700,000 Modesto Irrigation District
Financing Auth. Rev., Series
1996 A, 5.80%, 10/1/11
(MBIA) 2,828,520
1,100,000 Mojave Water Agency
Improvement District GO,
(Morongo Basin), 5.40%,
9/1/08 (FGIC) 1,136,718
1,110,000 Ontario Redevelopment Financing
Auth. Local Agency Rev., Series
1995 A, 5.80%, 9/2/06 (FSA) 1,166,632
3,000,000 Orange County Water District
COP, Series 1997 A, 5.00%,
8/15/14 (MBIA) 2,853,090
1,330,000 Oxnard Harbor District Rev.,
7.00%, 8/1/04 (FSA) 1,456,629
3,000,000 Pacific Housing & Finance
Agency Lease Rev., Series
1999 A, (Pass Thru Obligation-
Lease Purchase), 4.625%,
12/1/04 (MBIA) 2,986,530
1,000,000 Ramona Municipal Water District
COP, 6.90%, 10/1/01
(AMBAC) 1,034,630
2,500,000 Rancho Water District Financing
Auth. Rev., 4.70%, 8/15/21
(LOC: Toronto-Dominion Bank) 2,499,950
1,060,000 Redding Joint Powers Financing
Auth. Electric System Rev.,
Series 1996 A, 6.25%, 6/1/07
(MBIA) 1,150,778
1,000,000 Redding Joint Powers Financing
Auth. Electric System Rev.,
Series 1996 A, 5.25%, 6/1/15
(MBIA) 965,810
1,010,000 Richmond Joint Powers Financing
Auth. Rev., Series 1995 A,
5.30%, 5/15/06 1,024,039
2,080,000 Riverside County Public Financing
Auth. Special Tax Rev., Series
1995 A, 5.25%, 9/1/04
(MBIA) 2,144,251
1,225,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.60%, 6/1/05
(AMBAC) 1,281,228
2,900,000 Riverside County Transportation
Commission Sales Tax Rev.,
Series 1993 A, 5.70%, 6/1/06
(AMBAC) 3,052,975
1,500,000 Riverside Water Rev., 5.375%,
10/1/11 1,521,705
1,025,000 Rocklin Unified School District
Community Facility Special Tax
Rev., (No. 1), 5.20%, 9/1/09
(MBIA) 1,037,997
2,600,000 Sacramento County Multifamily
Housing Rev., Issue 1985 B,
(Parcwood Apartments), 4.80%,
9/1/02 (Guaranteed:
Connecticut General Life
Insurance) 2,600,000
1,000,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 A, 6.25%, 8/15/10
(MBIA) 1,091,890
3,820,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 C, 5.75%, 11/15/07
(MBIA) 3,968,636
1,890,000 Sacramento Municipal Utility
District Electric Rev., Series
1992 C, 5.75%, 11/15/07
(MBIA)(1) 1,964,353
4,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1993 D, 5.25%, 11/15/12
(FGIC) 4,485,195
3,500,000 Sacramento Municipal Utility
District Electric Rev., Series
1994 H, 5.75%, 1/1/11
(MBIA) 3,600,030
1,205,000 Saddleback Valley Unified School
District Public Financing Auth.
Special Tax, 6.00%, 9/1/11
(FSA) 1,289,302
4,490,000 San Bernardino County COP,
(Medical Center Financing),
5.00%, 8/1/02 4,522,867
5,000,000 San Bernardino County COP,
Series 1995 A, (Medical Center
Financing), 5.75%, 8/1/07
(MBIA) 5,282,250
700,000 San Diego County COP,
(Burnham Institute), 5.70%,
9/1/11 680,855
7,200,000 San Diego County Water Auth.
Rev. COP, Series 1991 A,
6.125%, 5/1/03 7,480,872
3,505,000 San Diego Regional
Transportation Commission
Sales Tax Rev., Series 1992 A,
5.50%, 4/1/04 (FGIC) 3,633,774
4,000,000 San Diego Regional
Transportation Commission
Sales Tax Rev., Series 1994 A,
6.00%, 4/1/04 (FGIC) 4,216,280
1,000,000 San Francisco Bay Area Rapid
Transit District Sales Tax Rev.,
5.35%, 7/1/07 (FGIC) 1,028,860
3,255,000 San Francisco City and County
Educational Facilities Unified
School District GO, Series
1999 B, 5.50%, 6/15/12 3,303,207
3,405,000 San Francisco Port Commission
Rev., 5.625%, 7/1/02 3,483,213
950,000 San Jacinto Unified School
District COP, 3.875%, 10/1/02
(FSA) (SBBPA: First Union
National Bank) 925,718
4,580,000 San Jose Financing Auth. Rev.,
Series 1993 A, (Convention
Center), 6.10%, 9/1/06 4,736,224
3,950,000 San Jose Financing Auth. Rev.,
Series 1993 C, (Convention
Center), 6.00%, 9/1/05 4,084,300
2,545,000 San Jose Redevelopment Agency
Tax Allocation, (Merged Area
Redevelopment), 4.75%,
8/1/12 (AMBAC) 2,404,287
3,875,000 San Jose Redevelopment Agency
Tax Allocation, Series 1992 A,
(Merged Area Redevelopment),
6.00%, 8/1/02 (MBIA)(1) 3,986,290
1,620,000 San Mateo County Joint Powers
Auth. Lease Rev., Series
1997 A, 4.875%, 7/15/11
(FSA) 1,577,151
3,750,000 San Mateo County Transportation
District Sales Tax Rev., Series
1993 A, 5.25%, 6/1/15
(MBIA) 3,648,038
1,015,000 Santa Ana Police Administration
COP, Series 1994 A, 5.50%,
7/1/07 (MBIA) 1,050,840
1,510,000 Santa Clara County Financing
Auth. Lease Rev., Series
1997 A, 6.00%, 11/15/12
(AMBAC) 1,619,022
2,855,000 Santa Clara County Financing
Auth. Lease Rev., Series
1998 A, (Multiple Facilities),
4.50%, 5/15/11 (AMBAC) 2,660,146
1,250,000 Santa Monica-Malibu Unified
School District GO, 5.25%,
8/1/13 1,249,350
1,785,000 South Sutter Water District
Hydroelectric Rev., 6.80%,
8/1/01 (FGIC) 1,824,734
3,090,000 Southern California Public Power
Auth. Rev., (Transmission),
5.625%, 7/1/03 (MBIA) 3,201,765
2,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/00 2,018,880
3,000,000 Southern California Public Power
Auth. Rev., 6.75%, 7/1/01 3,081,930
4,065,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.20%, 7/1/02
(MBIA) 4,222,112
5,000,000 Southern California Rapid Transit
District COP, (Workers
Compensation), 6.40%, 7/1/04
(MBIA) 5,217,350
2,000,000 Stanislaus County COP, 5.50%,
5/1/06 (MBIA) 2,080,920
1,800,000 Sweetwater Auth. Water Rev.,
5.25%, 4/1/10 (AMBAC) 1,827,396
1,150,000 Taft Public Financing Auth. Lease
Rev., Series 1997 A,
(Community Correctional
Facility), 5.50%, 1/1/06 1,169,930
4,000,000 University of California Rev.,
(Multi-Purpose), 6.875%,
9/1/02, Prerefunded at 102%
of Par (MBIA)(1) 4,303,000
1,950,000 University of California Rev.,
(University Medical Center),
5.60%, 7/1/09 (AMBAC) 2,013,394
2,510,000 Watsonville Hospital Insured Rev.,
Series 1996 A, (Watsonville
Community Hospital), 5.45%,
7/1/03 (California Mortgage
Insurance) 2,578,071
2,000,000 West & Central Basin Financing
Auth. Rev., Series 1993 B,
5.25%, 8/1/08 (AMBAC) 2,029,120
3,980,000 Whittier Health Facility Rev.,
(Presbyterian Intercommunity),
6.00%, 6/1/06 (MBIA) 4,231,815
1,465,000 Woodland Wastewater System
COP, 6.00%, 3/1/06 (AMBAC) 1,560,108
------------
381,706,705
------------
PUERTO RICO -- 11.2%
2,500,000 Puerto Rico Commonwealth GO,
6.45%, 7/1/04, Prerefunded at
101.5% of Par(1) 2,703,976
1,000,000 Puerto Rico Commonwealth GO,
6.50%, 7/1/04, Prerefunded at
101.5% of Par(1) 1,083,530
1,900,000 Puerto Rico Commonwealth GO,
7.50%, 7/1/04 (MBIA) 2,100,564
2,400,000 Puerto Rico Commonwealth GO,
(Public Improvement), 5.00%,
7/1/05 (MBIA) 2,420,520
3,000,000 Puerto Rico Commonwealth GO,
(Public Improvement), 5.00%,
7/1/05 (MBIA) 3,025,650
3,000,000 Puerto Rico Commonwealth GO,
(Public Improvement), 5.25%,
7/1/11 2,948,280
5,000,000 Puerto Rico Commonwealth GO,
(Public Improvement), 4.50%,
7/1/23 (FSA) 4,029,350
3,000,000 Puerto Rico Commonwealth
Infrastructure Financing Auth.
Special Tax Rev., Series
1998 A, 5.50%, 7/1/08
(AMBAC) 3,093,810
5,790,000 Puerto Rico Electric Power Auth.
Rev., Series 1998 DD, 4.50%,
7/1/19 (FSA) 4,794,816
2,500,000 Puerto Rico Municipal Finance
Agency, Series 1999 A, 5.00%,
8/1/02 2,512,050
9,000,000 Puerto Rico Municipal Finance
Agency, Series 1999 B, 5.00%,
8/1/05 (FSA) 9,073,980
1,450,000 Puerto Rico Municipal Finance
Agency, Series 1999 B, 6.00%,
8/1/15 (FSA) 1,508,942
1,000,000 Puerto Rico Public Buildings Auth.
Rev., Series 1992 K, 6.875%,
7/1/02, Prerefunded at
101.5% of Par(1) 1,066,640
3,090,000 Puerto Rico Public Buildings Auth.
Rev., Series 1995 A, 6.25%,
7/1/09 (AMBAC) 3,345,203
4,500,000 Puerto Rico Public Finance Corp.,
Series 1998 A, 5.375%,
6/1/11 (AMBAC) 4,552,695
------------
48,260,006
------------
TOTAL INVESTMENT SECURITIES -- 100.0% $429,966,711
============
(Cost $429,522,071)
Notes to Schedule of Investments
AMBAC = AMBAC Assurance Corporation
BIGI = Bond Investor's Guaranty Inc.
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
LOC = Letter of Credit
MBIA = MBIA Insurance Corp.
SBBPA = Standby Bond Purchase Agreement
(1) Escrowed to maturity in U.S. government securities or state and local government securities.
California Long-Term Tax-Free — Performance
Total Returns as of February 29, 2000
-------------------- ---------------- ----------------------------------
California Long-Term Lehman Long-Term California Municipal Debt Funds(2)
Tax-Free Municipal Index Average Return Fund's Ranking
-------------------- ---------------- --------------- ----------------
6 Months(1) ........ -0.74% -2.03% -1.40% --
1 Year ............. -4.68% -6.23% -4.88% 67 out of 108
-------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
-------------------------------------------------------------------------------------------------
3 Years ............ 3.54% 3.60% 3.05% 28 out of 92
5 Years ............ 5.52% 5.85% 4.87% 15 out of 78
10 Years ........... 6.66% 7.28% 6.18% 9 out of 39
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 33-34 for more information about returns, the comparative index, and
Lipper fund rankings.
Growth of $10,000 Over 10 Years
[GRAPHIC OMITTED]
[The following table was depicted as a line graph in the printed material.]
Value on 2/29/00
California Long-Term Tax-Free $19,047
Lehman Long-Term Municipal Index $20,191
California Long-Term Tax-Free Lehman Long-Term Municipal Index
Date Value Value
'90 $10,000 $10,000
'91 $10,851 $10,929
'92 $11,921 $12,173
'93 $13,643 $14,158
'94 $14,532 $15,047
'95 $14,556 $15,192
'96 $16,341 $17,100
'97 $17,160 $18,156
'98 $18,819 $20,237
'99 $19,980 $21,533
'00 $19,047 $20,191
$10,000 investment made 2/28/90
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 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.
One-Year Returns Over 10 Years (Periods ended February 28 or 29)
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
California Long-Term Tax-Free Lehman Long-Term Municipal Index
Date Return Return
2/91 8.51% 9.30%
2/92 9.86% 11.37%
2/93 14.45% 16.33%
2/94 6.51% 6.27%
2/95 0.17% 0.96%
2/96 12.26% 12.56%
2/97 5.01% 6.18%
2/98 9.67% 11.47%
2/99 6.17% 6.40%
2/00 -4.68% -6.23%
California Long-Term Tax-Free — Q&A
[PHOTO OMITTED]
An interview with Dave MacEwen, a portfolio manager on the California Tax-Free and Municipal funds investment team.
"The fund's yield translates into a tax-equivalent yield of about 9.5% for investors in the highest combined state and federal income tax bracket."
Yields as of February 29, 2000
--------------------------------
30-Day SEC Yield
--------------------------------
5.19%
--------------------------------
30-Day Tax-Equivalent Yields
--------------------------------
34.70% Tax Bracket 7.95%
37.42% Tax Bracket 8.29%
41.95% Tax Bracket 8.93%
45.22% Tax Bracket 9.47%
Portfolio at a Glance
--------------------------------------------------------
2/29/00 8/31/99
--------------------------------------------------------
Number of Securities 80 90
Weighted Average Maturity 18.3 yrs 19.3 yrs
Average Duration 9.6 yrs 9.4 yrs
Expense Ratio 0.51%* 0.51%
* Annualized.
Investment terms are defined in the Glossary on pages 34-35.
How did California Long-Term Tax-Free perform during the six months ended February 29, 2000?
The fund outperformed its peers in a difficult period for municipal bond funds. California Long-Term Tax-Free returned -0.74%, beating the -1.40% average return of 110 "California Municipal Debt Funds" tracked by Lipper Inc.
The fund's longer-term results were also better than those of its peers. For the three-, five-, and 10-year periods ended February 29, the fund ranked in the top third of its peer group (see the previous page for more fund performance comparisons).
Additionally, California Long-Term Tax-Free produced more state and federal tax-free income than its peers. The fund's 30-day SEC yield as of February 29 was 5.19%, compared with the 4.74% average yield of the Lipper group. The fund's yield translates into a tax-equivalent yield of about 9.5% for investors in the highest combined state and federal income tax bracket (see the table at left).
Why did the fund beat its peers during the past six months?
A key ingredient in the fund's outperformance was its below-average expenses. As of February 29, the fund's expense ratio was 0.51%, compared with the 1.07% average for its Lipper group. All else being equal, lower expenses mean higher yields and returns.
Another key factor was the fund's heightened interest-rate sensitivity, as measured by its somewhat long duration relative to its peers. (The longer a fund's duration, the more the share price will rise and fall in response to interest rate changes.)
The fund's longer duration hurt performance in the final months of 1999 when interest rates rose and prices fell, but it has boosted performance so far in 2000 as long-term municipal bonds have rallied.
How did the fund end up with a longer duration in a rising interest rate environment?
Our longer duration was partly a function of our larger-than-average weighting in discount bonds. Discount bonds trade below par (face) value and carry interest payments below prevailing market rates. As a result, they tend to have longer durations because they are less likely to be called (refinanced) by their issuers before maturity.
We loaded up on discount bonds more than a year ago when our outlook called for falling interest rates in response to global economic weakness and low inflation. We thought the discount bonds would give the portfolio "call protection" if, as we expected, interest rates fell and calls became prevalent. This call protection effectively lengthened the duration of the portfolio.
The discount bonds detracted from performance when interest rates and bond yields rose during the final four months of 1999. Even so, we were reluctant to sell discount bonds at distressed prices and walk away from a strategy we believed ultimately would benefit the fund.
That patience was rewarded in early 2000 when long-term municipal bonds rallied and discount bonds became more attractive, boosting fund performance. The stronger market also presented us with opportunities to sell some of our discount holdings at attractive prices. We redeployed some of the proceeds of those sales into bonds rated BBB.
Why were BBB-rated bonds attractive? And what types did you buy?
The spread — or difference in yield — between bonds rated AAA and those rated BBB widened significantly. In other words, bonds rated BBB offered an increasing yield advantage over higher-rated bonds. By the end of February, for example, a typical 30-year BBB bond offered about 50 basis points (0.50%) more yield than a AAA-rated security with a comparable maturity.
In terms of sectors, we focused on BBB-rated tax allocation bonds, which are used to finance improvements in redevelopment areas (such as urban neighborhoods).
What's your outlook for interest rates and the bond market?
We're cautiously optimistic. Inflation has remained in check, despite stronger-than-expected U.S. economic growth. The broad U.S. inflation gauges haven't changed much recently. Even the recent rise in the price of oil, which topped $30 a barrel earlier this year, hasn't affected the inflation picture much.
Although our long-term outlook is constructive, it's quite likely that the bond market will gyrate over the short-term as the war between "good" — low inflation — and "evil" — tight labor markets and wage pressures — rages on. It's quite possible that the Federal Reserve will continue to raise interest rates in their pre-emptive battle against inflation. Our view, however, is that non-inflationary, moderate economic growth will ultimately triumph, providing a favorable backdrop for bonds.
There's another reason for optimism — municipal bonds currently offer attractive values relative to U.S. Treasury securities. Long-term municipal bonds have higher yields than Treasury bonds before factoring in their tax benefits. To the extent that investors gravitate toward that value, demand should strengthen and benefit municipals. We also expect supply to remain low, which will likely continue to help the municipal bond market.
Given your 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 as long as our outlook is upbeat. But most importantly, we plan to stick with the same value orientation that has contributed to our long-term success. We'll continue working with our credit research staff to uncover attractively valued securities that have the potential to enhance returns. Over the near term, we think some of those values will come from the BBB-rated sector.
Portfolio Composition by Credit Rating
--------------------------------
% of fund investments
--------------------------------
As of As of
2/29/00 8/31/99
AAA 59% 59%
AA 15% 11%
A 18% 24%
BBB 8% 6%
Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 33 for more information.
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%
Top Five Sectors (as of 8/31/99)
--------------------------------
% of fund investments
--------------------------------
COPs/Leases 19%
Tax Allocation Revenue 16%
GO 14%
Water and Sewer Revenue 8%
Hospital Revenue 7%
Investment terms are defined in the Glossary on pages 34-35.
California Long-Term Tax-Free — Schedule of Investments
FEBRUARY 29, 2000 (UNAUDITED)
Principal Amount Value
================================================================================
--------------------------------------------------------------------------------
MUNICIPAL SECURITIES -- 98.8%
--------------------------------------------------------------------------------
CALIFORNIA -- 93.7%
$ 2,300,000 Alameda County COP, 6.80%,
6/15/17 (MBIA)(1) $ 826,689
5,400,000 Association of Bay Area
Governments Finance Auth. for
Nonprofit Corporations COP,
(Episcopal Homes Foundation),
5.125%, 7/1/18 4,466,988
1,000,000 Blythe Redevelopment No. 1 Tax
Allocation, 5.80%, 5/1/28 868,140
2,700,000 Brea Public Finance Auth. Rev.
Tax Allocation, (Project Area
AB), 7.00%, 8/1/15 (MBIA) 2,838,159
1,220,000 Brea Redevelopment Agency Tax
Allocation, (Project AB),
6.125%, 8/1/13 (MBIA) 1,264,225
1,500,000 California Educational Facilities
Auth. Rev., Series 1997 B,
(Pooled College & University
Projects), 6.30%, 4/1/21 1,465,545
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) 1,519,005
3,000,000 California Health Facilities
Financing Auth. Rev., Series
1989 A, (Kaiser Permanente),
7.15%, 10/1/09(1) 1,819,230
1,730,000 California Health Facilities
Financing Auth. Rev., Series
1990 A, (Gould Medical),
7.30%, 4/1/20(2) 1,777,056
2,500,000 California Health Facilities
Financing Auth. Rev., Series
1991 B, (Adventist Health),
6.75%, 3/1/14 (MBIA) 2,591,375
2,000,000 California Health Facilities
Financing Auth. Rev., Series
1992 A, 6.75%, 3/1/20
(California Mortgage Insurance) 2,075,960
1,290,000 California Health Facilities
Financing Auth. Rev., Series
1992 C, (AIDS Healthcare
Foundation), 6.25%, 9/1/17
(California Mortgage Insurance) 1,306,873
5,165,000 California Health Facilities
Financing Auth. Rev., Series
1993 C, (St. Francis Memorial
Hospital), 5.875%, 11/1/23(2) 5,177,654
4,655,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1994 G, 7.25%, 8/1/17 4,786,504
1,125,000 California Housing Finance
Agency Home Mortgage Rev.,
Series 1995 C, 6.80%, 8/1/17 1,151,032
1,290,000 California Housing Finance
Agency Multi-Unit Rental
Housing Rev., 6.875%, 2/1/22 1,308,563
17,100,000 California Public Works Board
Lease Rev., Series 1993 D,
(Department of Corrections),
5.25%, 6/1/15 (FSA) 16,583,751
3,000,000 California State GO, 6.125%,
10/1/11 (AMBAC) 3,258,180
9,000,000 California State GO, 4.50%,
12/1/21 (FGIC) 7,263,360
4,655,000 California State GO, 4.50%,
12/1/24 (FGIC) 3,701,982
7,500,000 California State GO, 4.25%,
10/1/26 (MBIA) 5,665,350
1,410,000 California State GO, Series
1984 B, (New Prison
Construction), 10.00%, 8/1/03 1,649,686
9,000,000 California Statewide Communities
Development Auth. Rev., Series
1998 A, (Sherman Oaks),
5.00%, 8/1/22 (AMBAC,
California Mortgage Insurance) 7,883,010
5,695,000 Capistrano Unified School District
Community Facilities Special
Tax, (Refunding Issue 1988-1),
6.50%, 9/1/14 (FSA) 6,116,943
1,000,000 Coachella Valley Water District
71 COP, (Flood Control),
6.75%, 10/1/02, Prerefunded
at 102% of Par(2) 1,073,200
1,320,000 Coalinga Public Financing Auth.
Local Obligation Rev., Series
1998 A, 6.375%, 9/15/21
(AMBAC) 1,421,125
13,500,000 Compton Redevelopment Agency
Tax Allocation, Series 1995 A,
6.50%, 8/1/13 (FSA) 14,359,410
2,580,000 Concord Joint Power Financing
Auth. Lease Rev., (Police
Facilities), 5.25%, 8/1/13 2,537,224
3,805,000 Contra Costa County Public
Financing Auth. Tax Allocation
Rev., 5.25%, 8/1/28 3,134,749
3,605,000 Inglewood Redevelopment
Agency Tax Allocation, Series 1998 A, (Merged
Redevelopment), 5.25%, 5/1/23 (AMBAC) 3,300,125
1,815,000 Kern County High School District
GO, 7.15%, 8/1/14 (MBIA)(2) 2,121,336
1,000,000 Long Beach Industrial
Development Rev., Series
1998 A, (CSU Foundation),
5.25%, 2/1/23 811,810
1,305,000 Los Altos Association of Bay
Area Governments COP,
5.90%, 5/1/27 1,270,613
3,475,000 Los Angeles Community
Redevelopment Agency
Housing Rev., Series 1994 A,
6.45%, 7/1/17 (AMBAC) 3,545,091
2,000,000 Los Angeles County Metropolitan
Transportation Auth. Sales Tax
Rev., Series 1996 A, 6.00%,
7/1/06, Prerefunded at 101%
of Par (MBIA)(2) 2,149,600
3,340,000 Los Angeles Department of Water
and Power Waterworks Rev.,
4.50%, 10/15/24 2,636,396
1,000,000 Los Angeles Transportation
Commission Sales Tax Rev.,
6.50%, 7/1/13 (MBIA) 1,040,940
1,865,000 Mendocino Coast District Health
Care Facility Rev., 5.875%,
2/1/20 (California Mortgage
Insurance) 1,824,231
8,000,000 Metropolitan Water District of
Southern California Waterworks
Rev., 5.75%, 8/10/18 7,936,880
4,650,000 Metropolitan Water District of
Southern California Waterworks
Rev., Series 1996 B, 4.75%,
7/1/21 (MBIA) 3,918,276
5,150,000 Mid-Peninsula Regional Open
Space District GO, 7.00%,
9/1/14 5,551,906
5,830,000 Modesto, Stockton, Redding
Public Power Agency Rev.,
Series 1989 D, (San Juan),
6.75%, 7/1/20 (MBIA)(2) 6,470,192
3,000,000 Oakland Redevelopment Agency
Tax Allocation, (Central District),
5.50%, 2/1/14 (AMBAC) 3,036,300
2,960,000 Orange County Water District
COP, Series 1999 A, 5.25%,
8/15/22 2,703,279
1,855,000 Pacifica Financing Auth. Sewer
Rev., 6.20%, 8/1/26 1,790,279
2,950,000 Pasadena COP, (Old Pasadena
Parking Facility), 6.25%, 1/1/18 3,152,193
4,475,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.20%, 8/1/19 4,249,863
5,000,000 Pittsburg Redevelopment Agency
Tax Allocation, (Los Medanos
Community Development),
6.25%, 8/1/26 4,696,300
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) 2,214,618
4,075,000 Riverside County Asset Leasing
Corp. Leasehold Rev., Series
1997 B, (Riverside County
Hospital), 5.00%, 6/1/19
(MBIA) 3,615,136
8,705,000 Sacramento Municipal Utility
District Electric Rev., Series
1997 K, 5.25%, 7/1/24
(AMBAC) 7,993,889
1,000,000 Saddleback Valley Unified School
District Public Financing Auth.
Special Tax, Series 1997 A,
6.00%, 9/1/16 (FSA) 1,047,680
3,400,000 San Diego County COP, 5.625%,
9/1/12 (AMBAC) 3,453,448
3,500,000 San Diego County Regional
Transportation Commission
Sales Tax Rev., Series 1991 A,
6.93%, 4/1/04(1)(2) 2,895,060
9,000,000 San Francisco City and County
Airport Commission
International Airport Rev., Issue
20, 4.50%, 5/1/23 (MBIA) 7,201,530
4,200,000 San Francisco City and County
Airport Commission
International Airport Rev., Issue
20, 4.50%, 5/1/26 (MBIA) 3,319,722
1,000,000 San Francisco City and County
Redevelopment Hotel Tax Rev.,
6.75%, 7/1/04, Prerefunded at
102% of Par (FSA)(2) 1,100,240
3,000,000 San Jose Financing Auth. Rev.,
Series 1993 C, (Convention
Center), 6.375%, 9/1/13 3,120,810
7,575,000 San Jose Financing Auth. Rev.,
Series 1993 D, (Central Service
Yard), 5.25%, 10/15/23 6,692,285
5,000,000 San Marino Unified School
District GO, Series 1998 B,
5.00%, 6/1/23 4,368,450
3,975,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 6.50%,
7/1/16 (MBIA) 4,374,607
4,000,000 San Mateo County Joint Powers
Auth. Lease Rev., (Capital
Projects Program), 6.00%,
7/1/19 (MBIA) 4,113,080
3,500,000 Santa Ana Financing Auth. Lease
Rev., 6.25%, 7/1/15 (MBIA) 3,778,740
4,830,000 Santa Monica Community College
District COP, Series 1997 A,
5.90%, 2/1/27 4,673,653
1,455,000 South Orange County Public
Financing Auth. Special Tax
Rev., Series 1999 A, 5.375%,
8/15/10 (FSA) 1,486,501
2,670,000 South Orange County Public
Financing Auth. Special Tax
Rev., Series 1999 A, 5.375%,
8/15/11 (FSA) 2,708,341
2,745,000 South Tahoe Joint Powers
Financing Auth. Rev., Series
1999 A, 5.375%, 10/1/30 2,227,568
3,260,000 Southern California Public Power
Auth. Rev., 6.00%, 7/1/18 3,259,544
7,315,000 Southern California Public Power
Auth. Rev., (Multiple Projects),
6.75%, 7/1/12 (FSA) 8,333,833
3,730,000 Southern California Public Power
Auth. Rev., (Multiple Projects),
6.75%, 7/1/13 (FSA) 4,255,706
1,425,000 Southern California Public Power
Auth. Rev., (Transmission),
7.00%, 7/1/09 1,466,054
3,000,000 Southern California Public Power
Auth. Rev., Series 1989 A,
7.15%, 7/1/04 (AMBAC)(1) 2,446,620
2,000,000 Southern Orange County Finance
Auth. Special Tax Rev., Series
1994 A, 7.00%, 9/1/11
(MBIA) 2,305,960
2,850,000 Stockton Health Facilities Auth.
Rev., Series 1997 A, (Dameron
Hospital Association), 5.70%,
12/1/14 2,548,299
2,000,000 Taft Public Financing Auth. Lease
Rev., Series 1997 A,
(Community Correctional
Facility), 6.05%, 1/1/17 2,002,380
1,400,000 Torrance Redevelopment Agency
Tax Allocation, Series 1998 A,
(Downtown Redevelopment),
5.60%, 9/1/28 1,175,425
3,020,000 Watsonville Insured Hospital Rev.,
Series 1996 A, (Watsonville
Community Hospital), 6.20%,
7/1/12 (California Mortgage
Insurance)(2) 3,205,369
------------
273,481,126
------------
PUERTO RICO -- 5.1%
16,250,000 Puerto Rico Commonwealth GO,
4.50%, 7/1/23 12,739,025
2,000,000 Puerto Rico Municipal Finance
Agency, Series 1999 A, 5.00%,
8/1/02 2,009,640
------------
14,748,665
------------
TOTAL MUNICIPAL SECURITIES 288,229,791
(Cost $295,210,808)
--------------------------------------------------------------------------------
MUNICIPAL DERIVATIVES(3) -- 1.2%
--------------------------------------------------------------------------------
4,000,000 Northern California Transmission
Rev., Inverse Floater, 6.56%,
4/29/24 (MBIA) 3,470,000
------------
(Cost $3,963,920)
TOTAL INVESTMENT SECURITIES -- 100.0% $291,699,791
============
(Cost $299,174,728)
Notes to Schedule of Investments
AMBAC = AMBAC Assurance Corporation
COP = Certificates of Participation
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GO = General Obligation
MBIA = MBIA Insurance Corp.
(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.
Statements of Assets and Liabilities
This statement breaks down the fund's assets (such as securities, cash, and other receivables) and liabilities (money owed for securities purchased, management fees, and other liabilities) as of the last day of the reporting period. Subtracting the liabilities from the assets results in the fund's net assets. The net assets divided by shares outstanding is the share price, or net asset value per share. This statement also breaks down the fund's net assets into capital (shareholder investments) and performance (investment income and gains/losses).
INTERMEDIATE-
LIMITED-TERM TERM LONG-TERM
FEBRUARY 29, 2000 (UNAUDITED) TAX-FREE TAX-FREE TAX-FREE
----------------------------------------------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------------------------------------------
Investment securities, at value (identified cost
of $150,036,621, $429,522,071, and $299,174,728,
respectively) (Note 3) ........................... $149,804,479 $429,966,711 $291,699,791
Receivable for investments sold .................... -- 1,495,200 --
Interest receivable ................................ 2,048,623 6,470,376 3,764,999
------------ ------------ ------------
151,853,102 437,932,287 295,464,790
------------ ------------ ------------
----------------------------------------------------------------------------------------------------------
LIABILITIES
----------------------------------------------------------------------------------------------------------
Disbursements in excess of demand deposit cash ..... 6,902,149 4,024,117 3,419,189
Payable for investments purchased .................. 4,442,045 1,465,522 --
Accrued management fees (Note 2) ................... 56,578 174,342 117,464
Dividends payable .................................. 65,479 221,588 173,929
Accrued trustees' fees and expenses ................ 228 703 473
Accrued expenses and other liabilities ............. -- 150 60
------------ ------------ ------------
11,466,479 5,886,422 3,711,115
------------ ------------ ------------
Net Assets ......................................... $140,386,623 $432,045,865 $291,753,675
============ ============ ============
----------------------------------------------------------------------------------------------------------
CAPITAL SHARES
----------------------------------------------------------------------------------------------------------
Outstanding (unlimited number of shares
authorized) ...................................... 13,777,307 40,396,397 27,795,144
============ ============ ============
Net Asset Value Per Share .......................... $ 10.19 $ 10.70 $ 10.50
============ ============ ============
----------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
----------------------------------------------------------------------------------------------------------
Capital paid in .................................... $141,443,651 $434,773,116 $301,952,167
Accumulated net realized loss on investment
transactions ..................................... (824,886) (3,171,891) (2,723,555)
Net unrealized appreciation (depreciation)
on investments (Note 3) .......................... (232,142) 444,640 (7,474,937)
------------ ------------ ------------
$140,386,623 $432,045,865 $291,753,675
============ ============ ============
Statements of Operations
This statement shows how the fund's net assets changed during the reporting period as a result of the fund's operations. In other words, it shows how much money the fund made or lost as a result of interest income, fees and expenses, and investment gains or losses.
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 TAX-FREE TAX-FREE TAX-FREE
(UNAUDITED)
----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
----------------------------------------------------------------------------------------------------
Income:
Interest .......................................... $ 3,166,050 $11,401,872 $ 8,929,748
----------- ----------- ------------
Expenses (Note 2):
Management fees ................................... 355,610 1,128,968 782,620
----------- ----------- ------------
Trustees' fees and expenses ....................... 2,058 6,535 4,537
----------- ----------- ------------
357,668 1,135,503 787,157
----------- ----------- ------------
Net investment income ............................. 2,808,382 10,266,369 8,142,591
----------- ----------- ------------
----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(NOTE 3)
----------------------------------------------------------------------------------------------------
Net realized loss on investments .................. (379,550) (2,391,943) (1,816,949)
Change in net unrealized appreciation
on investments .................................. (775,774) (4,148,651) (8,981,065)
----------- ----------- ------------
Net realized and unrealized loss on investments ... (1,155,324) (6,540,594) (10,798,014)
----------- ----------- ------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ....................... $ 1,653,058 $ 3,725,775 $ (2,655,423)
=========== =========== ============
Statements of Changes in Net Assets
This statement shows how the fund's net assets changed over the past two reporting periods. It details how much a fund grew or shrank as a result of operations (as detailed on the previous page for the most recent period), income and capital gain distributions, and shareholder investments and redemptions.
SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) AND YEAR ENDED 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
-------------------------------------------------------------------------------------------------------------------------------------------------------
Net investment income ................ $ 2,808,382 $ 5,576,900 $ 10,266,369 $ 21,015,700 $ 8,142,591 $ 16,920,555
Net realized gain (loss)
on investments ..................... (379,550) 135,223 (2,391,943) 1,469,341 (1,816,949) 178,811
Change in net unrealized
appreciation on investments ........ (775,774) (2,294,647) (4,148,651) (19,090,647) (8,981,065) (23,792,754)
------------ ------------ ------------ ------------- ------------ -------------
Net increase (decrease) in
net assets resulting
from operations .................... 1,653,058 3,417,476 3,725,775 3,394,394 (2,655,423) (6,693,388)
------------ ------------ ------------ ------------- ------------ -------------
-------------------------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
-------------------------------------------------------------------------------------------------------------------------------------------------------
From net investment income ........... (2,808,382) (5,576,900) (10,266,369) (21,023,720) (8,142,591) (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 ................. (2,808,382) (5,576,900) (10,266,369) (25,872,303) (8,142,591) (19,670,308)
------------ ------------ ------------ ------------- ------------ -------------
-------------------------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
-------------------------------------------------------------------------------------------------------------------------------------------------------
Proceeds from shares sold ............ 59,373,334 65,637,307 135,531,360 161,571,112 63,460,556 159,063,547
Proceeds from reinvestment
of distributions ................... 1,893,727 3,592,859 7,283,428 19,097,750 5,525,434 13,437,962
Payments for shares redeemed ......... (61,274,562) (55,657,881) 164,087,533) (158,935,588) (99,061,514) (138,704,256)
------------ ------------ ------------ ------------- ------------ -------------
Net increase (decrease) in
net assets from capital
share transactions ................. (7,501) 13,572,285 (21,272,745) 21,733,274 (30,075,524) 33,797,253
------------ ------------ ------------ ------------- ------------ -------------
Net increase (decrease)
in net assets ...................... (1,162,825) 11,412,861 (27,813,339) (744,635) (40,873,538) 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 ........................ $140,386,623 $141,549,448 $432,045,865 $ 459,859,204 $291,753,675 $ 332,627,213
============ ============ ============ ============= ============ =============
-------------------------------------------------------------------------------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF THE FUNDS
-------------------------------------------------------------------------------------------------------------------------------------------------------
Sold ................................. 5,806,051 6,293,053 12,629,895 14,367,915 5,997,502 13,855,858
Issued in reinvestment
of distributions ................... 185,413 344,983 679,153 1,699,082 523,359 1,167,760
Redeemed ............................. (5,996,463) (5,337,253) (15,299,954) (14,186,136) (9,365,953) (12,126,150)
------------ ------------ ------------ ------------- ------------ -------------
Net increase (decrease) .............. (4,999) 1,300,783 (1,990,906) 1,880,861 (2,845,092) 2,897,468
============ ============ ============ ============= ============ =============
Notes to Financial Statements
FEBRUARY 29, 2000 (UNAUDITED)
1. Organization and Summary of Significant Accounting Policies
Organization — American Century California Tax-Free and Municipal Funds (the trust) is registered under the Investment Company Act of 1940 (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.
The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes and may result in reclassification among certain capital accounts.
At August 31, 1999, accumulated net realized capital loss carryovers of $445,336 for Limited-Term (expiring in 2004) may be used to offset future taxable gains.
Intermediate-Term and Long-Term have elected to treat $785,227 and $905,983, respectively, of net capital losses incurred in the ten month period ended August 31, 1999, as having been incurred in the following fiscal year.
Futures Contracts — Each fund may buy and sell interest rate futures contracts relating to debt securities. Each fund may use futures transactions to maintain cash reserves while remaining fully invested, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns when a futures contract is priced more attractively than its underlying security or index. One of the risks of entering into futures contracts may include the possibility that the changes in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the funds are required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the funds. The variation margin is equal to the daily change in the contract value and is recorded as an unrealized gain or loss. The funds recognize a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of realized gain (loss) on investments and unrealized appreciation (depreciation) on investments, respectively. There were no open futures contracts at February 29, 2000.
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 six months ended February 29, 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.
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 ........ $72,186,244 $68,954,174 $16,261,858
------------------------------------------------------------------------------------------
PROCEEDS FROM SALES
------------------------------------------------------------------------------------------
Municipal Obligations ........ $63,241,039 $89,380,290 $42,908,734
On February 29, 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 ................. $ 401,028 $ 6,661,365 $ 6,321,911
Depreciation ................. (633,170) (6,216,725) (13,796,848)
--------- ----------- ------------
Net .......................... $(232,142) $ 444,640 $ (7,474,937)
========= =========== ============
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 February 29, 2000.
California Limited-Term Tax-Free — Financial Highlights
This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including total return, income ratio (net income as a percentage of average net assets), expense ratio (operating expenses as a percentage of average net assets), and portfolio turnover (a gauge of the fund's trading activity).
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
2000(1) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
---------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ....... $ 10.27 $ 10.43 $ 10.30 $ 10.19 $ 10.23 $ 10.12
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income .................... 0.20 0.39 0.42 0.43 0.43 0.41
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............. (0.08) (0.16) 0.13 0.11 (0.04) 0.11
-------- -------- -------- -------- -------- --------
Total From Investment Operations ......... 0.12 0.23 0.55 0.54 0.39 0.52
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ............... (0.20) (0.39) (0.42) (0.43) (0.43) (0.41)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............. $ 10.19 $ 10.27 $ 10.43 $ 10.30 $ 10.19 $ 10.23
======== ======== ======== ======== ======== ========
Total Return(2) .......................... 1.21% 2.26% 5.40% 5.42% 3.87% 5.33%
---------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets ...................... 0.51%(3) 0.51% 0.52% 0.49% 0.49% 0.51%
Ratio of Net Investment Income
to Average Net Assets ...................... 4.00%(3) 3.78% 4.02% 4.20% 4.20% 4.10%
Portfolio Turnover Rate .................... 45% 57% 44% 47% 44% 50%
Net Assets, End of Period (in thousands) ... $140,387 $141,549 $130,137 $126,631 $103,707 $104,723
(1) Six months ended February 29, 2000 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
California Intermediate-Term Tax-Free — Financial Highlights
This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including total return, income ratio (net income as a percentage of average net assets), expense ratio (operating expenses as a percentage of average net assets), and portfolio turnover (a gauge of the fund's trading activity).
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
2000(1) 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
--------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ....... $ 10.85 $ 11.37 $ 11.27 $ 11.05 $ 11.06 $ 10.86
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income .................... 0.25 0.49 0.52 0.54 0.54 0.54
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............. (0.15) (0.41) 0.25 0.25 (0.01) 0.20
-------- -------- -------- -------- -------- --------
Total From Investment Operations ......... 0.10 0.08 0.77 0.79 0.53 0.74
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ............... (0.25) (0.49) (0.52) (0.54) (0.54) (0.54)
From Net Realized Gains on
Investment Transactions ................ -- (0.09) (0.15) (0.03) -- --
In Excess of Net Realized Gains .......... -- (0.02) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions ...................... (0.25) (0.60) (0.67) (0.57) (0.54) (0.54)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............. $ 10.70 $ 10.85 $ 11.37 $ 11.27 $ 11.05 $ 11.06
======== ======== ======== ======== ======== ========
Total Return(2) .......................... 0.90% 0.74% 7.00% 7.39% 4.79% 7.09%
--------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets .................... 0.51%(3) 0.51% 0.51% 0.48% 0.48% 0.48%
Ratio of Net Investment Income
to Average Net Assets .................... 4.61%(3) 4.41% 4.60% 4.81% 4.87% 5.02%
Portfolio Turnover Rate .................... 16% 54% 28% 42% 36% 25%
Net Assets, End of Period (in thousands) ... $432,046 $459,859 $460,604 $435,440 $430,950 $417,550
(1) Six months ended February 29, 2000 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
California Long-Term Tax-Free — Financial Highlights
This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including total return, income ratio (net income as a percentage of average net assets), expense ratio (operating expenses as a percentage of average net assets), and portfolio turnover (a gauge of the fund's trading activity).
For a Share Outstanding Throughout the Years Ended August 31 (except as noted)
2000(1) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ....... $ 10.86 $ 11.72 $ 11.48 $ 11.06 $ 10.94 $ 10.88
-------- -------- -------- -------- -------- --------
Income From Investment Operations
Net Investment Income .................... 0.28 0.57 0.59 0.61 0.61 0.62
Net Realized and Unrealized Gain (Loss)
on Investment Transactions ............. (0.36) (0.76) 0.44 0.44 0.12 0.12
-------- -------- -------- -------- -------- --------
Total From Investment Operations ......... (0.08) (0.19) 1.03 1.05 0.73 0.74
-------- -------- -------- -------- -------- --------
Distributions
From Net Investment Income ............... (0.28) (0.57) (0.59) (0.61) (0.61) (0.62)
From Net Realized Gains on
Investment Transactions ................ -- (0.07) (0.20) (0.02) -- (0.06)
In Excess of Net Realized Gains .......... -- (0.03) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions ...................... (0.28) (0.67) (0.79) (0.63) (0.61) (0.68)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............. $ 10.50 $ 10.86 $ 11.72 $ 11.48 $ 11.06 $ 10.94
======== ======== ======== ======== ======== ========
Total Return(2) .......................... (0.74)% (1.85)% 9.25% 9.70% 6.77% 7.21%
----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------------------------------
Ratio of Operating Expenses
to Average Net Assets .................... 0.51%(3) 0.51% 0.51% 0.48% 0.48% 0.49%
Ratio of Net Investment Income
to Average Net Assets .................... 5.27%(3) 4.94% 5.07% 5.40% 5.48% 5.84%
Portfolio Turnover Rate .................... 5% 52% 36% 50% 42% 60%
Net Assets, End of Period (in thousands) ... $291,754 $332,627 $325,194 $304,671 $288,022 $276,085
(1) Six months ended February 29, 2000 (unaudited).
(2) Total return assumes reinvestment of dividends and capital gains
distributions, if any. Total returns for periods less than one year are not
annualized.
(3) Annualized.
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 aver age 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.
Investment Team Leaders
Portfolio Managers
Colleen Denzler
Dave MacEwen
Todd Pardula
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. Here are the most common credit ratings and their definitions:
It's important to note that credit ratings are subjective, reflecting the opinions of the rating agencies; they are not absolute standards of quality.
Glossary
Returns
Yields
Investment Terms
Statistical Terminology
Types of Municipal Securities
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.
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.
Notes
INVESTMENT OBJECTIVE
----------------------------------------------------------------------------------------------
CAPITAL PRESERVATION INCOME
Taxable Tax-Free Taxable Bonds Tax-Free Bonds
Money Markets Money Markets
----------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
----------------------------------------------------------------------------------------------
Target 2025* CA High-Yield Municipal
Target 2020* High-Yield Municipal
Target 2015*
Target 2010*
High-Yield
International Bond
----------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
----------------------------------------------------------------------------------------------
Long-Term Treasury CA Long-Term
Target 2005* Tax-Free
Bond Long-Term Tax-Free
Premium Bond CA Insured Tax-Free
----------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
----------------------------------------------------------------------------------------------
Premium FL Municipal Intermediate-Term Bond CA Intermediate-Term
Capital Reserve Money Market Intermediate-Term Tax-Free
Prime CA Municipal Treasury AZ Intermediate-Term
Money Market Money Market GNMA Municipal
Premium CA Tax-Free Inflation-Adjusted FL Intermediate-Term
Government Reserve Money Market Treasury Municipal
Government Agency Tax-Free Limited-Term Bond Intermediate-Term
Money Market Money Market Target 2000* Tax-Free
Capital Preservation Short-Term Government CA Limited-Term
Short-Term Treasury Tax-Free
Limited-Term
Tax-Free
----------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME GROWTH
Asset Allocation/ Domestic Equity Specialty Domestic Equity Specialty International
Balanced
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: AGGRESSIVE
-------------------------------------------------------------------------------------------------------------------------
Small Cap Quantitative Veedot(2) Emerging Markets
Small Cap Value New Opportunities Global Gold International Discovery
Giftrust(R) International Growth
Vista Global Growth
Heritage
Growth
Ultra(R)
Select
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: MODERATE
-------------------------------------------------------------------------------------------------------------------------
Strategic Allocation: Equity Growth Utilities Global Natural
Aggressive Equity Index Real Estate Resources
Balanced Large Cap Value
Strategic Allocation: Tax-Managed Value
Moderate Income & Growth
Strategic Allocation: Value
Conservative Equity Income
-------------------------------------------------------------------------------------------------------------------------
RISK LEVEL: CONSERVATIVE
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
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.
[AMERICAN CENTURY LOGO]
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 Investment Trust
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.
[GRAPHIC OMITTED]
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.
American Century Investments BULK RATE P.O. Box 419200 U.S. POSTAGE PAID Kansas City, MO 64141-6200 American century www.americancentury.com COMPANIES 0004 American Century Investment Services, Inc. SH-SAN-20081 (C)2000 American Century Services Corporation
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