-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S8WkYGddh/ROfSDgThpLPR3l6V6ONmKCtuzQ7nJ7j+B4fffDeL4oh51dF7eX9FwB DL+ag9yBjPsSdBa38+WhHg== 0000717316-97-000002.txt : 19970428 0000717316-97-000002.hdr.sgml : 19970428 ACCESSION NUMBER: 0000717316-97-000002 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970425 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CENTURY CALIFORNIA TAX FREE & MUNICIPAL FUNDS CENTRAL INDEX KEY: 0000717316 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 946562826 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03706 FILM NUMBER: 97587609 BUSINESS ADDRESS: STREET 1: 1665 CHARLESTON RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 8003218321 MAIL ADDRESS: STREET 1: 1665 CHARLESTON RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 FORMER COMPANY: FORMER CONFORMED NAME: BENHAM CALIFORNIA TAX FREE TRUST / DATE OF NAME CHANGE: 19960815 FORMER COMPANY: FORMER CONFORMED NAME: BENHAM CALIFORNIA TAX FREE & MUNICIPAL FUNDS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BENHAM CALIFORNIA TAX FREE TRUST DATE OF NAME CHANGE: 19910218 N-30D 1 SEMIANNUAL REPORT - BOOKS ONE AND TWO [BOOK ONE] SEMIANNUAL REPORT [american century logo] American Century(sm) February 28, 1997 BENHAM GROUP California Tax-Free Money Market California Municipal Money Market California High-Yield Municipal California Insured Tax-Free [front cover] TABLE OF CONTENTS Our Message to You...........................................1 Report Highlights............................................2 Period Overview..............................................4 Municipal Credit Review......................................5 California Tax-Free Money Market Performance & Portfolio Information.......................6 Management Q & A..........................................7 Schedule of Investments...................................9 Financial Highlights.....................................45 California Municipal Money Market Performance & Portfolio Information......................14 Management Q & A.........................................15 Schedule of Investments..................................17 Financial Highlights.....................................46 California High-Yield Municipal Performance & Portfolio Information......................21 Management Q & A.........................................22 Schedule of Investments..................................25 Financial Highlights.....................................47 California Insured Tax-Free Performance & Portfolio Information......................30 Management Q & A.........................................31 Schedule of Investments..................................34 Financial Highlights.....................................48 Statements of Assets and Liabilities........................38 Statements of Operations....................................39 Statements of Changes in Net Assets.........................40 Notes to Financial Statements...............................42 Background Information......................................52 Glossary....................................................53 American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your needs, we have divided American Century funds into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. American Century Investments--Family of Funds BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS California Tax-Free Money Market California Municipal Money Market California High-Yield Municipal California Insured Tax-Free We welcome your comments or questions about this report. See the back cover for ways to contact us by mail, phone or e-mail. Twentieth Century and the Benham Group are registered marks of American Century Services Corporation and Benham Management Corporation, respectively. American Century is a service mark of American Century Services Corporation. American Century Investments OUR MESSAGE TO YOU [photo of James E. Stowers III and James M. Benham] The six months ended February 28, 1997, were eventful, both for the municipal bond market and our company. Municipal bonds performed favorably overall during the period, despite some volatility in January as U.S. economic growth appeared to accelerate. In the following pages, our investment management team provides further details about the municipal market and how your fund was managed during the period. Changing market conditions underscore the importance of quality investments. Our commitment to high-quality securities is exemplified by the expansion of our municipal credit research team. The five members of the team perform an in-depth analysis on all securities considered for purchase by American Century municipal money market and bond funds. The team has established a credit management system that defines investment limits to cap our funds' exposure to individual issuers, market sectors and geographical regions. The team plays an important role in the management of the California Tax-Free and Municipal funds. On the corporate front, we completed the operational integration of Twentieth Century and The Benham Group in September 1996. As a result, you now have direct access to a broader spectrum of funds and services. We also changed the name of our company. On January 1, 1997, we began serving you under the name American Century Investments, which reflects our expanded identity and the independent thinking common to Twentieth Century and Benham. American Century's fund family is divided into three groups--the Benham Group, the American Century Group and the Twentieth Century Group. The California Tax-Free and Municipal funds will remain in the Benham Group because their investment goal--current tax-free income--matches a key attribute of that group. This report incorporates a new format designed using your input. We hope you find it more informative and easier to read. Another informative resource is the American Century Web site. If you use a personal computer and have Internet access, we've made it easier for you to download information about American Century funds and access your fund accounts. With a personal access code, you can view account balances, exchange money between existing accounts and make additional investments. The Web site address is: www.americancentury.com. We are one of the first fund companies to offer direct on-line transactions via the Internet. These are examples of how we continue to work to provide information and services that are useful and convenient to investors in our funds. Thank you for investing with us. Sincerely, /s/James E. Stowers III /s/James M. Benham James E. Stowers III James M. Benham President and Chief Executive Officer Vice Chairman American Century Companies American Century Companies Semiannual Report Our Message to You 1 REPORT HIGHLIGHTS PERIOD OVERVIEW o The U.S. economy grew more rapidly than expected during the six months ended February 28, 1997. o Despite rapid economic expansion, inflation remained tame. Consumer prices rose at a modest 3.1% annual rate for the six-month period. o The seemingly contradictory combination of strong growth and low inflation was responsible for much of the market's uncertainty about possible changes in the Federal Reserve's interest rate policy. o Overall, municipal bond investors enjoyed favorable returns for the six-month period. o Low levels of new municipal issuance helped support the prices of municipal securities. o Shorter-maturity municipals--more sensitive to shifting interest rate policy expectations--underperformed longer-maturity municipals. MUNICIPAL CREDIT REVIEW o California's strong economic growth led to upgrades in the state's credit rating. o Specific challenges, such as Proposition 218 and federal welfare reform, could affect ratings of locally issued municipal bonds. o Overall, our outlook for the state's credit rating is very positive. Continuing economic strength should lead to further upgrades during the coming year. TAX-FREE MONEY MARKET o The fund outperformed its Lipper peer group average for the six months ended February 28, 1997. o Going forward, we will likely extend the fund's average maturity, but we will probably wait until one-year municipal yields become more attractive. o June and July, when many California municipalities issue one-year notes, should provide our best opportunity to lengthen the fund's average maturity. MUNICIPAL MONEY MARKET o The fund outperformed its Lipper peer group average for the six months ended February 28, 1997. o Because of changing economic conditions and low supply among longer-term municipal money market securities, we shortened the fund's average maturity from 42 days to 23 days during the six-month period. o Going forward, we will likely extend the fund's average maturity, but we will probably wait until one-year municipal yields become more attractive. o June and July, when many California municipalities issue one-year notes, should provide the best opportunity to lengthen the fund's average maturity. TAX-FREE MONEY MARKET Total Returns: AS OF 2/28/97 6 Months 1.54%* 1 Year 3.03% Net Assets: $431.6 million (AS OF 2/28/97) Inception Date: 11/9/83 Ticker Symbol: BCTXX MUNICIPAL MONEY MARKET Total Returns: AS OF 2/28/97 6 Months 1.51%* 1 Year 3.04% Net Assets: $189.1 million (AS OF 2/28/97) Inception Date: 12/31/90 Ticker Symbol: BNCXX * Not annualized. Many of the investment terms in this report are defined in the Glossary on page 53. 2 Report Highlights American Century Investments REPORT HIGHLIGHTS HIGH-YIELD MUNICIPAL o The fund outperformed its Lipper peer group average for the six months ended February 28, 1997. o High-yield municipals performed well as credit quality spreads continued to narrow during the period. o At the end of the period the fund's duration was 7.6 years--neutral compared with the average duration of its peers. We chose this neutral stance in response to the market's uncertainty about the interest rate outlook. o We anticipate that continuing strong economic growth will keep California municipal credit quality spreads very narrow, and that limited issuance of lower-quality securities could result in more competition and higher prices for high-yield bonds. o With the possibility of higher interest rates going forward, we will likely maintain the fund's neutral duration. We will also look to increase the fund's holdings in unrated bonds to about 35% of the portfolio, provided that we can find securities that meet our strict credit criteria and represent good value. TAX-FREE INSURED o The fund outperformed its Lipper peer group average for the six months ended February 28, 1997. o Because of the market's uncertainty about the interest rate outlook, we kept the fund's duration at around eight years. This conservative positioning was an important factor in the fund's favorable performance. o The fund's returns were enhanced by the purchase of undervalued tax-allocation bonds, which appreciated in value as California property values rose. o With the possibility of higher interest rates going forward, we will likely maintain the fund's neutral duration. HIGH-YIELD MUNICIPAL Total Returns: AS OF 2/28/97 6 Months 5.04%* 1 Year 6.97% Net Assets: $168.9 million (AS OF 2/28/97) Inception Date: 12/30/86 Ticker Symbol: BCHYX INSURED TAX-FREE Total Returns: AS OF 2/28/97 6 Months 4.89%* 1 Year 4.78% Net Assets: $189.9 million (AS OF 2/28/97) Inception Date: 12/30/86 Ticker Symbol: BCINX * Not annualized. Semiannual Report Report Highlights 3 PERIOD OVERVIEW U.S. Economy The U.S. economy expanded at a healthy clip during the six-month period ended February 28, 1997. Fueling growth was low unemployment, high employment growth and a robust housing market that defied expectations of a slowdown. As a result, the economy expanded at a 2.1% annual rate during the third quarter of 1996 and a 3.8% annual rate during the fourth quarter. The strength of the economy in 1997 has continued to surprise analysts, many of whom are predicting that the U.S. economy will grow by more than 3% during the first quarter. While the economy continued its impressive growth rate, inflation remained relatively subdued. Overall consumer prices--as measured by the government's consumer price index--rose at a modest 3.1% annual rate during the six months ended February 28, 1997. This unusual combination of healthy economic growth and low inflation sent mixed signals to U.S. bond investors. California Municipal Bond Market Municipal bond investors enjoyed favorable returns for the six-month period. Nevertheless, shifting expectations of an interest-rate increase by the Federal Reserve (the Fed) kept investors guessing about the possible direction of bond prices. As demonstrated by the accompanying graph, municipal yields peaked at the start of the period amid strong expectations for higher interest rates. Investors were concerned that the U.S. economy was ready to overheat and spark inflation. However, inflation remained subdued, and signs of a moderating economy convinced many that a Fed rate hike was unlikely, allowing municipal bonds to rally. By early December, prices crested with the yield on 30-year municipal bonds at 5.29%, nearly half a percent lower than the 5.78% seen in early September. However, aided by strong consumer spending activity, the economy strengthened again in early 1997. With growing expectations that the strains of robust economic growth would finally force the Fed to stage a pre-emptive strike against inflation, investors pushed municipal prices lower. By the end of February, the yield on 30-year municipal bonds had risen to 5.44%. Helping to support municipal prices during the volatile period were low levels of new municipal issuance, which only in recent months has reached historically normal levels. An upsurge of demand from retail investors also buoyed short- and intermediate-maturity municipals during much of the period, but that beneficial effect was largely countered by shifting expectations for higher rates. More sensitive to anticipated Fed activities, shorter-maturity municipals underperformed their longer-maturity counterparts for the period. Meanwhile, strong demand from insurance companies helped buoy long-term municipal prices late in 1996 as many of these companies made "crossover" buys--that is, they purchased municipal bonds instead of comparable-maturity Treasury bonds due to the relatively attractive yield offered by municipals. [line graph - data below] Shifting Municipal Yield Curve Years 9/5/96 12/3/96 2/28/97 0.25 3.51% 3.03% 3.22% 0.5 3.71 3.23 3.42 1 3.91 3.43 3.65 2 4.16 3.73 3.92 3 4.36 3.93 4.1 4 4.51 4.05 4.24 5 4.61 4.15 4.34 6 4.71 4.25 4.44 7 4.81 4.35 4.54 8 4.91 4.45 4.64 9 5.01 4.55 4.74 10 5.11 4.65 4.84 11 5.198 4.738 4.916 12 5.286 4.826 4.992 13 5.374 4.914 5.068 14 5.462 5.002 5.144 15 5.55 5.09 5.22 16 5.584 5.118 5.252 17 5.618 5.146 5.284 18 5.652 5.174 5.316 19 5.686 5.202 5.348 20 5.72 5.23 5.38 21 5.728 5.238 5.388 22 5.736 5.246 5.396 23 5.744 5.254 5.404 24 5.752 5.262 5.412 25 5.76 5.27 5.42 26 5.764 5.274 5.424 27 5.768 5.278 5.428 28 5.772 5.282 5.432 29 5.776 5.286 5.436 30 5.78 5.29 5.44 Source: Bloomberg Financial Markets 4 Period Overview American Century Investments MUNICIPAL CREDIT REVIEW As we anticipated early in 1996, the state of California's credit rating was upgraded by several rating agencies within the last year. The key to the state's improving credit quality has been its ability to generate strong job growth in various sectors of the economy. The six months ended February 28, 1997, showed an acceleration of the economic growth that California has enjoyed for the past three years. With income gains and employment growth exceeding the national average, California's unemployment rate fell to 6.5% for the first time since 1990 (see the accompanying graph). The state has more than recovered all the jobs lost in the last recession, largely due to strong growth in the high-technology industries. California is also the nation's leading exporter, with exports nearly equaling those of the other 49 states combined. Its gross product is projected to surpass $1 trillion in 1997, a milestone that the U.S. as a whole passed less than 30 years ago. The state's finances continue to improve--its revenue is projected to be more than $700 million over budget for the 1996-1997 fiscal year, and the general fund is expected to show a reserve for the first time in a number of years. The state's strongest growth has been centered in the San Francisco Bay Area, led by Santa Clara County, the hub of the state's thriving high-technology industry. Southern California's economy also continued to expand, though at a slower pace. There has also been statewide improvement in the real estate sector. The San Francisco Bay Area has seen property values rise appreciably, while the Southern California real estate market has bottomed out and begun to trend upward. Real estate prices in some regions have surpassed their 1989 highs, underscoring the regional vitality of California's real estate market. In spite of the state's rosy economic outlook, specific challenges continue to affect the credit picture for locally issued municipal bonds. For example, California's Proposition 218 requires voter approval for the levying of fees and other charges by local governments. This could have a negative impact on the credit quality of securities issued by local governments within the state. In addition, federal welfare reform could place additional credit pressure on already-burdened county budgets. This possibility has led us to position our California municipal funds with very low exposure to county debt. With these issues in mind, we have continued to expand our municipal credit research team. The five members of the team keep a close watch on economic and legislative trends within the state and thoroughly research all municipal securities considered for purchase by the Benham California Tax-Free and Municipal funds. We will continue to monitor legislative developments on welfare reform and state budgetary issues in the months ahead. Overall, our outlook for the state's credit rating remains very positive, and we feel that continuing economic strength will lead to further credit upgrades within the next 12 months. [line graph - data below] California Unemployment 1/31/90 5.0% 2/28/90 5.1 3/31/90 5.2 4/30/90 5.4 5/31/90 5.4 6/30/90 5.5 7/31/90 5.6 8/31/90 5.8 9/30/90 6.1 10/31/90 6.4 11/30/90 6.8 12/31/90 6.9 1/31/91 7.0 2/28/91 7.4 3/31/91 7.7 4/30/91 7.8 5/31/91 7.7 6/30/91 7.7 7/31/91 7.8 8/31/91 7.7 9/30/91 7.8 10/31/91 7.9 11/30/91 8.0 12/31/91 8.2 1/31/92 8.4 2/29/92 9.0 3/31/92 8.9 4/30/92 9.0 5/31/92 9.1 6/30/92 9.3 7/31/92 9.4 8/31/92 9.6 9/30/92 9.7 10/31/92 9.7 11/30/92 9.7 12/31/92 9.7 1/31/93 9.7 2/28/93 9.6 3/31/93 9.5 4/30/93 9.3 5/31/93 9.4 6/30/93 9.4 7/31/93 9.3 8/31/93 9.3 9/30/93 9.3 10/31/93 9.3 11/30/93 9.3 12/31/93 9.2 1/31/94 9.2 2/28/94 9.3 3/31/94 9.0 4/30/94 8.8 5/31/94 8.9 6/30/94 8.7 7/31/94 8.6 8/31/94 8.5 9/30/94 8.3 10/31/94 8.1 11/30/94 7.9 12/31/94 7.8 1/31/95 8.1 2/28/95 7.8 3/31/95 7.8 4/30/95 7.9 5/31/95 7.9 6/30/95 7.8 7/31/95 7.8 8/31/95 7.8 9/30/95 7.8 10/31/95 7.8 11/30/95 7.9 12/31/95 7.8 1/31/96 7.6 2/29/96 7.6 3/31/96 7.5 4/30/96 7.4 5/31/96 7.3 6/30/96 7.2 7/31/96 7.1 8/31/96 7.1 9/30/96 7.1 10/31/96 7.0 11/30/96 6.9 12/31/96 6.8 1/31/97 6.9 2/28/97 6.5 Source: DRI/McGraw Hill Semiannual Report Municipal Credit Review 5
CALIFORNIA TAX-FREE MONEY MARKET 7-DAY 7-DAY 7-DAY TAX-EQUIVALENT YIELDS CURRENT EFFECTIVE 34.70% 37.42% 41.95% 45.22% YIELD YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket ----- ----- ----------- ----------- ----------- ----------- CURRENT YIELD (as of February 28, 1997) California Tax-Free Money Market 2.93% 2.98% 4.49% 4.68% 5.05% 5.35% Yields are defined in the Glossary on page 53.
AVERAGE ANNUAL RETURNS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS TOTAL RETURNS (as of February 28, 1997) California Tax-Free Money Market .......................... 1.54% 3.03% 3.03% 2.69% 3.67% Average California Tax-Exempt Money Market Fund(1) ...................................... 1.43% 2.86% 2.93% 2.63% 3.71% Fund's Ranking Among California Tax-Exempt Money Market Funds(1) .......................... -- 14 out of 54 13 out of 47 14 out of 43 6 out of 9 (1) According to Lipper Analytical Services. See pages 52-53 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE 2/28/97 8/31/96 Number of Securities 88 91 Weighted Average Maturity 28 days 39 days Expense Ratio 0.48%* 0.49% * Annualized. Money market funds are neither insured nor guaranteed by the U.S. government. Yields will fluctuate, and there can be no assurance that the fund will be able to maintain a stable $1.00 share price. 6 California Tax-Free Money Market American Century Investments CALIFORNIA TAX-FREE MONEY MARKET MANAGEMENT Q&A An interview with Todd Pardula, a portfolio manager on the California Tax-Free and Municipal funds management team. How did the fund perform? The fund continued to outperform its peer group average while meeting its investment objective of providing tax-exempt income. For the six months ended February 28, 1997, the fund had a total return of 1.54%, compared with the 1.43% average return of the 56 "California Tax-Exempt Money Market Funds" tracked by Lipper Analytical Services. (See the Total Returns table on the previous page for other fund performance comparisons.) The fund's average maturity shortened over the past six months. Why? We shortened the fund's average maturity because of prevailing economic conditions. The U.S. economy has experienced strong employment growth, but inflation has remained low. These conditions rarely co-exist for long; eventually, something has to give. We expect to see wage pressures lead to rising inflation, which in turn would likely lead to a short-term interest rate increase by the Federal Reserve. Despite these expectations, we planned to extend the fund's maturity slightly in December by taking advantage of the usual year-end rise in the yields of short-term municipal securities (a result of selling by corporations that wish to "dress up" their balance sheets with Treasury securities at year-end). However, this seasonal effect was less dramatic than in past years. So, rather than buy securities with unattractive yields, we allowed the fund's average maturity to shorten further. By the end of the six-month period, the fund's average maturity of 28 days was about two weeks shorter than that of the average California tax-exempt money market fund. Has the supply of California municipal money market securities had any effect on your management of the fund? Yes, and that's another reason why the fund's maturity has been shorter than normal. We typically invest a majority of the fund's assets in variable-rate demand notes (VRDNs) that reset their rates on a daily or weekly basis. We balance these short-term investments with longer-term municipal securities, which generally have maturities of 8-13 months. However, a shortage of credit-approved one-year California municipal securities has made yields in this maturity sector unattractive compared to Treasurys and other short-term tax-exempt securities. As a result, we've been focusing the fund's investments in municipal commercial paper, VRDNs and other short-term securities. This situation has contributed to the fund's shorter average maturity. [pie charts - data described below] PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97) o VRDNs 75% o Bonds less than 1 Year 11% o Municipal Notes 7% o Commerical Paper 7% PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/96) o VRDNs 76% o Municipal Notes 9% o Bonds less than 1 Year 7% o Commercial Paper 4% o Put Bonds 4% Semiannual Report California Tax-Free Money Market 7 CALIFORNIA TAX-FREE MONEY MARKET Looking ahead, what are your plans for the fund over the next six months? We will likely extend the fund's average maturity at some point, but we're willing to wait until one-year municipal yields become more attractive. The Federal Reserve has given us another reason to wait--in March, it made a pre-emptive strike against inflation by raising short-term interest rates. Many Fed watchers suspect this may be the first in a series of rate hikes. But our decision to extend the fund's maturity will also be based on the relative values between VRDNs and longer-term municipal money market securities. To make this determination, we project VRDN rates over the coming year and compare our results to current rates on one-year municipal securities. We then invest in whichever offers the higher yield. Lately, VRDNs have been the better buy, but we expect seasonal supply factors to favor one-year securities in the coming months. Can you describe some of these seasonal factors? The next seasonal opportunity for us to extend the fund's maturity is late in April, when many tax-exempt money market funds sell securities to meet cash outflows as investors pay their tax bills. But the best opportunity will occur in June and July, when many California municipalities issue a substantial amount of one-year notes. We'll definitely look to extend the fund's average maturity at that time; how far we extend will depend on economic conditions and relative values. If economic growth is projected to slow, we may extend the fund's maturity out to 60 days or more, but we would be less enthusiastic if the economy continued to strengthen. How does credit research affect your management of the fund? When it comes to security selection, our municipal credit research team plays a vital role. The team has set stringent guidelines and is proactive about keeping the management team apprised of changing credit conditions. Our relationship represents a good balance between yield and credit quality--the fund management team seeks out the most attractive yields within the rigorous credit standards established by our credit research group. [pie charts - data described below] PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97) SP1+ 70% SP1 30% PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/96) SP1+ 77% SP1 23% 8 California Tax-Free Money Market American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA TAX-FREE MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- MUNICIPAL SECURITIES $ 4,445,540 Agoura Hills Multifamily Housing Rev., (Oakridge Apartments), VRDN, 3.45%, 3-5-97 (LOC: Continental Casualty Co.) $4,445,540 4,000,000 Anaheim Electric Rev., 4.25%, 10-1-97 (AMBAC) 4,009,044 4,800,000 Anaheim Housing Auth. Rev., Series A, (Heritage Village Apartments), VRDN, 3.35%, 3-6-97 (LOC: Barclays Bank PLC) 4,800,000 10,480,000 Association of Bay Area Governments Financing Auth., VRDN, 3.30%, 3-6-97 (LOC: Union Bank of Switzerland) 10,480,000 100,000 Association of Bay Area Governments Lease Rev. Certificates of Participation, (Pooled Projects), VRDN, 3.15%, 3-6-97 (LOC: National Westminster Bank PLC) 100,000 8,100,000 Auburn Unified School District Certificates of Participation, Series 1993, (Capital Improvement Financing Project), VRDN, 3.40%, 3-6-97 (LOC:Union Bank of California) 8,100,000 7,800,000 Azusa Multifamily Housing Rev., (Pacific Glen Apartments), VRDN, 3.50%, 3-6-97 (LOC: Continental Casualty Co.) 7,800,000 2,000,000 California GO Commercial Paper, 3.40%, 3-3-97 (LOC: Landbank Hessen-Thuringen Girozentrale, Westdeutsche Landesbank Girozentrale) 2,000,000 1,015,000 California Health Facilities Financing Auth. Rev., Series A, (Pooled Loan Program), VRDN, 3.30%, 3-6-97 (LOC: Rabobank Nederland) 1,015,000 6,000,000 California Health Facilities Financing Auth. Rev., Series 1985 B, (Scripps Memorial Hospital), VRDN, 3.30%, 3-6-97 (MBIA) (SBBPA: Morgan Guaranty Trust Co.-New York) 6,000,000 Principal Amount Value - ------------------------------------------------------------------------------- $2,500,000 California Health Facilities Financing Auth. Rev., Series 1990 A, (Pooled Project), VRDN, 3.30%, 3-5-97 (LOC: Rabobank Nederland) $ 2,500,000 1,500,000 California Pollution Control Financing Auth. Rev., Series B, (Southern California Edison), VRDN, 3.15%, 3-3-97 1,500,000 10,500,000 California Pollution Control Financing Auth. Rev., (Chevron USA, Inc. Project), 3.70%, 5-15-97 (Guaranteed: Chevron Corporation) 10,500,000 1,000,000 California Pollution Control Financing Auth. Rev., (Chevron USA, Inc. Project), 3.90%, 11-15-97 (Guaranteed: Chevron Corporation) 1,000,000 3,000,000 California Pollution Control Rev. Commercial Paper, (Pacific Gas & Electric), 3.45%, 3-3-97 (LOC: Morgan Guaranty Trust Co.-New York) 3,000,000 4,000,000 California Pollution Control Rev. Commercial Paper, (Pacific Gas & Electric), 3.40%, 3-20-97 (LOC: Morgan Guaranty Trust Co.-New York) 4,000,000 7,500,000 California Pollution Control Rev. Commercial Paper, (Pacific Gas & Electric), 3.45%, 5-1-97 (LOC: Morgan Guaranty Trust Co.-New York) 7,500,000 5,000,000 California Public Capital Improvements Financing Auth. Rev., Series C, 3.65%, 3-15-97 (LOC: National Westminster Bank PLC) 5,000,000 18,500,000 California Rev. Anticipation Notes, 4.50%, 6-30-97 18,531,471 10,000,000 California School Cash Reserve Program Auth. Notes, Series A, 4.75%, 7-2-97 (MBIA) 10,026,235 8,000,000 California Statewide Certificates of Participation, (Covenant Retirement Community), VRDN, 3.25%, 3-6-97 (LOC: LaSalle National Bank) 8,000,000 See Notes to Financial Statements Semiannual Report California Tax-Free Money Market 9 SCHEDULE OF INVESTMENTS CALIFORNIA TAX-FREE MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 3,000,000 California Statewide Communities Apartment Development Auth. Rev., Series A-1, VRDN, 3.15%, 3-5-97 (FNMA Collateral Agreement) $ 3,000,000 3,000,000 California Statewide Communities Apartment Development Auth. Rev., (Whispering Winds Apartments), VRDN, 3.45%, 3-5-97 (LOC: Continental Casualty Co.) 3,000,000 2,445,000 Central Unified School District Certificates of Participation, VRDN, 3.50%, 3-5-97 (LOC: Union Bank of California) 2,445,000 1,000,000 Countywide Public Financing Auth. Rev. Certificates of Participation, 4.10%, 8-1-97 (MBIA) 1,000,810 2,700,000 Covina Redevelopment Agency Multifamily Housing Rev., (Shadowhills Apartments), VRDN, 3.50%, 3-6-97 (LOC: Continental Casualty Co.) 2,700,000 2,155,000 Dinuba Financing Auth. Lease Rev. Certificates of Participation, Series A, (Wastewater Treatment Plant), VRDN, 3.50%, 3-5-97 (LOC: Union Bank of California) 2,155,000 4,450,000 Gardena Financing Agency Rev., (Public Parking Project), VRDN, 3.55%, 3-6-97 (LOC: Industrial Bank of Japan) 4,450,000 1,000,000 Glendale Industrial Development Auth., (Reliance Development), VRDN, 3.35%, 3-14-97 (LOC: Barclays Bank PLC) 1,000,000 6,355,000 Hanford Public Improvement Project, VRDN, 3.45%, 3-6-97 (LOC: Union Bank of California) 6,355,000 12,100,000 Hayward Multifamily Housing Rev., (Shorewood Apartments), VRDN, 3.15%, 3-6-97 (LOC: FGIC) 12,100,000 5,400,000 Irvine Improvement Board Assessment, Series A, (District 95-12), VRDN, 3.35%, 3-3-97 (LOC: Kredietbank N.V.) 5,400,000 Principal Amount Value - ------------------------------------------------------------------------------- $ 4,530,000 Irvine Industrial Development Authority Rev., (Shimano Amer Corporation), VRDN, 3.70%, 3-5-97 (LOC: Bank of Tokyo- Mitsubishi) $ 4,530,000 8,000,000 Kern County Superintendent of Schools Certificates of Participation, VRDN, 3.40%, 3-6-97 (LOC: Anchor National Life Ins.) 8,000,000 2,900,000 Lancaster Redevelopment Agency, (Woodacre Garden Apartments), VRDN, 3.40%, 3-4-97 (LOC: Bank of Tokyo-Mitsubishi) 2,900,000 3,250,000 Lancaster Redevelopment Agency, (20th Street), VRDN, 3.20%, 3-6-97 (LOC: FHLB) 3,250,000 2,100,000 Lemore Certificates of Participation, Series 1995, (Golf Course Project), VRDN, 3.50%, 3-6-97 (LOC: Union Bank of California) 2,100,000 5,200,000 Livermore Certificates of Participation, (Reverse Osmosis Project), VRDN, 3.25%, 3-6-97 (LOC: National Westminster Bank PLC) 5,200,000 3,000,000 Loma Linda Water Rev., VRDN, 3.50%, 3-5-97 (LOC: Union Bank of California) 3,000,000 5,000,000 Long Beach Multifamily Housing Rev., (Channel Point Apartments), VRDN, 3.30%, 3-5-97 (LOC: Union Bank of California) 5,000,000 5,000,000 Los Angeles Community Redevelopment Agency, VRDN, 3.25%, 3-6-97 (LOC: Barclays Bank PLC) 5,000,000 5,000,000 Los Angeles County Tax and Rev. Anticipation Notes, Series A, 4.50%, 6-30-97 (LOC: Bank of America, Credit Suisse, Morgan Guaranty Trust Co.-New York, Union Bank of Switzerland, Westdeutsche Landesbank Girozentrale) 5,010,372 See Notes to Financial Statements 10 California Tax-Free Money Market American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA TAX-FREE MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 2,750,000 Los Angeles Public Works Financing Auth. Lease Rev. Certificates of Participation, Series A, 4.50%, 9-1-97 (MBIA) $ 2,758,752 3,300,000 Los Angeles Public Works Financing Auth. Lease Rev. Certificates of Participation, Series B, 4.50%, 9-1-97 (MBIA) 3,309,859 1,355,000 Los Angeles Unified School District Certificates of Participation, 3.80%, 10-1-97 (FSA) 1,354,586 9,500,000 Los Angeles Wastewater Commercial Paper, 3.45%, 5-9-97 (LOC: Morgan Guaranty Trust Co.-New York, Union Bank of Switzerland) 9,500,000 8,500,000 Oceanside Multifamily Housing Rev. Refunding, (Lakeridge Apartments Project), VRDN, 3.50%, 3-5-97 (LOC: Continental Casualty Co.) 8,500,000 18,500,000 Orange County Apartment Development Rev., (Bear Brand Apartments), VRDN, 3.25%, 3-6-97 (LOC: Credit Suisse) 18,500,000 4,000,000 Orange County Apartment Development Rev., (Seaside Meadows), VRDN, 3.25%, 3-6-97 (LOC: Credit Suisse) 4,000,000 6,500,000 Orange County Apartment Development, Series 1991 A, (The Lakes Project), VRDN, 3.20%, 3-6-97 (LOC: Citibank) 6,500,000 3,000,000 Orange County Housing Auth. Apartment Development Rev., VRDN, 3.35%, 3-5-97 (LOC: Bank of America) 3,000,000 2,000,000 Orange County Water Commercial Paper, 3.40%, 3-3-97 (LOC: Union Bank of Switzerland) 2,000,000 8,700,000 Orange County Water Commercial Paper, 3.40%, 4-10-97 (LOC: Union Bank of Switzerland) 8,700,000 800,000 Palm Springs Redevelopment Agency Certificates of Participation, VRDN, 3.30%, 3-5-97 (LOC: Citibank) 800,000 Principal Amount Value - ------------------------------------------------------------------------------- $ 6,100,000 Pico Rivera Certificates of Participation, (Redevelopment Agency Project), VRDN, 3.20%, 3-4-97 (LOC: Wachovia Bank of Georgia) $ 6,100,000 6,000,000 Redlands Certificates of Participation, (Sewer Treatment Facilities Project), VRDN, 3.25%, 3-5-97 (LOC: FGIC) 6,000,000 6,860,000 Redlands Certificates of Participation, (Water Facilities Project), VRDN, 3.25%, 3-5-97 (LOC: FGIC) 6,860,000 6,040,000 Riverside County Multifamily Housing Rev., (Ambergate Apartments), VRDN, 3.40%, 3-6-97 (LOC: Union Bank of California) 6,040,000 1,715,000 Rohnert Park Multifamily Housing Rev., (Crossbrook Apartments), VRDN, 3.15%, 3-5-97 (FNMA Collateral Agreement) 1,715,000 1,330,000 Sacramento County Certificates of Participation, 4.00%, 2-1-98 (MBIA) 1,334,180 5,000,000 Sacramento County Housing Auth., VRDN, 3.35%, 3-5-97 (LOC: Dai-Ichi Kangyo Bank) 5,000,000 8,200,000 Sacramento County Multifamily Housing Rev., (River Oaks), VRDN, 3.40%, 3-6-97 (LOC: Dai-Ichi Kangyo Bank) 8,200,000 3,400,000 Sacramento County Multifamily Housing Rev., Series A, VRDN, 3.20%, 3-5-97 (LOC: California State Teachers Retirement System) 3,400,000 1,500,000 Sacramento County Multifamily Housing Rev., Series 1985 C, VRDN, 3.40%, 3-6-97 (LOC: Dai-Ichi Kangyo Bank) 1,500,000 3,200,000 San Bernardino County Certificates of Participation, VRDN, 3.45%, 3-6-97 (LOC: Sumitomo Bank Ltd.) 3,200,000 10,000,000 San Bernardino County Certificates of Participation, VRDN, 3.55%, 3-6-97 (SBBPA: Merrill Lynch & Co., Inc.) (MBIA) 10,000,000 See Notes to Financial Statements Semiannual Report California Tax-Free Money Market 11 SCHEDULE OF INVESTMENTS CALIFORNIA TAX-FREE MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $12,300,000 San Bernardino Multifamily Housing Rev., Series A, (Castle Park Apartments), VRDN, 3.55%, 3-5-97 (LOC: Bank of Tokyo- Mitsubishi) $12,300,000 1,370,000 San Diego County Multifamily Housing Rev., (Country Hills), VRDN, 3.20%, 3-5-97 (FNMA Collateral Agreement) 1,370,000 2,110,000 San Diego Multifamily Housing Rev., (Nobel Court Apartments), VRDN, 3.20%, 3-6-97 (LOC: Credit Suisse) 2,110,000 4,300,000 San Diego Multifamily Housing Rev., Series A, (Coral Point Apartments), VRDN, 3.50%, 3-6-97 (LOC: Continental Casualty Co.) 4,300,000 2,510,000 San Diego Regional Transportation Commission Sales Tax Rev., Series A, 4.00%, 4-1-97 (FGIC) 2,511,031 4,900,000 San Francisco City and County Redevelopment Financing Auth. Rev., (Yerba Buena Garden), VRDN, 3.20%, 3-5-97 (LOC: National Westminster Bank PLC) 4,900,000 1,400,000 San Jose Financing Auth. Rev., Series B, (Hayes Mansion Project), VRDN, 3.35%, 3-5-97 (LOC: Sumitomo Bank Ltd.) 1,400,000 3,900,000 San Leandro Multifamily Housing Rev., (Parkside Project), VRDN, 3.20%, 3-5-97 (FNMA Collateral Agreement) 3,900,000 4,200,000 Santa Clara Multifamily Housing Rev., VRDN, 3.25%, 3-5-97 (LOC: National Westminster Bank PLC) 4,200,000 4,200,000 Santa Clara Multifamily Housing Rev., (Foxchase Apartments), VRDN, 3.15%, 3-6-97 (LOC:FGIC) 4,200,000 7,300,000 Santa Paula Public Financing Auth. Rev. Certificates of Participation, Series 1996, VRDN, 3.50%, 3-5-97 (LOC: Sumitomo Bank Ltd., Union Bank of California) 7,300,000 Principal Amount Value - ------------------------------------------------------------------------------- $ 300,000 South San Francisco Certificates of Participation, (Quality Control Plant Project), VRDN, 3.25%, 3-6-97 (LOC: National Westminster Bank PLC) $ 300,000 18,800,000 Southern California Public Power Auth. Rev., VRDN, 3.10%, 3-5-97 (FSA) (SBBPA: Morgan Guaranty Trust Co.-NewYork) 18,800,000 2,745,000 Southern California Public Power Auth. Rev., Series B, (Transmission Project), 4.00%, 7-1-97 (MBIA) 2,745,389 2,000,000 State of California GO, VRDN, 3.35%, 3-6-97 (FGIC) (SBBPA: Merrill Lynch & Co., Inc.) 2,000,000 5,400,000 Three Valleys Municipal Water District Certificates of Participation, (Miramar Water Treatment), VRDN, 3.40%, 3-5-97 (LOC: Barclays Bank PLC) 5,400,000 1,600,000 Triunfo Sanitation District Refunding Rev., VRDN, 3.50%, 3-5-97 (LOC: Banque National de Paris) 1,600,000 825,000 Upland Community Redevelopment Agency Multifamily Housing Rev., (Northwoods Project), VRDN, 3.80%, 3-5-97 (LOC: Sanwa Bank) 825,000 6,300,000 Victor Valley Community College Certificates of Participation, VRDN, 3.40%, 3-6-97 (LOC: Banque National de Paris, Dai-Ichi Kangyo Bank) 6,300,000 1,000,000 Visalia Public Financing Auth. Certificates of Participation, VRDN, 3.20%, 3-6-97 (LOC: California State Teachers Retirement System) 1,000,000 2,600,000 West Sacramento Financing Auth. Special Tax Rev., Series C, VRDN, 3.30%, 3-6-97 (LOC: Wells Fargo & Co.) 2,600,000 --------- TOTAL INVESTMENT SECURITIES--100.0% $426,237,269 =========== See Notes to Financial Statements 12 California Tax-Free Money Market American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA TAX-FREE MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Notes to Schedule of Investments AMBAC = AMBAC Indemnity Corp. FGIC = Financial Guaranty Insurance Company FHLB = Federal Home Loan Banks FNMA = Federal National Mortgage Association FSA = Financial Security Association GO = General Obligation LOC = Letter of Credit MBIA = Municipal Bond Insurance Association SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective February 28, 1997. See Notes to Financial Statements Semiannual Report California Tax-Free Money Market 13
CALIFORNIA MUNICIPAL MONEY MARKET 7-DAY 7-DAY 7-DAY TAX-EQUIVALENT YIELDS CURRENT EFFECTIVE 34.70% 37.42% 41.95% 45.22% YIELD YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket ----- ----- ----------- ----------- ----------- ----------- CURRENT YIELD (as of February 28, 1997) California Municipal Money Market 2.95% 2.99% 4.52% 4.71% 5.08% 5.39% Yields are defined in the Glossary on page 53.
AVERAGE ANNUAL RETURNS 6 MONTHS 1 YEAR 3 YEARS 5 YEARSLIFE OF FUND(1) -------- ------ ------- ---------------------- TOTAL RETURNS (as of February 28, 1997) California Municipal Money Market 1.51% 3.04% 3.08% 2.81% 3.11% Average California Tax-Exempt Money Market Fund(2) 1.43% 2.86% 2.93% 2.63% 2.88% Fund's Ranking Among California Tax-Exempt Money Market Funds(2) -- 13 out of 54 11 out of 47 8 out of 43 9 out of 37 (1) Inception date was December 31, 1990. (2) According to Lipper Analytical Services. See pages 52-53 for more information about returns and Lipper fund rankings.
PORTFOLIO AT A GLANCE 2/28/97 8/31/96 Number of Securities 62 61 Weighted Average Maturity 23 days 42 days Expense Ratio 0.51%* 0.53% * Annualized. Money market funds are neither insured nor guaranteed by the U.S. government. Yields will fluctuate, and there can be no assurance that the fund will be able to maintain a stable $1.00 share price. 14 California Municipal Money Market American Century Investments CALIFORNIA MUNICIPAL MONEY MARKET Management Q & A An interview with Todd Pardula, a portfolio manager on the California Tax-Free and Municipal funds management team. How did the fund perform? The fund continued to outperform its peer group average while meeting its investment objective of providing tax-exempt income. For the six months ended February 28, 1997, the fund had a total return of 1.51%, compared with the 1.43% average return of the 56 "California Tax-Exempt Money Market Funds" tracked by Lipper Analytical Services. (See the Total Returns table on the previous page for other fund performance comparisons.) The fund's average maturity shortened significantly over the past six months. Why? We shortened the fund's average maturity because of prevailing economic conditions. The U.S. economy has experienced strong employment growth, but inflation has remained low. These conditions rarely co-exist for long; eventually, something has to give. We expected to see wage pressures lead to rising inflation, which in turn would likely lead to a short-term interest rate increase by the Federal Reserve. Despite these expectations, we planned to extend the fund's maturity in December by taking advantage of the usual year-end rise in the yields of short-term municipal securities (a result of selling by corporations that wish to "dress up" their balance sheets with Treasury securities at year-end). However, this seasonal effect was less dramatic than in past years. So, rather than buy securities with unattractive yields, we allowed the fund's average maturity to shorten further. By the end of the six-month period, the fund's average maturity of 23 days was nearly three weeks shorter than that of the average California tax-exempt money market fund. Has the supply of California municipal money market securities had any effect on your management of the fund? Yes, and that's another reason why the fund's maturity has been shorter than normal. We typically invest a majority of the fund's assets in variable-rate demand notes (VRDNs) that reset their rates on a daily or weekly basis. We balance these short-term investments with longer-term municipal securities, which generally have maturities of 8-13 months. However, a shortage of one-year California municipal securities has made yields in this maturity sector unattractive compared to Treasurys and other short-term tax-exempt securities. As a result, we've been concentrating the fund's investments in VRDNs, which now make up nearly 85% of the fund's portfolio. This situation has contributed to the fund's shorter average maturity. [pie charts - data described below] PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97) VRDNs 83% Bonds less than 1 Year 9% Municipal Notes 5% Commerical Paper 3% PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/96) VRDNs 76% Put Bonds 13% Municipal Notes 7% Bonds less than Year 3% Commercial Paper 1% Semiannual Report California Municipal Money Market 15 CALIFORNIA MUNICIPAL MONEY MARKET The fund typically invests a majority of its assets in AMT paper. Did this change over the past six months? The fund is holding more AMT paper than usual--about 70% of fund assets, compared to around 60% normally. This is a direct result of the fund's shorter average maturity, since the majority of AMT paper is issued in the form of weekly VRDNs. Looking ahead, what are your plans for the fund over the next six months? We will likely extend the fund's average maturity at some point, but we're willing to wait until one-year municipal yields become more attractive. The Federal Reserve has given us another reason to wait--in March, it made a pre-emptive strike against inflation by raising short-term interest rates. Many Fed watchers suspect this may be the first in a series of rate hikes. But our decision to extend the fund's maturity will be based primarily on the relative values between VRDNs and longer-term municipal money market securities. To make this determination, we project VRDN rates over the coming year and compare our results to current rates on one-year municipal securities. We then invest in whichever offers the higher yield. Lately, VRDNs have been the better buy, but we expect seasonal supply factors to favor one-year securities in the coming months. Can you describe some of these seasonal factors? The next seasonal opportunity for us to extend the fund's maturity is in April, when many tax-exempt money market funds sell securities to meet cash outflows as investors pay their tax bills. But the best opportunity will occur in June and July, when many California municipalities issue a substantial amount of one-year notes. We'll definitely look to extend the fund's average maturity at that time; how far we extend will depend on economic conditions. If economic growth slows down, we may extend the fund's maturity out to 60 days or more, but we would be less enthusiastic if the economy continued to strengthen. How does credit research affect your management of the fund? When it comes to security selection, our municipal credit research team plays a vital role. The team has set stringent guidelines and is proactive about keeping the management team apprised of changing credit conditions. Our relationship represents a good balance between yield and credit quality--the fund management team seeks out the most attractive yields within the rigorous credit standards established by our credit research group. [pie charts - data described below] PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97) SP1+ 67% SP1 33% PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/96) SP1+ 81% SP1 19% 16 California Municipal Money Market American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA MUNICIPAL MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- MUNICIPAL SECURITIES $ 2,000,000 Agoura Hills Multifamily Housing Rev., (Oakridge Apartments Project), VRDN, 3.45%, 3-5-97 (LOC: Continental Casualty Co.) $2,000,000 2,000,000 Alameda County Industrial Development Auth. Rev., Series 1994 A, (Scientific Technology Project), VRDN, 3.35%, 3-5-97 (LOC: Banque National de Paris) 2,000,000 2,000,000 Anaheim Electrical Rev., 4.25%, 10-1-97 (AMBAC) 2,004,523 2,100,000 Auburn Industrial Development Auth. Rev., (Coherent Income Project), VRDN, 3.40%, 3-5-97 (LOC: Bank of Tokyo-Mitsubishi) 2,100,000 2,815,000 Azusa Multifamily Housing Rev., (Pacific Glen Apartments Project), VRDN, 3.50%, 3-6-97 (LOC: Continental Casualty Co.) 2,815,000 4,600,000 Big Bear Lake Industrial Rev., Series 1993 A, (Southwest Gas Project), VRDN, 3.25%, 3-5-97 ( LOC: Union Bank of Switzerland) 4,600,000 1,175,000 California Counties Industrial Development Auth. Rev., (S&P Investments Project), VRDN, 3.30%, 3-5-97 (LOC: California State Teachers Retirement System) 1,175,000 3,515,000 California Housing Financing Agency Rev., VRDN, 3.45%, 3-6-97 (MBIA) (SBBPA: Credit Suisse) 3,515,000 4,100,000 California Housing Financing Agency Mortgage Rev., Series 1996 J, Mandatory Put, 4.00%, 7-24-97 4,101,535 2,500,000 California Pollution Control Financing Auth. Rev., Commercial Paper, 3.45%, 5-1-97 (LOC: Morgan (J.P.) & Co. Inc.) 2,500,000 7,300,000 California Pollution Control Financing Auth. Rev., Series 1990 B, (Colmac Energy Project), VRDN, 3.25%, 3-5-97 (LOC: Swiss Bank, NY) 7,300,000 Principal Amount Value - ------------------------------------------------------------------------------- $13,000,000 California Pollution Control Financing Auth. Rev., Series 1996 A, (Pacific Gas and Electric), VRDN, 3.30%, 3-5-97 (LOC: Swiss Bank, NY) $13,000,000 12,000,000 California Pollution Control Financing Auth. Rev., Series 1996 B, (Pacific Gas and Electric), VRDN, 3.25%, 3-5-97 (LOC: Rabobank Nederland, NY) 12,000,000 1,300,000 California Pollution Control Financing Auth. Rev., Series 1996 F, (Pacific Gas and Electric), VRDN, 3.35%, 3-3-97 (LOC: Banque National de Paris) 1,300,000 2,700,000 California Pollution Control Financing Auth. Rev., Series 1990 A, (Sanger Project), VRDN, 3.25%, 3-5-97 (LOC: Credit Suisse) 2,700,000 2,000,000 California Pollution Control Financing Auth. Rev., Series 1986 C, (Southern California Edison), VRDN, 3.45%, 3-3-97 2,000,000 1,200,000 California Pollution Control Financing Auth. Rev., Series 1994 B, (Taormina Industries), VRDN, 3.50%, 3-5-97 (LOC: Sanwa Bank, Ltd.) 1,200,000 2,500,000 California Pollution Control Financing Auth. Rev., Series 1996 A, (Taormina Industries), VRDN, 3.50%, 3-5-97 (LOC: Sanwa Bank, Ltd.) 2,500,000 2,300,000 California Public Capital Improvements Project, Series 1988 C, Quarterly Put Bond, 3.65%, 3-15-97 (LOC: National Westminster Bank PLC) 2,300,000 2,000,000 California School Cash Reserve Program Auth. Rev., Series 1996 A, 4.75%, 7-2-97 (MBIA) 2,005,840 7,000,000 California State Rev. Anticipation Notes, Series 1996, 4.50%, 6-30-97 7,011,440 See Notes to Financial Statements Semiannual Report California Municipal Money Market 17 SCHEDULE OF INVESTMENTS CALIFORNIA MUNICIPAL MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 4,800,000 California State Rev. Anticipation Notes, Series 1996 C-2, VRDN, 3.25%, 3-5-97 (SBBPA: Bank of America, Bank of Nova Scotia-NY, Commerzbank Aktiengesel-NY, National Westminster Bank PLC) $4,800,000 2,000,000 California Statewide Community Development Auth. Rev., (Howard S. Leight & Assoc.), VRDN, 3.40%, 3-5-97 (LOC: Sanwa Bank Ltd.) 2,000,000 1,500,000 California Statewide Communities Development Auth. Rev., Series 1996 G, (Lansmont Property), VRDN, 3.40%, 3-5-97 (LOC: Wells Fargo & Co.) 1,500,000 3,700,000 California Statewide Communities Development Auth. Rev., (Levecke Project), VRDN, 3.40%, 3-5-97 (LOC: Bank of Tokyo-Mitsubishi) 3,700,000 1,035,000 California Statewide Communities Development Auth. Rev., Series 1989, (Sunclipse Inc.), VRDN, 3.30%, 3-5-97 (LOC: California State Teachers Retirement System) 1,035,000 2,000,000 California Statewide Communities Development Auth. Rev., Series 1995 D, (Whispering Winds Apartments), VRDN, 3.45%, 3-5-97 (LOC: Continental Casualty Co.) 2,000,000 3,800,000 Chula Vista Industrial Development Rev., (San Diego Gas and Electric), VRDN, 3.60%, 3-3-97 3,800,000 3,755,000 Contra Costa County Certificates of Participation, (Concord Healthcare Center), VRDN, 3.35%, 3-5-97 (LOC: Boatman's First National Bank) 3,755,000 4,000,000 Contra Costa County Multifamily Housing Rev., Series 1994 A, (Del Norte Apartments), VRDN, 3.40%, 3-4-97 (LOC: Sumitomo Bank) 4,000,000 Principal Amount Value - ------------------------------------------------------------------------------- $ 2,000,000 Fowler Industrial Development Auth. Rev., (Bee Sweet Citrus Inc.), VRDN, 3.40%, 3-6-97 (LOC: Bank of America) $2,000,000 1,000,000 Glenn Industrial Development Auth. Rev., (Land O'Lakes Income Project), 3.70%, 3-7-97 (LOC:Sanwa Bank Ltd.) 1,000,000 800,000 Irvine Ranch Water District, Series 1985, VRDN, 3.35%, 3-3-97 (LOC: Landbank Hessen-Thuringen Girozentrale) 800,000 1,000,000 Irvine Ranch Water District, Series 1993, VRDN, 3.35%, 3-3-97 (LOC: Bank of America) 1,000,000 4,000,000 Kern County Certificates of Participation, Series 1996 A, VRDN, 3.40%, 3-6-97 (LOC: Anchor National Life Insurance Company) 4,000,000 2,500,000 Lassen Municipal Utility District Rev., VRDN, 3.40%, 3-6-97 (FSA) (SBBPA: Credit Local De France) 2,500,000 1,000,000 Livermore Multifamily Rev., Series 1989 A, (Portola Meadows Apartments), VRDN, 3.30%, 3-6-97 (LOC: Bank of America) 1,000,000 2,000,000 Long Beach Harbor Commercial Paper, 3.50%, 5-1-97 (Line of Credit: Industrial Bank of Japan, Ltd., Canadian Imperial Bank of Commerce, National Westminster Bank PLC, California State Teachers Retirement System, Banque National De Paris) 2,000,000 500,000 Long Beach Harbor Rev., Series 1989 A, 6.80%, 5-15-97 502,843 2,900,000 Los Angeles County Industrial Development Auth., (Tulip Corporation, Project 1989 A), VRDN, 3.40%, 3-5-97 (LOC: La Salle National Bank) 2,900,000 1,250,000 Los Angeles County Public Works Financing Auth. Lease Rev., Series 1996 A, 4.50%, 9-1-97 (MBIA) 1,253,978 See Notes to Financial Statements 18 California Municipal Money Market American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA MUNICIPAL MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 1,570,000 Los Angeles County Public Works Financing Auth. Lease Rev., Series 1996, 4.50%, 9-1-97 (MBIA) $1,574,690 2,500,000 Los Angeles County Tax and Rev. Anticipation Notes, 4.50%, 6-30-97 (LOC: Bank of America, Credit Suisse-NY, Morgan Guaranty Trust Co.-New York, Union Bank of Switzerland, Wesdeutsche Landesbank Girozentrale) 2,505,186 3,000,000 Los Angeles Multifamily Housing Rev., Series 1991 D, (Lucas Studios Project), VRDN, 3.30%, 3-6-97 (LOC: Bank of America) 3,000,000 4,950,000 Los Angeles Multifamily Housing Rev., Series 1994, (Oakwood Apartments), VRDN, 3.40%, 3-4-97 (LOC: Sumitomo Bank, Ltd.) 4,950,000 3,900,000 Los Angeles Multifamily Housing Rev., Series 1989 C, (Vermont Knoll Apartments), VRDN, 3.65%, 3-5-97 (LOC: Wells Fargo & Co.) 3,900,000 4,500,000 Los Angeles Wastewater System Commercial Paper, 3.45%, 5-9-97 (LOC: Union Bank of Switzerland) 4,500,000 2,000,000 Modesto Multifamily Housing Rev., (Live Oak Apartments), VRDN, 3.40%, 3-6-97 (FNMA) 2,000,000 5,500,000 Oceanside Multifamily Housing Rev., (Lakeridge Apartments Project), VRDN, 3.50%, 3-5-97 (LOC: Continental Casualty) 5,500,000 2,400,000 Ontario Industrial Development Auth. Rev., Series 1988, (Winsford Partners), VRDN, 3.40%, 3-5-97 (LOC: Bank of America) 2,400,000 2,660,000 Pleasant Hill Redevelopment Agency, Series 1996 A, VRDN, 3.40%, 3-6-97 (LOC: Commerzbank Aktiengesel- New York) 2,660,000 Principal Amount Value - ------------------------------------------------------------------------------- $ 500,000 Rancho Mirage Redevelopment Agency Certificates of Participation, VRDN, 3.30%, 3-6-97 (LOC: Bank of America) $ 500,000 1,500,000 Riverside County Industrial Auth. Rev., Series 1987, (Rocklin Corp.), VRDN, 3.40%, 3-5-97 (LOC: Royal Bank of Canada) 1,500,000 1,015,000 Riverside County Multifamily Housing Rev., Series 1986 A, (Tyler Village Project), VRDN, 3.35%, 3-5-97 (LOC: Chase Manhatten Bank) 1,015,000 9,500,000 Sacramento County Housing Auth. Rev., Issue 1992 A, (Shadowood Apartments Projects), VRDN, 3.40%, 3-5-97 (LOC: GE Capital Corp.) 9,500,000 900,000 San Diego Industrial Development Rev., Series 1987 A, (Kaiser Aerospace and Electricity, VRDN, 3.45%, 3-6-97 (LOC: ABN Amro Bank) 900,000 1,300,000 San Joaquin County Industrial Development Auth. Rev., (Modtech Inc.), VRDN, 3.30%, 3-5-97 (LOC: Bank of Tokyo-Mitsubishi) 1,300,000 3,500,000 San Jose Multifamily Housing Rev., Series 1996 A, (Siena at Renaissance), VRDN, 3.30%, 3-5-97 (LOC: Bank One) 3,500,000 3,850,000 Santa Ana Multifamily Housing Auth. Rev., VRDN, 3.30%, 3-6-97 (LOC: Bank of America) 3,850,000 2,000,000 Santa Paula Public Financing Auth. Rev., VRDN, 3.50%, 3-5-97 (LOC: Bank of Tokyo-Mitsubishi) 2,000,000 700,000 South San Francisco Multifamily Housing Rev., Series 1987 A, (Magnolia Plaza Apartments), VRDN, 3.30%, 3-5-97 (LOC: Wells Fargo & Co.) 700,000 4,200,000 Vallejo Industrial Development Auth. Rev., Series 1993 A, (Meyer Cookware Industries Project), VRDN, 3.50%, 3-5-97 (LOC: Bank of Tokyo-Mitsubishi) 4,200,000 --------- TOTAL INVESTMENT SECURITIES--100.0% $187,630,035 =========== See Notes to Financial Statements Semiannual Report California Municipal Money Market 19 SCHEDULE OF INVESTMENTS CALIFORNIA MUNICIPAL MONEY MARKET FEBRUARY 28, 1997 (UNAUDITED) Notes to Schedule of Investments AMBAC = AMBAC Indemnity Corp. FNMA = Federal National Mortgage Association FSA = Financial Security Association LOC = Letter of Credit MBIA = Municipal Bond Insurance Association SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective February 28, 1997. See Notes to Financial Statements 20 California Municipal Money Market American Century Investments
CALIFORNIA HIGH-YIELD MUNICIPAL 30-DAY 30-DAY TAX-EQUIVALENT YIELDS SEC 34.70% 37.42% 41.95% 45.22% YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket ----- ----------- ----------- ----------- ----------- CURRENT YIELD (as of February 28, 1997) California High-Yield Municipal 5.36% 8.21% 8.57% 9.23% 9.78% Yields are defined in the Glossary on page 53.
AVERAGE ANNUAL RETURNS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS TOTAL RETURNS (as of February 28, 1997) California High-Yield Municipal ...................... 5.04% 6.97% 6.32% 7.93% 6.36% Lehman Long-Term Municipal Bond Index ................ 5.99% 6.18% 6.46% 8.33% 8.34% Average California Municipal Debt Fund(1) ............ 4.76% 4.81% 5.10% 6.94% 6.67% Fund's Ranking Among California Municipal Debt Funds(1) .............................. -- 2 out of 98 4 out of 68 3 out of 50 21 out of 30 (1)According to Lipper Analytical Services.
See pages 52-53 for more information about returns, the comparative index and Lipper fund rankings. [line graph - data below] GROWTH OF $10,000 OVER TEN YEARS $10,000 investment made 2/28/87 Lehman Long-Term Municipal Index High-Yield Municipal 2/28/87 $10,000 $10,000 3/31/87 $9,853 $10,030 4/30/87 $9,300 $8,809 5/31/87 $9,197 $8,624 6/30/87 $8,904 $8,858 7/31/87 $8,987 $8,913 8/31/87 $9,027 $8,930 9/30/87 $8,658 $8,465 10/31/87 $8,658 $8,285 11/30/87 $8,934 $8,529 12/31/87 $9,051 $8,692 1/31/88 $9,412 $9,000 2/29/88 $9,523 $9,111 3/31/88 $9,386 $9,011 4/30/88 $9,461 $9,075 5/31/88 $9,470 $9,114 6/30/88 $9,655 $9,225 7/31/88 $9,720 $9,293 8/31/88 $9,758 $9,392 9/30/88 $9,979 $9,541 10/31/88 $10,206 $9,682 11/30/88 $10,097 $9,677 12/31/88 $10,272 $9,774 1/31/89 $10,514 $9,932 2/28/89 $10,367 $9,954 3/31/89 $10,375 $9,950 4/30/89 $10,680 $10,079 5/31/89 $10,927 $10,277 6/30/89 $11,093 $10,388 7/31/89 $11,240 $10,501 8/31/89 $11,069 $10,412 9/30/89 $11,035 $10,425 10/31/89 $11,181 $10,506 11/30/89 $11,419 $10,680 12/31/89 $11,503 $10,718 1/31/90 $11,387 $10,680 2/28/90 $11,515 $10,827 3/31/90 $11,527 $10,831 4/30/90 $11,386 $10,695 5/31/90 $11,708 $10,999 6/30/90 $11,823 $11,111 7/31/90 $12,032 $11,318 8/31/90 $11,745 $11,012 9/30/90 $11,727 $10,969 10/31/90 $11,975 $11,076 11/30/90 $12,279 $11,270 12/31/90 $12,333 $11,324 1/31/91 $12,498 $11,509 2/28/91 $12,586 $11,555 3/31/91 $12,616 $11,587 4/30/91 $12,812 $11,780 5/31/91 $12,962 $11,914 6/30/91 $12,938 $11,907 7/31/91 $13,138 $12,074 8/31/91 $13,327 $12,196 9/30/91 $13,520 $12,362 10/31/91 $13,661 $12,461 11/30/91 $13,678 $12,457 12/31/91 $14,004 $12,560 1/31/92 $13,996 $12,547 2/29/92 $14,018 $12,653 3/31/92 $14,053 $12,739 4/30/92 $14,187 $12,835 5/31/92 $14,394 $12,987 6/30/92 $14,673 $13,189 7/31/92 $15,211 $13,593 8/31/92 $15,007 $13,429 9/30/92 $15,073 $13,512 10/31/92 $14,822 $13,242 11/30/92 $15,239 $13,566 12/31/92 $15,437 $13,712 1/31/93 $15,582 $13,810 2/28/93 $16,307 $14,267 3/31/93 $16,110 $14,180 4/30/93 $16,331 $14,376 5/31/93 $16,466 $14,519 6/30/93 $16,775 $14,781 7/30/93 $16,792 $14,791 8/31/93 $17,222 $15,122 9/30/93 $17,446 $15,320 10/31/93 $17,479 $15,407 11/30/93 $17,268 $15,281 12/31/93 $17,713 $15,519 1/31/94 $17,922 $15,724 2/28/94 $17,329 $15,421 3/31/94 $16,294 $14,815 4/29/94 $16,420 $14,759 5/31/94 $16,612 $14,955 6/30/94 $16,413 $14,930 7/29/94 $16,834 $15,236 8/31/94 $16,870 $15,254 9/30/94 $16,478 $15,077 10/31/94 $15,972 $14,852 11/30/94 $15,551 $14,472 12/30/94 $16,103 $14,687 1/31/95 $16,811 $15,099 2/28/95 $17,496 $15,467 3/31/95 $17,706 $15,742 4/28/95 $17,697 $15,748 5/31/95 $18,451 $16,221 6/30/95 $18,111 $16,056 7/31/95 $18,203 $16,122 8/31/95 $18,460 $16,335 9/30/95 $18,604 $16,450 10/31/95 $19,054 $16,702 11/30/95 $19,546 $17,074 12/31/95 $19,851 $17,374 1/31/96 $19,936 $17,392 2/29/96 $19,693 $17,325 3/31/96 $19,333 $17,111 4/30/96 $19,255 $17,071 5/31/96 $19,265 $17,159 6/30/96 $19,562 $17,425 7/31/96 $19,755 $17,594 8/31/96 $19,730 $17,641 9/30/96 $20,168 $17,938 10/31/96 $20,414 $18,105 11/30/96 $20,853 $18,499 12/31/96 $20,727 $18,397 1/31/97 $20,686 $18,353 2/28/97 $22,288 $18,536 Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. The line representing the fund's total return includes operating expenses (such as transaction costs and management fees) that reduce returns, while the total return line of the index does not. PORTFOLIO AT A GLANCE 2/28/97 8/31/96 Number of Securities 98 90 Weighted Average Maturity 21.5 years 20.7 years Average Duration 7.6 years 7.5 years Expense Ratio 0.50%* 0.51% * Annualized. Semiannual Report California High-Yield Municipal 21 CALIFORNIA HIGH-YIELD MUNICIPAL Management Q & A An interview with Steven Permut, a senior portfolio manager on the California Tax-Free and Municipal funds management team. How did the fund perform? The fund performed well. For the six-month period ended February 28, 1997, the fund's total return of 5.04% was significantly higher than the 4.76% average return of the 100 "California Municipal Debt Funds" tracked by Lipper Analytical Services. From a one-year perspective, the fund's performance was even stronger; its 6.97% average annual return ranked it #2 among its Lipper peers. (See the Total Returns table on the previous page for other fund performance comparisons.) How did the fund's yield stack up against the competition? The fund continued to provide shareholders with a high level of current income. As of February 28, the fund's 30-day SEC yield was 5.36%, compared to the 4.52% average yield of its peers.+ + Although the fund's yield may be significantly higher than the yields of other fixed-income funds that purchase higher-rated securities, this higher yield is generally based upon the greater credit risk of the securities in the fund's portfolio. [bar graph - data below] CALIFORNIA HIGH-YIELD MUNICIPAL FISCAL YEAR-BY-YEAR RETURNS (Periods ended August 31) High-Yield Municipal Lehman Long-Term Municipal Index 1987* -10.19% -0.28% 1988 5.17 8.10 1989 10.88 13.44 1990 5.77 6.11 1991 10.75 13.47 1992 10.11 12.60 1993 12.61 14.76 1994 0.87 -2.05 1995 7.09 9.43 1996 8.02 6.88 This chart illustrates the historical year-by-year volatility of the fund's returns since its inception and compares them with the index's returns. The fund's total returns include operating expenses, while the index's do not. See page 52 for a definition of the index. * Return from the fund's 12/30/86 inception date to 8/31/87. 22 California High-Yield Municipal American Century Investments CALIFORNIA HIGH-YIELD MUNICIPAL What's behind the fund's continued strong performance? In general, California high-yield municipal securities performed very well during the period as credit quality spreads--the differences between the yields of high-rated securities and those of lower-rated securities--continued to narrow. This compression of credit quality spreads in the California municipal market is a direct result of the state's improving economic outlook and real estate market. In addition, municipal bond insurers have insured more lower-quality California issues, adding strength to the narrowing trend. The fund, which holds a relatively high position in lower-rated securities, greatly benefited from this trend. A number of issues held by the fund were prerefunded and experienced credit improvement during the six-month period, boosting the fund's returns. Have all lower-rated California municipal bonds been good buys? No. That's where our professional management team adds value. We have to be very selective when looking at BBB and unrated issues. We recently increased the size of our municipal credit research team and now have five analysts carefully evaluating all securities considered for purchase by the fund. Using a disciplined bottom-up, value-oriented approach, the credit team looks for securities that may be undervalued by virtue of their credit rating or market valuation. The credit research team's work has been a vital factor in improving the fund's returns while minimizing its credit risk. How was the fund positioned during the period? We lengthened the fund's duration in the third and fourth quarters of 1996 as bonds rallied, but shortened it up when the bond market began to sell off in December and January. As of February 28, the fund's duration was 7.6 years--nearly the same as it was at the end of August. Pulling the fund's duration back brought the fund to a roughly neutral position relative to its peers and reduced the fund's vulnerability to interest rate fluctuations. What is your outlook for the municipal market going forward? In general, we expect to see slightly higher interest rates in the coming months as the Federal Reserve moves to keep a lid on inflation. But in the municipal market, we expect continuing strong growth in California's economy to further boost the performance of high-yield municipal securities, which should keep credit quality [pie charts - data below] PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97) Revenue 37% Land-Secured 35% COPs/Leases 19% Prerefunded/ETM 5% GO 2% Other 2% PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/96) Revenue 42% Land-Secured 37% COPs/Leases 13% Prerefunded/ETM 3% GO 3% Other 2% Semiannual Report California High-Yield Municipal 23 CALIFORNIA HIGH-YIELD MUNICIPAL spreads for California issues very narrow. We also anticipate limited issuance of lower-quality securities. This situation will likely result in more competition and higher prices for high-yield securities. What are your plans for the fund over the next six months? Given the likelihood of higher rates, we will probably maintain the fund's neutral duration. In addition, we will continue to utilize our strong credit research team to search for securities with undervalued credit ratings and market valuations that we believe have the potential to appreciate in the near term. We will look to increase the fund's holdings in unrated bonds to about 35% of the portfolio, but this plan is dependent on whether we can find issues that meet our credit criteria and represent good value. [pie charts - data below] PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97) AAA 26% AA 4% A 23% BBB 15% Unrated 32% PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/96) AAA 23% AA 2% A 27% BBB 16% Unrated 32% 24 California High-Yield Municipal American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA HIGH-YIELD MUNICIPAL FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- MUNICIPAL SECURITIES $ 2,000,000 Alameda Public Financing Auth. Local Agency Rev., Series 1996 A, (Community Facility District Number 1), 7.00%, 8-1-19 $2,081,760 1,000,000 Albany Unified School District GO, Series 1995 C, 5.00%, 8-1-19 (FSA) 905,520 700,000 Bishop, Escalon & Lemoore Cities Certificates of Participation, Series 1991 A, 7.70%, 5-1-11 747,236 3,000,000 Brawley Certificates of Participation, (Water System Improvement Project), 6.40%, 12-1-26 2,912,370 1,540,000 Brisbane Certificates of Participation, (Capital Improvement Refinancing Project), 6.00%, 4-1-18 1,537,151 500,000 California Educational Facilities Auth. Rev., (California Lutheran University), 7.375%, 12-1-16 537,680 1,000,000 California Educational Facilities Auth. Rev., (Mills College), 6.875%, 9-1-22 1,078,170 1,000,000 California Educational Facilities Auth. Rev., Series 1993 B, (Pooled College and University Financing), 6.125%, 6-1-09 1,020,650 5,350,000 California Educational Facilities Auth. Rev., (St. Mary's College), 4.75%, 10-1-20 (MBIA) 4,635,668 4,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 5.59%, 10-1-12 (AMBAC)(1) 1,693,280 2,015,000 California Health Facilities Financing Auth. Rev., Series 1986 A, (Pomona Valley Community Hospital), 7.00%, 1-1-17 2,038,515 170,000 California Housing Finance Agency Home Mortgage Rev. Bonds, Series 1988 B, 8.60%, 8-1-19 177,495 Principal Amount Value - ------------------------------------------------------------------------------- $ 610,000 California Housing Finance Agency Home Mortgage Rev. Bonds, Series 1989, 8.00%, 8-1-29 $ 637,438 480,000 California Housing Finance Agency Home Mortgage Rev. Bonds, Series 1990 C, 7.60%, 8-1-30 506,380 1,955,000 California Housing Finance Agency Home Mortgage Rev. Bonds, Series 1997 B, 6.10%, 2-1-28 (MBIA) 1,983,015 3,455,000 California Housing Finance Agency Multifamily Mortgage Rev. Bonds, Series 1997 A, 5.95%, 8-1-28 (MBIA) 3,463,603 3,500,000 California Housing Finance Agency Multi-Unit Mortgage Rev. Bonds, Series 1992 C, 6.875%, 8-1-24 3,636,570 1,500,000 California Maritime Infrastructure Auth. Airport Rev., (San Diego Unified Port District Airport), 5.00%, 11-1-20 (AMBAC) 1,356,240 400,000 California Public Capital Improvements Financing Auth. Rev., Series 1988 A, (Pooled Project), 8.50%, 3-1-18 420,824 500,000 California State Department of Veterans Affairs Home Purchase Rev., Series 1988 A, 8.30%, 8-1-19 520,180 4,000,000 California State Department of Water Resources Rev., Series 1993 M, 5.00%, 12-1-19 3,633,280 3,665,000 California State GO, 5.35%, 9-1-09(1) 1,893,486 2,000,000 California State Public Works Board Lease Rev., Series 1993 D, (Department of Corrections), 5.25%, 6-1-15 (FSA) 1,961,860 1,000,000 California State Public Works Board Lease Rev., Series 1993 A, (Various State University Projects), 5.50%, 12-1-18 953,000 5,000,000 California State Public Works Board Lease Rev., Series 1993 B, (Various State University Projects), 5.50%, 6-1-19 4,762,350 See Notes to Financial Statements Semiannual Report California High-Yield Municipal 25 SCHEDULE OF INVESTMENTS CALIFORNIA HIGH-YIELD MUNICIPAL FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 1,000,000 California Statewide Communities Development Auth. Rev. Certificates of Participation, Series 1996 A, (Insurance Health Facility, San Gabriel Valley), 5.50%, 9-1-14 (California Mortgage Insurance) $ 980,730 580,000 Clayton Improvement Bond Act 1915 Special Assessment, (Oakhurst Assessment District), 8.00%, 9-2-14 600,886 130,000 Clayton Improvement Bond Act 1915 Special Assessment, Series 1988 A, (Oakhurst Assessment District ), 8.40%, 9-2-10 134,679 4,500,000 Colton Public Financing Auth. Rev., Series 1995, (Electric System), 7.50%, 10-1-20 4,709,745 3,185,000 Contra Costa County Certificates of Participation, (Merrithew Memorial Hospital Project), 5.375%, 11-1-17 (MBIA) 3,046,898 750,000 Contra Costa County Public Financing Auth. Tax Allocation Rev., Series 1992 A, 7.10%, 8-1-22 800,535 695,000 Corcoran Certificates of Participation, 8.75%, 6-1-16(2) 717,865 500,000 Cucamonga School District Certificates of Participation, Series 1990, 7.60%, 12-1-99, Prerefunded at 102% of Par(3) 556,755 1,000,000 Davis Community Facility District Number 1991-2, Series 1992 B, 7.80%, 9-1-22 1,080,230 1,500,000 Del Mar Race Track Auth. Rev., 6.20%, 8-15-11 1,537,695 1,000,000 El Dorado County Board Auth. Lease Rev., (Capital Facility Project), 7.40%, 11-1-09 1,098,190 350,000 Folsom Redevelopment Agency Tax Allocation Rev., Series 1987 A, 8.60%, 2-1-13 364,018 Principal Amount Value - ------------------------------------------------------------------------------- $ 1,500,000 Folsom Special Tax, (Community Facility District Number 7), 7.25%, 9-1-21 $1,527,270 2,350,000 Fontana Community Facility District Number 2 Special Assessment, Series 1988 B, 8.50%, 9-1-17 2,470,062 2,000,000 Fontana Public Financing Auth. Tax Allocation Rev., Series 1993 A, 5.00%, 9-1-20 (MBIA) 1,823,520 1,000,000 Fontana Redevelopment Agency Tax Allocation, (Jurupa Hills Project), 8.00%, 1-1-98 1,016,720 2,500,000 Fontana Redevelopment Agency Tax Allocation, Series 1994 B, (Jurupa Hills Project), 7.70%, 1-1-19 2,660,125 1,040,000 Foothill-De Anza Community College District Certificates of Participation, Series 1992, (Campus Center Project), 7.35%, 3-1-07 1,151,758 2,500,000 Foster City Redevelopment Agency Tax Allocation, (Metro Center), 6.75%, 9-1-20 2,651,575 1,185,000 Gateway Improvement Auth. Rev., Series 1995 A, (Marin City Community Facility), 7.75%, 9-1-25 1,274,539 1,250,000 Hollister Redevelopment Agency Tax Allocation, Series 1989, (Hollister Community Development Project), 7.55%, 10-1-13 1,326,350 2,000,000 Industry Urban Redevelopment Agency Tax Allocation, (Project 3), 6.90%, 11-1-16 2,139,700 985,000 Irvine Improvement Bond 1915 Special Assessment, Series 1992 A, (District Number 89-9), 7.40%, 9-2-17 1,012,777 1,000,000 Lake Elsinore Unified School District Community Facilities District Special Tax, Series 1991, (Number 88-1), 8.25%, 9-1-16 1,068,330 See Notes to Financial Statements 26 California High-Yield Municipal American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA HIGH-YIELD MUNICIPAL FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 120,000 Los Angeles County Single Family Mortgage Rev., (GNMA Mortgage, Issue B), 9.00%, 12-1-20, (GNMA Collateral) $ 126,523 1,000,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1991 B, 6.50%, 7-1-13 1,060,440 30,000 Los Angeles Home Mortgage Rev. Bonds, 9.00%, 6-15-18 30,525 1,750,000 Los Angeles State Building Auth. Lease Rev., Series 1993 A, 5.625%, 5-1-11 1,790,250 5,075,000 Los Angeles Wastewater System Rev., Series 1993 D, 5.20%, 11-1-21 (FGIC) 4,699,552 3,000,000 Milpitas Improvement Bond Act 1915, Series 1996 A, (District Number 18), 6.75%, 9-2-16 3,020,820 4,925,000 Northern California Power Agency Rev., Series E, (Hydroelectric Project Number 1), 7.15%, 7-1-24 5,169,625 2,000,000 Norwalk Community Facilities Financing Auth. Tax Allocation, Series 1995 B, 7.40%, 9-15-25 2,133,700 2,000,000 Novato Community Facility District Number 1 Special Tax, (Vintage Oaks Project), 7.20%, 8-1-15 2,083,780 1,000,000 Orange County Community Facilities District Special Tax, Series 1993 A, (Number 87-5E), 7.30%, 8-15-18 1,048,550 1,500,000 Orange Cove Irrigation District Certificates of Participation, Series 1992, 7.00%, 2-1-15 1,672,755 1,000,000 Pioneer Union Elementary School District GO, Series 1990, 7.50%, 8-1-14 1,070,270 1,500,000 Pittsburg Assessment District 92-1 Special Assessment, (Village at New York Landing), 8.00%, 9-2-22 1,554,480 880,000 Pittsburg Assessment District 90-1 Special Assessment, (Oak Hills), 7.75%, 9-2-20 913,220 Principal Amount Value - ------------------------------------------------------------------------------- $ 2,240,000 Pittsburg Redevelopment Agency Tax Allocation, Series 1993 A, (Los Medanos Project), 5.00%, 8-1-17 (AMBAC) $2,045,792 3,500,000 Pittsburg Redevelopment Agency Tax Allocation, (Los Medanos Project), 6.25%, 8-1-26 3,529,575 1,500,000 Pomona Public Financing Auth. Rev., Series 1993 L, (Southwest Pomona Redevelopment), 5.70%, 2-1-13 1,466,940 5,000,000 Pomona Improvement Bond Act 1915, (Rio Rancho Assessment District), 7.50%, 9-2-21 5,175,600 2,250,000 Rancho Mirage Joint Powers Financing Auth. Certificates of Participation, (Eisenhower Memorial Hospital), 7.00%, 3-1-22 2,539,508 2,000,000 Redding Joint Powers Financing Auth. Electric Systems Rev., Series 1996 A, 5.25%, 6-1-15 (MBIA) 1,943,800 1,285,000 Redding Redevelopment Agency Tax Allocation, 5.00%, 9-1-23 (FSA) 1,153,879 1,815,000 Redondo Beach Public Financing Auth. Rev., (South Bay Center Redevelopment Project), 7.125%, 7-1-26 1,911,522 1,000,000 Richmond Joint Powers Financing Auth. Rev., Series 1995 A, 5.25%, 5-15-13 947,640 1,000,000 Rocklin Stanford Ranch Community Facilities District Special Tax, 8.10%, 11-1-00, Prerefunded at 102% of Par(3) 1,144,660 500,000 Roseville Community Facilities District Number 2 Special Tax, 8.25%, 9-1-21 535,450 2,500,000 Sacramento County Certificates of Participation, 5.375%, 2-1-19 (MBIA) 2,400,425 2,490,000 Sacramento School Insurance Auth. Rev., Series 1993 C, (Workers Compensation Program), 5.75%, 6-1-03(3) 2,650,680 See Notes to Financial Statements Semiannual Report California High-Yield Municipal 27 SCHEDULE OF INVESTMENTS CALIFORNIA HIGH-YIELD MUNICIPAL FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 1,965,000 Salinas Assessment District 94-1, Harden Ranch), 6.875%, 9-2-11 $2,036,349 1,000,000 San Diego Community Facilities District Number 1 Special Tax, Series 1995 B, 7.10%, 9-1-20 1,038,610 1,780,000 San Jose Finance Auth. Rev., Series 1993 C, (Convention Center), 6.30%, 9-1-09 1,882,012 3,250,000 Sierra Sands Unified School District Certificates of Participation, Series 1993, (Capital Improvement Refinancing Project), 5.75%, 2-1-23 3,166,572 3,000,000 South Orange County Public Financing Auth. Special Tax, Series 1994 B, (Jr. Lien), 7.25%, 9-1-13 3,177,150 1,615,000 South San Francisco Redevelopment Agency, 7.60%, 9-1-18 1,718,473 480,000 Southern California Housing Finance Auth. Single Family Mortgage Rev., Series A, (GNMA & FNMA Mortgage-Backed Securities), 7.35%, 9-1-24 506,491 500,000 Southern California Public Power Auth. Rev., (Pooled Project), 6.75%, 7-1-10 (FSA) 578,835 2,000,000 Southern California Public Power Auth. Rev., Series 1993 A, 5.00%, 7-1-15 (AMBAC) 1,872,080 2,400,000 Southern California Public Power Auth. Rev., (Transmission Project), 5.69%, 7-1-14 (MBIA)(1) 907,104 2,000,000 Southern California Public Power Auth. Rev., (Transmission Project), 5.73%, 7-1-15 (MBIA)(1) 709,600 500,000 St. Helena Certificates of Participation, Series 1991 C, 7.875%, 6-1-00, Prerefunded at 102% of Par(3) 561,810 1,000,000 Standard Elementary School District Certificates of Participation, Series 1991, 7.375%, 6-1-11 1,069,620 Principal Amount Value - ------------------------------------------------------------------------------- $ 1,770,000 Tehama Community Certificates of Participation, (Social Services Building Project), 7.00%, 10-1-20 $ 1,944,416 1,740,000 Torrance Hospital Rev., (Little County of Mary Hospital), 6.875%, 7-1-15 1,859,869 1,565,000 Twentynine Palms Water District Certificates of Participation, 7.10%, 8-1-22 1,651,028 950,000 Vista Joint Powers Financing Auth. Rev., Series 1990 A, 7.50%, 1-1-16 998,146 3,500,000 University of California Rev., Series 1993 C, (Multiple Purpose Projects), 5.00%, 9-1-23 (AMBAC) 3,142,860 2,000,000 West Contra Costa Unified School District Certificates of Participation, 7.125%, 1-1-24 2,127,280 1,520,000 Windsor Redevelopment Agency Tax Allocation, 6.875%, 9-1-15 1,613,601 1,000,000 Yosemite Community College District Certificates of Participation, Series 1991, 7.75%, 7-1-01, Prerefunded at 102% of Par(3) 1,161,730 ---------- TOTAL MUNICIPAL SECURITIES-99.4% 168,388,270 (Cost $161,268,197) =========== SHORT-TERM MUNICIPAL SECURITIES-0.6% 1,000,000 California Pollution Control Financing Auth. Rev., (Pacific Gas & Electric), VRDN, 3.35%, 3-3-97 1,000,000 (Cost $1,000,000) ---------- TOTAL INVESTMENT SECURITIES-100.0% $169,388,270 (Cost $162,268,197) =========== See Notes to Financial Statements 28 California High-Yield Municipal American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA HIGH-YIELD MUNICIPAL FEBRUARY 28, 1997 (UNAUDITED) Notes to Schedule of Investments AMBAC = AMBAC Indemnity Corp. FGIC = Financial Guaranty Insurance Company FNMA = Federal National Mortgage Association FSA = Financial Security Association GNMA = Government National Mortgage Association GO = General Obligation MBIA = Municipal Bond Insurance Association VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective February 28, 1997. (1) This security is a zero-coupon municipal bond. The yield to maturity at current market value is shown instead of a stated coupon rate. Zero-coupon securities are purchased at a substantial discount from their value at maturity. (2) Private placement security which cannot be offered for public sale without first being registered under the Securities Act of 1933. The value of the security was $717,865, which represents 0.4% of the net assets of the Fund. (3) Escrowed in U.S. Government Securities. See Notes to Financial Statements Semiannual Report California High-Yield Municipal 29
CALIFORNIA INSURED TAX-FREE 30-DAY 30-DAY TAX-EQUIVALENT YIELDS SEC 34.70% 37.42% 41.95% 45.22% YIELD Tax Bracket Tax Bracket Tax Bracket Tax Bracket ----- ----------- ----------- ----------- ----------- CURRENT YIELD (as of February 28, 1997) California Insured Tax-Free 4.75% 7.27% 7.59% 8.18% 8.67% Yields are defined in the Glossary on page 53.
AVERAGE ANNUAL RETURNS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- ------ ------- ------- -------- TOTAL RETURNS (as of February 28, 1997) California Insured Tax-Free ...................... 4.89% 4.78% 5.71% 7.58% 6.48% Lehman Long-Term Municipal Bond Index ............ 5.99% 6.18% 6.46% 8.33% 8.34% Average California Insured Municipal Debt Fund(1) ........................... 4.77% 4.36% 4.97% 7.34% 6.80% Fund's Ranking Among California Insured Municipal Debt Funds(1) .................. -- 11 out of 28 4 out of 20 3 out of 8 8 out of 8 (1) According to Lipper Analytical Services.
See pages 52-53 for more information about returns, the comparative index and Lipper fund rankings. [line graph - data below] GROWTH OF $10,000 OVER TEN YEARS $10,000 investment made 2/28/97 Insured Tax-Free Lehman Long-Term Municipal Index 2/28/87 $10,000 $10,000 3/31/87 $9,913 $9,853 4/30/87 $8,884 $9,300 5/31/87 $8,768 $9,197 6/30/87 $9,011 $8,904 7/31/87 $9,055 $8,987 8/31/87 $9,121 $9,027 9/30/87 $8,463 $8,658 10/31/87 $8,557 $8,658 11/30/87 $8,857 $8,934 12/31/87 $9,036 $9,051 1/31/88 $9,399 $9,412 2/29/88 $9,519 $9,523 3/31/88 $9,243 $9,386 4/30/88 $9,316 $9,461 5/31/88 $9,270 $9,470 6/30/88 $9,475 $9,655 7/31/88 $9,497 $9,720 8/31/88 $9,539 $9,758 9/30/88 $9,733 $9,979 10/31/88 $9,942 $10,206 11/30/88 $9,823 $10,097 12/31/88 $9,955 $10,272 1/31/89 $10,201 $10,514 2/28/89 $10,097 $10,367 3/31/89 $10,088 $10,375 4/30/89 $10,344 $10,680 5/31/89 $10,587 $10,927 6/30/89 $10,734 $11,093 7/31/89 $10,906 $11,240 8/31/89 $10,688 $11,069 9/30/89 $10,614 $11,035 10/31/89 $10,711 $11,181 11/30/89 $10,928 $11,419 12/31/89 $10,982 $11,503 1/31/90 $10,808 $11,387 2/28/90 $10,979 $11,515 3/31/90 $10,966 $11,527 4/30/90 $10,741 $11,386 5/31/90 $11,127 $11,708 6/30/90 $11,220 $11,823 7/31/90 $11,453 $12,032 8/31/90 $11,111 $11,745 9/30/90 $11,069 $11,727 10/31/90 $11,369 $11,975 11/30/90 $11,676 $12,279 12/31/90 $11,725 $12,333 1/31/91 $11,861 $12,498 2/28/91 $11,903 $12,586 3/31/91 $11,869 $12,616 4/30/91 $12,037 $12,812 5/31/91 $12,150 $12,962 6/30/91 $12,103 $12,938 7/31/91 $12,263 $13,138 8/31/91 $12,430 $13,327 9/30/91 $12,627 $13,520 10/31/91 $12,771 $13,661 11/30/91 $12,712 $13,678 12/31/91 $13,045 $14,004 1/31/92 $12,991 $13,996 2/29/92 $13,023 $14,018 3/31/92 $13,010 $14,053 4/30/92 $13,128 $14,187 5/31/92 $13,312 $14,394 6/30/92 $13,599 $14,673 7/31/92 $14,121 $15,211 8/31/92 $13,881 $15,007 9/30/92 $13,917 $15,073 10/31/92 $13,605 $14,822 11/30/92 $14,093 $15,239 12/31/92 $14,244 $15,437 1/31/93 $14,422 $15,582 2/28/93 $15,129 $16,307 3/31/93 $14,869 $16,110 4/30/93 $15,037 $16,331 5/31/93 $15,113 $16,466 6/30/93 $15,389 $16,775 7/30/93 $15,336 $16,792 8/31/93 $15,789 $17,222 9/30/93 $16,003 $17,446 10/31/93 $15,976 $17,479 11/30/93 $15,807 $17,268 12/31/93 $16,160 $17,713 1/31/94 $16,368 $17,922 2/28/94 $15,885 $17,329 3/31/94 $15,080 $16,294 4/29/94 $15,162 $16,420 5/31/94 $15,266 $16,612 6/30/94 $15,192 $16,413 7/29/94 $15,513 $16,834 8/31/94 $15,524 $16,870 9/30/94 $15,289 $16,478 10/31/94 $14,990 $15,972 11/30/94 $14,738 $15,551 12/30/94 $15,102 $16,103 1/31/95 $15,571 $16,811 2/28/95 $16,050 $17,496 3/31/95 $16,159 $17,706 4/28/95 $16,177 $17,697 5/31/95 $16,773 $18,451 6/30/95 $16,475 $18,111 7/31/95 $16,584 $18,203 8/31/95 $16,781 $18,460 9/30/95 $16,937 $18,604 10/31/95 $17,292 $19,054 11/30/95 $17,711 $19,546 12/31/95 $17,975 $19,851 1/31/96 $18,042 $19,936 2/29/96 $17,906 $19,693 3/31/96 $17,474 $19,333 4/30/96 $17,362 $19,255 5/31/96 $17,388 $19,265 6/30/96 $17,600 $19,562 7/31/96 $17,844 $19,755 8/31/96 $17,885 $19,730 9/30/96 $18,143 $20,168 10/31/96 $18,386 $20,414 11/30/96 $18,753 $20,853 12/31/96 $18,637 $20,727 1/31/97 $18,574 $20,686 2/28/97 $18,743 $22,288 Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. The line representing the fund's total return includes operating expenses (such as transaction costs and management fees) that reduce returns, while the total return line of the index does not. PORTFOLIO AT A GLANCE 2/28/97 8/31/96 Number of Securities 67 69 Weighted Average Maturity 18.1 years 17.0 years Average Duration 8.0 years 7.8 years Expense Ratio 0.48%* 0.49% * Annualized. 30 California Insured Tax-Free American Century Investments CALIFORNIA INSURED TAX-FREE Management Q & A An interview with Dave MacEwen, vice president and senior portfolio manager on the California Tax-Free and Municipal funds management team. How did the fund perform? The fund posted slightly higher returns than its peers, but underperformed its benchmark index. For the six-month period ended February 28, 1997, the fund's total return was 4.89%, compared with the 4.77% average return of the 28 "California Insured Municipal Debt Funds" tracked by Lipper Analytical Services, and the 5.99% return of the Lehman Long-Term Municipal Bond Index. (See the Total Returns table on the previous page for other fund performance comparisons.) Why did the fund perform well against its peers? One contributing factor was the fund's relatively conservative positioning during the period compared with some of the funds in its Lipper category. This conservative approach allowed the fund to perform fairly well despite the market's shifting expectations about the direction of interest rates (see page 4). [bar graph - data below] CALIFORNIA INSURED TAX-FREE FISCAL YEAR-BY-YEAR RETURNS (Periods ended August 31) Insured Tax-Free Lehman Long-Term Municipal Index 1987* -8.51% -0.28% 1988 4.58% 8.10% 1989 12.04% 13.44% 1990 3.96% 6.11% 1991 11.87% 13.47% 1992 11.67% 12.60% 1993 13.74% 14.76% 1994 -1.68% -2.05% 1995 8.09% 9.43% 1996 6.60% 6.88% This chart illustrates the historical year-by-year volatility of the fund's returns since its inception and compares them with the index's returns. The fund's total returns include operating expenses, while the index's do not. See page 52 for a definition of the index. * Return from the fund's 12/30/86 inception date to 8/31/87. Semiannual Report California Insured Tax-Free 31 CALIFORNIA INSURED TAX-FREE Did you change the fund's positioning much over the last six months? We made only slight adjustments to the fund's positioning during the period. Choosing a more conservative approach, we maintained the fund's duration in a relatively narrow range around 8 years. The lack of new municipal securities made it difficult to significantly alter the fund's structure. Were there any particular securities that you favored? We purchased some tax-allocation bonds for the fund because many of these types of securities were recently available at attractive prices. Tax-allocation bonds--securities issued to finance improvements in redevelopment areas such as urban neighborhoods --fell out of favor in the early 1990s after declining property values forced their prices notably lower. However, as property values have risen in recent years, so has the value of the securities. Our municipal credit research team found a number of these bonds that we felt were undervalued and that have subsequently appreciated. Of course, all these securities carry bond insurance and are rated AAA. By selling some of these bonds at a profit, we successfully enhanced the fund's returns. Are there any securities that you avoided purchasing for the fund? Although we selectively added some health-care revenue bonds to the fund's portfolio, in general we have avoided these types of securities. Many hospitals have come under renewed pressure to make their rates more competitive because of the recent surge in the popularity of managed health-care arrangements. Hospitals outside of these arrangements have been particularly hard hit, making their bonds potentially more risky due to their increased chances for bankruptcy. We also avoided most short-call bonds--securities that can be paid off at a specified date before maturity. Instead, we conservatively opted for securities that were of better quality and could be more easily traded. What is the outlook for the municipal market going forward? As in the past, the general outlook for interest rates is uncertain. The economy continues to show solid growth, but inflation has remained relatively low. The question is, are these conditions sustainable? The Federal Reserve doesn't seem to think so--in March, it made a pre-emptive strike against inflation, ratcheting short-term interest rates up by a quarter of [pie charts - data below] PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97) Revenue 42% COPs/Leases 32% Land-Secured 12% GO 9% Prerefunded/ETM 4% Other 1% PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/96) Revenue 45% COPs/Leases 28% Land-Secured 10% GO 9% Prerefunded/ETM 7% Other 1% 32 California Insured Tax-Free American Century Investments CALIFORNIA INSURED TAX-FREE a percent. Many Fed watchers suspect this may be the first in a series of rate hikes. If U.S. economic growth slows, the municipal market could rally. But with wage pressures increasing the threat of inflation, any signs of an overheating economy could cause increased anxiety among municipal investors, pushing bond prices lower. We expect municipal issuance to remain light in the coming months, which may provide some support for municipal prices. With this outlook in mind, what are your plans for the fund going forward? With the possibility of higher rates looming, we will likely maintain the fund's neutral stance, lengthening or shortening the fund's duration as conditions warrant. If the economic outlook does change dramatically, we believe that the fund is positioned with the flexibility to respond appropriately. [pie charts - data below] PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97) AAA 100% PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/96) AAA 100% Semiannual Report California Insured Tax-Free 33 SCHEDULE OF INVESTMENTS CALIFORNIA INSURED TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- MUNICIPAL SECURITIES $ 5,750,000 Anaheim Public Financing Auth. Lease Rev., Series 1997 A, ( Public Improvements Projects), 5.00%, 3-1-37 (FSA) $5,106,058 1,000,000 Banning Certificates of Participation, (Wastewater System, Refunding and Improvement Project), 8.00%, 1-1-19 (AMBAC) 1,314,690 1,000,000 Berkeley Certificates of Participation, Series 1989, 7.50%, 6-1-19 (AMBAC) 1,058,100 900,000 Brea Redevelopment Agency Tax Allocation, (Project AB), 6.125%, 8-1-13 (MBIA) 948,015 5,000,000 California Educational Facilities Auth. Rev., Series 1997 M, (Stanford University), 5.25%, 12-1-26 4,750,900 2,500,000 California Educational Facilities Auth. Rev., (University of San Francisco), 6.00%, 10-1-26 (MBIA) 2,585,350 1,250,000 California Health Facilities Financing Auth. Rev., Series 1991 A, (Adventist Health), 7.00%, 3-1-13 (MBIA) 1,376,363 1,660,000 California Health Facilities Financing Auth. Rev., Series 1996 A, (Insured Health Facility), 6.00%, 7-1-25 (MBIA) 1,696,155 2,500,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Sutter Hospital), 6.70%, 1-1-13 (AMBAC) 2,621,500 1,560,000 California Public Capital Improvements Financing Auth. Rev., (Pooled Project 1988 B), 8.10%, 3-1-18 (BIGI) 1,645,769 6,500,000 California State GO, 6.00%, 10-1-10 (MBIA) 7,044,895 Principal Amount Value - ------------------------------------------------------------------------------- $ 2,000,000 California State Public Works Board Lease Rev., Series 1993 A, (Department of Corrections State Prisons), 5.00%, 12-1-19 (AMBAC) $1,852,560 6,000,000 California State Public Works Board Lease Rev., (Department of Corrections), 5.25%, 6-1-15 (FSA) 5,885,580 4,500,000 California State Public Works Board Lease Rev., (Department of Corrections), 5.25%, 1-1-21 (AMBAC) 4,273,920 3,925,000 California Statewide Communities Development Auth. Rev. Certificates of Participation, (Gemological Institute), 6.75%, 5-1-10 (Connie Lee) 4,479,485 1,520,000 Castaic Lake Water Agency Certificates of Participation, Series 1994 A, (Water System Improvement Project), 7.00%, 8-1-12 (MBIA) 1,790,773 1,000,000 Contra Costa County Certificates of Participation, 7.80%, 6-1-07 (BIGI) 1,087,980 3,000,000 Contra Costa County Certificates of Participation, (Merrithew Memorial Hospital Project), 5.50%, 11-1-22 (MBIA) 2,905,590 1,200,000 Contra Costa Water District Rev., Series 1992 E, 6.25%, 10-1-12 (AMBAC) 1,334,088 1,000,000 East Valley Water District Certificates of Participation, (Treatment Plant Project), 6.60%, 12-1-14 (AMBAC) 1,106,080 5,750,000 Encina Joint Power Financing Auth. Wastewater Rev., Series 1989 A, (Phase IV Expansion Project), 6.875%, 8-1-99, Prerefunded at 102% of Par (AMBAC)(1) 6,248,065 2,000,000 Escondido Joint Powers Financing Auth. Rev., 6.125%, 9-1-11 (AMBAC) 2,097,660 See Notes to Financial Statements 34 California Insured Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA INSURED TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 4,100,000 Foothill-De Anza Community College District Certificates of Pariticipation, 6.25%, 9-1-13 (Connie Lee) $4,318,079 1,725,000 Fresno Sewer Rev., Series 1993 A-1, 6.25%, 9-1-14 (AMBAC) 1,909,402 1,240,000 Fresno Sewer Rev., Series 1993 A-1, 4.75%, 9-1-21 (AMBAC) 1,093,630 5,000,000 Glendale Hospital Rev., Series 1 991 A, (Adventist Hospital), 6.75%, 3-1-13 (MBIA) 5,431,500 4,830,000 Glendale Unified School District Certificates of Participation, Series 1994 A, 6.50%, 3-1-12 (AMBAC) 5,323,722 1,340,000 Kern High School District GO, Series 1993 C, 6.25%, 8-1-13 (MBIA) 1,493,283 3,630,000 Kern High School District GO, Series 1993 D, 7.00%, 8-1-17 4,355,782 790,000 Lake Elsinore Public Financing Auth. Tax Allocation Rev., Series 1992 C, (Redevelopment Projects), 6.625%, 2-1-17 (FGIC) 850,158 1,500,000 Lakewood Redevelopment Agency Tax Allocation Rev., Series 1992 A, (Project No. 1), 6.50%, 9-1-17 (FSA) 1,649,460 2,000,000 La Quinta Financing Auth. Lease Rev., (La Quinta City Hall Project), 5.55%, 10-1-18 (MBIA) 1,998,640 1,000,000 Los Angeles Community College District Certificate of Participation, 6.90%, 8-15-00 (FSA) 1,107,090 1,405,000 Los Angeles Community Redevelopment Agency Housing Rev., Series 1994 C, 7.00%, 1-1-14 (AMBAC) 1,522,964 3,500,000 Los Angeles Community Redevelopment Agency Tax Allocation Rev., Series 1993 H, (Bunker Hill), 6.50%, 12-1-14 (FSA) 3,891,510 Principal Amount Value - ------------------------------------------------------------------------------- $ 4,000,000 Los Angeles Community Redevelopment Agency Tax Allocation Rev., Series 1993 H, (Bunker Hill), 6.50%, 12-1-15 (FSA) $4,384,120 1,000,000 Los Angeles County Transportation Commission Sales Tax Rev., 6.50%, 7-1-13 (AMBAC) 1,090,550 1,100,000 Los Angeles Wastewater System Rev., Series 1991 C, 7.00%, 6-1-11 (AMBAC) 1,178,837 1,915,000 Midpeninsula Regional Open Space District Financing Auth. Rev., 5.90%, 9-1-14 (AMBAC) 1,985,434 5,000,000 Modesto, Stockton, Redding Public Power Agency Rev., Series 1989 D, (San Juan Project), 6.75%, 7-1-20 (MBIA) 5,754,150 1,200,000 National City Joint Powers Auth. Lease Rev., (Police Facilities Project), 6.75%, 10-1-17 (AMBAC) 1,322,220 2,810,000 Oakland Redevelopment Agency Tax Allocation Rev., (Central District), 5.50%, 2-1-14 (AMBAC) 2,848,581 1,925,000 Oakland Refunding Pension Financing Rev., Series 1988 A, 7.60%, 8-1-21 (FGIC) 2,051,781 2,700,000 Orange County Financing Auth. Tax Allocation Rev., Series 1992 A, 6.25%, 9-1-14 (MBIA) 2,843,424 1,950,000 Ramona Municipal Water District Certificates of Participation, 7.20%, 10-1-10 (AMBAC) 2,148,763 1,100,000 Redlands Unified School District Certificates of Participation, 6.00%, 9-1-12 (FSA) 1,133,187 580,000 Redondo Beach Redevelopment Agency Tax Allocation Rev., (South Bay Center Redevelopment), 8.625%, 5-1-14 (FGIC) 590,764 1,375,000 Rocklin Unified School District Community Facilities District Special Tax, 5.40%, 9-1-12 (MBIA) 1,373,996 See Notes to Financial Statements Semiannual Report California Insured Tax-Free 35 SCHEDULE OF INVESTMENTS CALIFORNIA INSURED TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - ------------------------------------------------------------------------------- $ 2,505,000 Sacramento Redevelopment Agency Tax Allocation Rev., (Merged Downtown Redevelopment Project), 6.50%, 11-1-13 (MBIA) $2,718,426 3,000,000 Saddleback Community College District Certificates of Participation, 7.00%, 8-1-19 (BIGI) 3,223,860 1,345,000 San Diego Community College District Lease Rev., 6.125%, 12-1-16 (MBIA) 1,415,155 7,000,000 San Diego County Certificates of Participation, 5.625%, 9-1-12 (AMBAC) 7,208,390 5,250,000 San Francisco Bay Area Rapid Transportation District Sales Tax Rev., 6.75%, 7-1-09 (AMBAC) 5,691,683 10,000,000 San Francisco City and County International Airport Rev. Refunding, (Second Series Issue 2), 6.75%, 5-1-20 (MBIA) 11,159,800 1,000,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.25%, 6-1-18 (MBIA) 962,130 3,535,000 San Mateo County Joint Powers Financing Auth. Lease Rev. Refunding, (Capital Projects Program), 6.50%, 7-1-15 (MBIA) 3,999,322 1,000,000 Santa Clara Electric Rev., Series 1991 A, 6.25%, 7-1-19 (MBIA) 1,054,090 2,000,000 Santa Margarita/Dana Point Auth. Rev., Series 1994 B, (Improvement Districts 3, 3A, 4, 4A), 7.25%, 8-1-14 (MBIA) 2,424,520 3,685,000 Simi Valley Unified School District, GO, 5.00%, 8-1-15 (FGIC) 3,462,979 2,500,000 South Coast Air Quality Management District Building Rev., (Installment Sale, Headquarters), 6.00%, 8-1-11 (AMBAC) 2,715,675 60,000 Thousand Oaks Redevelopment Agency Rev., (Single Family Residential Mortgage Rev.), 7.90%, 1-1-16 (AMBAC) 61,639 Principal Amount Value - ------------------------------------------------------------------------------- $ 2,500,000 Ukiah Electric Rev., 6.25%, 6-1-18 (MBIA) $ 2,744,700 1,445,000 Walnut Valley Unified School District GO, Series 1992 B, 6.00%, 8-1-10 (AMBAC) 1,570,975 4,525,000 Woodland Certificates of Participation, (Wastewater System Reference Project), 5.75%, 3-1-12 (AMBAC) 4,755,549 ---------- TOTAL MUNICIPAL SECURITIES--96.4% 182,029,496 (Cost $172,298,838) ----------- MUNICIPAL DERIVATIVES(2) 2,000,000 East Bay Municipal Utility District Wastewater Treatment System Rev., Yield Curve Notes, Inverse Floater, 6.47%, 6-1-13 (AMBAC) 1,915,000 1,000,000 San Diego County Water Auth. Certificates of Participation, (Reg Rites), Yield Curve Notes, Inverse Floater, 7.646%, 5-1-09 (FGIC) 1,080,000 2,750,000 Southern California Public Power Auth. Rev., Yield Curve Notes, Inverse Floater, 6.792%, 7-1-17 (FGIC) 2,475,000 --------- TOTAL MUNICIPAL DERIVATIVES--2.9% 5,470,000 (Cost $5,858,366) --------- SHORT-TERM MUNICIPAL SECURITIES--0.7% 1,400,000 California Statewide Communities Development Auth. Certificates of Participation, VRDN, 3.35%, 3-3-97 1,400,000 --------- (Cost $1,400,000) TOTAL INVESTMENT SECURITIES--100.0% $188,899,496 (Cost $179,557,204) =========== See Notes to Financial Statements 36 California Insured Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA INSURED TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Notes to Schedule of Investments AMBAC = AMBAC Indemnity Corp. BIGI = Bond Investor's Guaranty Inc. FGIC = Financial Guaranty Insurance Company FSA = Financial Security Association GO = Government Obligation MBIA = Municipal Bond Insurance Association VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective February 28, 1997. (1) Escrowed in U.S. Government Securities. (2) These securities are inverse floaters. They bear interest rates that move inversely to market interest rates. Inverse floaters typically have durations twice as long as long-term bonds, which may cause their value to be twice as volatile as long-term bonds when interest rates change. The Insured Fund is limited to 10% of its net assets in inverse floaters. See Notes to Financial Statements Semiannual Report California Insured Tax-Free 37
STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 28, 1997 (UNAUDITED) TAX-FREE MUNICIPAL MONEY MONEY HIGH-YIELD INSURED MARKET MARKET MUNICIPAL TAX-FREE ASSETS Investment securities, at value (amortized cost for Tax-Free Money Market and Municipal Money Market; identified cost of $162,268,197 and $179,557,204, respectively) (Note 3)...............................$426,237,269 $187,630,035 $169,388,270 $188,899,496 Cash...................................................... 4,630,499 757,964 555,961 -- Receivable for capital shares sold........................ 14,894 -- 5,453 -- Interest receivable....................................... 2,558,351 995,163 3,171,018 2,997,956 Prepaid expenses and other assets......................... 7,746 5,136 4,503 5,087 ----- ----- ----- ----- 433,448,759 189,388,298 173,125,205 191,902,539 ----------- ----------- ----------- ----------- LIABILITIES Disbursements in excess of demand deposit cash............ 250,036 136,007 288,588 1,843,543 Payable for investments purchased......................... -- -- 3,469,276 -- Payable for capital shares redeemed....................... 1,388,678 58,153 385,666 53,215 Payable to affiliates (Note 2)............................ 154,656 70,277 60,288 67,253 Dividends payable......................................... -- -- 644 2,696 Accrued expenses and other liabilities.................... 15,227 1,452 7,953 4,915 ------ ----- ----- ----- 1,808,597 265,889 4,212,415 1,971,622 --------- ------- --------- --------- Net Assets Applicable to Outstanding Shares...............$431,640,162 $189,122,409 $168,912,790 $189,930,917 ============ ============ ============ ============ CAPITAL SHARES Outstanding (Unlimited number of shares authorized)....... 431,681,796 189,165,666 17,850,186 18,579,229 =========== =========== ========== ========== Net Asset Value Per Share................................. $1.00 $1.00 $9.46 $10.22 ===== ===== ===== ====== NET ASSETS CONSIST OF: Capital paid in...........................................$431,681,796 $189,165,666 $162,363,966 $180,117,300 Undistributed net investment income....................... 356,694 115,351 -- -- Accumulated net realized gain (loss) on investment transactions................................ (398,328) (158,608) (571,249) 471,325 Net unrealized appreciation on investments (Note 3)................................... -- -- 7,120,073 9,342,292 --------- ------- --------- --------- $431,640,162 $189,122,409 $168,912,790 $189,930,917 ============ ============ ============ ============ See Notes to Financial Statements
38 Statements of Assets and Liabilities American Century Investments
STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED) TAX-FREE MUNICIPAL MONEY MONEY HIGH-YIELD INSURED MARKET MARKET MUNICIPAL TAX-FREE INVESTMENT INCOME Income: Interest.................................................. $7,566,613 $3,372,194 $4,873,585 $5,474,929 Expenses (Note 2): Investment advisory fees.................................. 622,979 276,307 221,736 274,667 Administrative fees....................................... 205,509 91,213 73,130 90,554 Transfer agency fees...................................... 107,057 64,989 37,996 43,438 Printing and postage...................................... 42,683 22,444 11,299 14,260 Auditing and legal fees................................... 21,523 10,113 8,343 9,880 Custodian fees............................................ 17,207 8,311 6,374 7,486 Telephone expenses........................................ 7,744 3,309 3,298 1,547 Directors' fees and expenses.............................. 5,287 3,846 3,623 3,836 Registration and filing fees.............................. 2,057 1,527 4,256 599 Other operating expenses.................................. 11,564 6,485 13,387 10,339 ------ ----- ------ ------ 1,043,610 488,544 383,442 456,606 --------- ------- ------- ------- Net investment income..................................... 6,523,003 2,883,650 4,490,143 5,018,323 --------- --------- --------- --------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3) Net realized gain (loss) on investments................... (77) (2) (211,589) 1,125,667 Change in net unrealized appreciation on investments...... -- -- 3,239,472 3,089,084 --------- --------- --------- --------- Net realized and unrealized gain (loss) on investments................................ (77) (2) 3,027,883 4,214,751 --------- --------- --------- --------- Net Increase in Net Assets Resulting from Operations................................. $6,522,926 $2,883,648 $7,518,026 $9,233,074 ========== ========== ========== ========== See Notes to Financial Statements
Semiannual Report Statements of Operations 39
STATEMENTS OF CHANGES IN NET ASSETS SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED) AND YEAR ENDED AUGUST 31, 1996 TAX-FREE MUNICIPAL MONEY MARKET MONEY MARKET Increase (Decrease) in Net Assets 1997 1996 1997 1996 OPERATIONS Net investment income.....................................$ 6,523,003 $ 13,288,453 $ 2,883,650 $ 6,182,773 Net realized gain (loss) on investments................... (77) 5,024 (2) 3,762 Change in net unrealized appreciation on investments ........................................ -- -- -- -- --------- --------- --------- --------- Net increase in net assets resulting from operations........................................ 6,522,926 13,293,477 2,883,648 6,186,535 --------- ---------- --------- --------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income................................ (6,637,238) (13,076,367) (2,883,397) (6,134,579) ---------- ----------- ---------- ---------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold................................. 229,342,276 417,665,171 87,523,739 221,042,487 Proceeds from reinvestment of distributions............... 6,286,833 12,497,339 2,758,042 5,897,189 Payments for shares redeemed..............................(229,721,041) (418,632,419) (97,679,625) (222,193,970) ------------ ------------ ----------- ------------ Net increase (decrease) in net assets from capital share transactions........................ 5,908,068 11,530,091 (7,397,844) 4,745,706 --------- ---------- ---------- --------- Net increase (decrease) in net assets..................... 5,793,756 11,747,201 (7,397,593) 4,797,662 NET ASSETS Beginning of period....................................... 425,846,406 414,099,205 196,520,002 191,722,340 ----------- ----------- ----------- ----------- End of period.............................................$431,640,162 $425,846,406 $189,122,409 $196,520,002 ============ ============ ============ ============ TRANSACTIONS IN SHARES OF THE FUNDS Sold...................................................... 229,342,276 417,665,171 87,523,739 221,042,487 Issued in reinvestment of distributions................... 6,286,833 12,497,339 2,758,042 5,897,189 Redeemed..................................................(229,721,041) (418,632,419) (97,679,625) (222,193,970) ------------ ------------ ----------- ------------ Net increase (decrease)................................... 5,908,068 11,530,091 (7,397,844) 4,745,706 ========= ========== ========== ========= See Notes to Financial Statements
40 Statements of Changes in Net Assets American Century Investments
STATEMENTS OF CHANGES IN NET ASSETS TAX-FREE MUNICIPAL MONEY MARKET MONEY MARKET SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED) AND YEAR ENDED AUGUST 31, 1996 Increase (Decrease) in Net Assets 1997 1996 1997 1996 OPERATIONS Net investment income.....................................$ 4,490,143 $ 7,834,261 $ 5,018,323 $ 9,926,196 Net realized gain (loss) on investments................... (211,589) 1,514,159 1,125,667 576,436 Change in net unrealized appreciation on investments ........................................... 3,239,472 798,655 3,089,084 1,358,411 --------- ------- --------- --------- Net increase in net assets resulting from operations........................................... 7,518,026 10,147,075 9,233,074 11,861,043 --------- ---------- --------- ---------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income................................ (4,495,549) (7,832,946) (5,022,869) (9,925,479) ---------- ---------- ---------- ---------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold................................. 79,897,068 69,487,545 29,449,257 65,937,524 Proceeds from reinvestment of distributions............... 3,224,506 5,609,354 3,662,398 6,845,811 Payments for shares redeemed.............................. (61,906,504) (48,901,653) (39,201,909) (61,820,496) ----------- ----------- ----------- ----------- Net increase (decrease) in net assets from capital share transactions........................... 21,215,070 26,195,246 (6,090,254) 10,962,839 ---------- ---------- ---------- ---------- Net increase (decrease) in net assets..................... 24,237,547 28,509,375 (1,880,049) 12,898,403 NET ASSETS Beginning of period....................................... 144,675,243 116,165,868 191,810,966 178,912,563 ----------- ----------- ----------- ----------- End of period.............................................$168,912,790 $144,675,243 $189,930,917 $191,810,966 ============ ============ ============ ============ TRANSACTIONS IN SHARES OF THE FUNDS Sold...................................................... 8,458,710 7,510,749 2,908,609 6,546,262 Issued in reinvestment of distributions................... 341,168 604,403 339,532 678,581 Redeemed.................................................. (6,554,314) (5,267,312) (3,846,242) (6,132,458) ---------- ---------- ---------- ---------- Net increase (decrease)................................... 2,245,564 2,847,840 (598,101) 1,092,385 ========= ========= ======== ========= See Notes to Financial Statements
Semiannual Report Statements of Changes in Net Assets 41 NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) 1. Organization and Summary of Significant Accounting Policies Organization--American Century California Tax-Free and Municipal Funds (the Trust) is registered under the Investment Company Act of 1940 as an open-end management investment company. American Century - Benham California Tax-Free Money Market Fund (Tax-Free Money Market), American Century - Benham California Municipal Money Market (Municipal Money Market), American Century - Benham California High-Yield Municipal Fund (High-Yield), and American Century - Benham California Insured Tax-Free Fund (Insured) (collectively the "Funds") are four of the seven funds composing the Trust. With the exception of Municipal Money Market, each Fund is diversified under the 1940 Act. Tax-Free Money Market and Municipal Money Market (collectively "Money Market 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. High-Yield seeks to provide as high a level of current income exempt from federal and California income taxes 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 exempt from federal and California income taxes as is consistent with safety of principal through investment in insured California municipal securities. The Money Market Funds invest primarily in short-term California municipal obligations and maintain a weighted average maturity of 60 days or less. High-Yield and Insured invest primarily in long-term California municipal securities and maintain a weighted average maturity of ten years or more. The Funds concentrate their investments in a single state and therefore may have more exposure to credit risk related to the state of California than a fund with a broader geographical diversification. The following significant accounting policies, related to the Funds, are in accordance with accounting policies generally accepted in the investment company industry. Security Valuations --Securities held by the Money Market Funds are valued at amortized cost, which approximates current market value. Securities held by High-Yield and Insured are valued through valuations obtained from a commercial pricing service or at the mean of the most recent bid and asked prices. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. Securities Transactions -- Security transactions are accounted for on the date purchased or sold. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. Investment Income--Interest income is recorded on the accrual basis and includes amortization of discounts and premiums. Premium and original issue discount is amortized daily using the effective interest rate method for High-Yield and Insured. Market discount is recognized as income upon the sale or maturity of the security for High-Yield and Insured. Premium and discount are amortized daily on a straight-line basis for securities held by the Money Market Funds. Income Tax Status--It is the Funds' policy to distribute all net investment income and net realized capital gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state taxes. Distributions to Shareholders--Distributions from net investment income are declared daily and distributed monthly. The Money Market Funds do not expect to realize any long-term capital gains, and accordingly, do not expect to pay any capital gains distributions. Distributions from net realized gains for High-Yield and Insured are declared and paid annually. At August 31, 1996, accumulated net realized capital loss carryovers of $298,508 for Tax-Free Money Market, $158,606 for Municipal Money Market, $359,444 for High-Yield, and $654,341 for Insured (expiring 1998 through 2004) may be used to offset future taxable gains. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences are due to differences in the recognition of income and expense items for financial statement and tax purposes. Futures Contracts--High-Yield and Insured 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 may include the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation 42 Notes to Financial Statements American Century Investments NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) margin) are made or received daily, in cash, by the Fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Supplementary Information--Certain officers and trustees of the Trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the Trust's investment advisor, Benham Management Corporation (BMC), the Trust's distributor, American Century Investment Services, Inc. (ACIS), and the Trust's transfer agent, American Century Services Corporation (ACSC). Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the period. Actual results could differ from these estimates. - -------------------------------------------------------------------------------- 2. Transactions with Related Parties The Trust has entered into an Investment Advisory Agreement with BMC that provides the Trust with investment advisory services in exchange for an investment advisory fee. ACSC pays all compensation of Trust officers and trustees who are officers or directors of ACC or any of its subsidiaries. In addition, promotion and distribution expenses are paid by BMC. The investment advisory fee is paid monthly by each Fund based on its pro rata share of the dollar amount derived from applying the Trust's average daily closing net assets to the following annualized investment advisory fee schedule: 0.50% of the first $100 million 0.45% of the next $100 million 0.40% of the next $100 million 0.35% of the next $100 million 0.30% of the next $100 million 0.25% of the next $1 billion 0.24% of the next $1 billion 0.23% of the next $1 billion 0.22% of the next $1 billion 0.21% of the next $1 billion 0.20% of the next $1 billion 0.19% of the average daily net assets over $6.5 billion The Trust has an Administrative Services and Transfer Agency Agreement with ACSC. Under the Agreement, ACSC provides substantially all administrative and transfer agency services necessary to operate the Funds. Fees for these services are based on transaction volume, number of accounts and average daily closing net assets for funds advised by BMC. The Agreement was formerly with Benham Financial Services, Inc. The Trust has an additional agreement with BMC pursuant to which BMC established a contractual expense guarantee that limits Fund expenses (excluding items such as brokerage commissions, taxes, interest, custodian earnings credits, and extraordinary expenses) to 0.53% of average daily closing net assets for the Tax-Free Money Market, 0.60% for the Municipal Money Market, and 0.59% for High-Yield and Insured. The agreement provides that BMC may recover amounts (representing expenses in excess of the Fund's expense guarantee rate) absorbed during the preceding 11 months, if, and to the extent that, for any given month, the Fund's expenses are less than the expense guarantee rate in effect at that time. The expense guarantee rate is subject to renewal in June 1997. The payables to affiliates as of February 28, 1997, based on the above agreements were as follows: Tax-Free Municipal High-Yield Insured Money Money Market Market Investment Advisor ..........$95,638 $42,198 $36,830 $42,319 Administrative Services and Transfer Agent ... 59,018 28,079 23,458 24,934 -------- ------- ------- ------- $154,656 $70,277 $60,288 $67,253 ======== ======= ======= ======= The Trust has a Distribution Agreement with ACIS, which is responsible for promoting sales of and distributing the Trust's shares. This Agreement was formerly with Benham Distributors, Inc. Semiannual Report Notes to Financial Statements 43 NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- 3.Investment Transactions The aggregate cost of municipal debt obligations (excluding short-term investments) purchased for the six months ended February 28, 1997, in High-Yield and Insured totaled $54,087,652 and $31,830,125, respectively. Proceeds from municipal debt obligations (excluding short-term investments) sold in High-Yield and Insured totaled $28,219,655 and $34,603,296, respectively. As of February 28, 1997, accumulated net unrealized appreciation of High-Yield and Insured were $7,120,073 and $9,342,292, consisting of unrealized appreciation of $7,298,207 and $9,807,705, and unrealized depreciation of $178,134 and $465,413, respectively. The aggregate cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. - -------------------------------------------------------------------------------- 4. Corporate Events The following name changes became effective January 1, 1997: NEW NAMES FORMER NAMES Funds' Issuer: American Century California Benham California Tax-Free Tax-Free and Municipal Funds and Municipal Trust Funds: American Century - Benham Benham California Tax-Free California Tax-Free Money Money Market Fund Market Fund American Century - Benham Benham California Municipal California Municipal Money Money Market Fund Market Fund American Century - Benham Benham California Municipal California High-Yield Municipal Fund High-Yield Fund American Century - Benham Benham California Tax-Free California Insured Tax-Free Fund Insured Fund Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc. Distributor: American Century Investment Twentieth Century Securities, Inc. Services, Inc. Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
44 Notes to Financial Statements American Century Investments
FINANCIAL HIGHLIGHTS CALIFORNIA TAX-FREE MONEY MARKET For a Share Outstanding Throughout the Years Ended August 31 (except as noted) 1997(1) 1996 1995 1994 1993 1992 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 ...................... 0.02 0.03 0.03 0.02 0.02 0.03 ---- ---- ---- ---- ---- ---- Distributions From Net Investment Income.................. (0.02) (0.03) (0.03) (0.02) (0.02) (0.03) ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ===== ===== ===== ===== ===== ===== Total Return (2)............................ 1.54% 3.12% 3.31% 2.09% 2.13% 3.00% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ...................... 0.48%(3) 0.49% 0.52% 0.50% 0.51% 0.54% Ratio of Net Investment Income to Average Net Assets....................... 3.03%(3) 3.12% 3.28% 2.07% 2.09% 2.98% Net Assets, End of Period (in thousands).................... $431,640 $425,846 $414,099 $371,074 $338,731 $321,307 (1) Six months ended February 28, 1997 (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. See Notes to Financial Statements
Semiannual Report Financial Highlights 45
FINANCIAL HIGHLIGHTS CALIFORNIA MUNICIPAL MONEY MARKET For a Share Outstanding Throughout the Years Ended August 31 (except as noted) 1997(1) 1996 1995 1994 1993 1992 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 0.02 0.02 0.03 ---- ---- ---- ---- ---- ---- Distributions From Net Investment Income.................. (0.01) (0.03) (0.03) (0.02) (0.02) (0.03) ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ===== ===== ===== ===== ===== ===== Total Return (2)............................ 1.51% 3.23% 3.35% 2.15% 2.25% 3.63% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ...................... 0.51% (3) 0.53% 0.53% 0.51% 0.46% 0.07% Ratio of Net Investment Income to Average Net Assets....................... 3.01% (3) 3.20% 3.31% 2.13% 2.21% 3.44% Net Assets, End of Period (in thousands).................... $189,122 $196,520 $191,722 $243,701 $247,621 $254,823 (1) Six months ended February 28, 1997 (unaudited). (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. Total returns for periods less than one are not annualized. (3) Annualized. See Notes to Financial Statements
46 Financial Highlights American Century Investments
FINANCIAL HIGHLIGHTS CALIFORNIA HIGH-YIELD MUNICIPAL For a Share Outstanding Throughout the Years Ended August 31 (except as noted) 1997(1) 1996 1995 1994 1993 1992 PER-SHARE DATA Net Asset Value, Beginning of Period.............................. $9.27 $9.11 $9.06 $9.66 $9.12 $8.84 ----- ----- ----- ----- ----- ----- Income from Investment Operations Net Investment Income ...................... 0.27 0.56 0.56 0.56 0.57 0.58 Net Realized and Unrealized Gain (Loss) on Investment Transactions.................. 0.19 0.16 0.05 (0.48) 0.54 0.28 ---- ---- ---- ----- ---- ---- Total From Investment Operations....................... 0.46 0.72 0.61 0.08 1.11 0.86 ---- ---- ---- ---- ---- ---- Distributions From Net Investment Income.................. (0.27) (0.56) (0.56) (0.56) (0.57) (0.58) From Net Realized Gains on Investment Transactions.................. -- -- -- (0.12) -- -- ---- ---- ---- ---- ---- ---- Total Distributions......................... (0.27) (0.56) (0.56) (0.68) (0.57) (0.58) ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period................... $9.46 $9.27 $9.11 $9.06 $9.66 $9.12 ===== ===== ===== ===== ===== ===== Total Return (2)............................ 5.04% 8.02% 7.09% 0.87% 12.61% 10.11% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ...................... 0.50% (3) 0.51% 0.51% 0.51% 0.55% 0.56% Ratio of Net Investment Income to Average Net Assets....................... 5.86% (3) 5.99% 6.30% 6.02% 6.14% 6.54% Portfolio Turnover Rate..................... 19% 36% 40% 43% 27% 33% Net Assets, End of Period (in thousands).................... $168,913 $144,675 $116,166 $116,000 $114,564 $79,949 (1) Six months ended February 28,1997 (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. See Notes to Financial Statements
Semiannual Report Financial Highlights 47
FINANCIAL HIGHLIGHTS CALIFORNIA INSURED TAX-FREE For a Share Outstanding Throughout the Years Ended August 31 (except as noted) 1997(1) 1996 1995 1994 1993 1992 PER-SHARE DATA Net Asset Value, Beginning of Period.............................. $10.00 $9.89 $9.67 $10.64 $9.97 $9.47 ------ ----- ----- ------ ----- ----- Income from Investment Operations Net Investment Income ...................... 0.27 0.53 0.53 0.53 0.55 0.57 Net Realized and Unrealized Gain (Loss) on Investment Transactions.................. 0.22 0.11 0.22 (0.69) 0.76 0.50 ---- ---- ---- ----- ---- ---- Total From Investment Operations....................... 0.49 0.64 0.75 (0.16) 1.31 1.07 ---- ---- ---- ----- ---- ---- Distributions From Net Investment Income.................. (0.27) (0.53) (0.53) (0.53) (0.55) (0.57) From Net Realized Gains on Investment Transactions.................. -- -- -- (0.21) (0.09) -- In Excess of Net Realized Gains............. -- -- -- (0.07) -- -- ---- ---- ---- ----- ---- ---- Total Distributions......................... (0.27) (0.53) (0.53) (0.81) (0.64) (0.57) ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period................... $10.22 $10.00 $9.89 $9.67 $10.64 $9.97 ====== ====== ===== ===== ====== ===== Total Return (2)............................ 4.89% 6.60% 8.09% (1.68)% 13.74% 11.67% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets....................... 0.48%(3) 0.49% 0.50% 0.49% 0.52% 0.55% Ratio of Net Investment Income to Average Net Assets....................... 5.27%(3) 5.30% 5.54% 5.20% 5.37% 5.90% Portfolio Turnover Rate..................... 17% 43% 40% 47% 61% 54% Net Assets, End............................. of Period (in thousands).................... $189,931 $191,811 $178,913 $189,439 $223,440 $145,965 (1) Six months ended February 28,1997 (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. See Notes to Financial Statements
48 Financial Highlights American Century Investments NOTES Semiannual Report Notes 49 NOTES 50 Notes American Century Investments NOTES Semiannual Report Notes 51 BACKGROUND INFORMATION Investment Objectives and Philosophy American Century Investments offers 42 fixed-income funds, ranging from money market funds to long-term bond funds and including both taxable and tax-exempt funds. California Tax-Free Money Market Fund and California Municipal Money Market Fund 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. There can be no assurance that these funds will be able to maintain a stable net asset value per share. California High-Yield Municipal Fund is a variable-price bond fund that seeks to provide as high a level of interest income exempt from federal and California income taxes as is consistent with its investment policies, which permit investment in lower-rated and unrated municipal securities. California Insured Tax-Free Fund is a variable-price bond fund that seeks to provide as high a level of current income exempt from federal and California income taxes as is consistent with safety of principal through investment in insured California municipal securities. Comparative Indices The following index is used in the report for fund performance comparisons. It is not an investment product available for purchase. The Lehman Brothers Long-Term Municipal Bond Index is composed of more than 2,700 municipal bonds with maturities greater than 22 years. The average credit rating of the securities in the index is AA2/AA3. The average maturity of the index is approximately 27 years. Lipper Rankings Lipper Analytical Services, Inc. is an independent mutual fund ranking service that groups funds according to their investment objectives. Rankings are based on average annual returns for each fund in a given category for the periods indicated. Rankings are not included for periods less than one year. The Lipper categories for the California Tax-Free and Municipal funds are: California Tax-Exempt Money Market Funds (Tax-Free Money Market and Municipal Money Market)--funds that invest in high-quality California municipal obligations with dollar-weighted average maturities of less than 90 days. 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. PORTFOLIO MANAGEMENT TEAM Vice President and Senior Portfolio Manager Dave MacEwen Senior Portfolio Manager and Manager of Municipal Credit Analysis Steven Permut Senior Municipal Portfolio Manager Colleen Denzler Municipal Portfolio Manager Todd Pardula Credit Analysts Scott Lord, Bill McClintock, David Moore, Tim Benham 52 Background Information American Century Investments GLOSSARY Returns o Total Return figures show the overall percentage change in the value of a hypothetical investment in the fund and assume that all of the fund's distributions are reinvested. o Average Annual Returns illustrate the annually compounded returns that would have produced the fund's cumulative total returns if the fund's performance had been constant over the entire period. Average annual returns smooth out variations in a fund's return; they are not the same as fiscal year-by-year results. For fiscal year-by-year returns, please refer to the "Financial Highlights" on pages 45, 46, 47 and 48. Yields o 7-day Current Yield is calculated based on the income generated by an investment in the fund over a seven-day period and is expressed as an annual percentage rate. o 7-day Effective Yield is calculated similarly, although this figure is slightly higher than the fund's 7-Day Current Yield because of the effects of compounding. The 7-Day Effective Yield assumes that income earned from the fund's investments is reinvested and generating additional income. o 30-day SEC Yield represents net investment income earned by the fund over a 30-day period, expressed as an annual percentage rate based on the fund's share price at the end of the 30-day period. The SEC yield should be regarded as an estimate of the fund's rate of investment income, and it may not equal the fund's actual income distribution rate, the income paid to a shareholder's account, or the income reported in the fund's financial statements. o Tax-Equivalent Yields show the taxable yields that investors in a combined California and federal income tax bracket would have to earn before taxes to equal the fund's tax-free yield. Investment Terms o Basis Point--one one-hundredth of a percentage point (or 0.01%). 100 basis points equal one percentage point (or 1%). o Coupon--the stated interest rate of a security. o Yield Curve--a graphic representation of the relationship between maturity and yield for fixed-income securities. Yield curve graphs plot lengthening maturities along the horizontal axis and rising yields along the vertical axis. Statistical Terminology o Number of Issues--the number of different securities held by a fund on a given date. o Weighted Average Maturity (WAM)--a measurement of the sensitivity of a fixed-income portfolio to interest rate changes. WAM indicates the average time until the securities in the portfolio mature, weighted by dollar amount. o Average Duration-- a time-weighted average of the interest and principal payments of the securities in a portfolio. As the duration of a portfolio increases, so does the impact of a change in interest rates on the value of the portfolio. o Expense Ratio--the operating expenses of the fund, expressed as a percentage of net assets. Types of Municipal Securities o AMT Paper--instruments with income subject to the federal alternative minimum tax. o Commercial Paper (CP)--high-grade short-term securities backed by a line of credit from a bank. o COPs (Certificates of Participation)/Leases--securities issued to finance public property improvements (such as city halls and police stations) and equipment purchases. Certificates of participation represent long-term debt obligations, but leases have a higher risk profile because they require annual appropriation. o GO Bonds--general obligation securities backed by the taxing power of the issuer. o Land-Secured Bonds--securities such as Mello-Roos bonds and 1915 Act bonds that are issued to finance real estate development projects. o Municipal Notes--securities with maturities of two years or less. o Prerefunded /ETM Bonds--securities refinanced or escrowed to maturity by the issuer because of their premium coupons (higher-than-market interest rates). These bonds tend to have higher credit ratings because they are backed by Treasury securities. o Revenue Bonds--securities backed by revenues from sales taxes or from a specific project, system or facility (such as a hospital, electric utility or water system). o Tax-Allocation Bonds--securities issued to finance improvements in redevelopment areas (such as urban neighborhoods). o VRDNs--variable rate demand notes that track market interest rates and stabilize their market values using periodic (daily or weekly) interest rate adjustments. Semiannual Report Glossary 53 [american century logo] American Century(sm) P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-Person Assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com American Century California Tax-Free & Municipal Funds Investment Manager Benham Management Corporation This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. American Century Investment Services, Inc. 9704 [recycled logo] SH-BKT-8347 Recycled [BOOK TWO] SEMIANNUAL REPORT [american century logo] American Century(sm) February 28, 1997 BENHAM GROUP California Limited-Term Tax-Free California Intermediate-Term Tax-Free California Long-Term Tax-Free [front cover] TABLE OF CONTENTS Report Highlights............................................. 1 Our Message to You............................................ 2 Period Overview............................................... 3 Municipal Credit Review....................................... 4 California Limited-Term Tax-Free Performance & Portfolio Information........................... 5 Management Q & A.............................................. 6 Schedule of Investments....................................... 9 Financial Highlights.......................................... 36 California Intermediate-Term Tax-Free Performance & Portfolio Information........................... 12 Management Q & A.............................................. 13 Schedule of Investments....................................... 16 Financial Highlights.......................................... 37 California Long-Term Tax-Free Performance & Portfolio Information........................... 22 Management Q & A.............................................. 23 Schedule of Investments....................................... 26 Financial Highlights.......................................... 38 Statements of Assets and Liabilities.......................... 30 Statements of Operations...................................... 31 Statements of Changes in Net Assets........................... 32 Notes to Financial Statements................................. 33 Background Information Investment Philosophy & Policies.............................. 40 Comparative Indices........................................... 40 Lipper Rankings............................................... 40 Portfolio Management Team..................................... 40 Glossary...................................................... 41 American Century Investments offers you nearly 70 fund choices covering stocks, bonds, money markets, specialty investments and blended portfolios. To help you find the funds that may meet your needs, we have divided American Century funds into three groups based on investment style and objectives. These groups, which appear below, are designed to help simplify your fund decisions. American Century Investments--Family of Funds BENHAM GROUP AMERICAN CENTURY GROUP TWENTIETH CENTURY GROUP MONEY MARKET FUNDS ASSET ALLOCATION & GOVERNMENT BOND FUNDS BALANCED FUNDS U.S. GROWTH FUNDS DIVERSIFIED BOND FUNDS CONSERVATIVE EQUITY FUNDS INTERNATIONAL FUNDS MUNICIPAL BOND FUNDS SPECIALTY FUNDS California Limited-Term Tax-Free California Intermediate-Term Tax Free California Long-Term Tax Free We welcome your comments or questions about this report. See the back cover for ways to contact us by mail, phone or e-mail. Twentieth Century and the Benham Group are registered marks of American Century Services Corporation and Benham Management Corporation, respectively. American Century is a service mark of American Century Services Corporation. American Century Investments REPORT HIGHLIGHTS Period Overview o The U.S. economy expanded at a healthy pace during the six-month period ended February 28, 1997, but inflation remained largely subdued. o Municipal securities performed favorably during the period despite some interim volatility caused by shifting expectations of a short-term interest rate hike by the Federal Reserve. o Shorter-maturity municipals--more sensitive to shifting interest rate policy expectations--underperformed longer-maturity securities. o Historically low issuance of new municipals during much of the period helped dampen market gyrations, keeping prices relatively stable. Municipal Credit Review o California's strong economic growth led several ratings agencies to upgrade the state's credit rating. o Specific challenges, such as Proposition 218 and federal welfare reform, could affect ratings of locally issued municipal bonds. o Continuing economic strength should lead to further upgrades during the coming year. California Limited-Term o The fund outperformed its peer group average but lagged its benchmark index for the six months ended February 28, 1997. o We changed the fund's portfolio to a "barbell" structure to take advantage of the steep yield curve among short-term California municipal bonds. o Going forward, we will likely shorten the fund's average maturity and duration as a seasonal supply increase puts downward pressure on municipal prices, but we'll be looking to extend back out later this summer. California Intermediate-Term o The fund slightly underperformed its peer group average and its benchmark index for the six months ended February 28, 1997. o Due to the market's gyrations during the period, we kept the fund's duration conservatively positioned at 5.4 years--a neutral position in comparison with the fund's peers. California Long-Term o The fund outperformed its peer group average but lagged its benchmark index for the six months ended February 28, 1997. o Due to the market's gyrations, we kept the fund's duration in a conservative range around 8 years during the period--a neutral position in comparison with the fund's peers. o For now, we'll keep the fund conservatively positioned and look to add value to its returns by purchasing attractively valued municipals that we believe have the chance to appreciate. California Limited-Term Total Returns: AS OF 2/28/97 6 Months 2.82%* 1 Year 3.90% Net Assets: $109.6 million (AS of 2/28/97) Inception Date: 6/1/92 Ticker Symbol: BCSTX California Inter.-Term Total Returns: AS OF 2/28/97 6 Months 3.81%* 1 Year 4.21% Net Assets: $436.8 million (AS of 2/28/97) Inception Date: 11/9/83 Ticker Symbol: BCITX California Long-Term Total Returns: AS OF 2/28/97 6 Months 5.19%* 1 Year 5.01% Net Assets: $301.1 million (AS of 2/28/97) Inception Date: 11/9/83 Ticker Symbol: BCLTX * Not annualized. Many of the investment terms in this report are defined in the Glossary on page 41. Semiannual Report Report Highlights 1 OUR MESSAGE TO YOU [photo of James E. Stowers III and James M. Benham] The six months ended February 28, 1997, were eventful, both for the municipal bond market and our company. Municipal bonds performed favorably overall during the period, despite some volatility in January as U.S. economic growth appeared to accelerate. In the following pages, our investment management team provides further details about the municipal market and how your fund was managed during the period. Changing market conditions underscore the importance of quality investments. Our commitment to high-quality securities is exemplified by the expansion of our municipal credit research team. The five members of the team perform an in-depth analysis on all securities considered for purchase by American Century municipal money market and bond funds. The team has established a credit management system that defines investment limits to cap our funds' exposure to individual issuers, market sectors and geographical regions. The team plays an important role in the management of the California Tax-Free and Municipal funds. On the corporate front, we completed the operational integration of Twentieth Century and The Benham Group in September 1996. As a result, you now have direct access to a broader spectrum of funds and services. We also changed the name of our company. On January 1, 1997, we began serving you under the name American Century Investments, which reflects our expanded identity and the independent thinking common to Twentieth Century and Benham. American Century's fund family is divided into three groups--the Benham Group, the American Century Group and the Twentieth Century Group. The California Tax-Free and Municipal funds will remain in the Benham Group because their investment goal--current tax-free income--matches a key attribute of that group. This report incorporates a new format designed using your input. We hope you find it more informative and easier to read. Another informative resource is the American Century Web site. If you use a personal computer and have Internet access, we've made it easier for you to download information about American Century funds and access your fund accounts. With a personal access code, you can view account balances, exchange money between existing accounts and make additional investments. The Web site address is: www.americancentury.com. We are one of the first fund companies to offer direct on-line transactions via the Internet. These are examples of how we continue to work to provide information and services that are useful and convenient to investors in our funds. Thank you for investing with us. Sincerely, /s/James E. Stowers III /s/James M. Benham James E. Stowers III James M. Benham President and Chief Executive Officer Vice Chairman American Century Companies American Century Companies 2 Our Message to You American Century Investments PERIOD OVERVIEW U.S. Economy The U.S. economy expanded at a healthy clip during the six-month period ended February 28, 1997. Fueling growth was low unemployment, high employment growth and a robust housing market that defied expectations of a slowdown. As a result, the economy expanded at a 2.1% annual rate during the third quarter of 1996 and a 3.8% annual rate during the fourth quarter. The strength of the economy in 1997 has continued to surprise analysts, many of whom are predicting that the U.S. economy will grow by more than 3% during the first quarter. While the economy continued its impressive growth rate, inflation remained relatively subdued. Overall consumer prices--as measured by the government's consumer price index--rose at a modest 3.1% annual rate during the six months ended February 28, 1997. This unusual combination of healthy economic growth and low inflation sent mixed signals to U.S. bond investors. California Municipal Bond Market Municipal bond investors enjoyed favorable returns for the six-month period. Nevertheless, shifting expectations of an interest-rate increase by the Federal Reserve (the Fed) kept investors guessing about the possible direction of bond prices. As demonstrated by the accompanying graph, municipal yields peaked at the start of the period amid strong expectations for higher interest rates. In general, investors were concerned that the U.S. economy was ready to overheat and spark inflation. However, inflation remained subdued, and signs of a moderating economy convinced many that a Fed rate hike was unlikely, allowing municipal bonds to rally. By early December, prices crested with the yield on 30-year municipal bonds at 5.29%, nearly half a percent lower than the 5.78% seen in early September. However, aided by strong consumer spending activity, the economy strengthened again in early 1997. With growing expectations that the strains of robust economic growth would finally force the Fed to stage a pre-emptive strike against inflation, investors pushed municipal prices lower. By the end of February, the yield on 30-year municipal bonds had risen to 5.44%. Helping to support municipal prices during the volatile period were low levels of new municipal issuance, which only in recent months has reached historically normal levels. An upsurge of demand from retail investors also buoyed short- and intermediate-maturity municipals during much of the period, but that beneficial effect was largely countered by shifting expectations for higher rates. More sensitive to anticipated Fed activities, shorter-maturity municipals underperformed their longer-maturity counterparts for the period. Meanwhile, strong demand from insurance companies helped buoy long-term municipal prices late in 1996 as many of these companies made "crossover" buys--that is, they purchased municipal bonds instead of comparable-maturity Treasury bonds due to the relatively attractive yield offered by municipals. [line graph - data below] Shifting Municipal Yield Curve Years 9/5/96 12/3/96 2/28/97 0.25 3.51% 3.03% 3.22% 0.5 3.71 3.23 3.42 1 3.91 3.43 3.65 2 4.16 3.73 3.92 3 4.36 3.93 4.1 4 4.51 4.05 4.24 5 4.61 4.15 4.34 6 4.71 4.25 4.44 7 4.81 4.35 4.54 8 4.91 4.45 4.64 9 5.01 4.55 4.74 10 5.11 4.65 4.84 11 5.198 4.738 4.916 12 5.286 4.826 4.992 13 5.374 4.914 5.068 14 5.462 5.002 5.144 15 5.55 5.09 5.22 16 5.584 5.118 5.252 17 5.618 5.146 5.284 18 5.652 5.174 5.316 19 5.686 5.202 5.348 20 5.72 5.23 5.38 21 5.728 5.238 5.388 22 5.736 5.246 5.396 23 5.744 5.254 5.404 24 5.752 5.262 5.412 25 5.76 5.27 5.42 26 5.764 5.274 5.424 27 5.768 5.278 5.428 28 5.772 5.282 5.432 29 5.776 5.286 5.436 30 5.78 5.29 5.44 Source: Bloomberg Financial Markets Semiannual Report Period Overview 3 MUNICIPAL CREDIT REVIEW As we anticipated early in 1996, the state of California's credit rating was upgraded by several rating agencies within the last year. The key to the state's improving credit quality has been its ability to generate strong job growth in various sectors of the economy. The six months ended February 28, 1997, showed an acceleration of the economic growth that California has enjoyed for the past three years. With income gains and employment growth exceeding the national average, California's unemployment rate fell to 6.5% for the first time since 1990 (see the accompanying graph). The state has more than recovered all the jobs lost in the last recession, largely due to strong growth in the high-technology industries. California is also the nation's leading exporter, with exports nearly equaling those of the other 49 states combined. Its gross product is projected to surpass $1 trillion in 1997, a milestone that the U.S. as a whole passed less than 30 years ago. The state's finances continue to improve--its revenue is projected to be more than $700 million over budget for the 1996-1997 fiscal year, and the general fund is expected to show a reserve for the first time in a number of years. The state's strongest growth has been centered in the San Francisco Bay Area, led by Santa Clara County, the hub of the state's thriving high-technology industry. Southern California's economy also continued to expand, though at a slower pace. There has also been statewide improvement in the real estate sector. The San Francisco Bay Area has seen property values rise appreciably, while the Southern California real estate market has bottomed out and begun to trend upward. Real estate prices in some regions have surpassed their 1989 highs, underscoring the regional vitality of California's real estate market. In spite of the state's rosy economic outlook, specific challenges continue to affect the credit picture for locally issued municipal bonds. For example, California's Proposition 218 requires voter approval for the levying of fees and other charges by local governments. This could have a negative impact on the credit quality of securities issued by local governments within the state. In addition, federal welfare reform could place additional credit pressure on already-burdened county budgets. This possibility has led us to position our California municipal funds with very low exposure to county debt. With these issues in mind, we have continued to expand our municipal credit research team. The five members of the team keep a close watch on economic and legislative trends within the state and thoroughly research all municipal securities considered for purchase by the Benham California Tax-Free and Municipal funds. We will continue to monitor legislative developments on welfare reform and state budgetary issues in the months ahead. Overall, our outlook for the state's credit rating remains very positive, and we feel that continuing economic strength will lead to further credit upgrades within the next 12 months. [line graph - data below] California Unemployment 1/31/90 5.0% 2/28/90 5.1 3/31/90 5.2 4/30/90 5.4 5/31/90 5.4 6/30/90 5.5 7/31/90 5.6 8/31/90 5.8 9/30/90 6.1 10/31/90 6.4 11/30/90 6.8 12/31/90 6.9 1/31/91 7.0 2/28/91 7.4 3/31/91 7.7 4/30/91 7.8 5/31/91 7.7 6/30/91 7.7 7/31/91 7.8 8/31/91 7.7 9/30/91 7.8 10/31/91 7.9 11/30/91 8.0 12/31/91 8.2 1/31/92 8.4 2/29/92 9.0 3/31/92 8.9 4/30/92 9.0 5/31/92 9.1 6/30/92 9.3 7/31/92 9.4 8/31/92 9.6 9/30/92 9.7 10/31/92 9.7 11/30/92 9.7 12/31/92 9.7 1/31/93 9.7 2/28/93 9.6 3/31/93 9.5 4/30/93 9.3 5/31/93 9.4 6/30/93 9.4 7/31/93 9.3 8/31/93 9.3 9/30/93 9.3 10/31/93 9.3 11/30/93 9.3 12/31/93 9.2 1/31/94 9.2 2/28/94 9.3 3/31/94 9.0 4/30/94 8.8 5/31/94 8.9 6/30/94 8.7 7/31/94 8.6 8/31/94 8.5 9/30/94 8.3 10/31/94 8.1 11/30/94 7.9 12/31/94 7.8 1/31/95 8.1 2/28/95 7.8 3/31/95 7.8 4/30/95 7.9 5/31/95 7.9 6/30/95 7.8 7/31/95 7.8 8/31/95 7.8 9/30/95 7.8 10/31/95 7.8 11/30/95 7.9 12/31/95 7.8 1/31/96 7.6 2/29/96 7.6 3/31/96 7.5 4/30/96 7.4 5/31/96 7.3 6/30/96 7.2 7/31/96 7.1 8/31/96 7.1 9/30/96 7.1 10/31/96 7.0 11/30/96 6.9 12/31/96 6.8 1/31/97 6.9 2/28/97 6.5 Source: DRI/McGraw Hill 4 Municipal Credit Review American Century Investments
CALIFORNIA LIMITED-TERM TAX-FREE 30-Day 30-Day Tax-Equivalent Yields SEC 34.70% 37.42% 41.95% 45.22% Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket ----- ----------- ----------- ----------- ----------- CURRENT YIELD (as of February 28, 1997) California Limited-Term Tax-Free ............... 3.61% 5.53% 5.77% 6.22% 6.59% Yields are defined in the Glossary on page 41.
AVERAGE ANNUAL RETURNS 6 MONTHS 1 YEAR 3 YEARS LIFE OF FUND TOTAL RETURNS (as of February 28, 1997) California Limited-Term Tax-Free 2.82% 3.90% 4.22% 4.70% Lehman 3-Year Municipal Bond Index 3.25% 4.56% 4.98% 5.20%(1) Average California Short-Intermediate Municipal Debt Fund(2) 2.75% 3.60% 4.25% 4.96%(1) Fund's Ranking Among California Short-Intermediate Municipal Debt Funds(2) -- 5 out of 11 5 out of 7 2 out of 2 (1) Returns since 6/30/92, the date nearest the fund's inception for which return data are available. Inception date was June 1, 1992. (2) According to Lipper Analytical Services.
See pages 40-41 for more information about returns, the comparative index and Lipper fund rankings. [line graph - data below] GROWTH OF $10,000 OVER THE LIFE OF THE FUND Value on 2/28/87 $10,000 investment made 6/1/92 Limited-Term Tax-Free Lehman 3-Year Municipal Index 5/31/92 $10,000 $10,000 6/30/92 $10,074 $10,122 7/31/92 $10,249 $10,319 8/31/92 $10,222 $10,273 9/30/92 $10,277 $10,357 10/31/92 $10,251 $10,317 11/30/92 $10,347 $10,389 12/31/92 $10,413 $10,451 1/31/93 $10,497 $10,530 2/28/93 $10,673 $10,695 3/31/93 $10,616 $10,663 4/30/93 $10,679 $10,725 5/31/93 $10,699 $10,754 6/30/93 $10,754 $10,823 7/30/93 $10,733 $10,838 8/31/93 $10,850 $10,897 9/30/93 $10,913 $10,945 10/31/93 $10,923 $10,967 11/30/93 $10,925 $10,953 12/31/93 $11,029 $11,068 1/31/94 $11,095 $11,158 2/28/94 $10,986 $11,054 3/31/94 $10,881 $10,920 4/29/94 $10,903 $10,984 5/31/94 $10,929 $11,036 6/30/94 $10,942 $11,039 7/29/94 $11,029 $11,131 8/31/94 $11,057 $11,171 9/30/94 $11,037 $11,143 10/31/94 $11,008 $11,116 11/30/94 $10,946 $11,096 12/30/94 $10,962 $11,144 1/31/95 $11,059 $11,237 2/28/95 $11,206 $11,356 3/31/95 $11,290 $11,458 4/28/95 $11,337 $11,497 5/31/95 $11,468 $11,673 6/30/95 $11,518 $11,701 7/31/95 $11,581 $11,825 8/31/95 $11,646 $11,917 9/30/95 $11,683 $11,950 10/31/95 $11,749 $12,008 11/30/95 $11,835 $12,085 12/31/95 $11,874 $12,135 1/31/96 $11,977 $12,230 2/29/96 $11,970 $12,233 3/31/96 $11,904 $12,203 4/30/96 $11,925 $12,218 5/31/96 $11,945 $12,229 6/30/96 $11,995 $12,301 7/31/96 $12,077 $12,370 8/31/96 $12,096 $12,388 9/30/96 $12,162 $12,464 10/31/96 $12,242 $12,551 11/30/96 $12,332 $12,669 12/31/96 $12,339 $12,676 1/31/97 $12,371 $12,731 2/28/97 $12,438 $12,825 Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. The line representing the fund's total return includes operating expenses (such as transaction costs and management fees) that reduce returns, while the total return line of the index does not. PORTFOLIO AT A GLANCE 2/28/97 8/31/96 Number of Securities 64 55 Weighted Average Maturity 3.2 years 3.0 years Average Duration 2.7 years 2.6 years Expense Ratio 0.49%* 0.49% * Annualized. Semiannual Report California Limited-Term Tax-Free 5 CALIFORNIA LIMITED-TERM TAX-FREE Management Q & A An interview with Joel Silva, a portfolio manager on the California Tax-Free and Municipal funds management team. How did the fund perform? The fund outperformed its peer group average but lagged its benchmark index. For the six months ended February 28, 1997, the fund had a total return of 2.82%, compared with the 3.25% return of the Lehman Brothers 3-Year Municipal Bond Index and the 2.75% average return of the 11 "California Short-Intermediate Municipal Debt Funds" tracked by Lipper Analytical Services. (See the Total Returns table on the previous page for other fund performance comparisons.) How was the fund positioned during the past six months? Although we made slight adjustments as market conditions shifted, we kept the fund's average maturity and duration in a fairly narrow range during the six-month period. We focused on other tools, such as credit research and yield curve positioning, to enhance the fund's return. For example, we structured the fund's portfolio to take advantage of the steep yield curve environment. During the six-month period, the municipal yield curve was very steep between one and five years--that is, the gap between one-year municipal yields and five-year municipal yields was wider than normal. [bar graph - data below] CALIFORNIA LIMITED-TERM TAX-FREE FISCAL YEAR-BY-YEAR RETURNS (Periods ended August 31) Limited-Term Tax-Free Lehman 3-Year Municipal Index 1992* 1.47% 2.73% 1993 6.15% 6.38% 1994 1.90% 2.51% 1995 5.33% 6.68% 1996 3.87% 3.95% This chart illustrates the historical year-by-year volatility of the fund's returns since its inception and compares them with the index's returns. The fund's total returns include operating expenses, while the index's do not. See page 40 for a definition of the index. * Return from the fund's 6/1/92 inception date to 8/31/92. 6 California Limited-Term Tax-Free American Century Investments CALIFORNIA LIMITED-TERM TAX-FREE As a result, we expanded the fund's holdings of securities with maturities of 5-8 years. We balanced this position with one-year securities to maintain the fund's three-year average maturity. This structure--known as a "barbell"--tends to perform best when the yield curve moves from steep to flat. The one-year securities also provided some price gains as they became eligible for money market funds. Can you elaborate on these money market-eligible securities? Money market funds can only buy securities with maturities of 13 months or less. When securities reach this maturity threshold, demand from money market funds tends to drive their prices up. We've attempted to capitalize on this situation by purchasing municipal securities with maturities of 14-18 months--which are also an important part of our barbell strategy--and then selling them after they become money market-eligible. Although the fund can now invest in the full range of investment-grade municipal securities (those rated BBB- or higher), the fund doesn't own any securities with a rating below A. Why? There hasn't been any incentive to purchase lower-rated securities. Credit quality spreads--the differences between the yields of high-rated securities and those of lower-rated securities--among California municipal securities are extremely narrow. In our view, we're not being rewarded enough to invest in lower-rated issues, so we've maintained a high degree of credit quality in the fund. However, we will continue to look for lower-rated securities that provide a good balance between risk and return. The fund currently holds about 7% of its assets in municipal securities from Puerto Rico. Do these securities provide investors with tax-exempt income? Yes. The fund is allowed to invest as much as 20% of its assets in Puerto Rico municipal securities, which have the unique distinction of providing double tax-free income for investors in all 50 states. Because of this distinction, there is a great deal of demand for these securities, especially from investors in high-tax states such as New York. This strong demand gives Puerto Rico bonds a yield that is typically about 5 basis points lower than comparable California municipal securities. In September, however, there was a huge wave of new municipal issuance in New York that attracted many New York municipal investors away from the Puerto Rico municipal market. The drop in demand caused Puerto Rico yields to rise significantly. At the same time, a lack of new supply was depressing municipal yields in California. As a result, we were able to buy some insured, AAA-rated Puerto Rico municipal securities with maturities of 8-10 years while picking up 7 basis points in yield over comparable California securities. [pie charts - data below] PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97) Revenue 50% Prerefunded/ETM 15% COPs/Leases 15% GO 13% Land-Secured 4% Other 3% PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/96) Revenue 46% Prerefunded/ETM 21% GO 14% COPs/Leases 12% Land-Secured 4% Other 3% Semiannual Report California Limited-Term Tax-Free 7 CALIFORNIA LIMITED-TERM TAX-FREE How have these securities performed? Very well. Over the last six months, the situation has reversed--a shortage of new supply has caused many New York municipal investors to show renewed interest in Puerto Rico bonds, and yields have fallen back to normal levels. Falling yields have translated into price appreciation for the fund's Puerto Rico securities. Why haven't you sold the fund's Puerto Rico bonds? We're still waiting for the right opportunity. We'd like to gradually sell these bonds so that fund shareholders won't realize the taxable capital gains all at once. We're also holding off until we can find some attractive opportunities among California securities. Low supply is still restraining California yields, but we expect that to change in the second quarter of this year. What is your outlook for the California municipal market over the next six months? As in the past, the general outlook for interest rates is uncertain. The economy continues to show solid growth, but inflation has remained relatively low. The question is, are these conditions sustainable? The Federal Reserve doesn't seem to think so--in March, it made a pre-emptive strike against inflation by raising short-term interest rates. Many Fed watchers suspect this may be the first in a series of rate hikes. Despite these concerns, we think the municipal market has a more favorable outlook. The usual seasonal increase in supply as we approach summer should lead to higher yields and lower prices, but we view this short-term dip as a buying opportunity. Long-term municipal yields are currently around 5.80%; when they hit 6.00%, demand from retail buyers--individuals, insurance companies and mutual funds--tends to increase. Stronger demand would be good news for municipal bond prices. With this outlook in mind, what are your plans for the fund over the next six months? With uncertainty about future Fed rate increases and the anticipated price declines from increasing supply in the municipal market, we will likely position the fund a little more conservatively in the coming months. We'll likely shorten the fund's average maturity and duration slightly. We'll also look to sell securities with par coupons--bonds trading at face value, which appeal to individual investors--and buy premium bonds, which typically suffer less price depreciation in a rising interest rate environment. However, we think that market conditions will improve later this year, so we'll also be looking for opportunities to extend the fund's average maturity and duration back out, especially if we see long-term municipal yields approach 6%. [pie charts - data below] PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97) AAA 58% AA 22% A 20% PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/96) AAA 65% AA 14% A 21% 8 California Limited-Term Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA LIMITED-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES $ 1,000,000 Alameda County Transit Authority Sales Tax Rev., 4.50%, 11-1-01 (AMBAC) $1,008,120 3,500,000 Anaheim Redevelopment Agency Local Government Financing Joint Power Auth. Rev., Series A, 7.95%, 9-1-98, Prerefunded at 102% of Par (MBIA)(1) 3,786,440 1,695,000 Burbank Redevelopment Agency West Olive Tax Allocation, Series 1994, 6.00%, 12-1-97 (AMBAC) 1,725,612 1,145,000 California Educational Facility Auth. Rev., (Pepperdine University), 5.125%, 1-15-02 (AMBAC) 1,183,335 1,080,000 California Educational Facility Auth. Rev., Series A, (Pooled College & University Project), 4.95%, 12-1-02 1,096,675 1,710,000 California Educational Facility Auth. Rev., (University of Southern California), 5.60%, 10-1-01 1,778,913 1,140,000 California Educational Facility Auth. Rev., Series A, (University Project), 4.55%, 12-1-99 1,150,226 1,745,000 California Health Facility Financing Auth. Rev. Certificates of Participation, (St. Joseph Hospital), 5.50%, 7-1-97 1,755,452 1,400,000 California Health Facility Financing Auth. Rev., Series 1993 A, (St. Francis Memorial Hospital), 5.00%, 11-1-98 1,417,178 1,750,000 California Health Facility Financing Auth. Rev., Series 1993 A, (St. Francis Memorial Hospital), 5.50%, 11-1-01 1,800,487 1,600,000 California Public Works Board Lease Rev., Series A, (Department of Justice Building), 5.50%, 5-1-00 1,652,960 3,175,000 City of Whittier Health Rev., (Presbyterian Intercommunity Hospital), 5.50%, 6-1-02 (MBIA) 3,328,035 1,000,000 Encinitas Unified School District Certificates of Participation, 5.00%, 9-1-01 1,019,380 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,700,000 Imperial Irrigation District Certificates of Participation, 5.625%, 5-1-97 $1,705,933 1,000,000 Imperial Irrigation District Certificates of Participation, Series 1993, 6.70%, 11-1-98 1,046,480 1,500,000 Industry Urban Development Agency Tax Allocation, 4.70%, 5-1-04 (MBIA) 1,500,630 1,140,000 Kern High School District GO, Series A, 6.00%, 2-1-04 (MBIA) 1,231,234 2,000,000 Los Angeles Airport Rev., Series 1989 A, 7.00%, 5-1-97, Prerefunded at 102% of Par(1) 2,051,960 1,500,000 Los Angeles Building Auth. Lease Redevelopment Rev., 4.80%, 5-1-02 1,518,405 1,000,000 Los Angeles Building Auth. Lease Redevelopment Rev., 4.90%, 5-1-03 1,013,760 1,000,000 Los Angeles County Metropolitan Transit Auth. Sales Tax Rev., (Proposition C), 5.90%, 7-1-02 (AMBAC) 1,072,610 1,800,000 Los Angeles Convention and Exhibition Center Certificates of Participation, 6.60%, 8-15-99 (AMBAC) 1,907,478 1,000,000 Los Angeles Convention and Exhibition Center Certificates of Participation, Series A, 7.30%, 8-15-99, Prerefunded at 101.5% of Par(1) 1,092,880 2,360,000 Los Angeles County Public Works Financing Auth. Lease Rev., Series A, 6.00%, 9-1-04 (MBIA) 2,546,015 1,000,000 Los Angeles County Transportation Sales Tax Rev., Series A, 6.30%, 7-1-01 1,073,050 1,385,000 Los Angeles Municipal Improvement Corporation Certificates of Participation, 4.75%, 12-1-04 (AMBAC) 1,384,903 3,605,000 Los Angeles Municipal Improvement Corporation Sanitation Rev., 5.75%, 2-1-98 (MBIA) 3,673,964 See Notes to Financial Statements Semiannual Report California Limited-Term Tax-Free 9 SCHEDULE OF INVESTMENTS CALIFORNIA LIMITED-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 Los Angeles Rev. Certificates of Participation, 6.50%, 11-1-98 $1,041,690 2,000,000 Los Angeles Unified School District GO, Series B, 4.50%, 9-30-97 2,011,440 2,000,000 Los Angeles Waste Water System Rev., 6.80%, 8-1-98, Prerefunded at 102% of Par(1) 2,126,240 1,000,000 Los Angeles Waste Water System Rev., 6.70%, 2-1-00 1,061,930 1,000,000 Metropolitan Water District of Southern California Waterworks Rev., 6.375%, 7-1-02 1,092,540 2,000,000 Metropolitan Water District of Southern California Waterworks Rev., Series 1991, 6.10%, 7-1-99 2,093,560 2,000,000 Modesto, Stockton, Redding Public Power Agency Rev., Series 1997 G, 5.50%, 7-1-01 (MBIA) 2,093,600 1,365,000 Ontario Redevelopment Financing Auth. Rev., (Center City Cimarron Project), 5.70%, 8-1-01 (MBIA) 1,438,123 1,500,000 Orange County Transportation Sales Tax Rev., 5.50%, 2-15-01 (AMBAC) 1,561,050 1,225,000 Orange County Water District Certificates of Participation, 4.70%, 8-15-00 1,240,986 3,200,000 Puerto Rico Commonwealth GO, 5.50%, 7-1-01 (MBIA) 3,356,224 2,000,000 Puerto Rico Commonwealth Highway and Transportation Auth. Rev., 6.00%, 7-1-01 (MBIA) 2,136,900 1,000,000 Puerto Rico Commonwealth Highway and Transportation Auth. Rev., 5.20%, 7-1-03 (MBIA) 1,041,270 1,000,000 Puerto Rico Commonwealth Highway and Transportation Auth. Rev., 6.25%, 7-1-04 (MBIA) 1,103,380 2,000,000 Rancho Water District Financing Auth. Rev., 4.70%, 9-15-01 (LOC: Toronto Dominion) 2,029,380 1,000,000 Redding Joint Powers Financing Auth. Electrical System Rev., Series A, 5.50%, 6-1-01 (MBIA) 1,045,970 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,485,000 Sacramento Municipal Utility District Electric Rev., Series D, 4.60%, 11-15-98 $4,534,111 900,000 Sacramento Schools Auth. Rev., (Workers Compensation Progaram C), 5.75%, 6-1-03(1) 958,077 2,000,000 San Bernardino County Certificates of Participation, Series A, (Medical Center Project), 5.20%, 8-1-04 (MBIA) 2,064,520 2,625,000 San Diego Regional Transportation Commission Sales Tax Rev., Series 1994 A, 5.00%, 4-1-99 (FGIC) 2,681,569 4,000,000 San Francisco Bay Area Rapid Transit District Sales Tax Rev., 4.60%, 7-1-97 (AMBAC) 4,003,520 1,085,000 San Francisco City and County GO, 6.00%, 6-15-98 (FGIC) 1,116,215 2,930,000 San Francisco Port Commission Rev. Refunding, 5.25%, 7-1-99 2,997,771 1,000,000 San Mateo Transportation Sales Tax Rev., Series A, 6.50%, 6-1-98 (MBIA) 1,053,910 1,085,000 Santa Barbara County Certificates of Participation, 4.90%, 3-1-01 1,103,532 1,185,000 South Coast Air Quality Management District Building Corporation Rev., 5.50%, 8-1-01 (AMBAC) 1,241,465 1,135,000 Southern California Public Power Agency Pooled Transmission Auth. Joint Power Rev., Series 1989, 7.00%, 7-1-00, Prerefunded at 102% of Par(1) 1,256,740 1,000,000 Southern California Public Power Auth. Electric Rev., Series 1989, 6.75%, 7-1-99 1,057,150 1,510,000 State of California GO, 6.50%, 11-1-97 1,538,962 1,000,000 State of California GO, 6.50%, 4-1-98 (AMBAC) 1,029,160 2,325,000 State of California GO, 6.10%, 2-1-02 (AMBAC) 2,497,585 See Notes to Financial Statements 10 California Limited-Term Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA LIMITED-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 3,980,000 University of California Rev., Series A, 7.00%, 9-1-97, Prerefunded at 102% of Par (MBIA)(1) $ 4,130,126 1,040,000 Victor Valley Joint Union High School District GO, 5.60%, 9-1-04 (MBIA) 1,104,377 2,000,000 West Basin Water District Certificates of Participation, Series 1991, 6.10%, 8-1-98 (AMBAC)(1) 2,069,000 ----------- TOTAL MUNICIPAL SECURITIES-95.3% 108,434,188 (Cost $107,140,674) ----------- SHORT-TERM MUNICIPAL SECURITIES 2,500,000 California Pollution Control Financing Auth. Rev., VRDN, Series 1991 C, (Shell Oil Project), 3.35%, 3-3-97 2,500,000 1,800,000 California Pollution Control Financing Auth. Rev., VRDN, Series 1996 F, (Pacific Gas & Electricity), 3.35%, 3-3-97 (LOC: Banque National de Paris) 1,800,000 1,000,000 Irvine Ranch Water District, VRDN, Series 1993 A, 3.25%, 3-3-97 (LOC: Bank of America) 1,000,000 --------- TOTAL SHORT-TERM MUNICIPAL SECURITIES--4.7% 5,300,000 (Cost $5,300,000) --------- TOTAL INVESTMENT SECURITIES-100.0% $113,734,188 (Cost $112,440,674) =========== Notes to Schedule of Investments AMBAC = AMBAC Indemnity Corp. FGIC = Financial Guaranty Insurance Company GO = General Obligation LOC = Letter of Credit MBIA = Municipal Bond Insurance Association VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective February 28, 1997. (1)Escrowed in U.S. Government Securities. See Notes to Financial Statements Semiannual Report California Limited-Term Tax-Free 11
CALIFORNIA INTERMEDIATE-TERM TAX-FREE 30-Day 30-Day Tax-Equivalent Yields SEC 34.70% 37.42% 41.95% 45.22% Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket ----- ----------- ----------- ----------- ----------- CURRENT YIELD (as of February 28, 1997) California Intermediate-Term Tax-Free ...... 4.23% 6.48% 6.76% 7.29% 7.72% Yields are defined in the Glossary on page 41.
AVERAGE ANNUAL RETURNS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- ------ ------- ------- -------- TOTAL RETURNS (as of February 28, 1997) California Intermediate-Term Tax-Free 3.81% 4.21% 5.20% 6.41% 6.06% Lehman 5-Year GO Index 3.96% 4.76% 5.50% 6.23% 6.30% Average California Intermediate Municipal Debt Fund(1) 3.95% 4.29% 4.97% 6.22% 6.06% Fund's Ranking Among California Intermediate Municipal Debt Funds(1) -- 14 out of 29 9 out of 21 3 out of 6 1 out of 1 (1) According to Lipper Analytical Services.
See pages 40-41 for more information about returns, the comparative index and Lipper fund rankings. [line graph - data below] GROWTH OF $10,000 OVER TEN YEARS Value on 2/28/97 $10,000 investment made 2/28/87 Intermediate-Term Tax-Free Lehman 5-Year GO Index 2/28/87 $10,000 $10,000 3/31/87 $9,921 $9,944 4/30/87 $9,472 $9,649 5/31/87 $9,489 $9,648 6/30/87 $9,641 $9,852 7/31/87 $9,776 $9,965 8/31/87 $9,769 $9,985 9/30/87 $9,440 $9,649 10/31/87 $9,539 $9,791 11/30/87 $9,704 $9,909 12/31/87 $9,803 $10,018 1/31/88 $10,045 $10,264 2/29/88 $10,136 $10,368 3/31/88 $10,080 $10,329 4/30/88 $10,158 $10,423 5/31/88 $10,084 $10,297 6/30/88 $10,134 $10,372 7/31/88 $10,173 $10,420 8/31/88 $10,150 $10,389 9/30/88 $10,263 $10,490 10/31/88 $10,367 $10,581 11/30/88 $10,298 $10,525 12/31/88 $10,382 $10,554 1/31/89 $10,500 $10,706 2/28/89 $10,406 $10,592 3/31/89 $10,358 $10,525 4/30/89 $10,536 $10,705 5/31/89 $10,691 $10,900 6/30/89 $10,798 $11,019 7/31/89 $10,939 $11,180 8/31/89 $10,889 $11,137 9/30/89 $10,877 $11,142 10/31/89 $10,968 $11,152 11/30/89 $11,120 $11,294 12/31/89 $11,206 $11,385 1/31/90 $11,224 $11,391 2/28/90 $11,298 $11,476 3/31/90 $11,266 $11,440 4/30/90 $11,214 $11,403 5/31/90 $11,419 $11,611 6/30/90 $11,508 $11,696 7/31/90 $11,648 $11,836 8/31/90 $11,560 $11,795 9/30/90 $11,591 $11,820 10/31/90 $11,793 $11,994 11/30/90 $11,965 $12,167 12/31/90 $11,990 $12,212 1/31/91 $12,177 $12,392 2/28/91 $12,266 $12,504 3/31/91 $12,226 $12,475 4/30/91 $12,373 $12,632 5/31/91 $12,446 $12,696 6/30/91 $12,417 $12,694 7/31/91 $12,530 $12,820 8/31/91 $12,686 $12,986 9/30/91 $12,856 $13,145 10/31/91 $12,929 $13,245 11/30/91 $12,937 $13,287 12/31/91 $13,235 $13,585 1/31/92 $13,235 $13,611 2/29/92 $13,205 $13,620 3/31/92 $13,169 $13,575 4/30/92 $13,266 $13,694 5/31/92 $13,412 $13,817 6/30/92 $13,615 $14,016 7/31/92 $14,068 $14,383 8/31/92 $13,850 $14,275 9/30/92 $13,975 $14,365 10/31/92 $13,830 $14,319 11/30/92 $14,047 $14,492 12/31/92 $14,173 $14,593 1/31/93 $14,388 $14,750 2/28/93 $14,876 $15,135 3/31/93 $14,640 $14,963 4/30/93 $14,753 $15,060 5/31/93 $14,795 $15,113 6/30/93 $15,033 $15,317 7/30/93 $14,986 $15,327 8/31/93 $15,294 $15,536 9/30/93 $15,515 $15,648 10/31/93 $15,533 $15,671 11/30/93 $15,407 $15,626 12/31/93 $15,688 $15,840 1/31/94 $15,860 $15,989 2/28/94 $15,473 $15,690 3/31/94 $15,064 $15,340 4/29/94 $15,124 $15,495 5/31/94 $15,232 $15,582 6/30/94 $15,181 $15,546 7/29/94 $15,411 $15,715 8/31/94 $15,464 $15,791 9/30/94 $15,327 $15,672 10/31/94 $15,148 $15,584 11/30/94 $14,939 $15,485 12/30/94 $15,104 $15,621 1/31/95 $15,390 $15,771 2/28/95 $15,682 $16,000 3/31/95 $15,896 $16,254 4/28/95 $15,958 $16,298 5/31/95 $16,310 $16,655 6/30/95 $16,228 $16,668 7/31/95 $16,400 $16,901 8/31/95 $16,560 $17,072 9/30/95 $16,685 $17,123 10/31/95 $16,862 $17,195 11/30/95 $17,036 $17,341 12/31/95 $17,146 $17,437 1/31/96 $17,343 $17,644 2/29/96 $17,286 $17,584 3/31/96 $17,030 $17,491 4/30/96 $17,041 $17,465 5/31/96 $17,049 $17,444 6/30/96 $17,144 $17,568 7/31/96 $17,359 $17,684 8/31/96 $17,351 $17,721 9/30/96 $17,484 $17,854 10/31/96 $17,666 $18,020 11/30/96 $17,942 $18,270 12/31/96 $17,872 $18,243 1/31/97 $17,897 $18,292 2/28/97 $18,015 $18,422 Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. The line representing the fund's total return includes operating expenses (such as transaction costs and management fees) that reduce returns, while the total return line of the index does not. PORTFOLIO AT A GLANCE 2/28/97 8/31/96 Number of Securities 141 142 Weighted Average Maturity 7.6 years 7.7 years Average Duration 5.4 years 5.4 years Expense Ratio 0.47%* 0.48% * Annualized. 12 California Intermediate-Term Tax-Free American Century Investments CALIFORNIA INTERMEDIATE-TERM TAX-FREE Management Q & A An interview with Colleen Denzler, a senior portfolio manager on the California Tax-Free and Municipal funds management team. How did the fund perform? For the six-month period ended February 28, 1997, the fund's total return of 3.81% was slightly lower than the 3.95% average return of the 31 "California Intermediate Municipal Debt Funds" tracked by Lipper Analytical Services. From a one-year perspective, the fund tracked its peer group average even more closely, returning 4.21% compared to the 4.29% average return posted by the funds in its Lipper category. (See the Total Returns table on the previous page for other fund performance comparisons.) The fund's returns typically seem to "hug the average" for the fund's investment category. Why? That's the way the fund was designed. Our goal is to minimize price volatility while offering shareholders a competitive yield. The fund is more conservatively styled than many of the funds in its Lipper category, which includes funds with a relatively broad range of investment policies and objectives. Because of the fund's conservative stance, it will tend to outperform its category average in a declining market and lag the category average during municipal market rallies. Since the municipal bond market experienced both a significant rally and a significant sell-off during the six-month period, the fund's return ended up tracking its peer group average. [bar graph - data below] CALIFORNIA INTERMEDIATE-TERM TAX-FREE FISCAL YEAR-BY-YEAR RETURNS (periods ended August 31) Intermediate-Term Tax-Free Lehman 5-Year GO Index 1987* 3.53% 6.76% 1988 3.90% 4.05% 1989 7.28% 7.19% 1990 6.16% 5.91% 1991 9.74% 10.09% 1992 9.18% 9.93% 1993 10.42% 8.83% 1994 1.11% 1.64% 1995 7.09% 8.12% 1996 4.79% 3.80% This chart illustrates the historical year-by-year volatility of the fund's returns over the past 10 years and compares them with the index's returns. The fund's total returns include operating expenses, while the index's do not. See page 40 for a definition of the index. Semiannual Report California Intermediate-Term Tax-Free 13 CALIFORNIA INTERMEDIATE-TERM TAX-FREE How was the fund positioned during the period? There has been a growing perception in the market that slowly building inflationary pressures would cause the Federal Reserve to raise short-term interest rates. (The Fed did in fact raise rates a quarter of a percent on March 25.) This uncertainty in the market caused us to maintain a conservative stance, keeping the fund's duration at 5.4 years--a neutral position in comparison with its peers. This neutral stance limited the fund's vulnerability to rising interest rates. In the fund's August 31, 1996 annual report, we discussed the fact that the fund is now allowed to invest in BBB-rated securities. Have you added any of these lower-rated securities to the fund's portfolio? Yes. The fund's portfolio now includes a 1% weighting in BBB bonds. We'd like to add more of these lower-quality securities to the portfolio, but, frankly, with credit quality spreads (the differences between the yields of high-rated securities and those of lower-rated securities) as narrow as they are currently, we don't think it makes sense to take on greater credit risk without adequate yield compensation for our shareholders. Historically, an investor could get a significant bump up in yield for taking on the additional credit risk inherent in a BBB bond. Now an investor may get very little extra yield for the added risk. What has caused this narrowing of credit quality spreads? Several factors have led to the compression of credit quality spreads. In the nation overall, and in California in particular, strong economic growth has caused a general improvement in the credit quality of municipal issues. Municipal bond insurers, trying to gain market share, have insured more lower-quality issues, adding strength to the narrowing trend. Municipal fund managers, who have increasingly looked to higher-yielding securities to boost fund returns, have found themselves competing for a shrinking number of high-yield issues. Following the simple dynamics of supply and demand, more buyers competing for fewer bonds means higher prices and lower yields for lower-quality bonds. What is your outlook for California municipal securities going forward? As in the past, the general outlook for interest rates is uncertain. The economy continues to show solid growth, but inflation has remained relatively low. The question is, are these conditions sustainable? The Federal Reserve doesn't seem to think so--in March, it made a pre-emptive strike against inflation, ratcheting short-term interest rates up by a quarter of a percent. Many Fed watchers suspect this may be the first in a series of rate hikes. [pie charts - data below] PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97) Revenue 55% COPs/Leases 22% Prerefunded/ETM 9% GO 6% Land-Secured 6% Other 2% PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/96) Revenue 57% COPs/Leases 22% Prerefunded/ETM 7% GO 7% Land-Secured 5% Other 2% 14 California Intermediate-Term Tax-Free American Century Investments CALIFORNIA INTERMEDIATE-TERM TAX-FREE If U.S. economic growth slows, the municipal market could rally. But with wage pressures increasing the threat of inflation, any signs of an overheating economy could cause increased anxiety among municipal investors, pushing bond prices lower. We expect municipal issuance to remain light in the coming months, which may provide some support for municipal prices. We also expect the strengthening California economy to keep credit quality spreads for California issues very narrow. What are your plans for the fund over the next six months? Given the likelihood of higher rates, we will probably maintain the fund's neutral duration, and we may even shorten its duration slightly. We would like to increase the fund's holdings in BBB bonds if we can find issues that meet our credit criteria and represent good value. Toward this end, our municipal credit research team will be a key resource as they search for undervalued securities that we believe have the potential to appreciate. [pie charts - data below] PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97) AAA 69% AA 13% A 17% BBB 1% PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/96) AAA 69% AA 14% A 17% Semiannual Report California Intermediate-Term Tax-Free 15 SCHEDULE OF INVESTMENTS CALIFORNIA INTERMEDIATE-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES $ 1,520,000 Alameda County Certificates of Participation, (Santa Rita Jail Project), 5.375%, 6-1-09 (MBIA) $1,549,974 4,060,000 Burbank Redevelopment Agency West Olive Tax Allocation, Series 1994, 6.50%, 12-1-01 (AMBAC) 4,437,580 1,175,000 California Educational Facility Auth. Rev., (Santa Clara University), 5.25%, 9-1-10 (MBIA) 1,175,494 5,000,000 California Educational Facility Auth. Rev., (Stanford University), 5.25%, 12-1-99 5,171,300 2,145,000 California Educational Facility Auth. Rev., Series 1989, (University of San Diego), 6.75%, 10-1-02 (MBIA) 2,341,890 3,145,000 California Health Facilities Financing Auth. Rev., Series A, (Insured Health Facility), 6.00%, 7-1-04 (AMBAC) 3,396,160 1,500,000 California Health Facilities Financing Auth. Rev., Series A, (Kaiser Permanente), 6.70%, 10-1-99 1,588,230 1,500,000 California Health Facilities Financing Auth. Rev., Series A, (Pomona Valley Hospital Medical Center), 6.75%, 1-1-07 (MBIA) 1,609,770 1,280,000 California Health Facilities Financing Auth. Rev., Series A, (St. Francis Memorial Hospital), 5.25%, 11-1-99 1,304,179 1,660,000 California Health Facilities Financing Auth. Rev., Series A, (St. Francis Memorial Hospital), 5.375%, 11-1-00 1,697,300 1,745,000 California Health Facilities Financing Auth. Rev., Series A, (St. Francis Memorial Hospital), 5.625%, 11-1-02 1,806,878 1,560,000 California Health Facilities Financing Auth. Rev., Series A, (St. Francis Memorial Hospital), 5.75%, 11-1-04 1,623,617 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,250,000 California Public Works Board Energy-Efficiency Rev. Certificates of Participation, Series 1991 A, (Pooled Project), 6.00%, 9-1-99 $3,391,050 2,000,000 California Public Works Board Lease Rev., Series A, (University of California), 4.72%, 9-1-00(1) 1,697,880 3,500,000 California Public Works Board Lease Rev. Certificates of Participation, Series A, (University of California), 5.375%, 10-1-17 (AMBAC) 3,385,585 2,500,000 California State Department of Veteran's Affairs Rev., Series A, 6.20%, 8-1-98 2,570,100 4,795,000 California State Department Water Resource Central Valley Project Rev., Series J-2, (Water System), 5.80%, 12-1-04 5,164,215 3,710,000 California State Franchise Tax Board Certificates of Participation, 6.90%, 10-1-06 3,990,958 3,000,000 California State Public Works Board Lease Rev., Series 1992 A, (California State University), 5.70%, 10-1-99 3,111,510 3,500,000 California State Public Works Board Lease Rev. Certificates of Participation, Series A, (Department of Corrections), 5.25%, 12-1-05 (AMBAC) 3,625,195 4,520,000 California State Public Works Board Lease Rev. Certificates of Participation, (Secretary of State), 6.20%, 12-1-05 (AMBAC) 4,979,639 1,000,000 California State Public Works Board Lease Rev., Series A, (University of California Project), 5.90%, 12-1-03 (AMBAC) 1,077,650 3,000,000 California State Public Works Board Lease Rev., Series A, (University of California), 6.15%, 11-1-09 3,209,550 5,000,000 California State Universities and Colleges Rev., 5.00%, 11-1-04 (FGIC) 5,106,700 See Notes to Financial Statements 16 California Intermediate-Term Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA INTERMEDIATE-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 8,000,000 California Statewide Communities Development Auth. Certificates of Participation, (California Lutheran Homes), 5.375%, 11-15-06 $8,135,600 2,385,000 California Statewide Communities Development Auth. Certificates of Participation, (St. Joseph Health System), 6.50%, 7-1-03 2,606,948 2,545,000 Capistrano Unified Public Financing Auth. Special Tax Rev., Series A, (First Lien), 6.00%, 9-1-06 (AMBAC) 2,760,798 2,945,000 Castaic Lake Water Agency Certificates of Participation, Series A, 5.75%, 8-1-01 (MBIA) 3,106,791 1,000,000 Castaic Lake Water Agency Certificates of Participation, Series A, 7.25%, 8-1-09 (MBIA) 1,193,980 2,075,000 Chabot Las Positas Community College District Certificates of Participation, 5.50%, 12-1-10 (FSA) 2,150,966 1,465,000 City of Woodland Waste Water System Refunding Certificates of Participation, 6.00%, 3-1-06 (AMBAC) 1,597,377 7,935,000 Contra Costa California Transportation Auth. Sales Tax Rev., Series A, 6.00%, 3-1-05 (FGIC) 8,603,048 1,000,000 Contra Costa California Transportation Auth. Sales Tax Rev., Series A, 6.00%, 3-1-07 (FGIC) 1,089,090 2,585,000 Contra Costa County Certificates of Participation (Merrithew Memorial Hospital), 6.00%, 11-1-07 (MBIA) 2,789,965 2,500,000 Contra Costa County Public Facility Certificates of Participation, 7.45%, 6-1-00 (BIGI) 2,707,000 1,065,000 Contra Costa County Water District Rev., Series A, 7.00%, 10-1-00, Prerefunded at 102% of Par(2) 1,181,564 1,220,000 Coronado Community Development Agency Tax Allocation, 6.00%, 9-1-08 (FSA) 1,328,568 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,000,000 East Bay Municipal Utilities District Wastewater System Rev., 6.00%, 6-1-02 (FGIC) 2,147,740 2,570,000 East Bay Municipal Utilities District Wastewater System Rev., 6.00%, 6-1-05 2,753,524 2,000,000 East Bay Municipal Utilities District Wastewater System Rev., 5.00%, 6-1-06 (MBIA) $2,028,720 6,850,000 Imperial Irrigation District Certificates of Participation, (Electrical System Project), 6.50%, 11-1-07 (MBIA) 7,761,187 2,770,000 Kern High School District GO, 6.30%, 8-1-11 (MBIA) 3,068,938 1,750,000 Loma Linda Hospital Rev., (University Medical Center), 6.95%, 12-1-05 (AMBAC) 1,889,178 2,300,000 Los Angeles Airport Rev., Series A, 6.00%, 5-15-05 (FGIC) 2,487,772 4,000,000 Los Angeles Capital Asset Lease Rev. Certificates of Participation, 5.875%, 12-1-05 (AMBAC) 4,280,560 1,000,000 Los Angeles Convention Center Certificates of Participation, 6.75%, 8-15-01 (AMBAC) 1,097,890 1,155,000 Los Angeles Convention and Exhibition Center Auth. Lease Rev., Series A, 6.00%, 8-15-10 (MBIA) 1,255,924 4,000,000 Los Angeles County Correctional Facility Project Certificates of Participation, 6.00%, 9-1-99 (MBIA)(2) 4,193,480 1,000,000 Los Angeles County Metropolitan Transit Auth. Sales Tax Rev., 5.90%, 7-1-06 (AMBAC) 1,085,800 1,900,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series A, (Proposition A), 5.50%, 7-1-08 (MBIA) 1,970,509 1,000,000 Los Angeles County Public Properties Certificates of Participation, 6.25%, 4-1-00 (BIGI) 1,060,150 3,900,000 Los Angeles County Transportation Commission Certificates of Participation, Series B, 6.00%, 7-1-01 4,084,275 See Notes to Financial Statements Semiannual Report California Intermediate-Term Tax-Free 17 SCHEDULE OF INVESTMENTS CALIFORNIA INTERMEDIATE-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 4,765,000 Los Angeles County Transportation Commission Certificates of Participation, Series B, 6.20%, 7-1-03 $5,059,858 2,000,000 Los Angeles County Transportation Commission Certificates of Participation, Series B, 6.25%, 7-1-04 2,176,000 4,000,000 Los Angeles County Transportation Commission Sales Tax Rev., 5.875%, 7-1-02 (FGIC) 4,275,920 2,500,000 Los Angeles County Transportation Commission Sales Tax Rev., Series A, (Proposition A), 6.40%, 7-1-02 2,719,425 3,515,000 Los Angeles County Transportation Commission Sales Tax Rev., Series A, (Proposition C), 6.20%, 7-1-04 3,819,364 3,765,000 Los Angeles County Transportation Commission Sales Tax Rev., Series A, (Proposition C), 6.40%, 7-1-06 4,175,046 1,000,000 Los Angeles Department of Water and Power Electric Rev., 5.70%, 1-15-05 (MBIA) 1,061,720 1,000,000 Los Angeles Department of Water and Power Rev., 6.30%, 4-15-06 (FGIC) 1,078,360 4,685,000 Los Angeles Municipal Improvement Corporation Rev., 6.00%, 2-1-03 (MBIA) 5,040,451 2,000,000 Los Angeles Rev. Certificates of Participation, 6.40%, 11-1-97 2,036,380 2,045,000 Los Angeles Wastewater System Rev., Series A, 6.60%, 2-1-00 (MBIA) 2,172,179 1,000,000 Los Angeles Wastewater System Rev., Series B, 6.80%, 6-1-02 1,084,610 4,780,000 Los Angeles Wastewater System Rev., Series B, 6.20%, 6-1-06 (AMBAC) 5,144,427 2,785,000 Metropolitan Water District of Southern California, 5.00%, 7-1-09 2,760,798 Principal Amount Value - -------------------------------------------------------------------------------- $ 7,190,000 Metropolitan Water District of Southern California Rev., 6.50%, 7-1-01, Prerefunded at 102% of Par(2) $7,943,009 1,000,000 Metropolitan Water District of Southern California Rev., 6.625%, 7-1-01, Prerefunded at 102% of Par(2) 1,109,430 4,590,000 Modesto, Stockton, Redding Public Power Agency Rev., Series G, (San Juan Project), 5.25%, 7-1-11 (MBIA) 4,578,204 1,100,000 Mojave California Water Agency Improvement District GO, (Morongo Basin), 5.40%, 9-1-08 (FGIC) 1,133,187 5,000,000 Northern California Power Agency Rev., (Geothermal Project 3), 5.50%, 7-1-05 (AMBAC) 5,250,200 1,000,000 Oakland Pension Financing Auth. Rev. Certificates of Participation, Series 1988, 7.20% , 8-1-00 (FGIC) 1,059,380 1,165,000 Ontario Redevelopment Financing Auth. Local Agency Rev., Series A, 5.80%, 9-2-06 (FSA) 1,240,003 7,500,000 Orange County Transportation Sales Tax Rev., 5.50%, 2-15-01 (AMBAC) 7,805,250 1,645,000 Orange County Transportation Sales Tax Rev., 5.75%, 2-15-05 1,731,576 3,000,000 Orange County Transportation Sales Tax Rev., 6.00%, 2-15-07 (FGIC) 3,249,030 1,250,000 Orange County Water District Certificates of Participation, Series 1990, 7.00%, 8-15-00, Prerefunded at 102% of Par(2) 1,387,863 1,330,000 Oxnard Harbor District Rev., Series A, 7.00%, 8-1-04 (FSA) 1,524,738 1,000,000 Ramona Municipal Water District Certificates of Participation, 6.90%, 10-1-01 (AMBAC) 1,102,050 1,060,000 Redding Joint Powers Financing Auth. Electric System Rev., Series A, 6.25%, 6-1-07 (MBIA) 1,175,561 See Notes to Financial Statements 18 California Intermediate-Term Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA INTERMEDIATE-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 1,010,000 Richmond Joint Powers Financing Auth. Rev. Certificates of Participation, Series A, 5.30%, 5-15-06 $ 1,018,706 2,080,000 Riverside County Public Financing Auth. Special Tax Rev., Series A, 5.25%, 9-1-04 (MBIA) 2,163,012 4,705,000 Riverside County Transit Sales Tax, 6.00%, 6-1-09 (FGIC) 5,125,157 4,000,000 Riverside County Transit Sales Tax Rev., Series A, 6.50%, 6-1-01 (AMBAC)(2) 4,337,960 1,225,000 Riverside County Transportation Commission Sales Tax Rev., 5.60%, 6-1-05 (AMBAC) 1,298,353 2,000,000 Riverside County Transportation Commission Sales Tax Rev., Series A, 6.625%, 6-1-01, Prerefunded at 102% of Par(2) 2,219,000 1,025,000 Rocklin Unified School District Community Facility, 5.20%, 9-1-09 (MBIA) 1,029,756 5,710,000 Sacramento Municipal Utility District Electric Rev., Series C, 5.75%, 11-15-07 (MBIA) 6,020,053 6,825,000 Sacramento Municipal Utility District Electric Rev., Series 1991 Z, 6.00%, 7-1-02 (FGIC) 7,335,988 9,965,000 Sacramento Schools Auth. Rev., (Workers Compensation Program C), 5.75%, 6-1-03(2) 10,608,041 1,205,000 Saddleback Valley Unified School District Public Financing Special Tax Rev., 6.00%, 9-1-11 (FSA) 1,305,557 5,000,000 San Bernardino County Certificates of Participation, Series A, (Medical Center Project), 5.75%, 8-1-07 (MBIA) 5,345,600 1,500,000 San Diego County Regional Transportation Commission Sales Tax Rev., Series A, 7.75%, 4-1-99(2) 1,612,500 3,800,000 San Diego County Water Auth. Certificates of Participation, Series A, 6.00%, 5-1-02 4,054,828 Principal Amount Value - -------------------------------------------------------------------------------- $ 7,200,000 San Diego County Water Auth. Certificates of Participation, Series A, 6.125%, 5-1-03 $7,714,224 4,400,000 San Diego County Water Auth. Certificates of Participation, Series A, 6.40%, 5-1-08 4,710,244 5,090,000 San Diego Public Facility Financing Auth. Sewer Rev., Series 1995, 4.875%, 5-15-09 (FGIC) 4,975,170 3,505,000 San Diego Regional Transportation Commission Sales Tax Rev., Series 1992, 5.50%, 4-1-04 (FGIC) 3,690,625 1,175,000 San Diego Regional Transportation Commission Sales Tax Rev., Series 1992, 5.50%, 4-1-05 (FGIC) 1,237,204 4,000,000 San Diego Regional Transportation Commission Sales Tax Rev., Series 1994 A, 6.00%, 4-1-04 (FGIC) 4,326,600 2,000,000 San Diego Water Auth. Rev. Certificates of Participation, 5.681%, 4-23-08 (FGIC) 2,095,920 1,250,000 San Francisco Bay Area Rapid Transit Sales Tax Rev., 6.40%, 7-1-05 (FGIC) 1,361,938 1,000,000 San Francisco Bay Area Rapid Transit Sales Tax Rev., 5.35%, 7-1-07 (FGIC) 1,033,720 2,100,000 San Francisco City and County Airport Commission Rev. Refunding, 6.35%, 5-1-03 (MBIA) 2,304,309 2,410,000 San Francisco City and County Airport Commission Rev., Series Issue 2, 6.35%, 5-1-01 (MBIA) 2,596,317 3,405,000 San Francisco Port Commission Rev., 5.625%, 7-1-02 3,545,490 2,275,000 San Jose California Redevelopment Agency Tax Allocation, 6.00%, 8-1-08 (MBIA) 2,478,340 3,300,000 San Jose California Redevelopment Agency Tax Allocation, 6.00%, 8-1-09 (MBIA) 3,597,726 See Notes to Financial Statements Semiannual Report California Intermediate-Term Tax-Free 19 SCHEDULE OF INVESTMENTS CALIFORNIA INTERMEDIATE-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 3,700,000 San Jose California Redevelopment Agency Tax Allocation, (Merged Area Redevelopment Project), 6.00%, 8-1-06 (MBIA) $4,025,970 6,400,000 San Jose California Redevelopment Agency Tax Allocation, (Merged Area Redevelopment Project), 6.00%, 8-1-07 (MBIA) 6,977,280 3,875,000 San Jose California Redevelopment Agency Tax Allocation, Series A, 6.00%, 8-1-02 (MBIA)(2) 4,154,775 3,950,000 San Jose Financing Auth. Rev. Certificates of Participation, (Convention Center), 6.00%, 9-1-05 4,186,526 2,000,000 San Jose Financing Auth. Rev. Certificates of Participation, Series C, (Convention Center Project), 6.30%, 9-1-09 2,114,620 4,580,000 San Jose Financing Auth. Rev. Certificates of Participation, Series 1993, (Convention Center), 6.10%, 9-1-06 4,814,130 3,910,000 San Mateo County California Transportation Sales Tax Rev., Series A, 5.00%, 6-1-08 (MBIA) 3,928,103 1,015,000 Santa Ana Police Administration Certificates of Participation, Series A, 5.50%, 7-1-07 (MBIA) 1,056,666 2,215,000 Santa Clara County Multi-Facilities Project Certificates of Participation, 6.00%, 5-15-01 (AMBAC) 2,358,111 1,230,000 Santa Clara County Multi-Facilities Project Certificates of Participation, 6.00%, 5-15-05 (AMBAC) 1,317,366 1,000,000 Signal Hill California Redevelopment Agency Tax Allocation, Series B, 7.40%, 10-1-15, Prerefunded at 100% of Par(2) 1,107,540 1,785,000 South Sutter Hydroelectric Refunding Rev., 6.80%, 8-1-01 (FGIC) 1,918,125 2,000,000 Southern California Public Power Auth. Rev., 6.75%, 7-1-00 2,143,140 1,500,000 Southern California Public Power Auth. Rev., Series 1988 A, 7.00%, 7-1-00 1,585,740 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,000,000 Southern California Public Power Auth. Rev., Series 1989, 6.75%, 7-1-01 $ 3,258,750 3,090,000 Southern California Public Power Auth. Rev., Series 1992, 5.625%, 7-1-03 (MBIA) 3,278,861 4,065,000 Southern California Rapid Transit District Certificates of Participation, 6.20%, 7-1-02 (MBIA) 4,397,598 1,500,000 Southern California Rapid Transit District Certificates of Participation, (Workers Compensation), 6.50%, 7-1-07 (MBIA) 1,633,740 5,000,000 Southern California Rapid Transit District Certificates of Participation, (Workers Compensation), 6.40%, 7-1-04 (MBIA) 5,402,550 2,000,000 Stanislaus County Refunding Certificates of Participation, 5.50%, 5-1-06 (MBIA) 2,094,460 3,000,000 State of California GO, 6.80%, 5-1-01 (AMBAC) 3,280,380 10,000,000 State of California GO, 6.50%, 3-1-02 (AMBAC) 10,931,400 2,400,000 State of California GO, 6.00%, 9-1-03 (MBIA) 2,597,640 1,950,000 State of California GO, 6.75% 2-1-06 2,211,963 1,855,000 State of California GO, 7.00%, 11-1-06 (FGIC) 2,166,937 1,975,000 State of California GO, 5.50%, 4-1-07 (MBIA) 2,069,168 1,150,000 Taft Public Financing Auth. Lease Rev. Certificates of Participation, Series A, (Community Correctional Facility Project), 5.50%, 1-1-06 1,159,522 3,800,000 University of California Multipurpose Project Rev., Series A, 6.00%, 9-1-02 (MBIA) 4,092,220 1,950,000 University of California Rev., (University of California Medical Center), 5.60%, 7-1-09 (AMBAC) 2,018,250 2,510,000 Watsonville California Hospital Insured Rev., Series A, (Watsonville Community Hospital), 5.45%, 7-1-03 2,570,566 See Notes to Financial Statements 20 California Intermediate-Term Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA INTERMEDIATE-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value $ 3,980,000 Whittier California Health Facility Rev., (Presbyterian Intercommunity), 6.00%, 6-1-06 (MBIA) $ 4,310,061 ----------- Total Municipal Securities--98.8% 430,628,261 (Cost $413,883,049) ----------- SHORT-TERM MUNICIPAL SECURITIES 1,000,000 Irvine Ranch Water District, VRDN, Series 1991 C, 3.25%, 3-3-97 (LOC: Bank of America) 1,000,000 4,300,000 Orange County Sanitation District Certificates of Participation, VRDN, 3.40%, 3-3-97 4,300,000 ----------- Total Short-Term Municipal Securites-1.2% 5,300,000 (Cost $5,300,000) ----------- Total Investment Securites - 100.0% $435,928,261 (Cost $419,183,049) =========== Notes to Schedule of Investments AMBAC = AMBAC Indemnity Corp. BIGI = Bond Investor's Guaranty Inc. FGIC = Financial Guaranty Insurance Company FSA = Financial Security Association GO = General Obligation MBIA = Municipal Bond Insurance Association VRDN = Variable Rate Demand Note. Interest reset dates are indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective February 28, 1997. (1) These securities are zero-coupon municipal bonds. The yield to maturity at current market value is shown instead of a stated coupon rate. Zero-coupon securities are purchased at a substantial discount from their value at maturity. (2) Escrowed in U.S. Government Securities. See Notes to Financial Statements Semiannual Report California Intermediate-Term Tax-Free 21
CALIFORNIA LONG-TERM TAX-FREE 30-Day 30-Day Tax-Equivalent Yields SEC 34.70% 37.42% 41.95% 45.22% Yield Tax Bracket Tax Bracket Tax Bracket Tax Bracket ----- ----------- ----------- ----------- ----------- CURRENT YIELD (as of February 28, 1997) California Long-Term Tax-Free .............. 4.90% 7.50% 7.83% 8.44% 8.94% Yields are defined in the Glossary on page 41.
AVERAGE ANNUAL RETURNS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- ------ ------- ------- -------- TOTAL RETURNS (as of February 28, 1997) California Long-Term Tax-Free ............... 5.19% 5.01% 5.70% 7.56% 6.78% Lehman Long-Term Municipal Bond Index ....... 5.99% 6.18% 6.46% 8.33% 8.34% Average California Municipal Debt Fund(1) ... 4.76% 4.81% 5.10% 6.94% 6.67% Fund's Ranking Among California Municipal Debt Funds(1) ..................... -- 43 out of 98 16 out of 68 6 out of 50 15 out of 30 (1)According to Lipper Analytical Services.
See pages 40-41 for more information about returns, the comparative index and Lipper fund rankings. [line graph - data below] GROWTH OF $10,000 OVER TEN YEARS Value on 2/28/97 $10,000 investment made 2/28/87 Lehman Long-Term Municipal Index Long-Term Tax-Free 2/28/87 $10,000 $10,000 3/31/87 $9,853 $9,955 4/30/87 $9,300 $9,127 5/31/87 $9,197 $9,015 6/30/87 $8,904 $9,261 7/31/87 $8,987 $9,325 8/31/87 $9,027 $9,338 9/30/87 $8,658 $8,888 10/31/87 $8,658 $8,810 11/30/87 $8,934 $9,125 12/31/87 $9,051 $9,272 1/31/88 $9,412 $9,672 2/29/88 $9,523 $9,803 3/31/88 $9,386 $9,641 4/30/88 $9,461 $9,665 5/31/88 $9,470 $9,678 6/30/88 $9,655 $9,789 7/31/88 $9,720 $9,835 8/31/88 $9,758 $9,862 9/30/88 $9,979 $9,996 10/31/88 $10,206 $10,190 11/30/88 $10,097 $10,095 12/31/88 $10,272 $10,239 1/31/89 $10,514 $10,449 2/28/89 $10,367 $10,358 3/31/89 $10,375 $10,352 4/30/89 $10,680 $10,569 5/31/89 $10,927 $10,765 6/30/89 $11,093 $10,915 7/31/89 $11,240 $11,068 8/31/89 $11,069 $10,886 9/30/89 $11,035 $10,842 10/31/89 $11,181 $10,967 11/30/89 $11,419 $11,160 12/31/89 $11,503 $11,238 1/31/90 $11,387 $11,087 2/28/90 $11,515 $11,228 3/31/90 $11,527 $11,227 4/30/90 $11,386 $11,048 5/31/90 $11,708 $11,379 6/30/90 $11,823 $11,492 7/31/90 $12,032 $11,687 8/31/90 $11,745 $11,394 9/30/90 $11,727 $11,366 10/31/90 $11,975 $11,654 11/30/90 $12,279 $11,937 12/31/90 $12,333 $11,980 1/31/91 $12,498 $12,146 2/28/91 $12,586 $12,184 3/31/91 $12,616 $12,189 4/30/91 $12,812 $12,408 5/31/91 $12,962 $12,521 6/30/91 $12,938 $12,456 7/31/91 $13,138 $12,633 8/31/91 $13,327 $12,792 9/30/91 $13,520 $13,000 10/31/91 $13,661 $13,115 11/30/91 $13,678 $13,062 12/31/91 $14,004 $13,394 1/31/92 $13,996 $13,346 2/29/92 $14,018 $13,385 3/31/92 $14,053 $13,386 4/30/92 $14,187 $13,501 5/31/92 $14,394 $13,676 6/30/92 $14,673 $13,931 7/31/92 $15,211 $14,393 8/31/92 $15,007 $14,145 9/30/92 $15,073 $14,239 10/31/92 $14,822 $13,887 11/30/92 $15,239 $14,295 12/31/92 $15,437 $14,486 1/31/93 $15,582 $14,632 2/28/93 $16,307 $15,321 3/31/93 $16,110 $15,113 4/30/93 $16,331 $15,343 5/31/93 $16,466 $15,423 6/30/93 $16,775 $15,713 7/30/93 $16,792 $15,705 8/31/93 $17,222 $16,129 9/30/93 $17,446 $16,347 10/31/93 $17,479 $16,349 11/30/93 $17,268 $16,141 12/31/93 $17,713 $16,478 1/31/94 $17,922 $16,707 2/28/94 $17,329 $16,319 3/31/94 $16,294 $15,538 4/29/94 $16,420 $15,509 5/31/94 $16,612 $15,704 6/30/94 $16,413 $15,633 7/29/94 $16,834 $15,966 8/31/94 $16,870 $16,003 9/30/94 $16,478 $15,725 10/31/94 $15,972 $15,432 11/30/94 $15,551 $15,137 12/30/94 $16,103 $15,405 1/31/95 $16,811 $15,896 2/28/95 $17,496 $16,347 3/31/95 $17,706 $16,504 4/28/95 $17,697 $16,517 5/31/95 $18,451 $17,080 6/30/95 $18,111 $16,788 7/31/95 $18,203 $16,900 8/31/95 $18,460 $17,157 9/30/95 $18,604 $17,311 10/31/95 $19,054 $17,680 11/30/95 $19,546 $18,140 12/31/95 $19,851 $18,456 1/31/96 $19,936 $18,496 2/29/96 $19,693 $18,351 3/31/96 $19,333 $17,930 4/30/96 $19,255 $17,822 5/31/96 $19,265 $17,856 6/30/96 $19,562 $18,078 7/31/96 $19,755 $18,299 8/31/96 $19,730 $18,316 9/30/96 $20,168 $18,598 10/31/96 $20,414 $18,817 11/30/96 $20,853 $19,201 12/31/96 $20,727 $19,115 1/31/97 $20,686 $19,101 2/28/97 $20,288 $19,267 Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. The line representing the fund's total return includes operating expenses (such as transaction costs and management fees) that reduce returns, while the total return line of the index does not. PORTFOLIO AT A GLANCE 2/28/97 8/31/96 Number of Securities 90 85 Weighted Average Maturity 19.2 years 18.8 years Average Duration 7.7 years 8.0 years Expense Ratio 0.47%* 0.48% * Annualized. 22 California Long-Term Tax-Free American Century Investments CALIFORNIA LONG-TERM TAX-FREE Management Q & A An interview with Dave MacEwen, vice president and senior portfolio manager on the California Tax-Free and Municipal funds management team. How did the fund perform? The fund managed a strong performance in comparison with its peers, but underperformed its benchmark index. For the six-month period ended February 28, 1997, the fund's total return was 5.19%, compared with the 4.76% average return of the 100 "California Municipal Debt Funds" tracked by Lipper Analytical Services and the 5.99% return of the Lehman Long-Term Municipal Bond Index. (See the Total Returns table on the previous page for other fund performance comparisons.) Why did the fund perform well against its peers? One contributing factor was the fund's relatively conservative positioning during the period compared with some of the funds in its Lipper category. This conservative approach allowed the fund to perform well despite the market's shifting interest rate expectations (see page 3). The fund's sizable exposure to A-rated bonds also helped. These bonds were in fairly high demand from individual investors during much of the period. As a result, we were able to sell some of these securities at a profit, increasing the fund's returns. [bar graph - data below] CALIFORNIA LONG-TERM TAX-FREE FISCAL YEAR-BY-YEAR RETURNS (Periods ended August 31) Long-Term Tax-Free Lehman Long-Term Municipal Index 1987* -0.31% 3.48% 1988 5.61% 8.10% 1989 10.39% 13.44% 1990 4.66% 6.11% 1991 12.26% 13.47% 1992 10.58% 12.60% 1993 14.02% 14.76% 1994 -0.78% -2.05% 1995 7.21% 9.43% 1996 6.77% 6.88% This chart illustrates the historical year-by-year volatility of the fund's returns over the past 10 years and compares them with the index's returns. The fund's total returns include operating expenses, while the index's do not. See page 40 for a definition of the index. Semiannual Report California Long-Term Tax-Free 23 CALIFORNIA LONG-TERM TAX-FREE Did you change the fund's positioning over the past six months? We made only slight adjustments to the fund's positioning. Choosing a more conservative approach, we maintained the fund's duration in a relatively narrow range around eight years during the six-month period. The lack of new municipal securities made it difficult to significantly alter the fund's structure. Therefore, the fund remained slightly barbelled, but with some laddered maturities. If not by duration management or portfolio structuring, how did you add value to the fund? Careful selection of attractively priced securities was the main vehicle we used to enhance the fund's returns. However, improving credit conditions in California made this task more difficult. That's because the spread, or interest rate difference, between comparable-maturity municipal securities with different credit ratings continued to decrease as investors reached for higher yields. Thanks to our strong municipal credit research team, we were able to find many securities that we believed were undervalued and had the potential to appreciate. Was the credit team instrumental in locating the lower-rated municipal securities now held in the fund's portfolio? Yes. We relied on our credit team to help us evaluate such securities, which we must carefully screen before adding them to the fund's portfolio. Although attractively priced lower-rated municipal securities that measured up to our standards proved relatively few and far between, we did find some in December. The fund's position in lower-rated securities now totals around 5% of net assets. We will likely enlarge this position if appropriate securities become available. Having the ability to purchase the full spectrum of investment grade securities for the fund, including securities rated BBB, has helped us stay in stride with our competitors. What is the outlook for municipal securities going forward? In March of this year, concerns about rising interest rates were finally realized when, for the first time since February 1995, short-term interest rates were ratcheted upward by the Federal Reserve in a preemptive strike against inflation. The question on the minds of many investors is whether this is only the [pie charts - data below] PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 2/28/97) Revenue 44% COPs/Leases 25% Land-Secured 14% Prerefunded/ETM 7% GO 4% Other 6% PORTFOLIO COMPOSITION BY SECURITY TYPE (as of 8/31/96) Revenue 46% COPs/Leases 22% Land-Secured 15% Prerefunded/ETM 7% GO 4% Other 6% 24 California Long-Term Tax-Free American Century Investments CALIFORNIA LONG-TERM TAX-FREE first rate hike in an upward trend. This question is made more unclear because current economic conditions suggest that inflation can remain tame even as the economy flourishes. If U.S. economic growth slows, municipal securities could rally. But, with wage pressures increasing the threat of inflation, any signs of an overheating economy will likely cause increased anxiety among municipal investors, pushing bond prices lower. With this outlook in mind, what are your plans for the fund going forward? With the possibility of higher rates looming, we will likely maintain the fund's neutral stance, lengthening or shortening the fund's duration as conditions warrant. We will also continue to favor a bias toward a barbell portfolio structure until the market breaks out of its current trading range. If the economic outlook does change dramatically, we believe that the fund is positioned with the flexibility to respond appropriately. In addition, we will continue to utilize our credit research team to look for undervalued securities that we believe have the potential to appreciate. [pie charts - data below] PORTFOLIO COMPOSITION BY CREDIT RATING (as of 2/28/97) AAA 42% AA 19% A 34% BBB 5% PORTFOLIO COMPOSITION BY CREDIT RATING (as of 8/31/96) AAA 47% AA 15% A 38% Semiannual Report California Long-Term Tax-Free 25 SCHEDULE OF INVESTMENTS CALIFORNIA LONG-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES $ 2,300,000 Alameda County Certificates of Participation, 5.79%, 6-15-17 (MBIA)(1) $ 722,085 2,700,000 Brea Public Financing Auth. Rev., Series 1991, (Project Area AB), 7.00%, 8-1-15 (MBIA) 2,993,355 2,920,000 Brea Redevelopment Agency Tax, 6.125%, 8-1-13 (MBIA) 3,075,782 2,000,000 California Educational Facility Auth. Rev., (Loyola Marymount University), 5.75%, 10-1-24 1,971,300 2,000,000 California Educational Facility Auth. Rev., (University of San Francisco), 6.00%, 10-1-26 (MBIA) 2,068,280 1,300,000 California Educational Facility Auth. Rev., Series I, (Stanford University), 7.125%, 1-1-19 1,387,945 1,500,000 California Educational Facility Auth. Rev., Series A, (University of Southern California), 5.70%, 10-1-15 1,484,310 5,000,000 California Health Facilities Financing Auth. Rev., 6.00%, 7-1-25 (MBIA) 5,108,900 2,500,000 California Health Facilities Financing Auth. Rev., Series 1985 A, (Adventist Health), 6.75%, 3-1-14 (MBIA) 2,715,750 2,775,000 California Health Facilities Financing Auth. Rev., Series A, (Episcopal Homes), 7.80%, 7-1-15 2,951,546 1,730,000 California Health Facilities Financing Auth. Rev., Series A, (Gould Medical), 7.30%, 4-1-20(2) 1,953,084 1,500,000 California Health Facilities Financing Auth. Rev., Series 1988 A, (H.M. Newhall Memorial Hospital), 8.00%, 10-1-18 1,612,575 6,420,000 California Health Facilities Financing Auth. Rev., (Kaiser Permanente), 7.00%, 10-1-18 6,918,449 3,000,000 California Health Facilities Financing Auth. Rev., Series A, (Kaiser Permanente), 5.45%, 10-1-09(1) 1,524,330 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,915,000 California Health Facilities Financing Auth. Rev., Series A, (Kaiser Permanente), 6.50%, 12-1-20 $ 5,248,532 2,000,000 California Health Facilities Financing Auth. Rev., Series A, 6.75%, 3-1-20 2,139,980 5,165,000 California Health Facilities Financing Auth. Rev., Series C, (St. Francis Memorial Hospital), 5.875%, 11-1-23 5,312,822 1,150,000 California Housing Finance Agency Rev., Series C, (Home Mortgage), 6.80%, 8-1-17 1,212,710 5,125,000 California Housing Finance Agency Rev., Series 1994 G, (Home Mortgage), 7.25%, 8-1-17 5,511,989 1,400,000 California Housing Finance Agency Rev., (Multi-Unit), 6.75%, 2-1-09 1,410,878 1,290,000 California Housing Finance Agency Rev., (Multi-Unit Rental), 6.875%, 2-1-22 1,301,288 1,500,000 California Pollution Control Financing Auth. Rev., Series D, (Southern California Edison), 6.85%, 12-1-08 1,594,425 2,755,000 California State Department of Water, 5.00%, 12-1-19 2,502,422 1,000,000 California State Franchise Tax Board Certificates of Participation, 6.90%, 10-1-06 1,075,730 3,000,000 California State GO, 6.125%, 10-1-11 (AMBAC) 3,285,990 1,410,000 California State GO, Series 1984 B, (New Prison Construction), 10.00%, 8-1-03 1,826,105 1,150,000 California State Public Works Board Lease Rev. Certificates of Participation, Series A, (Department of Corrections State Prisons), 5.25%, 12-1-13 (AMBAC) 1,137,902 17,100,000 California State Public Works Board Lease Rev. Certificates of Participation, Series A, (Department of Corrections State Prisons), 5.25%, 6-1-15 (FSA) 16,773,903 See Notes to Financial Statements 26 California Long-Term Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA LONG-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 California State Public Works Board Lease Rev. Certificates of Participation, Series B, (Various University of California Projects), 6.625%, 12-1-19 $1,150,160 4,000,000 California Statewide Community Development Auth. Certificates of Participation, (Sisters of Charity Leavenworth), 5.00%, 12-1-23 3,559,960 4,500,000 California Statewide Community Development Auth. Certificates of Participation, (United Medical Center), 6.75%, 12-1-01, Prerefunded at 102% of Par(2) 5,044,005 5,695,000 Capistrano California School District Special Tax, (Refunding Issue 1988-1), 6.50%, 9-1-14 (FSA) 6,321,564 4,475,000 City of Pittsburgh Redevelopment Agency, 6.20%, 8-1-19 4,492,050 5,000,000 City of Pittsburgh Redevelopment Agency, 6.25%, 8-1-26 5,042,250 1,000,000 Coachella Valley Water District #71 Certificates of Participation, (Flood Control Project), 6.75%, 10-1-12 1,071,920 8,000,000 Compton Redevelopment Agency Tax Allocation, Series 1995 A, 6.50%, 8-1-13 (FSA) 8,768,240 2,580,000 Concord Joint Power Financing Auth. Lease Rev. Certificates of Participation, Series 1993, (Police Facilities Project), 5.25%, 8-1-13 2,501,232 5,000,000 Irvine Ranch Water District Joint Powers Agency Rev., 7.80%, 2-15-08 (FGIC) 5,167,450 1,900,000 Irvine Ranch Water District Joint Powers Agency Rev., 7.875%, 2-15-23 1,961,503 1,815,000 Kern County High School District GO, 7.15%, 8-1-14, (MBIA)(2) 2,197,293 3,555,000 Long Beach California Water Rev., 6.125%, 5-1-19 3,691,014 1,305,000 Los Altos California Association of Bay Area Governments Certificates of Participation, 5.90%, 5-1-27 1,321,926 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 Los Angeles California Municipal Improvement Corp. Lease Rev., Series A, (Library Project), 7.10%, 6-1-99, Prerefunded at 102% of Par(2) $1,085,990 3,475,000 Los Angeles Community Redevelopment Agency Housing Rev., Series A, 6.45%, 7-1-17 (AMBAC) 3,615,460 3,000,000 Los Angeles County Transportation Commission Sales Tax Rev., Series A, 7.40%, 7-1-15 3,248,970 4,050,000 Los Angeles County Transportation Commission Sales Tax Rev., Series A, (Capital Appreciation), 4.74%, 7-1-02 (MBIA)(1) 3,023,365 1,000,000 Los Angeles Transportation Sales Tax Rev., 6.50%, 7-1-13 (MBIA) 1,090,550 2,420,000 Los Angeles Waste Water System Rev., Series C, 6.90%, 6-1-09 2,592,642 3,050,000 Los Angeles Waste Water System Rev., Series C, 7.10%, 6-1-18 3,265,513 1,865,000 Mendocino Coast Health Care District Health Care Facility Rev., 5.875%, 2-1-20 1,866,380 5,250,000 Metropolitan Water District of Southern California Rev., 5.00%, 7-1-27 4,767,578 2,650,000 Metropolitan Water District of Southern California Waterworks Rev., 6.625%, 7-1-01, Prerefunded at 102% of Par(2) 2,939,990 5,830,000 Modesto, Stockton, Redding Public Power Agency Rev., Series D, (San Juan Project), 6.75%, 7-1-20 (MBIA) 6,709,339 1,000,000 Moulton-Niguel California Water District GO, 5.00%, 9-1-19 (MBIA) 906,560 4,875,000 Northern California Power Agency Public Power Rev., (Hydroelectric Project #1), 7.15%, 7-1-24 5,117,141 3,000,000 Oakland California Redevelopment Agency Tax Allocation, (Central District Redevelopment Tax), 5.50%, 2-1-14 (AMBAC) 3,041,190 See Notes to Financial Statements Semiannual Report California Long-Term Tax-Free 27 SCHEDULE OF INVESTMENTS CALIFORNIA LONG-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 5,150,000 Open Space District Midpeninsula GO, (Santa Clara, San Mateo Counties), 7.00%, 9-1-14 $5,645,482 4,750,000 Orange County Certificates of Participation, (Civic Center Expansion), 6.70%, 8-1-01, Prerefunded at 102% of Par (AMBAC)(2) 5,299,148 3,000,000 Orange County Water District Certificates of Participation, Series 1989, 6.50%, 8-15-11 (AMBAC) 3,199,050 1,000,000 Orange County West Valley Detention Center Certificates of Participation, 7.625%, 6-1-99, Prerefunded at 102% of Par(2) 1,095,160 1,855,000 Pacifica Financing Auth. Sewer Rev., 6.20%, 8-1-26 1,846,189 1,000,000 Pasadena Certificates of Participation, (Old Pasadena Parking Facility Project), 6.25%, 1-1-18 1,069,660 2,100,000 Pomona Public Financing Auth. Rev., Series A, (Water Treatment Project), 6.10%, 7-1-17 (AMBAC) 2,173,164 1,000,000 Saddleback Valley Unified School District Public Financing Special Tax Rev., 6.00%, 9-1-16 (FSA) 1,064,940 6,000,000 San Bernardino Joint Powers Financing Auth. Lease Rev. Certificates of Participation, Series A, 5.50%, 12-1-20 5,742,780 3,400,000 San Diego County Certificates of Participation, 5.625%, 9-1-12 (AMBAC) 3,501,218 3,500,000 San Diego County Regional Transportation Sales Tax Rev., Series A, 4.75%, 4-1-04(1)(2) 2,508,905 1,000,000 San Francisco City and County Redevelopment Hotel Tax Rev., 6.75%, 7-1-15 (FSA) 1,119,280 5,500,000 San Jose California Financing Auth. Rev. Certificates of Participation, Series B, (Community Facilities Project), 5.625%, 11-15-18 5,351,665 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,000,000 San Jose California Financing Auth. Rev. Certificates of Participation, Series C, (Convention Center Project), 6.375%, 9-1-13 $3,136,140 5,000,000 San Jose California Financing Auth. Rev. Certificates of Participation, Series D, (Central Service Yard), 5.25%, 10-15-23 4,619,400 9,525,000 San Jose California Redevelopment Agency Tax Allocation, Series D, (Merged Area Redevelopment Project), 5.75%, 8-1-24 9,534,334 3,475,000 San Mateo Joint Power Finance Auth. Lease Rev. Certificates of Participation, 6.50%, 7-1-16 (MBIA) 3,909,757 4,000,000 San Mateo Joint Power Finance Auth. Lease Rev. Certificates of Participation, (Capital Projects Program), 6.00%, 7-1-19 (MBIA) 4,252,400 3,500,000 Santa Ana Finance Auth. Lease Rev. Certificates of Participation, 6.25%, 7-1-15 (MBIA) 3,858,400 3,000,000 Santa Monica Community College District Certificates of Participation, Series A, 5.90%, 2-1-27 3,016,440 1,425,000 Southern California Public Power Auth. Rev., Series 1989, (Transportation Auth.), 7.00%, 7-1-09 (FGIC) 1,530,036 7,315,000 Southern California Public Power Auth. Rev., Series 1989, 6.75%, 7-1-12 (FSA) 8,498,567 3,730,000 Southern California Public Power Auth. Rev., Series 1989, (Multipurpose Projects), 6.75%, 7-1-13 (FSA) 4,336,200 3,260,000 Southern California Public Power Auth. Rev., Series 1989, 6.00%, 7-1-18 3,293,512 3,000,000 Southern California Public Power Auth. Rev., Series A, 4.84%, 7-1-04 (AMBAC)(1) 2,111,730 2,000,000 Southern Orange County Finance Auth. Special Tax Rev., Series A, 7.00%, 9-1-11 (MBIA) 2,364,700 See Notes to Financial Statements 28 California Long-Term Tax-Free American Century Investments SCHEDULE OF INVESTMENTS CALIFORNIA LONG-TERM TAX-FREE FEBRUARY 28, 1997 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 2,000,000 Taft California Public Financing Auth. Lease Rev. Certificates of Participation, Series A, (Community Correctional Facility), 6.05%, 1-1-17 $ 2,004,000 3,020,000 Watsonville California Hospital Insured Rev., Series A, (Watsonville Community Hospital), 6.20%, 7-1-12 3,188,637 ----------- Total Municipal Securities--93.4% 281,654,496 (Cost $267,477,064) ----------- MUNICIPAL DERIVATIVES(3) 8,000,000 Metropolitan Water District of Southern California Waterworks Rev., (Linked), Inverse Floater, 5.75%, 8-10-18 8,159,120 4,000,000 Northern California Transmission Rev., Inverse Floater, 6.92%, 4-29-24 (MBIA) 3,595,000 ----------- Total Municipal Derivatives--3.9% 11,754,120 (Cost $11,963,920) ----------- SHORT-TERM MUNICIPAL SECURITIES 1,000,000 California Pollution Control Financing Auth. Rev., Series C, (Southern California Edison), VRDN, 3.45%, 3-3-97 1,000,000 2,000,000 California Statewide Communities Development Auth. Certificates of Participation, VRDN, 3.35% 2,000,000 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,000,000 Orange County Sanitation Districts Certificates of Participation, Series C, VRDN, 3.40%, 3-3-97 $ 3,000,000 2,100,000 Orange County Water District Certificates of Participation, Series B, VRDN, 3.25%, 3-3-97 2,100,000 ----------- Total Short-Term Municipal Securities--2.7% 8,100,000 (Cost $8,100,000) ----------- Total Investment Securities--100.0% $301,508,616 (Cost $287,540,985) =========== Notes to Schedule of Investments AMBAC = AMBAC Indemnity Corp. FSA = Financial Security Association GO = General Obligation MBIA = Municipal Bond Insurance Association VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective February 28, 1997. (1) These securities are zero-coupon municipal bonds. The yield to maturity at current market value is shown instead of a stated coupon rate. Zero-coupon securities are purchased at a substantial discount from their value at maturity. (2) Escrowed in U.S. Government Securities. (3) These securities are inverse floaters. They bear interest rates that move inversely to market interest rates. Inverse floaters typically have durations twice as long as long-term bonds, which may cause their value to be twice as volatile as long-term bonds when interest rates change. The Long-Term Fund is limited to 10% of its net assets in inverse floaters. See Notes to Financial Statements Semiannual Report California Long-Term Tax-Free 29
STATEMENTS OF ASSETS AND LIABILITIES FEBRUARY 28, 1997 (UNADITIED) LIMITED-TERM INTERMEDIATE-TERM LONG-TERM TAX-FREE TAX-FREE TAX-FREE ASSETS Investment securities, at value (identified cost of $112,440,674, $419,183,049, and $287,540,985, respectively) (Note 3)...... $113,734,188 $435,928,261 $301,508,616 Cash .............................................. -- 470,720 -- Receivable for investments sold.................... 1,030,020 -- -- Interest receivable................................ 1,442,228 6,237,286 3,802,453 Prepaid expenses and other assets.................. 4,051 7,316 6,196 ----- ----- ----- 116,210,487 442,643,583 305,317,265 ----------- ----------- ----------- LIABILITIES Disbursements in excess of demand deposit cash..... 919,191 878,041 2,526,705 Payable for investments purchased.................. 5,364,305 4,544,991 1,468,272 Payable for capital shares redeemed................ 240,014 210,190 71,086 Payable to affiliates (Note 2)..................... 38,818 153,051 104,315 Dividends payable.................................. 8,496 2,149 6,473 Accrued expenses and other liabilities............. 2,562 10,500 5,454 ----- ------ ----- 6,573,386 5,798,922 4,182,305 --------- --------- --------- Net Assets Applicable to Outstanding Shares........ $109,637,101 $436,844,661 $301,134,960 ============ ============ ============ CAPITAL SHARES Outstanding (Unlimited number of shares authorized) 10,684,893 39,144,232 26,617,198 ========== ========== ========== Net Asset Value Per Share.......................... $10.26 $11.16 $11.31 ====== ====== ====== NET ASSETS CONSIST OF: Capital paid in.................................... $109,410,604 $418,837,497 $285,167,542 Accumulated undistributed net realized gain (loss) on investments.............................. (1,067,017) 1,261,952 1,999,787 Net unrealized appreciation on investments (Note 3) 1,293,514 16,745,212 13,967,631 --------- ---------- ---------- $109,637,101 $436,844,661 $301,134,960 ============ ============ ============
See Notes to Financial Statements 30 Statements of Assets and Liabilities American Century Investments
STATEMENTS OF OPERATIONS LIMITED-TERM INTERMEDIATE-TERM LONG-TERM TAX-FREE TAX-FREE TAX-FREE For the Six Months Ended February 28, 1997 (Unaudited) INVESTMENT INCOME Income: Interest.................................................... $2,489,375 $11,493,098 $ 8,648,868 ---------- ----------- ------------ Expenses (Note 2): Investment advisory fees.................................... 152,900 626,569 423,804 Administrative fees......................................... 50,436 206,516 139,693 Transfer agency fees........................................ 22,139 92,266 60,492 Printing and postage........................................ 7,727 32,404 21,993 Auditing and legal fees..................................... 6,652 18,919 13,648 Custodian fees.............................................. 5,343 14,598 10,155 Directors' fees and expenses................................ 3,343 5,277 4,450 Telephone expenses.......................................... 1,117 3,768 2,934 Registration and filing fees................................ 1,769 1,470 2,551 Other operating expenses.................................... 8,582 23,698 14,269 ----- ------ ------ 260,008 1,025,485 693,989 ------- --------- ------- Net investment income....................................... 2,229,367 10,467,613 7,954,879 --------- ---------- --------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3) Net realized gain on investments............................ 84,323 1,412,424 2,141,773 Change in net unrealized appreciation on investments........ 614,994 4,301,615 5,027,196 ------- --------- --------- Net realized and unrealized gain on investments ........................................ 699,317 5,714,039 7,168,969 ------- --------- --------- Net Increase in Net Assets Resulting from Operations................................... $2,928,684 $16,181,652 $15,123,848 ========== =========== ===========
See Notes to Financial Statements Semiannual Report Statements of Operations 31
STATEMENTS OF CHANGES IN NET ASSETS Six Months Ended February 28, 1997 (Unaudited) AND YEAR ENDED AUGUST 31, 1996 LIMITED-TERM INTERMEDIATE-TERM LONG-TERM TAX-FREE TAX-FREE TAX-FREE Increase (Decrease) in Net Assets 1997 1996 1997 1996 1997 1996 OPERATIONS Net investment income..................... $2,229,367 $4,255,556 $10,467,613 $20,942,789 $7,954,879 $15,704,747 Net realized gain on investments.......... 84,323 268,474 1,412,424 3,000,776 2,141,773 780,713 Change in net unrealized appreciation (depreciation) on investments....................... 614,994 (634,911) 4,301,615 (3,916,167) 5,027,196 2,019,723 ------- -------- --------- ---------- --------- --------- Net increase in net assets resulting from operations............ 2,928,684 3,889,119 16,181,652 20,027,398 15,123,848 18,505,183 --------- --------- ---------- ---------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income................ (2,242,900) (4,248,485) (10,473,972) (20,936,393) (7,961,028) (15,699,168) From net realized gains from investment transactions......... -- -- (1,183,599) -- (424,490) -- --------- --------- ---------- ---------- ---------- ---------- Decrease in net assets from distributions................... (2,242,900) (4,248,485) (11,657,571) (20,936,393) (8,385,518) (15,699,168) ---------- ---------- ----------- ----------- ---------- ----------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold................. 32,949,599 34,544,488 85,398,588 89,549,209 62,010,610 87,219,622 Proceeds from reinvestment of distributions..................... 1,647,533 3,349,483 8,752,065 15,976,338 5,765,539 10,632,390 Payments for shares redeemed.............. (29,352,639) (38,551,043) (92,779,753) (91,217,016) (61,401,905) (88,720,686) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets from capital share transactions........... 5,244,493 (657,072) 1,370,900 14,308,531 6,374,244 9,131,326 --------- -------- --------- ---------- --------- --------- Net increase (decrease) in net assets........................ 5,930,277 (1,016,438) 5,894,981 13,399,536 13,112,574 11,937,341 NET ASSETS Beginning of period....................... 103,706,824 104,723,262 430,949,680 417,550,144 288,022,386 276,085,045 ----------- ----------- ----------- ----------- ----------- ----------- End of period............................. $109,637,101 $103,706,824 $436,844,661 $430,949,680 $301,134,960 $288,022,386 ============ ============ ============ ============ ============ ============ TRANSACTIONS IN SHARES OF THE FUNDS Sold ..................................... 3,215,715 3,379,409 7,654,384 8,045,676 5,505,811 7,807,077 Issued in reinvestment of distributions..................... 160,820 327,171 784,611 1,435,175 510,811 951,174 Redeemed.................................. (2,865,208) (3,766,840) (8,311,990) (8,207,114) (5,449,012) (7,947,182) ---------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease)................... 511,327 (60,260) 127,005 1,273,737 567,610 811,069 ======= ======= ======= ========= ======= ======= See Notes to Financial Statements
32 Statements of Changes in Net Assets American Century Investments NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) 1. Organization and Summary of Significant Accounting Policies Organization--American Century California Tax-Free and Municipal Funds (the Trust) is registered under the Investment Company Act of 1940 as an open-end management investment company. American Century-Benham California Limited-Term Tax-Free Fund (Limited-Term), American Century-Benham California Intermediate-Term Tax-Free Fund (Intermediate-Term), and American Century-Benham California Long-Term Tax-Free Fund (Long-Term) (collectively the "Funds") are three of the seven funds composing the Trust. Each Fund is diversified under the 1940 Act. The Funds seek to obtain as high a level of interest income exempt from federal and California income taxes as is consistent with prudent investment management and conservation of shareholders' capital. Limited-Term invests primarily in California municipal securities and maintains a weighted average maturity of one to five years. Intermediate-Term invests primarily in California municipal securities and maintains a weighted average maturity of five to ten years. Long-Term invests primarily in California municipal securities and maintains a weighted average maturity of ten or more years. The Funds concentrate their investments in a single state and therefore may have more exposure to credit risk related to the state of California than a fund with a broader geographical diversification. The following significant accounting policies, related to the Funds, are in accordance with accounting policies generally accepted in the investment company industry. Security Valuations--Securities are valued through valuations obtained from a commercial pricing service or at the mean of the most recent bid and asked prices. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. Securities Transactions--Security transactions are accounted for on the date purchased or sold. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. Investment Income--Interest income is recorded on the accrual basis and includes amortization of discounts and premiums. Premium and original issue discount is amortized daily using the effective interest rate method. Market discount is recognized as income upon the sale or maturity of the security. Income Tax Status--It is the Funds' policy to distribute all net investment income and net realized capital gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state taxes. Distributions to Shareholders--Distributions from net investment income for the Funds are declared daily and distributed monthly. Distributions from net realized gains for the Funds are declared and paid annually. At August 31, 1996, accumulated net realized capital loss carryovers of $1,151,341 for Limited-Term (expiring 2003 and 2004) may be used to offset future taxable gains. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences are due to differences in the recognition of income and expense items for financial statement and tax purposes. 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 may include the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the Fund is 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 Fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Supplementary Information--Certain officers and trustees of the Trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the Trust's investment advisor, Benham Management Corporation (BMC), the Trust's distributor, American Century Investment Services, Inc. (ACIS), and the Trust's transfer agent, American Century Services Corporation (ACSC). Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the period. Actual results could differ from these estimates. Semiannual Report Notes to Financial Statements 33 NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- 2. Transactions with Related Parties The Trust has entered into an Investment Advisory Agreement with BMC that provides the Trust with investment advisory services in exchange for an investment advisory fee. ACSC pays all compensation of Trust officers and trustees who are officers or directors of ACC or any of its subsidiaries. In addition, promotion and distribution expenses are paid by BMC. The investment advisory fee is paid monthly by each Fund based on its pro rata share of the dollar amount derived from applying the Trust's average daily closing net assets to the following annualized investment advisory fee schedule: 0.50% of the first $100 million 0.45% of the next $100 million 0.40% of the next $100 million 0.35% of the next $100 million 0.30% of the next $100 million 0.25% of the next $1 billion 0.24% of the next $1 billion 0.23% of the next $1 billion 0.22% of the next $1 billion 0.21% of the next $1 billion 0.20% of the next $1 billion 0.19% of the average daily net assets over $6.5 billion The Trust has an Administrative Services and Transfer Agency Agreement with ACSC. Under the Agreement, ACSC provides substantially all administrative and transfer agency services necessary to operate the Funds. Fees for these services are based on transaction volume, number of accounts and average daily closing net assets for funds advised by BMC. The Agreement was formerly with Benham Financial Services, Inc. The Trust has an additional agreement with BMC pursuant to which BMC established a contractual expense guarantee that limits Fund expenses (excluding items such as brokerage commissions, taxes, interest, custodian earnings credits, and extraordinary expenses) to 0.59% of average daily closing net assets. The agreement provides that BMC may recover amounts (representing expenses in excess of the Fund's expense guarantee rate) absorbed during the preceding 11 months, if, and to the extent that, for any given month, the Fund's expenses are less than the expense guarantee rate in effect at that time. The expense guarantee rate is subject to renewal in June 1997. The payables to affiliates as of February 28, 1997, based on the above agreements were as follows: Limited-Term Intermediate- Long-Term Term Investment Advisor ........... $24,080 $ 97,463 $ 66,566 Administrative Services and Transfer Agent ........... 14,738 55,588 37,749 ------- -------- -------- $38,818 $153,051 $104,315 ======= ======== ======== The Trust has a Distribution Agreement with ACIS, which is responsible for promoting sales of and distributing the Trust's shares. This Agreement was formerly with Benham Distributors, Inc. - -------------------------------------------------------------------------------- 3. Investment Transactions The aggregate cost of municipal debt obligations (excluding short-term investments) purchased for the six months ended February 28, 1997, in Limited-Term, Intermediate-Term, and Long-Term totaled $24,578,777, $68,640,849, and $77,664,484, respectively. Proceeds from municipal debt obligations (excluding short-term investments) sold in Limited-Term, Intermediate-Term, and Long-Term totaled $15,066,589, $67,481,625, and $75,573,941, respectively. As of February 28, 1997, accumulated net unrealized appreciation of the Limited-Term, Intermediate-Term and Long-Term Funds were $1,293,514, $16,745,212, and $13,967,631, consisting of unrealized appreciation of $1,317,199, $16,801,961, and $14,512,005 and unrealized depreciation of $23,685, $56,749, and $544,374, respectively. The aggregate cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. 35 Notes to Financial Statements American Century Investments NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) - -------------------------------------------------------------------------------- 4. Corporate Events The following name changes became effective January 1, 1997: NEW NAMES FORMER NAMES Funds' Issuer: American Century California Benham California Tax-Free and Municipal Trust Tax-Free and Municipal Funds Funds: American Century-Benham Benham California Tax-Free Limited-Term Fund California Limited-Term Tax-Free Fund American Century-Benham Benham California Tax-Free Intermediate-Term Fund California Intermediate-Term Tax-Free Fund American Century-Benham Benham California Tax-Free Long-Term Fund California Long-Term Tax-Free Fund Parent Company: American Century Companies, Inc. Twentieth Century Companies, Inc. Distributor: American Century Investment Services, Inc. Twentieth Century Securities, Inc. Transfer Agent: American Century Services Corporation Twentieth Century Services, Inc.
Semiannual Report Notes to Financial Statements 35
FINANCIAL HIGHLIGHTS CALIFORNIA LIMITED-TERM TAX-FREE For a Share Outstanding Throughout the Years Ended August 31 (except as noted) 1997(1) 1996 1995 1994 1993 1992(2) PER-SHARE DATA Net Asset Value, Beginning of Period................................ $10.19 $10.23 $10.12 $10.34 $10.12 $10.00 ------ ------ ------ ------ ------ ------ Income from Investment Operations Net Investment Income........................... 0.21 0.43 0.41 0.38 0.38 0.10 Net Realized and Unrealized Gain (Loss) on Investment Transactions.................... 0.07 (0.04) 0.11 (0.18) 0.22 0.12 ---- ----- ---- ----- ---- ---- Total From Investment Operations......................... 0.28 0.39 0.52 0.20 0.60 0.22 ---- ---- ---- ---- ---- ---- Distributions From Net Investment Income...................... (0.21) (0.43) (0.41) (0.38) (0.38) (0.10) In Excess of Net Realized Gains................. -- -- -- (0.04) -- -- ---- ---- ---- ---- ---- ---- Total Distributions............................. (0.21) (0.43) (0.41) (0.42) (0.38) (0.10) ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period..................... $10.26 $10.19 $10.23 $10.12 $10.34 $10.12 ====== ====== ====== ====== ====== ====== Total Return (3)................................ 2.82% 3.87% 5.33% 1.90% 6.15% 1.47% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ........................ 0.49% (4) 0.49% 0.51% 0.51% 0.36% -- Ratio of Net Investment Income to Average Net Assets......................... 4.21% (4) 4.20% 4.10% 3.68% 3.76% 4.08%(4) Portfolio Turnover Rate......................... 14% 44% 50% 66% 54% 19% Net Assets, End of Period (in thousands)...................... $109,637 $103,707 $104,723 $120,727 $114,019 $52,171 (1) Six months ended February 28,1997 (unaudited). (2) June 1, 1992 (Inception) through August 31, 1992. (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. See Notes to Financial Statements
36 Financial Highlights American Century Investments
FINANCIAL HIGHLIGHTS CALIFORNIA INTERMEDIATE-TERM TAX-FREE For a Share Outstanding Throughout the Years Ended August 31 (except as noted) 1997(1) 1996 1995 1994 1993 1992 PER-SHARE DATA Net Asset Value, Beginning of Period................................ $11.05 $11.06 $10.86 $11.36 $10.85 $10.49 ------ ------ ------ ------ ------ ------ Income from Investment Operations Net Investment Income .......................... 0.27 0.54 0.54 0.54 0.56 0.59 Net Realized and Unrealized Gain (Loss) on Investment Transactions.................... 0.14 (0.01) 0.20 (0.41) 0.53 0.36 ---- ----- ---- ----- ---- ---- Total From Investment Operations......................... 0.41 0.53 0.74 0.13 1.09 0.95 ---- ---- ---- ---- ---- ---- Distributions From Net Investment Income............................. (0.27) (0.54) (0.54) (0.54) (0.56) (0.59) From Net Realized Gains on Investment Transactions....................... (0.03) -- -- (0.08) (0.02) -- In Excess of Net Realized Gains................. -- -- -- (0.01) -- -- ---- ---- ---- ---- ---- ---- Total Distributions............................. (0.30) (0.54) (0.54) (0.63) (0.58) (0.59) ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period..................... $11.16 $11.05 $11.06 $10.86 $11.36 $10.85 ====== ====== ====== ====== ====== ====== Total Return (2)................................ 3.81% 4.79% 7.09% 1.11% 10.42% 9.18% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ........................ 0.47% (3) 0.48% 0.48% 0.48% 0.50% 0.52% Ratio of Net Investment Income to Average Net Assets......................... 4.83% (3) 4.87% 5.02% 4.82% 5.05% 5.50% Portfolio Turnover Rate......................... 16% 36% 25% 44% 27% 49% Net Assets, End of Period (in thousands)...................... $436,845 $430,950 $417,550 $448,293 $444,460 $304,988 (1) Six months ended February 28, 1997 (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. See Notes to Financial Statements
Semiannual Report Financial Highlights 37
FINANCIAL HIGHLIGHTS CALIFORNIA LONG-TERM TAX-FREE For a Share Outstanding Throughout the Years Ended August 31 (except as noted) 1997(1) 1996 1995 1994 1993 1992 PER-SHARE DATA Net Asset Value, Beginning of Period................................ $11.06 $10.94 $10.88 $12.02 $11.44 $11.00 ------ ------ ------ ------ ------ ------ Income from Investment Operations Net Investment Income........................... 0.30 0.61 0.62 0.63 0.66 0.69 Net Realized and Unrealized Gain (Loss) on Investment Transactions.................... 0.27 0.12 0.12 (0.71) 0.85 0.44 ---- ---- ---- ----- ---- ---- Total From Investment Operations......................... 0.57 0.73 0.74 (0.08) 1.51 1.13 ---- ---- ---- ----- ---- ---- Distributions From Net Investment Income............................. (0.30) (0.61) (0.62) (0.63) (0.66) (0.69) From Net Realized Gains on Investment Transactions.................... (0.02) -- (0.06) (0.43) (0.27) -- ---- ---- ---- ---- ---- ---- Total Distributions............................. (0.32) (0.61) (0.68) (1.06) (0.93) (0.69) ----- ----- ----- ----- ----- ----- Net Asset Value, End of Period..................... $11.31 $11.06 $10.94 $10.88 $12.02 $11.44 ====== ====== ====== ====== ====== ====== Total Return (2)................................ 5.19% 6.77% 7.21% (.78)% 14.02% 10.58% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets.............................. 0.47% (3) 0.48% 0.49% 0.48% 0.49% 0.52% Ratio of Net Investment Income to Average Net Assets.............................. 5.43% (3) 5.48% 5.84% 5.51% 5.76% 6.14% Portfolio Turnover Rate............................ 26% 42% 60% 62% 55% 72% Net Assets, End of Period (in thousands)........................... $301,135 $288,022 $276,085 $277,477 $338,075 $275,880 (1) Six months ended February 28, 1997 (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. See Notes to Financial Statements
38 Financial Highlights American Century Investments NOTES Semiannual Report Notes 39 BACKGROUND INFORMATION Investment Philosophy and Policies American Century Investments offers 42 fixed-income funds, ranging from money market funds to long-term bond funds and including both taxable and tax-exempt funds. California Limited-Term Tax-Free is a variable-priced bond fund that seeks 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. California Intermediate-Term Tax-Free is a variable-priced bond fund that seeks 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. California Long-Term Tax-Free is a variable-priced bond fund that seeks 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. Comparative Indices The following indices are used in the report for fund performance comparisons. They are not investment products available for purchase. The Lehman Brothers 3-Year Municipal Bond Index is composed of more than 4,000 municipal bonds with maturities of 2 to 4 years. The average credit rating of the securities in the index is AA1/AA2. The average maturity of the index is 3 years. The Lehman Brothers 5-Year General Obligation Index is composed of more than 5,000 municipal bonds with maturities of 4 to 6 years. The average credit rating of the securities in the index is AA1/AA2. The average maturity of the index is approximately 5 years. The Lehman Brothers Long-Term Municipal Bond Index is composed of more than 2,700 municipal bonds with maturities greater than 22 years. The average credit rating of the securities in the index is AA2/AA3. The average maturity of the index is approximately 27 years. Lipper Rankings Lipper Analytical Services, Inc. is an independent mutual fund ranking service that groups funds according to their investment objectives. Rankings are based on average annual returns for each fund in a given category for the periods indicated. Rankings are not included for periods less than one year. The Lipper categories for the California Tax-Free Bond Funds are: California Short-Intermediate Municipal Debt Funds (Limited-Term Tax-Free)--funds that invest at least 65% of assets in municipal debt issues that are exempt from taxation in California with dollar-weighted average maturities of 1 to 5 years. California Intermediate Municipal Debt Funds (Intermediate-Term Tax-Free)--funds that invest at least 65% of assets in municipal debt issues that are exempt from taxation in California with dollar-weighted average maturities of 5 to 10 years. California Municipal Debt Funds (Long-Term Tax-Free)--funds that invest at least 65% of assets in municipal debt issues that are exempt from taxation in California. PORTFOLIO MANAGEMENT TEAM Vice President and Senior Municipal Portfolio Manager Dave MacEwen Senior Municipal Portfolio Manager Colleen Denzler Municipal Portfolio Manager Joel Silva Senior Municipal Portfolio Manager and Manager of Municipal Credit Analysis Steven Permut Credit Analysts Scott Lord, David Moore, Bill McClintock, Tim Benham 40 Background Information American Century Investments GLOSSARY Returns o Total Return figures show the overall percentage change in the value of a hypothetical investment in the fund and assume that all of the fund's distributions are reinvested. o Average Annual Returns illustrate the annually compounded returns that would have produced the fund's cumulative total returns if the fund's performance had been constant over the entire period. Average annual returns smooth out variations in a fund's return; they are not the same as fiscal year-by-year results. For fiscal year-by-year returns, please refer to the "Financial Highlights" on pages 36, 37 and 38. Yields o 30-day SEC Yield represents net investment income earned by the fund over a 30-day period, expressed as an annual percentage rate based on the fund's share price at the end of the 30-day period. The SEC yield should be regarded as an estimate of the fund's rate of investment income, and it may not equal the fund's actual income distribution rate, the income paid to a shareholder's account, or the income reported in the fund's financial statements. o Tax-Equivalent Yields show the taxable yields that investors in a combined California and federal income tax bracket would have to earn before taxes to equal the fund's tax-free yield. Bond Portfolio Structures o Barbell Structure--a structure that overweights a portfolio in short- and long-term securities and underweights intermediate-term securities. This structure tends to perform best when short-term rates are rising faster than long-term rates, or long-term rates are falling faster than short-term rates. o Ladder Structure--a balanced structure that staggers bond maturities so they occur at regular intervals. This structure tends to perform best when interest rates are relatively stable. Investment Terms o Basis Point--one one-hundredth of a percentage point (or 0.01%). o Yield Curve--a graphic representation of the relationship between maturity and yield for fixed-income securities. Yield curve graphs plot lengthening maturities along the horizontal axis and rising yields along the vertical axis. Statistical Terminology o Number of Issues--the number of different securities held by a fund on a given date. o Weighted Average Maturity (WAM)--a measurement of the sensitivity of a fixed-income portfolio to interest rate changes. WAM indicates the average time until the securities in the portfolio mature, weighted by dollar amount. o Average Duration--a time-weighted average of the interest and principal payments of the securities in a portfolio. As the duration of a portfolio increases, so does the impact of a change in interest rates on the value of the portfolio. o Expense Ratio--the operating expenses of the fund, expressed as a percentage of net assets. Shareholders pay an annual fee to the investment advisor for investment advisory and management services. The expenses and fees are deducted from fund income, not from each shareholder. The annual fee has a contractual expense limit guarantee based on the terms of the Investment Advisory Agreement. (See Note 2 in the Notes to Financial Statements.) Types of Municipal Securities o COPs (Certificates of Participation)/Leases--securities issued to finance public property improvements (such as city halls and police stations) and equipment purchases. Certificates of participation represent long-term debt obligations, but leases have a higher risk profile because they require annual appropriation. o GO Bonds--general obligation securities backed by the taxing power of the issuer. o Land-Secured Bonds--securities such as Mello-Roos bonds and 1915 Act bonds that are issued to finance real estate development projects. o Prerefunded/ETM Bonds--securities refinanced or escrowed to maturity by the issuer because of their premium coupons (higher-than-market interest rates). These bonds tend to have higher credit ratings because they are backed by Treasury securities. o Revenue Bonds--securities backed by revenues from sales taxes or from a specific project, system or facility (such as a hospital, electric utility or water system). Semiannual Report Glossary 41 [american century logo] American Century(sm) P.O. Box 419200 Kansas City, Missouri 64141-6200 Person-to-Person Assistance: 1-800-345-2021 or 816-531-5575 Automated Information Line: 1-800-345-8765 Telecommunications Device for the Deaf: 1-800-634-4113 or 816-753-1865 Fax: 816-340-7962 Internet: www.americancentury.com American Century California Tax-Free & Municipal Funds Investment Manager Benham Management Corporation This report and the statements it contains are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. American Century Investment Services, Inc. 9704 [recycled logo] SH-BKT-8346 Recycled -----END PRIVACY-ENHANCED MESSAGE-----