-----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, O2FCku+Ab6G3ZLzQq6vcTLyUE5ABpzpLA6WxgPP8P1euBQfgmxX3o1yK/J28tah3 UbmLUaB+jT96N/tWU9Dm4w== 0000717316-99-000012.txt : 19991101 0000717316-99-000012.hdr.sgml : 19991101 ACCESSION NUMBER: 0000717316-99-000012 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991029 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: SEC FILE NUMBER: 811-03706 FILM NUMBER: 99737177 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 ANNUAL REPORT [front cover] AUGUST 31, 1999 ANNUAL REPORT - ------------------ AMERICAN CENTURY [graphic of stairs] CALIFORNIA TAX-FREE MONEY MARKET CALIFORNIA MUNICIPAL MONEY MARKET [american century logo(reg. sm)] American Century [inside front cover] Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS - -------------------------------------------------------------------------------- Y2K, short for the Year 2000, refers more specifically to the date change from December 31, 1999 to January 1, 2000. This date change is significant for computers because many were originally programmed to process dates with two-character years--99 instead of 1999. When the calendar rolls to 2000, this can create problems for computers programmed this way because they will read the date as "00," and may interpret it as 1900. Most companies have been working to reprogram their computer systems with four-digit years. Reprogramming is very labor-intensive and requires testing to ensure that there are no errors and that all lines of code were successfully changed. Recognizing the possible impact of the Y2K issue, our senior-level Steering Committee, programmers, business partners and Y2K team have been working diligently to make January 1, 2000 a non-event for American Century investors. Currently, our systems have been modified, tested and returned to production, and we have tested our systems with our vendors and business partners. In March and April of this year, we participated in the Security Industry Association's (SIA) industry-wide test and successfully processed transactions for dates up to and beyond 2000. American Century transactions with our partner firms were processed free of Y2K bugs. We also participated in the Market Data Test conducted by the SIA and Financial Information Forum in May. Again, the computer scripts were executed successfully with no Y2K-related errors. In addition, our Y2K team has developed contingency plans. These plans are designed to minimize the impact on our investors and help us maintain operations in the event of any Y2K-related incidents. We have conducted practice drills of contingency scenarios and will continue to refine our plans during the rest of 1999 to respond quickly and effectively so that the date change is as seamless as possible for investors. We expect the Year 2000 to be business as usual at American Century. Year 2000 Readiness Disclosure [left margin] CALIFORNIA TAX-FREE MONEY MARKET (BCTXX) - ----------------------------------- CALIFORNIA MUNICIPAL MONEY MARKET (BNCXX) - ----------------------------------- TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED BY OBJECTIVE AND RISK. - -------------------------------------------------------------------------------- RECEIVE YOUR ANNUAL REPORTS ONLINE CHOOSE OUR ELECTRONIC COMMUNICATION PROGRAM Access annual reports, newsletters and prospectuses electronically. All you need is your OnePIN. Don't have a OnePIN? Visit www.americancentury.com and set up your OnePIN by following two easy steps using your automated phone line personal access code. OnePIN opens the door to services that help you stay in control of your money: * MONITOR YOUR INVESTMENTS on your Personal Homepage any time, any day * STAY INFORMED and set up a watch list of securities -- or even a test portfolio * REDUCE CLUTTER IN YOUR MAILBOX by selecting the electronic communication link from your Personal Homepage Set up your OnePIN and choose the electronic communication program today. Questions? Call 1-800-345-2021 or go to www.americancentury.com. Our Message to You - -------------------------------------------------------------------------------- [photo of James E. Stowers III, seated, with James E. Stowers, Jr.] Strong economic growth, increasing inflation anxiety, and rising interest rates set the tone for the U.S. bond market in 1999. These factors helped determine the performance of American Century's California municipal funds for the fiscal year ended August 31, 1999. Municipal bond funds enjoyed gains during the second half of 1998 when interest rates fell and bond markets rallied. Those positive returns were largely negated in 1999, however, as the recovery of overseas economies and unabated U.S. growth reignited inflation fears and sent interest rates soaring. While the Federal Reserve (the Fed--the U.S. central bank) saw fit to cut short-term interest rates three times during the fall of 1998, the Fed raised rates twice during the summer of 1999. Though market behavior and Fed interest rate policy swung from one extreme to the other, one thing that remained remarkably consistent was the performance of the American Century California municipal funds against their peers. All seven of our California municipal money market and bond funds provided higher tax-free yields and lower expenses than the average of their Lipper Inc. peer groups. That's a hallmark of the American Century municipal investment approach. The strength of our municipal investment and credit research teams also contributed to fund performance. The investment and credit teams, as well as fund investors, have benefited from our commitment to build and maintain a talented fund management group. American Century's entire investment management team has doubled in size over the past three years. In addition to strengthening our portfolio and research staff, we've recently made strategic investments in several other financial companies, including Archipelago, Tradepoint Financial Networks, W.R. Hambrecht, and WorldStreet Corporation. These investments demonstrate our active support of the development and use of technologies that improve the efficiencies of capital markets, lower trading costs, and ultimately offer better returns for shareholders. One final note--in the spirit of our ongoing Year 2000 readiness disclosures, we've provided a complete update on our preparations for Y2K on the inside front cover of this report. We understand that our continued diligence in this area is very important to you. As always, we appreciate your continued confidence in American Century. Sincerely, /s/James E. Stowers, Jr. /s/James E. Stowers III James E. Stowers, Jr. James E. Stowers III Chairman of the Board and Founder Vice Chairman of the Board and Chief Executive Officer [right margin] Table of Contents Report Highlights ...................................................... 2 Frequently Asked Questions ........................................................... 3 CALIFORNIA TAX-FREE MONEY MARKET Performance Information ................................................ 4 Portfolio at a Glance .................................................. 4 Management Q&A ......................................................... 5 Portfolio Composition by Credit Rating .................................................... 5 Types of Investments ................................................... 5 Schedule of Investments ................................................ 6 CALIFORNIA MUNICIPAL MONEY MARKET Performance Information ................................................ 10 Portfolio at a Glance .................................................. 10 Management Q&A ......................................................... 11 Portfolio Composition by Credit Rating .................................................... 11 Types of Investments ................................................... 11 Schedule of Investments ................................................ 12 FINANCIAL STATEMENTS Statements of Assets and Liabilities ......................................................... 15 Statements of Operations ............................................... 16 Statements of Changes in Net Assets ....................................................... 17 Notes to Financial Statements .......................................................... 18 Financial Highlights ................................................... 19 Report of Independent Accountants ......................................................... 21 OTHER INFORMATION Background Information Investment Philosophy and Policies ..................................................... 22 Lipper Rankings ..................................................... 22 Credit Rating Guidelines ....................................................... 22 Investment Team Leaders .......................................................... 22 Glossary ............................................................... 23 www.americancentury.com 1 Report Highlights - -------------------------------------------------------------------------------- CALIFORNIA TAX-FREE MONEY MARKET * California Tax-Free Money Market produced more state and federal tax-free income and had higher returns than the average California money market fund in the fiscal year ended August 31, 1999. * One reason the portfolio delivered such good relative performance is that it has lower-than-average management expenses. Other things being equal, lower expenses mean higher yields and returns for our shareholders. * We were also able to produce very competitive yields because we've developed excellent working relationships with those dealers that offer attractive rates on California money market securities. * The fund's yield increased significantly during the fiscal year. That's primarily because the Federal Reserve raised interest rates twice during the summer to try to cool the economy and head off inflation. * Though interest rates are higher overall, yields on California money market securities are below national levels. California's healthy economy has reduced state and local borrowing needs. That means less supply, while demand for state tax-free securities remains high. * We'd like to lock in higher rates by extending the fund's average maturity, but we'll likely wait until yields on California securities become more attractive relative to national levels. CALIFORNIA MUNICIPAL MONEY MARKET * California Municipal Money Market provided shareholders more state and federal tax-free income than the average California money market fund. The fund's return ranked in the top 15% of the Lipper group (see page 10 for complete ranking information). * California Municipal Money Market's yield and return are higher than those of California Tax-Free Money Market because the municipal fund holds securities subject to the federal alternative minimum tax (AMT). AMT securities typically offer higher yields than non-AMT securities. California Municipal Money Market is most appropriate for investors who do not file under the AMT. * The key to the fund's solid relative performance is our below-average management fees. Other things being equal, lower expenses mean higher yields and returns for our shareholders. * Though the portfolio's yield increased during the year, interest rates on California money market securities lagged those on national money market instruments. California's healthy economy has reduced state and local borrowing needs at a time when demand for state tax-free securities is high. * Looking ahead, we'd like to lock in higher rates by extending the fund's average maturity, but we'll likely wait until yields on California securities become more attractive relative to national levels. [left margin] CALIFORNIA TAX-FREE MONEY MARKET (BCTXX) TOTAL RETURNS: AS OF 8/31/99 6 Months 1.31%* 1 Year 2.62% 7-DAY CURRENT YIELD: 2.54% INCEPTION DATE: 11/9/83 NET ASSETS: $558.2 million CALIFORNIA MUNICIPAL MONEY MARKET (BNCXX) TOTAL RETURNS: AS OF 8/31/99 6 Months 1.39%* 1 Year 2.76% 7-DAY CURRENT YIELD: 2.67% INCEPTION DATE: 12/31/90 NET ASSETS: $180.0 million * Not annualized. Investment terms are defined in the Glossary on pages 23-24. 2 1-800-345-2021 Money Market Funds--Frequently Asked Questions - -------------------------------------------------------------------------------- CAN I MAKE DIRECT DEPOSITS INTO MY MONEY MARKET FUND ACCOUNT? Yes. You can arrange for direct deposit of your paycheck, Social Security check, Treasury Direct interest payment, military allotment, or payments from other government agencies. Give us a call, and we will send you the necessary information to set it up. WHAT IS THE HOLDING PERIOD ON NEW DEPOSITS INTO MY ACCOUNT? Generally, there is an eight-business-day holding period for deposited funds (initial investments in a new account are held for 15 calendar days). There is a one-business-day holding period for U.S. Treasury checks, money orders, and travelers' checks. IS THERE A LIMIT ON THE NUMBER OF CHECKS I CAN WRITE ON MY MONEY MARKET ACCOUNT? No. You can write as many checks as you like at no charge, as long as each check is for $100 or more. IS THERE AN EASY WAY TO MOVE MONEY FROM MY MONEY MARKET FUND INTO A STOCK OR BOND FUND? Yes. Moving money between funds is called an exchange, and there is no limit on the number of exchanges you can make out of a money market fund account. However, there is a limit of six exchanges per calendar year out of stock and bond fund accounts. Exchanges can be made by: * visiting our Web site at www.americancentury.com* * using our Automated Information Line (1-800-345-8765)* * calling an Investor Relations Representative at 1-800-345-2021* * writing us a letter HOW DO I DECIDE WHETHER A TAXABLE MONEY MARKET FUND OR A TAX-FREE MONEY MARKET FUND IS RIGHT FOR ME? The most important factor to consider is your tax bracket. Tax-free money market funds typically offer lower yields than taxable funds, but you pay no federal income taxes on the income from a tax-free fund. If you are in one of the higher federal income tax brackets, taxes will eat up a big part of your income from a taxable money market fund, so a tax-free investment may be better for you. If you're in a lower tax bracket, then you can usually earn more in a taxable fund even after taxes are deducted. We can help you figure it out. If you give us a call and tell us what tax bracket you're in, we can tell you whether you're likely to earn more after-tax income in a tax-free or a taxable money market fund. IF YOU HAVE ANY QUESTIONS ABOUT OUR MONEY MARKET FUNDS, CALL US TOLL FREE AT 1-800-345-2021 OR E-MAIL US AT OUR WEB SITE, WWW.AMERICANCENTURY.COM. * Before an investor can make an exchange by calling an Investor Relations Representative, using our Automated Information Line, or visiting our Web site, the investor first must have provided us with written authorization to do so. A FASTER AND EASIER WAY TO DEPOSIT MUTUAL FUND DISTRIBUTIONS If you prefer to have your fund dividend or capital gains distributions sent to you instead of reinvesting them, there are a couple of ways to get access to this money faster than waiting for a check in the mail: * YOU CAN HAVE DISTRIBUTIONS DEPOSITED DIRECTLY INTO YOUR MONEY MARKET ACCOUNT. The money will be deposited the same day that the distributions are paid. * DISTRIBUTIONS CAN BE SENT ELECTRONICALLY TO YOUR BANK ACCOUNT. The money will be available in your bank account within three days. Contact our Investor Relations Representatives to set up either of these options. www.americancentury.com 3 California Tax-Free Money Market--Performance - -------------------------------------------------------------------------------- TOTAL RETURNS AS OF AUGUST 31, 1999 CALIFORNIA TAX-FREE CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS(2) MONEY MARKET AVERAGE RETURN FUND'S RANKING ================================================================================ 6 MONTHS(1) 1.31% 1.24% -- 1 YEAR 2.62% 2.47% 12 OUT OF 51 ================================================================================ AVERAGE ANNUAL RETURNS 3 YEARS 2.97% 2.81% 10 OUT OF 48 5 YEARS 3.07% 2.93% 10 OUT OF 43 10 YEARS 3.20% 3.16% 10 OUT OF 25 The fund's inception date was 11/9/83. (1) Returns for periods less than one year are not annualized. (2) According to Lipper Inc., an independent mutual fund ranking service. See pages 22-23 for more information about returns and Lipper fund rankings. PORTFOLIO AT A GLANCE 8/31/99 8/31/98 NUMBER OF SECURITIES 96 91 WEIGHTED AVERAGE MATURITY 51 DAYS 34 DAYS EXPENSE RATIO 0.50% 0.50% Investment terms are defined in the Glossary on pages 23-24. YIELDS AS OF AUGUST 31, 1999 7-DAY CURRENT YIELD 2.54% 7-DAY EFFECTIVE YIELD 2.57% 7-DAY TAX-EQUIVALENT YIELDS 34.70% TAX BRACKET 3.89% 37.42% TAX BRACKET 4.06% 41.95% TAX BRACKET 4.37% 45.22% TAX BRACKET 4.64% Past performance does not guarantee future results. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Yields will fluctuate, and although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund. The 7-day yield more closely reflects earnings of the fund than the total return. 4 1-800-345-2021 California Tax-Free Money Market--Q&A - -------------------------------------------------------------------------------- [photo of Todd Pardula] An interview with Todd Pardula, a portfolio manager on the California Tax-Free Money Market fund investment team. HOW DID CALIFORNIA TAX-FREE MONEY MARKET PERFORM DURING THE FISCAL YEAR ENDED AUGUST 31, 1999? California Tax-Free Money Market produced a total return of 2.62%. That's better than the average California tax-exempt money market fund, which returned 2.47% for the same period, according to Lipper Inc. California Tax-Free Money Market's return was good enough to rank in the top quarter of the Lipper group. (See the previous page for additional fund performance comparisons.) HOW DOES THE PORTFOLIO'S YIELD COMPARE? The fund continued to provide shareholders with more state and federal tax-free income than the average California money fund. California Tax-Free Money Market's 7-day effective yield on August 31, 1999, was 2.57%, while the average yield of the 51 California tax-exempt money market funds tracked by Lipper was 2.41%. WHY DID CALIFORNIA TAX-FREE MONEY MARKET PRODUCE BETTER YIELDS AND RETURNS THAN ITS LIPPER GROUP? The key to the portfolio's solid relative performance was our lower-than-average management fee. Other things being equal, lower expenses mean higher yields and returns for our shareholders. Another reason the fund performed well was our ability to buy securities at attractive yields and prices. We're able to do that because we've developed solid working relationships with securities dealers who offer very good rates on California money market securities. We also made some good judgment calls about the market. For example, we decided not to buy some notes issued in early June because of their low yields. That turned out to be a good move because new issues came to market a few weeks later offering yields 25 basis points higher. (A basis point equals 0.01%, so 25 basis points equal 0.25%.) CALIFORNIA TAX-FREE MONEY MARKET'S YIELD INCREASED, PARTICULARLY IN THE PAST SIX MONTHS. WHY? Money market yields are higher primarily because the Federal Reserve raised interest rates twice in the last six months to try to cool the economy and head off potential inflation. In addition, the market expects at least one more rate hike. But it's worth noting that yields on California money market securities are low relative to national levels. That's because demand for California securities is high, while supply is lower than in years past because California's strong economy has reduced security issuance. WHAT IS YOUR OUTLOOK FOR THE FUND? We'd like to extend the average maturity slightly by adding some higher-yielding one-year securities. However, we'll likely hold off on extending the maturity until the difference in yield between California and national notes returns to more normal levels. [right margin] PORTFOLIO COMPOSITION BY CREDIT RATING % OF FUND INVESTMENTS AS OF AS OF 8/31/99 2/28/99 SP1+ 85% 79% SP1 7% 11% SP2 8% 10% Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 22 for more information. [pie charts - data below] TYPES OF INVESTMENTS IN THE PORTFOLIO AS OF AUGUST 31, 1999 Variable-Rate Notes 74% Put Bonds 10% Municipal Notes 7% Commercial Paper 6% Bonds <1 Year 3% AS OF FEBRUARY 28, 1999 Variable-Rate Notes 79% Put Bonds 9% Municipal Notes 5% Bonds <1 Year 4% Commercial Paper 3% Investment terms are defined in the Glossary on pages 23-24. www.americancentury.com 5 California Tax-Free Money Market--Schedule of Investments - -------------------------------------------------------------------------------- This schedule lists all investments owned by the fund, as well as each security's amortized cost, as of the last day of the reporting period. AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES $ 7,000,000 ABN Amro Munitops Certificates Trust Receipts, Series 1998-10, VRDN, 3.10%, 9/1/99 (FGIC) (SBBPA: ABN Amro Bank N.V.) (Acquired 8/19/98-3/8/99, Cost $7,000,000)(1) $ 7,000,000 3,912,000 ABN Amro Munitops Certificates Trust Receipts, Series 1998-17, VRDN, 3.10%, 9/1/99 (FGIC) (SBBPA: ABN Amro Bank N.V.) (Acquired 11/18/98-3/9/99, Cost $3,912,000)(1) 3,912,000 5,000,000 ABN Amro Munitops Certificates Trust Receipts, Series 1998-25, VRDN, 3.20%, 12/1/99 (FGIC) (SBBPA: ABN Amro Bank N.V.) (Acquired 12/2/98, Cost $5,000,000)(1) 5,000,000 2,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Bentley School), VRDN, 2.80%, 9/1/99 (LOC: Banque Nationale de Paris S.A.) 2,000,000 10,500,000 Avalon Community Improvement Agency Tax Allocation Rev., (Community Improvement Area), VRDN, 3.30%, 9/2/99 (LOC: Union Bank of California, N.A.) 10,500,000 10,300,000 Azusa Multifamily Housing Rev., (Pacific Glen Apartments), VRDN, 2.90%, 9/2/99 (FNMA Collateral Agreement) 10,300,000 1,600,000 California Educational Facilities Auth. Rev., (Mount St. Marys College), VRDN, 2.80%, 9/1/99 (LOC: Allied Irish Banks, PLC) 1,600,000 3,500,000 California Educational Facilities Auth. Rev., Series 1998 A, (University Judaism), VRDN, 2.90%, 9/2/99 (LOC: Allied Irish Banks, PLC) 3,500,000 4,400,000 California Health Facilities Auth. Rev., (Episcopal Home), VRDN, 3.15%, 9/1/99 (LOC: Union Bank of California, N.A.) 4,400,000 910,000 California Health Facilities Financing Auth. Rev., (Little Co. Mary Health Service), 3.50%, 10/1/99 (AMBAC) 910,217 490,000 California Health Facilities Financing Auth. Rev., Series 1990 A, (Pooled Project), VRDN, 2.90%, 9/1/99 (LOC: Rabobank Nederland N.V.) 490,000 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,500,000 California Health Facilities Financing Auth. Rev., Series 1995 C, (Catholic Healthcare West), VRDN, 2.75%, 9/1/99 (MBIA) (SBBPA: Rabobank Nederland N.V.) $ 3,500,000 8,400,000 California Health Facilities Financing Auth. Rev., Series 1996 D, (Catholic Healthcare), VRDN, 2.75%, 9/1/99 (MBIA) (SBBPA: Rabobank Nederland N.V.) 8,400,000 7,460,000 California Housing Finance Agency Rev., Series 1999 I, VRDN, 2.85%, 9/1/99 (MBIA) (SBBPA: Westdeutsche Landesbank Girozentral) 7,460,000 1,000,000 California Pollution Control Financing Auth. Rev., (Chevron USA Inc.), VRDN, 3.10%, 11/15/99 (Guaranteed: Chevron Corp.) 1,000,000 10,500,000 California Pollution Control Financing Auth. Rev., (Chevron USA Inc.), VRDN, 3.10%, 5/15/00 (Guaranteed: Chevron Corp.) 10,500,000 1,550,000 California Pollution Control Financing Auth. Rev., Series 1986 B, (Southern California Edison), VRDN, 2.60%, 9/1/99 (Guaranteed: Southern California Edison Company) 1,550,000 5,000,000 California Public Capital Improvements Financing Auth. Rev., Series 1988 C, VRDN, 3.15%, 9/15/99 (LOC: National Westminster Bank PLC) 5,000,000 4,000,000 California State Economic Development Financing Auth. Rev., Series 1998 C, VRDN, 2.55%, 9/1/99 (LOC: Bank of America N.T. & S.A.) 4,000,000 3,895,000 California State GO, VRDN, 3.04%, 9/2/99 (MBIA) (SBBPA: Merrill Lynch & Co., Inc.) (Acquired 5/3/99, Cost $3,895,000)(1) 3,895,000 5,000,000 California Statewide Communities Apartment Development Auth. Rev., (Whispering Winds Apartments), VRDN, 2.80%, 9/1/99 (LOC: Rabobank Nederland N.V.) 5,000,000 7,475,000 California Statewide Communities Development Auth. Rev., Fixed Rate Trust Receipts, 3.35%, 9/30/99 (FSA) (Acquired 4/29/99, Cost $7,475,000)(1) 7,475,000 6 1-800-345-2021 See Notes to Financial Statements California Tax-Free Money Market--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 7,700,000 California Statewide COP, (Covenant Retirement Community), VRDN, 3.125%, 9/2/99 (LOC: LaSalle National Bank) $ 7,700,000 13,000,000 California Transportation Finance Auth. Rev., VRDN, 2.90%, 9/1/99 (FSA) (SBBPA: Credit Suisse First Boston) 13,000,000 6,840,000 Contra Costa County COP, VRDN, 3.10%, 9/1/99 (MBIA) (SBBPA: Bank of New York) (Acquired 6/10/99, Cost $6,840,000)(1) 6,840,000 5,125,000 Covina Redevelopment Agency Multifamily Housing Rev., (Shadowhills Apartments), VRDN, 2.90%, 9/2/99 (FNMA Collateral Agreement) 5,125,000 6,500,000 East Bay Municipal Utility District Commercial Paper, 3.25%, 10/14/99 (SBBPA: Westdeutsche Landesbank Girozentrale) 6,500,000 8,000,000 East Bay Municipal Utility District Commercial Paper, 2.95%, 9/7/99 (SBBPA: Westdeutsche Landesbank Girozentrale) 8,000,000 2,990,000 Fillmore Public Financing Auth. Tax Allocation, Series 1998 B, (Central City Redevelopment), VRDN, 2.90%, 9/2/99 (LOC: California State Teachers' Retirement System) 2,990,000 990,000 Fontana Special Tax, (Community Facilities District No. 2-A), 4.00%, 9/1/99 (MBIA) 990,000 1,000,000 Fremont Unified High School District Santa Clara County GO, Series 1998 A, 7.00%, 9/1/99 (FGIC) 1,000,000 2,000,000 Glendale Industrial Development Auth. Rev., (Reliance Development), VRDN, 3.50%, 9/15/99 (LOC: Bank of Montreal) 2,000,000 5,500,000 Golden Empire Schools Financing Auth. Rev., Series 1995 A, (Kern High School District), VRDN, 2.95%, 9/1/99 (LOC: National Westminster Bank PLC and Canadian Imperial Bank of Commerce) 5,500,000 2,000,000 Hacienda La Puente Unified School District COP, VRDN, 3.20%, 9/2/99 (LOC: Union Bank of California, N.A.) 2,000,000 1,120,000 Hanford COP, (Public IMPC Corp.), VRDN, 3.30%, 9/2/99 (LOC: Union Bank of California, N.A.) 1,120,000 6,055,000 Hanford Sewer Rev., Series 1996 A, VRDN, 3.30%, 9/2/99 (LOC: Union Bank of California, N.A.) 6,055,000 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,200,000 Helix Water District COP, Series 1999 A, 7.25%, 4/1/00 (FSA) $ 1,224,801 3,500,000 Hemet Multifamily Housing Auth. Rev., (Sunwest Resort), VRDN, 2.75%, 9/2/99 (LOC: FHLB) 3,500,000 4,200,000 Hemet Multifamily Housing Auth. Rev., (West Acacia), VRDN, 2.85%, 9/2/99 (LOC: FHLB) 4,200,000 2,900,000 Irvine Ranch Water District Rev., Series 1985 B, (Consolidated Bonds), VRDN, 2.50%, 9/1/99 (LOC: Landesbank Hessen-Thuringen Girozentrale) 2,900,000 15,900,000 Kern County Superintendent of Schools COP, Series 1996 A, VRDN, 2.95%, 9/2/99 (LOC: Anchor National Life Insurance Company) 15,900,000 4,250,000 Lancaster Redevelopment Agency Rev., Series 1996 C, (20th Street Apartments), VRDN, 2.90%, 9/2/99 (LOC: FHLB) 4,250,000 2,100,000 Lemore COP, (Golf Course), VRDN, 3.20%, 9/2/99 (LOC: Union Bank of California, N.A.) 2,100,000 2,900,000 Loma Linda Water Rev., VRDN, 3.15%, 9/1/99 (LOC: Union Bank of California, N.A.) 2,900,000 8,350,000 Los Angeles Community Redevelopment Agency Rev., VRDN, 2.95%, 9/2/99 (LOC: Barclays Bank PLC) 8,350,000 1,000,000 Los Angeles COP, (Municipal Improvement Corp., Project H), 3.00%, 11/1/99 (AMBAC) 1,000,000 9,600,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1993 A, (Proposition C, Second Series), VRDN, 2.75%, 9/2/99 (MBIA) (SBBPA: Credit Locale de France) 9,600,000 9,800,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1992 A, VRDN, 2.80%, 9/1/99 (FGIC) (SBBPA: Bayerische Landesbank Girozentrale) 9,800,000 6,496,000 Los Angeles Multifamily Housing Rev., Series 1985 C, (Studio Colony), VRDN, 2.90%, 9/2/99 (LOC: Bank One Arizona, N.A.) 6,496,000 33,000,000 Los Angeles Multifamily Housing Rev., Series 1985 K, VRDN, 2.70%, 9/7/99 (LOC: FHLB) 33,000,000 3,350,000 Los Angeles Municipal Improvement Corp. Lease Rev., Series 1999 E, (Police Emergency), 4.00%, 9/1/00 (AMBAC) 3,367,865 See Notes to Financial Statements www.americancentury.com 7 California Tax-Free Money Market--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $20,000,000 Los Angeles Unified School District Floating Rate Trust Receipts, 3.10%, 9/8/99 (SBBPA: Bank of New York) (Acquired 7/1/99, Cost $20,000,000)(1)(2) $ 20,000,000 2,635,000 Maywood Public Financing Auth. Tax Allocation, VRDN, 3.00%, 9/2/99 (LOC: Allied Irish Banks, PLC) 2,635,000 5,000,000 Metropolitan Water District Commercial Paper, 3.25%, 9/13/99 (SBBPA: Westdeutsch Landesbank Girozentrale) 5,000,000 2,000,000 Modesto Multifamily Housing Rev., Series 1996 A, (Shadowbrook), VRDN, 3.10%, 9/2/99 (LOC: Bank of America N.T. & S.A.) 2,000,000 2,025,000 Modesto Special Tax, (Community Facilities District No. 98-1), VRDN, 2.90%, 9/2/99 (LOC: Wells Fargo Bank, N.A.) 2,025,000 1,880,000 Moreno Valley COP, (City Hall Refinancing), VRDN, 3.30%, 9/2/99 (LOC: Union Bank of California, N.A.) 1,880,000 1,500,000 Oakland Economic Development Rev., Series 1997 A, (Allen Temple Family Life), VRDN, 2.90%, 9/2/99 (LOC: Wells Fargo Bank, N.A.) 1,500,000 14,000,000 Oceanside Multifamily Housing Rev., (Lakeridge Apartments), VRDN, 3.45%, 9/1/99 (Guaranteed: Continental Casualty Co.) 14,000,000 8,380,000 Orange County Apartment Development Rev., Series 1992 B, (Aliso Creek), VRDN, 2.75%, 9/2/99 (LOC: WFC Holdings Corp.) 8,380,000 5,500,000 Orange County Sanitation District COP, VRDN, 2.40%, 9/1/99 (LOC: National Westminster Bank PLC) 5,500,000 5,000,000 Rancho Water District Financing Auth. Rev., Series 1998 A, VRDN, 2.75%, 9/1/99 (FGIC) (SBBPA: General Electric Capital Corp.) 5,000,000 2,500,000 Redwood City COP, (City Hall), VRDN, 2.90%, 9/2/99 (LOC: KBC Bank N.V.) 2,500,000 9,000,000 Rialto Public Financing Auth. Tax Allocation, Series 1998 A, (Agua Mansa & Industrial), VRDN, 3.65%, 9/2/99 (LOC: Union Bank of California, N.A.) 9,000,000 3,370,000 Riverside County Multifamily Housing Rev., (Ambergate Apartments), VRDN, 3.00%, 9/2/99 (LOC: Union Bank of California, N.A.) 3,370,000 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,715,000 Rohnert Park Multifamily Housing Rev., (Crossbrook Apartments), VRDN, 2.75%, 9/1/99 (FNMA Collateral Agreement) $ 1,715,000 6,800,000 Sacramento County Multifamily Housing Rev., Series 1996 A, VRDN, 2.80%, 9/1/99 (LOC: California State Teachers' Retirement System) 6,800,000 2,000,000 San Bernardino County COP, (Medical Center Financing), VRDN, 2.85%, 9/1/99 (MBIA) (SBBPA: Landesbank Hessen-Thuringen Girozentrale) 2,000,000 22,875,000 San Bernardino County COP, VRDN, 3.04%, 9/2/99 (MBIA) (SBBPA: Merrill Lynch & Co., Inc.) (Acquired 6/28/95-2/4/98, Cost $22,875,000)(1) 22,875,000 25,500,000 San Bernardino County Multifamily Housing Auth. Rev., 4.80%, 5/1/00 (LOC: National Westminster Bank PLC) (Acquired 4/27/99, Cost $25,846,035)(1) 25,731,006 3,350,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1992 A, (Arrowview Park Apartments), VRDN, 2.85%, 9/2/99 (LOC: FHLB) 3,350,000 1,800,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1993 A, (Monterey Villas Apartments), VRDN, 2.85%, 9/2/99 (LOC: FHLB) 1,800,000 2,800,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1997 A, (Mountain View), VRDN, 2.90%, 9/2/99 (LOC: FHLB) 2,800,000 4,200,000 San Diego Multifamily Housing Rev., Series 1993 A, (Coral Point Apartments), VRDN, 3.45%, 9/2/99 (Guaranteed: Continental Casualty Co.) 4,200,000 3,500,000 San Diego Teeter Notes, 3.20%, 10/4/99 (LOC: Landesbank Hessen-Thuringen Girozentrale) 3,500,000 2,800,000 San Diego Teeter Notes, 3.25%, 10/21/99 (LOC: Landesbank Hessen-Thuringen Girozentrale) 2,800,000 5,000,000 San Diego Teeter Notes, 3.45%, 3/7/00 (LOC: Landesbank Hessen-Thuringen Girozentrale) 5,000,000 3,000,000 San Diego Unified School District Tax and Rev. Anticipation Notes, Series 1998 A, 4.50%, 10/1/99 3,002,718 8 1-800-345-2021 See Notes to Financial Statements California Tax-Free Money Market--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 5,000,000 San Francisco City and County Redevelopment Agency Multifamily Housing Rev., Series 1985 B, (Bayside Village), VRDN, 2.80%, 9/2/99 (LOC: Bank One Arizona, N.A.) $ 5,000,000 2,265,000 San Francisco City and County Redevelopment Financing Auth. Rev., (Yerba Buena Garden), VRDN, 2.95%, 9/1/99 (LOC: National Westminster Bank PLC) 2,265,000 1,000,000 San Francisco City and County Sewer Rev., 6.50%, 10/1/99, Prerefunded at 102% of Par(3) 1,023,165 2,400,000 San Francisco City and County Unified School District Tax and Rev. Anticipation Notes, 4.50%, 9/22/99 2,401,483 2,945,000 San Jose Financing Auth. Rev., Series 1998 B, (Hayes Mansion Improvement), VRDN, 2.90%, 9/1/99 (AMBAC) (SBBPA: Bank of Nova Scotia) 2,945,000 1,500,000 San Jose-Santa Clara Water Financing Auth. Sewer Rev., Series 1997 A, 4.00%, 11/15/99 (AMBAC) 1,502,731 13,400,000 Santa Paula Public Financing Auth. Lease Rev., (Water System Acquisition), VRDN, 2.75%, 9/1/99 (LOC: California State Teachers' Retirement System) 13,400,000 3,075,000 Simi Valley Multifamily Housing Rev., Series 1993 A, VRDN, 2.75%, 9/2/99 (LOC: FHLMC) 3,075,000 35,000,000 South Coast Local Education Agencies Tax & Rev. Anticipation Notes, 4.00%, 6/30/00 (MBIA) 35,186,158 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,400,000 Triunfo Sanitation District Rev., VRDN, 3.00%, 9/1/99 (LOC: Banque Nationale de Paris S.A.) $ 1,400,000 3,030,000 University of California Rev., Series 1999 J, (Multiple Purpose), 4.50%, 9/1/00 3,059,998 9,400,000 Vacaville Multifamily Mortgage Rev., (Quail Run), VRDN, 2.70%, 9/1/99 (FNMA) 9,400,000 1,880,000 Vallejo Unified School District GO, 7.75%, 8/1/00 (FSA) 1,949,459 7,000,000 Watereuse Finance Auth. Rev., VRDN, 2.90%, 9/1/99 (FSA) (SBBPA: Credit Suisse First Boston) 7,000,000 4,000,000 West Basin Municipal Water District Rev. COP, Series 1999 B, VRDN, 3.00%, 9/1/99 (LOC: Bayerische Hypo-Und Vereinsbank AG) 4,000,000 1,900,000 West Hollywood COP, VRDN, 3.30%, 9/2/99 (LOC: Union Bank of California, N.A.) 1,900,000 4,300,000 Westminster COP, Series 1998 A, (Civic Center), VRDN, 2.90%, 9/2/99 (AMBAC) (SBBPA: First Union National Bank) 4,300,000 1,900,000 Westminster Redevelopment Agency Tax Allocation Rev., (Commercial Redevelopment Project No. 1), VRDN, 2.90%, 9/2/99 (AMBAC) (SBBPA: Landesbank Hessen-Thuringen Girozentrale) 1,900,000 ------------ TOTAL INVESTMENT SECURITIES--100.0% $554,872,601 ============ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation GO = General Obligation COP = Certificates of Participation LOC = Letter of Credit FGIC = Financial Guaranty Insurance Co. MBIA = MBIA Insurance Corp. FHLB = Federal Home Loan Bank SBBPA = Standby Bond Purchase Agreement FHLMC = Federal Home Loan Mortgage Corp. VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 1999. FNMA = Federal National Mortgage Association FSA = Financial Security Assurance Inc. (1) Security was purchased under rule 144A of the Securities Act of 1933 or is a private placement, and unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of these securities at August 31, 1999, was $102,728,006, which represented 18.4% of net assets. None of these securities are considered to be illiquid. (2) Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 1999. (3) Escrowed to maturity in U.S. government securities or state and local government securities. See Notes to Financial Statements www.americancentury.com 9 California Municipal Money Market--Performance - -------------------------------------------------------------------------------- TOTAL RETURNS AS OF AUGUST 31, 1999 CALIFORNIA MUNICIPAL CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS(2) MONEY MARKET AVERAGE RETURN FUND'S RANKING ================================================================================ 6 MONTHS(1) 1.39% 1.24% -- 1 YEAR 2.76% 2.47% 7 OUT OF 51 ================================================================================ AVERAGE ANNUAL RETURNS 3 YEARS 3.04% 2.81% 7 OUT OF 48 5 YEARS 3.14% 2.93% 7 OUT OF 43 LIFE OF FUND 3.09% 2.86% 6 OUT OF 35 The fund's inception date was 12/31/90. (1) Returns for periods less than one year are not annualized. (2) According to Lipper Inc., an independent mutual fund ranking service. See pages 22-23 for more information about returns and Lipper fund rankings. PORTFOLIO AT A GLANCE 8/31/99 8/31/98 NUMBER OF SECURITIES 54 58 WEIGHTED AVERAGE MATURITY 58 DAYS 40 DAYS EXPENSE RATIO 0.50% 0.50% Investment terms are defined in the Glossary on pages 23-24. YIELDS AS OF AUGUST 31, 1999 7-DAY CURRENT YIELD 2.67% 7-DAY EFFECTIVE YIELD 2.70% 7-DAY TAX-EQUIVALENT YIELDS 34.70% TAX BRACKET 4.09% 37.42% TAX BRACKET 4.27% 41.95% TAX BRACKET 4.60% 45.22% TAX BRACKET 4.87% Past performance does not guarantee future results. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Yields will fluctuate, and although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund. The 7-day yield more closely reflects earnings of the fund than the total return. 10 1-800-345-2021 California Municipal Money Market--Q&A - -------------------------------------------------------------------------------- An interview with Todd Pardula (pictured on page 5), a portfolio manager on the California Municipal Money Market fund investment team. HOW DID CALIFORNIA MUNICIPAL MONEY MARKET PERFORM DURING THE FISCAL YEAR ENDED AUGUST 31, 1999? California Municipal Money Market had a total return of 2.76%, which ranked in the top 15% of the Lipper group. (See the previous page for additional fund returns and performance comparisons.) The portfolio also provided more state and federal tax-free income than the average California money fund. California Municipal Money Market's 7-day effective yield on August 31, 1999, was 2.70%, while the average yield of the 51 California tax-exempt money market funds tracked by Lipper was 2.41%. WHY DID CALIFORNIA MUNICIPAL MONEY MARKET OUTPERFORM ITS LIPPER GROUP? The key to the portfolio's solid relative performance was our lower-than-average management fee. Other things being equal, lower expenses mean higher yields and returns for our shareholders. Another reason the fund performed well was our ability to buy securities at attractive yields and prices. We're able to do that because we've developed solid working relationships with securities dealers who offer very good rates on California money market securities. We also made some good judgment calls about the market. For example, we decided not to buy some notes issued early in June because of their low yields. That turned out to be a good move because new issues came to market a few weeks later offering yields 25 basis points higher. (A basis point equals 0.01%, so 25 basis points equal 0.25%.) In addition, California Municipal Money Market tends to hold a greater percentage of securities subject to the federal alternative minimum tax (AMT) than the other funds in the Lipper group. AMT securities typically offer higher yields than non-AMT notes. CALIFORNIA MUNICIPAL MONEY MARKET'S YIELD INCREASED, PARTICULARLY IN THE PAST SIX MONTHS. WHY? Money market yields rose primarily because the Federal Reserve raised interest rates twice in the last six months to try to cool the economy and head off potential inflation. In addition, the market expects at least one more rate hike. But it's worth noting that yields on California money market securities are low relative to national levels. That's because demand for California securities is high, while supply is lower than in years past because California's strong economy has reduced security issuance. WHAT IS YOUR OUTLOOK FOR THE FUND? We'd like to extend the average maturity slightly by adding some higher-yielding one-year securities. However, we'll likely hold off on extending the fund's maturity until the difference in yield between California and national notes returns to more normal levels. [right margin] PORTFOLIO COMPOSITION BY CREDIT RATING % OF FUND INVESTMENTS AS OF AS OF 8/31/99 2/28/99 SP1+ 72% 72% SP1 15% 14% SP2 13% 14% Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 22 for more information. [pie charts - data below] TYPES OF INVESTMENTS IN THE PORTFOLIO AS OF AUGUST 31, 1999 Variable-Rate Notes 79% Put Bonds 17% Municipal Notes 4% AS OF FEBRUARY 28, 1999 Variable-Rate Notes 89% Put Bonds 11% Investment terms are defined in the Glossary on pages 23-24. www.americancentury.com 11 California Municipal Money Market--Schedule of Investments - -------------------------------------------------------------------------------- This schedule lists all investments owned by the fund, as well as each security's amortized cost, as of the last day of the reporting period. AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES $ 3,200,000 Abaq Finance Authority for Nonprofit Corps California Multifamily Rev., VRDN, 3.00%, 9/2/99 (LOC: Comerica Bank-California) $ 3,200,000 3,000,000 Alameda County Industrial Development Auth. Rev., (Bat Properties), VRDN, 3.00%, 9/2/99 (LOC: Wells Fargo Bank, N.A.) 3,000,000 1,250,000 Alameda County Industrial Development Auth. Rev., (Design Workshops), VRDN, 3.00%, 9/2/99 (LOC: Wells Fargo Bank, N.A.) 1,250,000 1,700,000 Alameda County Industrial Development Auth. Rev., Series 1994 A, (Scientific Technology), VRDN, 3.05%, 9/1/99 (LOC: Banque Nationale de Paris S.A.) 1,700,000 700,000 Alameda County Industrial Development Auth. Rev., Series 1996 A, (Edward L. Shimmon Inc.), VRDN, 3.00%, 9/2/99 (LOC: Banque Nationale de Paris S.A.) 700,000 1,685,000 Alameda County Industrial Development Auth. Rev., Series 1997 A, (Adeline Association), VRDN, 3.00%, 9/2/99 (LOC: Wells Fargo Bank, N.A.) 1,685,000 1,350,000 Alameda County Industrial Development Auth. Rev., Series 1997 A, (Plyproperties), VRDN, 3.00%, 9/2/99 (LOC: Wells Fargo Bank, N.A.) 1,350,000 2,900,000 California Health Facilities Auth. Rev., (Episcopal Home), VRDN, 3.15%, 9/1/99 (LOC: Union Bank of California, N.A.) 2,900,000 3,605,000 California Housing Finance Agency Rev., Series 1996 A, Class A, VRDN, 3.09%, 9/2/99 (LOC: Caisse Des Depots et Consignations) (Acquired 2/4/98, Cost $3,605,000)(1) 3,605,000 10,000,000 California Housing Finance Agency Single Family Mortgage Purchase Rev., Series 1999 E, 3.40%, 8/1/00 10,000,000 1,000,000 California Infrastructure and Economic Industrial Development Rev., (Roller Bearing Co. America), VRDN, 3.10%, 9/1/99 (LOC: First Union National Bank) 1,000,000 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,500,000 California Infrastructure and Economic Industrial Development Rev., Series 1999 A, VRDN, 3.05%, 9/2/99 (LOC: Wells Fargo Bank, N.A.) $ 2,500,000 8,500,000 California Pollution Control Financing Auth. Solid Waste Disposal Rev., Series 1994 A, (Western Waste Industries), VRDN, 3.30%, 9/2/99 (LOC: Union Bank of California, N.A.) 8,500,000 2,500,000 California Pollution Control Financing Auth. Solid Waste Disposal Rev., Series 1999 A, (Athens Disposal Inc.), VRDN, 2.95%, 9/1/99 (LOC: Wells Fargo Bank, N.A.) 2,500,000 2,525,000 California Pollution Control Financing Auth. Solid Waste Disposal Rev., Series 1999 A, (Evergreen Distributors), VRDN, 3.00%, 9/1/99 (LOC: California State Teacher's Retirement System) 2,525,000 3,435,000 California Pollution Control Financing Auth. Solid Waste Disposal Rev., Series 1999 A, (Greenwaste of Tehama), VRDN, 3.05%, 9/1/99 (LOC: Comerica Bank-California) 3,435,000 2,300,000 California Public Capital Improvements Financing Auth. Rev., Series 1988 C, VRDN, 3.15%, 9/15/99 (LOC: National Westminster Bank PLC) 2,300,000 6,100,000 California State Economic Development Financing Auth. Industrial Development Rev., (Applied Aerospace), VRDN, 3.00%, 9/1/99 (LOC: American National Bank and Trust Company of Chicago) 6,100,000 1,100,000 California State Economic Development Financing Auth. Industrial Development Rev., (CALCO), VRDN, 2.95%, 9/1/99 (LOC: Wells Fargo Bank, N.A.) 1,100,000 2,000,000 California State Economic Development Financing Auth. Industrial Development Rev., (Provena Foods Inc.), VRDN, 3.05%, 9/1/99 (LOC: Comerica Bank-California) 2,000,000 2,400,000 California State Economic Development Financing Auth. Industrial Development Rev., (Scientific Specialties), VRDN, 3.00%, 9/1/99 (LOC: Bank of America N.T. & S.A.) 2,400,000 12 1-800-345-2021 See Notes to Financial Statements California Municipal Money Market--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,040,000 California State Economic Development Financing Auth. Industrial Development Rev., (Vortech Engineering Inc.), VRDN, 3.55%, 9/1/99 (LOC: Bank of Hawaii) $ 3,040,000 1,418,364 California State Economic Development Financing Auth. Industrial Development Rev., (Wesflex Pipe Manufacturing), VRDN, 3.20%, 9/2/99 (LOC: Wells Fargo Bank, N.A.) 1,418,364 4,995,000 California State Veterans GO, VRDN, 3.10%, 9/9/99 (LOC: Merrill Lynch & Co. Inc), (Acquired 3/5/99, Cost $4,995,000)(1) 4,995,000 3,500,000 California Statewide Communities Development Auth. Lease Rev., Fixed Rate Trust Receipts, 3.65%, 2/17/00 (LOC: Merrill Lynch & Co., Inc.) (Acquired 8/19/99, Cost $3,500,000)(1) 3,500,000 5,900,000 California Statewide Communities Development Auth. Multifamily Housing Rev., Series 1997 A, (Plaza Club Apartments), VRDN, 3.15%, 9/1/99 (LOC: Comerica Bank-California) 5,900,000 1,200,000 California Statewide Communities Development Auth. Multifamily Housing Rev., Series 1997 G, (Sunrise of Moraga), VRDN, 3.10%, 9/2/99 (LOC: Commerzbank A.G.) 1,200,000 1,425,000 California Statewide Communities Development Auth. Rev., Fixed Rate Trust Receipts, 3.35%, 9/30/99 (FSA) (Acquired 4/29/99, Cost $1,425,000)(1) 1,425,000 1,650,000 California Statewide Communities Development Corp. Rev., (South Bay Circle), VRDN, 3.10%, 9/1/99 (LOC: California Teachers' Retirement System) 1,650,000 1,445,000 California Statewide Communities Development Corp. Rev., (Tri H Foods), VRDN, 4.10%, 9/1/99 (LOC: Union Bank of California, N.A.) 1,445,000 1,225,000 California Statewide Communities Development Corp. Rev., Series 1996 G, (Lansmont Property), VRDN, 3.10%, 9/1/99 (LOC: Wells Fargo Bank, N.A.) 1,225,000 5,560,000 California Statewide Communities Development Corp. Rev., Series 1998 B, (DIX Metals), VRDN, 3.20%, 9/1/99 (LOC: California State Teachers' Retirement System) 5,560,000 4,900,000 Chula Vista Industrial Development Rev., Series 1996 B, (San Diego Gas & Electric Co.), VRDN, 2.65%, 9/1/99 4,900,000 Principal Amount Value - -------------------------------------------------------------------------------- $ 5,500,000 Kern County Superintendent of Schools COP, Series 1996 A, VRDN, 2.95%, 9/2/99 (LOC: Anchor National Life Insurance Company) $ 5,500,000 3,000,000 La Verne Industrial Development Auth. Rev., Series 1998 A, VRDN, 3.10%, 9/2/99 (LOC: Fleet Bank, N.A.) (Acquired 12/21/98, Cost $3,000,000)(1) 3,000,000 2,000,000 Lassen Municipal Utility District Rev., Series 1996 A, VRDN, 3.20%, 9/2/99 (FSA) (SBBPA: Credit Local de France) 2,000,000 3,340,000 Los Angeles County Industrial Development Auth. Rev., (Caitac & Jae Co., Inc.), VRDN, 4.10%, 9/1/99 (LOC: Union Bank of California, N.A.) 3,340,000 1,985,000 Los Angeles Industrial Development Auth. Rev., (Kairak Inc.), VRDN, 3.60%, 9/1/99 (LOC: Bank of Hawaii) 1,985,000 1,235,000 Los Angeles Industrial Development Auth. Rev., (Keystone Engineering Company), VRDN, 3.60%, 9/1/99 (LOC: Bank of Hawaii) 1,235,000 5,500,000 Los Angeles Multifamily Housing Rev., Series 1997 D, (Mission Village Terrace), VRDN, 2.90%, 9/2/99 (LOC: FHLB) 5,500,000 3,600,000 Oxnard Industrial Development Auth. Rev., (Western Saw Manufacturers), VRDN, 3.00%, 9/1/99 (LOC: California State Teachers' Retirement System) 3,600,000 2,500,000 Oxnard Industrial Development Financing Auth. Rev., (Accurate Engineering), VRDN, 3.00%, 9/1/99 (LOC: California State Teachers' Retirement System) 2,500,000 2,400,000 Pinole Redevelopment Agency, Series 1998 A, (East Bluff Apartments), VRDN, 3.20%, 9/2/99 (LOC: Comerica Bank-California) 2,400,000 2,565,000 Pleasant Hill Redevelopment Agency Multifamily Housing Rev., Series 1996 A, (Chateau III), VRDN, 3.10%, 9/2/99 (LOC: Commerzbank A.G.) 2,565,000 3,000,000 Port of Oakland Rev. Floating Rate Trust Receipts, Series 1999 A24, 3.15%, 9/1/99 (MBIA) (SBBPA: Commerzbank AG) (Acquired 7/21/99, Cost $3,000,000)(1)(2) 3,000,000 3,400,000 Port of Oakland Rev. Floating Rate Trust Receipts, Series 1999 A24, 3.15%, 9/1/99 (MBIA) (SBBPA: Commerzbank AG) (Acquired 4/12/99, Cost $3,400,000)(1)(2) 3,400,000 See Notes to Financial Statements www.americancentury.com 13 California Municipal Money Market--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,110,000 Riverside County Industrial Development Auth. Rev., (Merrick Engineering Inc.), VRDN, 2.95%, 9/1/99 (LOC: Wells Fargo Bank, N.A.) (Acquired 6/29/99, Cost $2,110,000)(1) $ 2,110,000 13,500,000 Sacramento County Housing Auth. Rev., Issue 1992 A, (Shadowood Apartments), VRDN, 3.00%, 9/1/99 (LOC: General Electric Capital Corp.) 13,500,000 2,500,000 Sacramento County Special Facilities Airport Rev., (Cessna Aircraft Co.), VRDN, 3.00%, 9/2/99 (LOC: Bank of America N.T. & S.A.) 2,500,000 7,500,000 San Bernardino County Multifamily Housing Auth. Rev., 4.80%, 5/1/00 (LOC: National Westminster Bank PLC), (Acquired 4/27/99, Cost $7,601,775)(1) 7,567,943 Principal Amount Value - -------------------------------------------------------------------------------- $ 5,514,151 San Bernardino County Single Family Mortgage Rev., Series 1999 A-2, 5.16%, 6/1/00 (GIC: Transamerica Life Insurance & Annuity Co.) $ 5,593,121 900,000 San Diego Industrial Development Rev., Series 1987 A, (Kaiser Aerospace and Electricity), VRDN, 3.00%, 9/2/99 (LOC: ABN Amro Bank N.V.) 900,000 3,000,000 San Jose Multifamily Housing Rev., Series 1998 A, (Carlton Plaza), VRDN, 3.10%, 9/2/99 (LOC: Commerzbank A.G.) 3,000,000 7,000,000 South Coast Local Education Agencies Tax & Rev. Anticipation Notes, 4.00%, 6/30/00 (MBIA) 7,036,959 ------------ TOTAL INVESTMENT SECURITIES--100.0% $182,241,387 ============ NOTES TO SCHEDULE OF INVESTMENTS COP = Certificates of Participation FHLB = Federal Home Loan Bank FSA = Financial Security Assurance Inc. GIC = Guaranteed Investment Contract GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 1999. (1) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement, and unless registered under the act or exempted from registration, may be sold only to qualified institutional investors. The aggregate value of these securities at August 31, 1999, was $32,602,943, which represented 18.1% of net assets. None of these securities are considered to be illiquid. (2) Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 1999. 14 1-800-345-2021 See Notes to Financial Statements Statements of Assets and Liabilities - -------------------------------------------------------------------------------- This statement breaks down the fund's ASSETS (such as securities, cash, and other receivables) and LIABILITIES (money owed for securities purchased, management fees and other liabilities) as of the last day of the reporting period. Subtracting the liabilities from the assets results in the fund's NET ASSETS. The net assets divided by shares outstanding is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets into capital (shareholder investments) and performance (investment income and gains/losses). TAX-FREE MUNICIPAL AUGUST 31, 1999 MONEY MARKET MONEY MARKET ASSETS Investment securities, at value (amortized cost and cost for federal income tax purposes) ........... $ 554,872,601 $ 182,241,387 Cash ..................................... 986,730 -- Interest receivable ...................... 2,554,287 890,768 ------------- ------------- 558,413,618 183,132,155 ------------- ------------- LIABILITIES Disbursements in excess of demand deposit cash ................. -- 3,071,832 Accrued management fees (Note 2) ............................... 237,953 75,386 Dividends payable ........................ 181 47 Payable for trustees' fees and expenses ........................... 983 311 ------------- ------------- 239,117 3,147,576 ------------- ------------- Net Assets ............................... $ 558,174,501 $ 179,984,579 ============= ============= CAPITAL SHARES Outstanding (unlimited number of shares authorized) .................. 558,185,719 180,021,204 ============= ============= Net Asset Value Per Share ................ $ 1.00 $ 1.00 ============= ============= NET ASSETS CONSIST OF: Capital paid in .......................... $ 558,185,719 $ 180,021,204 Undistributed net investment income ...... 300,416 122,436 Accumulated net realized loss on investment transactions ............. (311,634) (159,061) ------------- ------------- $ 558,174,501 $ 179,984,579 ============= ============= See Notes to Financial Statements www.americancentury.com 15 Statements of Operations - -------------------------------------------------------------------------------- This statement shows how the fund's net assets changed during the reporting period as a result of the fund's operations. In other words, it shows how much money the fund made or lost as a result of dividend and interest income, fees and expenses, and investment gains or losses. TAX-FREE MUNICIPAL YEAR ENDED AUGUST 31, 1999 MONEY MARKET MONEY MARKET INVESTMENT INCOME Income: Interest ................................ $ 15,758,881 $ 5,713,873 ------------ ------------ Expenses (Note 2): Management fees ......................... 2,514,416 873,026 Trustees' fees and expenses ............. 16,935 6,498 ------------ ------------ 2,531,351 879,524 ------------ ------------ Net investment income ................... 13,227,530 4,834,349 ------------ ------------ NET REALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments ........................ (12,545) 214 ------------ ------------ Net Increase in Net Assets Resulting from Operations ............. $ 13,214,985 $ 4,834,563 ============ ============ 16 1-800-345-2021 See Notes to Financial Statements Statements of Changes in Net Assets - -------------------------------------------------------------------------------- This statement shows how the fund's net assets changed over the past two reporting periods. It details how much a fund grew or shrank as a result of operations (as detailed on the previous page for the most recent period), income and capital gain distributions, and shareholder investments and redemptions. YEARS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998
TAX-FREE MONEY MARKET MUNICIPAL MONEY MARKET Increase in Net Assets 1999 1998 1999 1998 OPERATIONS Net investment income ............... $ 13,227,530 $ 13,370,351 $ 4,834,349 $ 5,404,285 Net realized gain (loss) on investments .................... (12,545) (580) 214 (669) ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations ................... 13,214,985 13,369,771 4,834,563 5,403,616 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income .......... (13,226,200) (13,369,357) (4,834,349) (5,398,614) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ........... 701,786,020 434,812,626 171,530,835 153,582,331 Proceeds from reinvestment of distributions .................. 11,318,419 12,745,632 4,559,301 5,174,073 Payments for shares redeemed ........ (610,912,283) (409,349,170) (168,697,393) (156,647,128) ------------- ------------- ------------- ------------- Net increase in net assets from capital share transactions ... 102,192,156 38,209,088 7,392,743 2,109,276 ------------- ------------- ------------- ------------- Net increase in net assets .......... 102,180,941 38,209,502 7,392,957 2,114,278 NET ASSETS Beginning of period ................. 455,993,560 417,784,058 172,591,622 170,477,344 ------------- ------------- ------------- ------------- End of period ....................... $ 558,174,501 $ 455,993,560 $ 179,984,579 $ 172,591,622 ============= ============= ============= ============= Undistributed net investment income ................. $ 300,416 $ 299,086 $ 122,436 $ 122,436 ============= ============= ============= ============= TRANSACTIONS IN SHARES OF THE FUNDS Sold ................................ 701,786,020 434,812,626 171,530,835 153,582,331 Issued in reinvestment of distributions .................. 11,318,419 12,745,632 4,559,301 5,174,073 Redeemed ............................ (610,912,283) (409,349,170) (168,697,393) (156,647,128) ------------- ------------- ------------- ------------- Net increase ........................ 102,192,156 38,209,088 7,392,743 2,109,276 ============= ============= ============= =============
See Notes to Financial Statements www.americancentury.com 17 Notes to Financial Statements - -------------------------------------------------------------------------------- AUGUST 31, 1999 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century California Tax-Free and Municipal Funds (the trust) is registered under the Investment Company Act of 1940 as an open-end management investment company. California Tax-Free Money Market Fund (Tax-Free Money Market) and California Municipal Money Market Fund (Municipal Money Market) (the funds) are two of the seven funds issued by the trust. Tax-Free Money Market is diversified and Municipal Money Market is non-diversified under the 1940 Act. The funds seek income that is exempt from federal and California income taxes. Tax-Free Money Market and Municipal Money Market seek to obtain as high a level of interest income as is consistent with prudent investment management and conservation of shareholders' capital. The funds concentrate their investments in a single state and therefore may have more exposure to credit risk related to the state of California than a fund with a broader geographical diversification. The following significant accounting policies are in accordance with generally accepted accounting principles; these principles may require the use of estimates by fund management. SECURITY VALUATIONS -- Portfolio securities are valued at amortized cost, which approximates current market value. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. INCOME TAX STATUS -- It is the funds' policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared and credited daily and distributed monthly. The funds do not expect to realize any long-term capital gains, and accordingly, do not expect to pay any capital gains distributions. For the year ended August 31, 1999, 100% (unaudited) of the funds' distributions from net investment income have been designated as exempt from federal and California state income tax. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net gains and losses for financial statement and tax purposes and may result in reclassification among certain capital accounts. At August 31, 1999, accumulated net realized capital loss carryovers for Tax-Free Money Market of $274,509 (expiring in 2004 through 2007) and for Municipal Money Market of $159,057 (expiring in 2003 through 2006) may be used to offset future taxable gains. Tax-Free Money Market has elected to treat $12,510 of net capital losses incurred in the ten month period ended August 31, 1999, as having been incurred in the following fiscal year. ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's distributor. Certain officers of FDI are also officers of the trust. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH RELATED PARTIES The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides each fund with investment advisory and management services in exchange for a single, unified management fee. The Agreement provides that all expenses of the funds, except brokerage, taxes, portfolio insurance, interest, fees and expenses of the Trustees who are not considered "interested persons" as defined in the Investment Company Act of 1940 (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is calculated daily and paid monthly. It consists of an Investment Category Fee based on the average net assets of the funds in a specific fund's investment category and a Complex Fee based on the average net assets of all the funds managed by ACIM. The rates for the Investment Category Fee range from 0.1570% to 0.2700% and the rates for the Complex Fee range from 0.2900% to 0.3100%. For the year ended August 31, 1999, the effective annual management fee for both funds was 0.50%. Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc., the parent of the trust's investment manager, ACIM, and the trust's transfer agent, American Century Services Corporation. 18 1-800-345-2021 California Tax-Free Money Market--Financial Highlights - -------------------------------------------------------------------------------- This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a percentage of average net assets), and EXPENSE RATIO (operating expenses as a percentage of average net assets).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 1999 1998 1997 1996 1995 PER-SHARE DATA Net Asset Value, Beginning of Period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ----------- ----------- ----------- ----------- ----------- Income From Investment Operations Net Investment Income ........... 0.03 0.03 0.03 0.03 0.03 ----------- ----------- ----------- ----------- ----------- Distributions From Net Investment Income ...... (0.03) (0.03) (0.03) (0.03) (0.03) ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 =========== =========== =========== =========== =========== Total Return(1) ................. 2.62% 3.12% 3.17% 3.12% 3.31% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ............. 0.50% 0.50% 0.49% 0.49% 0.52% Ratio of Net Investment Income to Average Net Assets ............. 2.59% 3.07% 3.10% 3.12% 3.28% Net Assets, End of Period (in thousands) .................... $ 558,175 $ 455,994 $ 417,784 $ 425,846 $ 414,099
(1) Total return assumes reinvestment of dividends and capital gains distributions, if any. See Notes to Financial Statements www.americancentury.com 19 California Municipal Money Market--Financial Highlights - -------------------------------------------------------------------------------- This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a percentage of average net assets), and EXPENSE RATIO (operating expenses as a percentage of average net assets).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 1999 1998 1997 1996 1995 PER-SHARE DATA Net Asset Value, Beginning of Period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ----------- ----------- ----------- ----------- ----------- Income From Investment Operations Net Investment Income ........... 0.03 0.03 0.03 0.03 0.03 ----------- ----------- ----------- ----------- ----------- Distributions From Net Investment Income ...... (0.03) (0.03) (0.03) (0.03) (0.03) ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 =========== =========== =========== =========== =========== Total Return(1) ................. 2.76% 3.20% 3.15% 3.23% 3.35% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ............. 0.50% 0.50% 0.52% 0.53% 0.53% Ratio of Net Investment Income to Average Net Assets ............. 2.73% 3.16% 3.10% 3.20% 3.31% Net Assets, End of Period (in thousands) .................... $ 179,985 $ 172,592 $ 170,477 $ 196,520 $ 191,722
(1) Total return assumes reinvestment of dividends and capital gains distributions, if any. 20 1-800-345-2021 See Notes to Financial Statements Report of Independent Accountants - -------------------------------------------------------------------------------- To the Trustees of the American Century California Tax-Free and Municipal Funds and Shareholders of the California Tax-Free Money Market Fund and the California Municipal Money Market Fund: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the California Tax-Free Money Market Fund and the California Municipal Money Market Fund (formerly the American Century - Benham California Tax-Free Money Market Fund and the American Century - Benham California Municipal Money Market Fund, respectively) (the "Funds") at August 31, 1999, and the results of their operations for the year then ended, the changes in their net assets and the financial highlights for each of the two years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. The financial highlights for each of the three years in the period ended August 31, 1997, were audited by other auditors, whose report, dated October 3, 1997, expressed an unqualified opinion on those statements. We conducted our audits of these financial statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 1999 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Kansas City, Missouri October 13, 1999 www.americancentury.com 21 Background Information - -------------------------------------------------------------------------------- INVESTMENT PHILOSOPHY AND POLICIES American Century offers 38 fixed-income funds, ranging from money market portfolios to long-term bond funds and including both taxable and tax-exempt funds. Each is managed to provide a "pure play" on a specific sector of the fixed-income market. To ensure adherence to this principle, the basic structure of each portfolio is tied to a specific market index. Fund managers attempt to add value by making modest portfolio adjustments based on their analysis of prevailing market conditions. Investment decisions are made by management teams, which meet regularly to discuss market analysis and investment strategies. In addition to these principles, each fund has its own investment policies: CALIFORNIA TAX-FREE MONEY MARKET and CALIFORNIA MUNICIPAL MONEY MARKET seek to provide interest income exempt from both federal and California state income taxes while maintaining a stable share price. The funds invest in high-quality California municipal money market securities with remaining maturities of 13 months or less. An investment in these funds is neither insured nor guaranteed by the FDIC or any other government agency. Yields will fluctuate, and although the funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the funds. LIPPER RANKINGS LIPPER INC. is an independent mutual fund ranking service that groups funds according to their investment objectives. Rankings are based on average annual returns for each fund in a given category for the periods indicated. Rankings are not included for periods less than one year. The Lipper category for the California Tax-Free Money Market and Municipal Money Market is: CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS --funds that invest in high-quality California municipal obligations with dollar-weighted average maturities of less than 90 days. CREDIT RATING GUIDELINES Credit quality (the issuer's financial strength and the likelihood of timely payment of interest and principal) is a key factor in fixed-income investment analysis. Credit ratings issued by independent rating and research companies such as Standard & Poor's help quantify credit quality--the stronger the issuer, the higher the credit rating. In turn, credit quality and ratings greatly influence bond prices and yields--high ratings mean higher prices and less current income (yield) as compensation for risk. But credit ratings are subjective. They reflect the opinions of the rating agencies that issue them and are not absolute standards of quality. Furthermore, high credit ratings do not guarantee good investment performance. They do not reflect the price stability of a municipal security when economic or market conditions change. [left margin] INVESTMENT TEAM LEADERS Portfolio Manager TODD PARDULA Credit Research Director STEVEN PERMUT 22 1-800-345-2021 Glossary - -------------------------------------------------------------------------------- RETURNS * TOTAL RETURN figures show the overall percentage change in the value of a hypothetical investment in the fund and assume that all of the fund's distributions are reinvested. * AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would have produced the fund's cumulative total returns if the fund's performance had been constant over the entire period. Average annual returns smooth out variations in a fund's return; they are not the same as fiscal year-by-year results. For fiscal year-by-year returns, please refer to the "Financial Highlights" on pages 19-20. YIELDS * 7-DAY CURRENT YIELD is calculated based on the income generated by an investment in the fund over a seven-day period and is expressed as an annual percentage rate. * 7-DAY EFFECTIVE YIELD is calculated similarly, although this figure is slightly higher than the fund's 7-Day Current Yield because of the effects of compounding. The 7-Day Effective Yield assumes that income earned from the fund's investments is reinvested and generating additional income. * 7-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in a combined California and federal income tax bracket would have to earn before taxes to equal the fund's 7-Day Current Yield. INVESTMENT TERMS * BASIS POINT -- a basis point equals one one-hundredth of a percentage point (or 0.01%). Therefore, 100 basis points equal one percentage point (or 1%). STATISTICAL TERMINOLOGY * NUMBER OF SECURITIES -- the number of entities that issued securities held by a fund on a given date. * WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a fixed-income portfolio to interest rate changes. WAM indicates the average time until the securities in the portfolio mature, weighted by dollar amount. * EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage of average net assets. Shareholders pay an annual fee to the investment manager for investment advisory and management services. The expenses and fees are deducted from fund income, not from each shareholder account. (See Note 2 in the Notes to Financial Statements.) TYPES OF MUNICIPAL SECURITIES * AMT PAPER -- instruments with income subject to the federal alternative minimum tax. * MUNICIPAL COMMERCIAL PAPER (CP) -- high-grade short-term securities backed by a line of credit from a bank. * MUNICIPAL NOTES -- securities with maturities of two years or less. * PUT BONDS -- long-term securities that can be"put back" (i.e., sold at face value) to a specified buyer at a prearranged date. * VARIABLE-RATE NOTES -- securities that track market interest rates and stabilize their market values using periodic (daily or weekly) interest rate adjustments. www.americancentury.com 23 Glossary - -------------------------------------------------------------------------------- (Continued) FUND CLASSIFICATIONS INVESTMENT OBJECTIVE The investment objective may be based on the fund's objective as stated in its prospectus or fund profile, or the fund's categorization by independent rating organizations based on its management style. * CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for relative stability of principal and liquidity. * INCOME -- offers funds that can provide current income and competitive yields, as well as a strong and stable foundation and generally lower volatility levels than stock funds. * GROWTH & INCOME -- offers funds that emphasize both growth and income provided by either dividend-paying equities or a combination of equity and fixed-income securities. * GROWTH -- offers funds with a focus on capital appreciation and long-term growth, generally providing high return potential with corresponding high price fluctuation risk. RISK The classification of funds by risk category is based on quantitative historical measures as well as qualitative prospective measures. It is not intended to be a precise indicator of future risk or return levels. The degree of risk within each category can vary significantly, and some fund returns have historically been higher than more aggressive funds or lower than more conservative funds. Please be aware that the fund's category may change over time. Therefore, it is important that you read a fund's prospectus or fund profile carefully before investing to ensure its objectives, policies and risk potential are consistent with your needs. * CONSERVATIVE -- these funds generally provide lower return potential with either low or minimal price fluctuation risk. * MODERATE -- these funds generally provide moderate return potential with moderate price fluctuation risk. * AGGRESSIVE -- these funds generally provide high return potential with corresponding high price fluctuation risk. 24 1-800-345-2021 [inside back cover] =============================================================================== INVESTMENT OBJECTIVE - CAPITAL PRESERVATION =============================================================================== RISK LEVEL - CONSERVATIVE TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS Premium Capital Reserve FL Municipal Money Market Prime Money Market CA Municipal Money Market Premium Government Reserve CA Tax-Free Money Market Government Agency Tax-Free Money Market Money Market Capital Preservation =============================================================================== INVESTMENT OBJECTIVE - INCOME =============================================================================== RISK LEVEL - AGGRESSIVE TAXABLE BONDS TAX-FREE BONDS Target 2025* CA High-Yield Municipal Target 2020* High-Yield Municipal Target 2015* Target 2010* High-Yield International Bond RISK LEVEL - MODERATE TAXABLE BONDS TAX-FREE BONDS Long-Term Treasury CA Long-Term Tax-Free Target 2005* Long-Term Tax-Free Bond CA Insured Tax-Free Premium Bond RISK LEVEL - CONSERVATIVE TAXABLE BONDS TAX-FREE BONDS Intermediate-Term Bond CA Intermediate-Term Tax-Free Intermediate-Term Treasury AZ Intermediate-Term Municipal GNMA FL Intermediate-Term Municipal Inflation-Adjusted Treasury Intermediate-Term Tax-Free Limited-Term Bond CA Limited-Term Tax-Free Target 2000* Limited-Term Tax-Free Short-Term Government Short-Term Treasury =============================================================================== INVESTMENT OBJECTIVE - GROWTH AND INCOME =============================================================================== RISK LEVEL - AGGRESSIVE DOMESTIC EQUITY Small Cap Quantitative Small Cap Value RISK LEVEL - MODERATE ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY Strategic Allocation -- Equity Growth Utilities Aggressive Equity Index Real Estate Balanced Tax-Managed Value Strategic Allocation -- Income & Growth Moderate Value Strategic Allocation -- Large Cap Value Conservative Equity Income =============================================================================== INVESTMENT OBJECTIVE - GROWTH =============================================================================== RISK LEVEL - AGGRESSIVE DOMESTIC EQUITY SPECIALTY INTERNATIONAL New Opportunities Global Gold Emerging Markets Giftrust(reg.tm) International Discovery Vista International Growth Heritage Global Growth Growth Ultra(reg.tm) Select RISK LEVEL - MODERATE SPECIALTY Global Natural Resources The investment objective may be based on the fund's objective as stated in its prospectus or fund profile, or the fund's categorization by independent rating organizations based on its management style. The classification of funds by risk category is based on quantitative historical measures as well as qualitative prospective measures. It is not intended to be a precise indicator of future risk or return levels. The degree of risk within each category can vary significantly, and some fund returns have historically been higher than more aggressive funds or lower than more conservative funds. Please be aware that a fund's category may change over time. Therefore, it is important that you read a fund's prospectus or fund profile carefully before investing to ensure its objectives, policies and risk potential are consistent with your needs.For a definition of fund categories, see the Glossary. * While listed within the Income investment objective, the Target funds do not pay current dividend income. Income dividends are distributed once a year in December. The Target funds are listed in all three risk categories due to the dramatic price volatility investors may experience during certain market conditions. If held to their target dates, however, they can offer a conservative, dependable way to invest for a specific time horizon. Please call 1-800-345-2021 for a prospectus or profile on any American Century fund. These documents contain important information including charges and expenses, and you should read them carefully before you invest or send money. [back cover] [american century logo(reg.sm)] American Century P.O. BOX 419200 KANSAS CITY, MISSOURI 64141-6200 WWW.AMERICANCENTURY.COM INVESTOR RELATIONS 1-800-345-2021 OR 816-531-5575 AUTOMATED INFORMATION LINE 1-800-345-8765 FAX: 816-340-7962 TELECOMMUNICATIONS DEVICE FOR THE DEAF 1-800-634-4113 OR 816-444-3485 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES 1-800-345-6488 AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. KANSAS CITY, MISSOURI THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. - -------------------------------------------------------------------------------- American Century Investments BULK RATE P.O. Box 419200 U.S. POSTAGE PAID Kansas City, MO 64141-6200 AMERICAN CENTURY www.americancentury.com COMPANIES Funds Distributor, Inc. is 9910 the distributor of American Century funds SH-ANN-18083 (c)1999 American Century Services Corporation [front cover] AUGUST 31, 1999 ANNUAL REPORT - ------------------ AMERICAN CENTURY [graphic of stairs] CALIFORNIA LIMITED-TERM TAX-FREE CALIFORNIA INTERMEDIATE-TERM TAX-FREE CALIFORNIA LONG-TERM TAX-FREE [american century logo(reg.sm)] American Century [inside front cover] Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS - -------------------------------------------------------------------------------- Y2K, short for the Year 2000, refers more specifically to the date change from December 31, 1999 to January 1, 2000. This date change is significant for computers because many were originally programmed to process dates with two-character years--99 instead of 1999. When the calendar rolls to 2000, this can create problems for computers programmed this way because they will read the date as "00," and may interpret it as 1900. Most companies have been working to reprogram their computer systems with four-digit years. Reprogramming is very labor-intensive and requires testing to ensure that there are no errors and that all lines of code were successfully changed. Recognizing the possible impact of the Y2K issue, our senior-level Steering Committee, programmers, business partners and Y2K team have been working diligently to make January 1, 2000 a non-event for American Century investors. Currently, our systems have been modified, tested and returned to production, and we have tested our systems with our vendors and business partners. In March and April of this year, we participated in the Security Industry Association's (SIA) industry-wide test and successfully processed transactions for dates up to and beyond 2000. American Century transactions with our partner firms were processed free of Y2K bugs. We also participated in the Market Data Test conducted by the SIA and Financial Information Forum in May. Again, the computer scripts were executed successfully with no Y2K-related errors. In addition, our Y2K team has developed contingency plans. These plans are designed to minimize the impact on our investors and help us maintain operations in the event of any Y2K-related incidents. We have conducted practice drills of contingency scenarios and will continue to refine our plans during the rest of 1999 to respond quickly and effectively so that the date change is as seamless as possible for investors. We expect the Year 2000 to be business as usual at American Century. Year 2000 Readiness Disclosure [left margin] CALIFORNIA LIMITED-TERM TAX-FREE (BCSTX) - ---------------------------------------- CALIFORNIA INTERMEDIATE-TERM TAX-FREE (BCITX) - ---------------------------------------- CALIFORNIA LONG-TERM TAX-FREE (BCLTX) - ---------------------------------------- TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED BY OBJECTIVE AND RISK. RECEIVE YOUR ANNUAL REPORTS ONLINE CHOOSE OUR ELECTRONIC COMMUNICATION PROGRAM Access annual reports, newsletters and prospectuses electronically. All you need is your OnePIN. Don't have a OnePIN? Visit www.americancentury.com and set up your OnePIN by following two easy steps using your automated phone line personal access code. OnePIN opens the door to services that help you stay in control of your money: * MONITOR YOUR INVESTMENTS on your Personal Homepage any time, any day * STAY INFORMED and set up a watch list of securities -- or even a test portfolio * REDUCE CLUTTER IN YOUR MAILBOX by selecting the electronic communication link from your Personal Homepage Set up your OnePIN and choose the electronic communication program today. Questions? Call 1-800-345-2021 or go to www.americancentury.com. Our Message to You - -------------------------------------------------------------------------------- [photo of James E. Stowers III, seated, with James E. Stowers, Jr.] Strong economic growth, increasing inflation anxiety, and rising interest rates set the tone for the U.S. bond market in 1999. These factors helped determine the performance of American Century's California municipal funds for the fiscal year ended August 31, 1999. Municipal bond funds enjoyed gains during the second half of 1998 when interest rates fell and bond markets rallied. Those positive returns were largely negated in 1999, however, as the recovery of overseas economies and unabated U.S. growth reignited inflation fears and sent interest rates soaring. While the Federal Reserve (the Fed--the U.S. central bank) saw fit to cut short-term interest rates three times during the fall of 1998, the Fed raised rates twice during the summer of 1999. Though market behavior and Fed interest rate policy swung from one extreme to the other, one thing that remained remarkably consistent was the performance of the American Century California municipal funds against their peers. All seven of our California municipal money market and bond funds provided higher tax-free yields and lower expenses than the average of their Lipper Inc. peer groups. That's a hallmark of the American Century municipal investment approach. The strength of our municipal investment and credit research teams also contributed to fund performance. The investment and credit teams, as well as fund investors, have benefited from our commitment to build and maintain a talented fund management group. American Century's entire investment management team has doubled in size over the past three years. In addition to strengthening our portfolio and research staff, we've recently made strategic investments in several other financial companies, including Archipelago, Tradepoint Financial Networks, W.R. Hambrecht, and WorldStreet Corporation. These investments demonstrate our active support of the development and use of technologies that improve the efficiencies of capital markets, lower trading costs, and ultimately offer better returns for shareholders. One final note--in the spirit of our ongoing Year 2000 readiness disclosures, we've provided a complete update on our preparations for Y2K on the inside front cover of this report. We understand that our continued diligence in this area is very important to you. As always, we appreciate your continued confidence in American Century. Sincerely, /s/James E. Stowers, Jr. /s/James E. Stowers III James E. Stowers, Jr. James E. Stowers III Chairman of the Board and Founder Vice Chairman of the Board and Chief Executive Officer [right margin] Table of Contents Report Highlights ...................................................... 2 Market Perspective ..................................................... 3 Municipal Credit Review ................................................ 4 CALIFORNIA LIMITED-TERM TAX-FREE Performance Information ................................................ 5 Management Q&A ......................................................... 6 Portfolio at a Glance .................................................. 6 Schedule of Investments ................................................ 8 CALIFORNIA INTERMEDIATE-TERM TAX-FREE Performance Information ................................................ 11 Management Q&A ......................................................... 12 Portfolio at a Glance .................................................. 12 Schedule of Investments ................................................ 14 CALIFORNIA LONG-TERM TAX-FREE Performance Information ................................................ 19 Management Q&A ......................................................... 20 Portfolio at a Glance .................................................. 20 Schedule of Investments ................................................ 22 FINANCIAL STATEMENTS Statements of Assets and Liabilities ......................................................... 26 Statements of Operations ............................................... 27 Statements of Changes in Net Assets ....................................................... 28 Notes to Financial Statements .......................................................... 29 Financial Highlights ................................................... 31 Report of Independent Accountants ......................................................... 34 OTHER INFORMATION Background Information Investment Philosophy and Policies ..................................................... 35 Comparative Indices ................................................. 35 Lipper Rankings ..................................................... 35 Investment Team Leaders .......................................................... 35 Credit Rating Guidelines ....................................................... 35 Glossary ............................................................... 36 www.americancentury.com 1 Report Highlights - -------------------------------------------------------------------------------- MARKET PERSPECTIVE * Municipal bond prices sagged under the weight of rising interest rates and weaker demand in the 12 months ended August 31, 1999. * A healthy U.S. economy, better growth overseas, and worries about inflation led the Federal Reserve to raise interest rates twice in 1999. * Short-term bonds, which are the least sensitive to rate changes, performed best, while intermediate- and longer-term securities had flat to negative returns. CREDIT REVIEW * A healthy economy and state budget surplus led Standard & Poor's to upgrade California's credit rating. * California produced jobs faster than the national average, and the state's unemployment rate hit a nine-year low in August. * A key to California's economic health has been the "wealth effect"-- household incomes and spending have been boosted by the big gains in housing prices and the stock market. CALIFORNIA LIMITED-TERM TAX-FREE * The portfolio performed well--its return for the fiscal year ranked in the top quarter of the Lipper group. * The fund produced more tax-free income than the average California short-term fund, according to Lipper. * Two big reasons the portfolio outperformed the Lipper group were below-average expenses and good duration management. * We maintained the portfolio's high credit quality--we don't think lower-rated securities offer enough additional yield right now to justify taking added credit risk. CALIFORNIA INTERMEDIATE-TERM TAX-FREE * The difficult environment for intermediate- and longer-term municipal bonds limited the portfolio's return. * California Intermediate-Term Tax-Free gave shareholders more tax-free income than the average California intermediate-term bond fund, according to Lipper. * We bought Puerto Rico bonds and securities that were out of favor with individual investors to boost the portfolio's yield without taking on any additional credit risk. * We're generally positive on the municipal market--credit quality is high, inflation is low, and municipal yields are attractive relative to Treasurys. CALIFORNIA LONG-TERM TAX-FREE * Higher interest rates weighed on fund returns in 1999. The fund's long duration, which boosted performance when rates fell in 1998, limited returns this year. * The fund produced far more current income than the average California municipal fund, with a 30-day SEC yield in the top 5% of the peer group, according to Lipper. * We have a generally positive outlook for California municipal bonds--their yields are attractive relative to Treasurys, and we think we'll continue to see low inflation and modest economic growth. * We'll likely keep duration a little long while continuing to emphasize the same value-oriented approach that's helped the fund to its solid long-term performance. [left margin] CALIFORNIA LIMITED-TERM TAX-FREE (BCSTX) TOTAL RETURNS: AS OF 8/31/99 6 Months -0.01%* 1 Year 2.26% 30-DAY SEC YIELD: 3.72% INCEPTION DATE: 6/1/92 NET ASSETS: $141.5 million CALIFORNIA INTERMEDIATE-TERM TAX-FREE (BCITX) TOTAL RETURNS: AS OF 8/31/99 6 Months -1.72%* 1 Year 0.74% 30-DAY SEC YIELD: 4.20% INCEPTION DATE: 11/9/83 NET ASSETS: $459.9 million CALIFORNIA LONG-TERM TAX-FREE (BCLTX) TOTAL RETURNS: AS OF 8/31/99 6 Months -3.97%* 1 Year -1.85% 30-DAY SEC YIELD: 4.95% INCEPTION DATE: 11/9/83 NET ASSETS: $332.6 million * Not annualized. Investment terms are defined in the Glossary on pages 36-37. 2 1-800-345-2021 Market Perspective from Randall W. Merk - -------------------------------------------------------------------------------- [photo of Randall W. Merk] Randall W. Merk, chief investment officer of fixed income MUNICIPAL BOND PERFORMANCE Municipal bond prices came under pressure during the year ended August 31, 1999, as improving global economic conditions caused inflation anxiety. But the fiscal year didn't begin that way. Bonds rallied in the second half of 1998 when recessionary expectations surged due to financial crises in Asia, Russia, and Latin America. The Federal Reserve (the Fed) bolstered the bond market when it cut interest rates three times during the fall of 1998 to stem overseas problems and shore up U.S. economic growth. Early 1999 brought evidence that the Fed's actions worked. The U.S. economy remained robust, and Japan appeared on the mend. By the spring, recessionary expectations gave way to inflation fears. Changing market sentiment and rate hikes in June and August by the Fed pushed bond yields higher, taking their toll on bond prices. LONGER-TERM BONDS LAG Long-term bond yields rose the most and their prices dipped furthest, while shorter-term bonds generally posted modest gains. (See the accompanying chart.) Long-term bonds stumbled because of their greater interest rate sensitivity, though falling demand also figured heavily in their losses. Bargain-hunting insurance companies--who had helped boost long-term municipal bonds in the first half of the fiscal year--later turned their backs on them. They gravitated instead to corporate bonds, which offered low prices and attractive yields as companies swamped the market with new debt to avoid potential fourth-quarter Year 2000 problems. Meanwhile, lower interest rate sensitivity and steady demand helped support shorter-term bonds. SECTOR OVERVIEW Although the strong economic environment created a stormy backdrop for bonds, it contained a silver lining. Tax collections and municipal revenues in California soared, boosting the creditworthiness of many municipal issuers in the state. Among the biggest beneficiaries were land-based bonds, buoyed by the strong real estate environment, and general obligation bonds, which are backed by tax collections. Confidence in the economy and investors' appetite for higher yields were reflected in a narrowing yield gap between lower quality municipal bonds (those rated BBB) and higher-rated (A to AAA) bonds, causing BBBs to outperform AAAs. On the flip side, interest rate-sensitive discount bonds--which sell below face value--and hospital bonds performed poorly. [right margin] "MUNICIPAL BOND PRICES CAME UNDER PRESSURE DURING THE YEAR ENDED AUGUST 31, 1999." MUNICIPAL BOND INDEX RETURNS FOR THE YEAR ENDED AUGUST 31, 1999 LEHMAN THREE-YEAR MUNICIPAL INDEX 2.92% LEHMAN FIVE-YEAR GENERAL OBLIGATION INDEX 2.21% LEHMAN LONG-TERM MUNICIPAL INDEX -2.14% Source: Lipper Inc., Russell/Mellon Analytical [line graph - data below] RISING MUNICIPAL YIELD CURVES 8/31/98 2/28/99 8/31/99 YEARS TO MATURITY 1 3.41% 3.05% 3.59% 2 3.57% 3.30% 3.94% 3 3.68% 3.45% 4.15% 4 3.78% 3.58% 4.27% 5 3.87% 3.70% 4.39% 6 3.95% 3.81% 4.49% 7 4.03% 3.91% 4.59% 8 4.11% 3.99% 4.69% 9 4.19% 4.07% 4.79% 10 4.27% 4.15% 4.89% 11 4.35% 4.25% 4.97% 12 4.43% 4.35% 5.05% 13 4.51% 4.45% 5.13% 14 4.59% 4.55% 5.20% 15 4.66% 4.65% 5.27% 16 4.69% 4.70% 5.31% 17 4.72% 4.75% 5.35% 18 4.75% 4.80% 5.39% 19 4.79% 4.84% 5.43% 20 4.83% 4.88% 5.47% 21 4.83% 4.89% 5.47% 22 4.83% 4.90% 5.48% 23 4.83% 4.91% 5.48% 24 4.84% 4.92% 5.49% 25 4.84% 4.92% 5.50% 26 4.84% 4.92% 5.50% 27 4.85% 4.93% 5.51% 28 4.85% 4.93% 5.51% 29 4.86% 4.94% 5.52% 30 4.86% 4.94% 5.52% Source: Bloomberg Financial Markets www.americancentury.com 3 California Municipal Credit Review - -------------------------------------------------------------------------------- California's vibrant economy solidified municipal credit conditions during the year ended August 31, 1999. A long list of positive economic data and a favorable political climate spurred a credit upgrade for the state, which should continue to benefit from its current strength for the next two or three years. SUNNY ECONOMIC WEATHER By most accounts, several key segments of California's economy continued to grow faster than the national average. In fact, California showed few signs of the pain it was supposed to suffer due to the economic weakness of many of the state's Pacific Rim trading partners. Instead, state unemployment hit a nine-year low of 5.1% in August, and the 2.8% rate of job growth outpaced the national average. Personal bankruptcy filings declined at twice the national average, house prices increased at nearly double the national rate, and sales of existing single-family homes reached a record pace. On top of that, with California's governor and assembly working in unison, the state's budget--including a healthy surplus--was passed on time for the first time in seven years. Based on these improved financial and political conditions, Standard & Poor's upgraded the state's general obligation bond rating to AA- during the summer. WHAT'S BEHIND THE GOLDEN GLOW While high-technology hardware businesses such as semiconductors struggled with offshore competition, other areas such as software, multimedia, biotechnology, and Internet-related businesses were very strong. Construction--notably in affordable housing in Central California--and service industries have been particularly solid. Plus, even though tourism dollars from Asia dropped off as expected, California was able to take up the slack by attracting tourists from inside the U.S. In addition, as much as 1% was added to California's growth rate by what is known as the "wealth effect"--household income and spending increases due to the bull market in stocks, the cashing in of stock options, and the sale of single-family homes that have skyrocketed in value. The wealth effect was particularly strong in Northern California. CLOUDS ON THE HORIZON? Some observers believe California has reached a peak in its current economic cycle. There are questions as to the sustainability of the wealth effect due to the possibility of a stock market pullback caused by higher interest rates and weaker corporate profits. In addition, rapidly increasing property values have led to some consumer price inflation. However, we don't believe these influences will cause any near-term problems in California. The state stands to benefit from any rebound in foreign trade and the expansion of the Internet. Those are two of the key reasons why we think that there are at least two or three years of economic strength ahead. [left margin] "A LONG LIST OF POSITIVE ECONOMIC DATA AND A FAVORABLE POLITICAL CLIMATE SPURRED A CREDIT UPGRADE FOR THE STATE." [line graph - data below] FALLING UNEMPLOYMENT RATES June 1991-June 1999 California U.S. 1991 7.7% 6.9% 1992 9.3% 7.8% 1993 9.4% 7.0% 1994 8.7% 6.1% 1995 7.9% 5.6% 1996 7.2% 5.3% 1997 6.3% 5.0% 1998 5.9% 4.5% 1999 5.4% 4.3% Source: Employment Development Department, Bureau of Labor Statistics "SEVERAL KEY SEGMENTS OF CALIFORNIA'S ECONOMY CONTINUED TO GROW FASTER THAN THE NATIONAL AVERAGE." 4 1-800-345-2021 California Limited-Term Tax-Free--Performance - -------------------------------------------------------------------------------- TOTAL RETURNS AS OF AUGUST 31, 1999 CALIFORNIA LIMITED- LEHMAN 3-YEAR CALIF. SHORT-INTERM. MUNICIPAL DEBT FUNDS(2) TERM TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING ================================================================================================= 6 MONTHS(1) -0.01% 0.27% -0.53% -- 1 YEAR 2.26% 2.92% 1.62% 3 OUT OF 13 ================================================================================================= AVERAGE ANNUAL RETURNS 3 YEARS 4.35% 4.77% 3.85% 2 OUT OF 10 5 YEARS 4.45% 4.98% 4.32% 3 OUT OF 6 LIFE OF FUND 4.49% 5.04% 4.66%(3) 2 OUT OF 2(3)
The fund's inception date was 6/1/92. (1) Returns for periods less than one year are not annualized. (2) According to Lipper Inc., an independent mutual fund ranking service. (3) Since 6/30/92, the date nearest the fund's inception for which data are available. See pages 35-36 for more information about returns, the comparative index, and Lipper fund rankings. [mountain graph - data below] GROWTH OF $10,000 OVER LIFE OF FUND Value on 8/31/99 California Limited-Term Tax-Free $13,745 Lehman 3-Year Municipal Index $14,216 California Limited-Term Lehman 3-Year Tax-Free Municipal Index DATE VALUE VALUE 6/1/92 $10,000 $10,000 6/30/92 $10,074 $10,122 9/30/92 $10,277 $10,357 12/31/92 $10,413 $10,451 3/31/93 $10,616 $10,662 6/30/93 $10,754 $10,822 9/30/93 $10,913 $10,976 12/31/93 $11,029 $11,100 3/31/94 $10,880 $10,951 6/30/94 $10,941 $11,070 9/30/94 $11,036 $11,175 12/31/94 $10,961 $11,176 3/31/95 $11,289 $11,489 6/30/95 $11,517 $11,732 9/30/95 $11,682 $11,982 12/31/95 $11,872 $12,167 3/31/96 $11,902 $12,235 6/30/96 $11,993 $12,334 9/30/96 $12,161 $12,497 12/31/96 $12,339 $12,708 3/31/97 $12,383 $12,759 6/30/97 $12,626 $12,995 9/30/97 $12,842 $13,217 12/31/97 $12,997 $13,405 3/31/98 $13,127 $13,543 6/30/98 $13,247 $13,696 9/30/98 $13,573 $13,967 12/31/98 $13,636 $14,035 3/31/99 $13,776 $14,191 6/30/99 $13,668 $14,129 8/31/99 $13,745 $14,216 The graph at left shows the growth of a $10,000 investment over the life of the fund, while the graph below shows the fund's year-by-year performance. The Lehman 3-Year Municipal Bond Index is provided for comparison in each graph. California Limited-Term Tax-Free's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. [bar graph - data below] ONE-YEAR RETURNS OVER LIFE OF FUND (PERIODS ENDED AUGUST 31) California Limited-Term Lehman 3-Year Tax-Free Municipal Index DATE RETURN RETURN 8/31/92* 2.22% 2.73% 8/31/93 6.15% 6.38% 8/31/94 1.90% 2.51% 8/31/95 5.33% 6.68% 8/31/96 3.87% 3.95% 8/31/97 5.42% 5.65% 8/31/98 5.40% 5.76% 8/31/99 2.26% 2.92% * From 6/1/92 (the fund's inception date) to 8/31/92. www.americancentury.com 5 California Limited-Term Tax-Free--Q&A - -------------------------------------------------------------------------------- [photo of Todd Pardula] An interview with Dave MacEwen and Todd Pardula (pictured above), portfolio managers on the California Limited-Term Tax-Free fund investment team. Dave and Todd--both experienced portfolio managers and members of the tax-free and municipal funds team since the early 1990s--replaced Joel Silva, who left American Century to pursue other opportunities. HOW DID CALIFORNIA LIMITED-TERM TAX-FREE PERFORM DURING THE FISCAL YEAR ENDED AUGUST 31, 1999? The fund performed well despite the difficult environment for bonds (see the Market Perspective on page 3). For the 12 months ended August 31, 1999, California Limited-Term Tax-Free returned 2.26%, which compares favorably with the 1.62% average return of the 13 "California Short-Intermediate Municipal Debt Funds" tracked by Lipper Inc. For the year, the fund's return ranked in the top quarter of the Lipper group. The Lehman 3-Year Municipal Index returned 2.92% for the same period. (See the previous page for other fund performance comparisons). WHY DID THE PORTFOLIO DO SO WELL RELATIVE TO THE LIPPER GROUP? One reason we beat our Lipper group average is that we did a good job of managing the fund's duration. Duration measures a portfolio's sensitivity to changes in interest rates. The shorter the duration, the less a fund's share price fluctuates when rates change, while a longer duration means a fund is more sensitive to rate changes. Ideally, you want a shorter duration when interest rates are rising and a longer duration when rates are falling. Our relative performance got a boost this year because we lengthened duration in late 1998, when municipal bond rates were falling, and shortened duration this year, when interest rates were rising. Another reason for the fund's solid relative performance is that our expenses are below average. The fund's expense ratio on August 31 was 0.51%, compared with a category average of 0.92% according to Lipper. Other things being equal, lower expenses should mean higher yields and returns for our shareholders. WHAT OTHER STRATEGIES DID YOU USE TO BOOST THE FUND'S RETURN? We took advantage of the big difference in yield between bonds maturing in 2002-04 and bonds maturing in 2007-08. Longer-term municipal bonds typically have higher yields than shorter-term securities to compensate for the extra risk associated with interest rate uncertainty over a longer time frame. But the difference in yield can vary depending on supply and demand factors. Demand from retail investors (which include individuals and brokers) for higher-quality, shorter-term municipal bonds was very strong. That meant the difference in yield between short- and intermediate-term bonds was greater than usual. As a result, we sold some of our shorter-term bonds and bought more attractively valued, higher-yielding bonds due in 2008. Making that trade allowed us to collect premium prices on our shorter-term securities while picking up significant extra yield on these intermediate-term securities. [left margin] "FOR THE YEAR, THE FUND'S RETURN RANKED IN THE TOP QUARTER OF THE LIPPER GROUP. YIELDS AS OF AUGUST 31, 1999 30-DAY SEC YIELD 3.72% 30-DAY TAX-EQUIVALENT YIELDS 34.70% TAX BRACKET 5.70% 37.42% TAX BRACKET 5.94% 41.95% TAX BRACKET 6.41% 45.22% TAX BRACKET 6.79% PORTFOLIO AT A GLANCE 8/31/99 8/31/98 NUMBER OF SECURITIES 77 86 WEIGHTED AVERAGE MATURITY 3.5 YRS 3.6 YRS AVERAGE DURATION 2.9 YRS 3.0 YRS EXPENSE RATIO 0.51% 0.52% Investment terms are defined in the Glossary on pages 36-37. 6 1-800-345-2021 California Limited-Term Tax-Free--Q&A - -------------------------------------------------------------------------------- (Continued) CAN YOU GIVE AN EXAMPLE OF HOW ONE OF THESE TRADES WORKS IN PRACTICE? We recently purchased California general obligation bonds maturing in 2008 that yielded 4.80% and sold similar bonds due in 2003 with a yield of 4.08%. That's 72 basis points (a basis point equals 0.01%, so 72 basis points equals 0.72%) in additional yield for going out five years in maturity, which we view as a very attractive trade. Of course, we were limited in the extent to which we could buy these intermediate-term securities because we didn't want to lengthen the portfolio's duration significantly, given the prevailing interest rate environment. SPEAKING OF INTEREST RATES, HOW DOES CALIFORNIA LIMITED-TERM TAX-FREE'S YIELD COMPARE? On August 31, the fund's 30-day SEC yield was 3.72%, while the average yield of the Lipper group was 3.22%. The fund's 3.72% yield equates to a fully taxable yield of 6.79% for California investors in the highest federal and state tax brackets. The fund's yield is much higher than it was six months ago (when it was 3.03%). That's largely due to the general increase in municipal market interest rates. DID YOU MAKE ANY CHANGES TO TRY TO ADD YIELD TO THE PORTFOLIO? Yes, we added Puerto Rican bonds whose yields were a little higher than those we could get on California municipal bonds with a similar maturity. (The income from Puerto Rican bonds is free from state and federal taxes for investors in all 50 states.) California municipal bond yields are below those of Puerto Rican bonds because the demand for shorter-term California bonds has been extremely strong. In addition, the supply of new bonds is down because higher interest rates have made borrowing less attractive for municipal bond issuers. The result of lower supply and higher demand is the same for any market: California municipal bond prices are higher and their yields lower than would otherwise be the case. HOW DID YOU MANAGE THE FUND'S CREDIT QUALITY? We maintained the portfolio's high average credit quality. We don't think lower-rated bonds offer enough extra yield to justify taking on the additional credit risk right now. The California economy is extremely strong, so credit quality is up across the board. And in general, we don't see many BBB rated bonds in our maturity sector, so credit quality hasn't been much of an issue lately. WHAT IS YOUR OUTLOOK FOR THE FUND? We will continue to look for opportunities to buy higher-yielding intermediate-term bonds, as well as attractively priced new issues. We'll keep selling shorter-term bonds at premium prices as long as demand from retail investors remains stronger than usual. At the same time, we will position the fund cautiously as we approach year-end, carefully managing the portfolio's duration and liquidity. [right margin] PORTFOLIO COMPOSITION BY CREDIT RATING % OF FUND INVESTMENTS AS OF AS OF 8/31/99 2/28/99 AAA 55% 53% AA 15% 15% A 23% 27% BBB 7% 5% Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35 for more information. TOP FIVE SECTORS (AS OF 8/31/99) % OF FUND INVESTMENTS COPS/LEASES 26% GO 14% HOSPITAL REVENUE 12% ELECTRIC REVENUE 6% SALES TAX REVENUE 6% TOP FIVE SECTORS (AS OF 2/28/99) % OF FUND INVESTMENTS COPS/LEASES 34% HOSPITAL REVENUE 13% GO 10% ELECTRIC REVENUE 9% SALES TAX REVENUE 7% Investment terms are defined in the Glossary on pages 36-37. www.americancentury.com 7 California Limited-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- This schedule lists all investments owned by the fund, as well as each security's market value, as of the last day of the reporting period. AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 94.2% CALIFORNIA -- 86.7% $1,235,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Episcopal Homes Foundation), 4.50%, 7/1/03 $ 1,229,135 2,450,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Episcopal Homes Foundation), 4.80%, 7/1/06 2,442,086 1,245,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Rhoda Haas Goldman Plaza), 5.00%, 5/15/07 (California Mortgage Insurance) 1,254,014 565,000 California Educational Facilities Auth. Rev., (Los Angeles College Chiropractic), 4.45%, 11/1/99 565,627 1,145,000 California Educational Facilities Auth. Rev., (Pepperdine University), 5.125%, 1/15/02 (AMBAC) 1,173,167 1,140,000 California Educational Facilities Auth. Rev., Series 1995 A, (Pooled College & University Projects), 4.55%, 12/1/99 1,142,462 1,710,000 California Educational Facilities Auth. Rev., Series 1997 A, (University of Southern California), 5.60%, 10/1/01 1,767,815 1,910,000 California Educational Facilities Auth. Rev., Series 1997 A, (University of Southern California), 5.60%, 10/1/03 2,013,484 395,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 5.45%, 4/1/02 405,444 420,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 5.55%, 4/1/03 434,721 440,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 5.65%, 4/1/04 458,784 465,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 5.75%, 4/1/05 487,897 1,000,000 California Health Facilities Financing Auth. Rev., (Sisters Providence), 5.25%, 10/1/01 1,023,610 Principal Amount Value - -------------------------------------------------------------------------------- $1,180,000 California Health Facilities Financing Auth. Rev., (Valley Presbyterian Hospital), 5.25%, 5/1/02 (MBIA) $ 1,213,724 1,750,000 California Health Facilities Financing Auth. Rev., Series 1993 A, (St. Francis Memorial Hospital), 5.50%, 11/1/01(1) 1,805,878 1,000,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Casa De Las Campanas), 5.00%, 8/1/04 (California Mortgage Insurance) 1,018,930 1,245,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Kaiser Permanente), 5.00%, 6/1/06 (FSA) 1,275,341 1,600,000 California Public Works Board Lease Rev. COP, Series 1995 A, (Department of Justice Building), 5.50%, 5/1/00 1,619,472 3,000,000 California Public Works Board Lease Rev. COP, Series 1997 A, (California Community Colleges), 5.00%, 4/1/02 3,065,070 1,065,000 California Public Works Board Lease Rev. COP, Series 1997 A, (California Science Center), 4.50%, 10/1/04 1,071,933 1,000,000 California Public Works Board Lease Rev., Series 1998 C, (California State University), 5.25%, 10/1/06 1,040,410 2,000,000 California Rural Home Mortgage Financing Auth. Lease Rev., Series 1996 A, 4.45%, 8/1/01 (MBIA) 2,003,180 1,600,000 California State GO, 6.70%, 10/1/01 1,686,736 2,325,000 California State GO, 6.10%, 2/1/02 (AMBAC)(2) 2,434,182 1,500,000 California State GO, 6.25%, 9/1/04 1,629,990 2,000,000 California State GO, 5.50%, 10/1/07 2,118,200 1,500,000 California Statewide Communities Development Auth. COP, (St. Joseph Health System Obligation Group), 5.00%, 7/1/03 1,527,375 1,965,000 California Statewide Communities Development Auth. COP, (St. Joseph Health System Obligation Group), 5.00%, 7/1/06 1,984,689 4,825,000 Central Valley Financing Auth. Cogeneration Project Rev., (Carson Ice General), 4.50%, 7/1/01 (MBIA) 4,875,952 8 1-800-345-2021 See Notes to Financial Statements California Limited-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $1,100,000 Clovis Unified School District COP, (Stadium & Relocatables Financing), 4.375%, 7/1/04 $ 1,096,150 1,000,000 Encinitas Unified School District COP, 5.00%, 9/1/01 1,015,870 5,000,000 Foothill/Eastern Corridor Agency Toll Road Rev., 4.375%, 1/15/07 (MBIA) 4,928,550 1,775,000 Irvine Unified School District Special Tax, (Community Facilities District No. 86-1), 5.25%, 11/1/01 (AMBAC) 1,824,789 1,400,000 Irvine Unified School District Special Tax, (Community Facilities District No. 86-1), 5.25%, 11/1/05 (AMBAC) 1,465,492 2,955,000 Los Angeles Building Auth. Lease Rev., Series 1995 A, 5.30%, 5/1/01 3,014,484 1,000,000 Los Angeles Building Auth. Lease Rev., Series 1995 A, 4.90%, 5/1/03 1,020,270 4,875,000 Los Angeles Community Redevelopment Agency Tax Allocation, Series 1997 I, (Central Business District), 5.00%, 11/15/01 4,926,821 5,000,000 Los Angeles COP, (Equipment & Real Estate Acquisition Program AC), 4.25%, 10/1/01 5,017,150 1,000,000 Los Angeles COP, (Equipment & Real Estate Acquisition Program AC), 4.50%, 10/1/04 1,001,990 1,265,000 Los Angeles County Capital Asset Leasing Corp. Rev., 5.625%, 12/1/03 (AMBAC) 1,332,146 1,750,000 Los Angeles County Capital Asset Leasing Corp. Rev., Series 1998 B, 4.00%, 12/1/00 1,748,618 1,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1995 A, (Proposition C), 5.90%, 7/1/02 (AMBAC) 1,049,340 1,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1995 A, (Proposition C), 5.90%, 7/1/05 (AMBAC) 1,075,990 2,645,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1997 A, (Proposition A), 5.50%, 7/1/02 (MBIA) 2,748,340 2,360,000 Los Angeles County Public Works Financing Auth. Lease Rev., Series 1996 A, 6.00%, 9/1/04 (MBIA) 2,540,422 5,000,000 Los Angeles County Public Works Financing Auth. Rev., Series 1997 A, (Regional Park & Open Space District), 5.00%, 10/1/01 5,108,350 Principal Amount Value - -------------------------------------------------------------------------------- $3,000,000 Los Angeles GO, Series 1994 A, 5.40%, 9/1/03 (MBIA) $ 3,138,600 1,525,000 Los Angeles GO, Series 1999 B, 5.00%, 9/1/08(3) 1,555,454 3,100,000 Los Angeles Unified School District GO, Series 1997 A, 5.00%, 7/1/04 (FGIC) 3,199,758 1,000,000 Los Angeles Wastewater System Rev., Series 1990 A, 6.70%, 2/1/00 1,012,050 1,250,000 Los Angeles Wastewater System Rev., Series 1990 A, 6.80%, 2/1/01 1,287,825 1,000,000 Los Angeles Wastewater System Rev., Series 1996 A, 6.00%, 2/1/03 (FGIC) 1,058,160 1,000,000 Metropolitan Water District of Southern California Waterworks Rev., 6.375%, 7/1/02 1,059,750 2,000,000 Modesto, Stockton, Redding Public Power Agency San Juan Project Rev., Series 1997 G, 5.50%, 7/1/01 (MBIA) 2,055,800 1,365,000 Ontario Redevelopment Financing Auth. Rev., (Center City Cimarron), 5.70%, 8/1/01 (MBIA) 1,409,772 1,500,000 Orange County Transportation Sales Tax Rev., 5.50%, 2/15/01 (AMBAC) 1,533,930 1,160,000 Oroville Hospital Rev., Series 1997 A, 4.75%, 12/1/04 (California Mortgage Insurance) 1,171,461 1,000,000 Riverside County Asset Leasing Corporation Leasehold Rev., Series 1993 A, (Riverside County Hospital), 5.90%, 6/1/02 1,040,030 1,185,000 Riverside County Transportation Commission Sales Tax Rev., Series 1993 A, 5.30%, 6/1/02 (AMBAC) 1,224,200 2,000,000 Riverside Unified School District COP, (School Facility Boarding Refunding Program), 3.85%, 9/1/01 (FSA) (SBBPA: First Union National Bank) 1,989,740 1,170,000 Sacramento Schools Insurance Auth. Rev., Series 1993 C, (Workers Compensation Program), 5.75%, 6/1/03(1) 1,200,092 2,000,000 San Bernardino County COP, Series 1995 A, (Medical Center Financing), 5.20%, 8/1/04 (MBIA) 2,074,000 600,000 San Diego County COP, (Burnham Institute), 5.15%, 9/1/06(3) 599,130 6,000,000 San Diego Unified School District GO, Series 1999 A, 4.25%, 9/29/00 6,046,200 See Notes to Financial Statements www.americancentury.com 9 California Limited-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 San Francisco City and County Airport Commission International Airport Rev., Issue 4, 5.625%, 5/1/05 (MBIA) $ 1,058,570 1,085,000 Santa Barbara County COP, 4.90%, 3/1/01 1,098,638 1,000,000 Southern California Public Power Auth. Rev., Series 1997 A, (Palo Verde Project), 5.00%, 7/1/04 (FSA) 1,031,740 1,075,000 Stockton Health Facilities Auth. Rev., Series 1997 A, (Dameron Hospital Association), 4.80%, 12/1/02 1,072,431 1,040,000 Victor Valley Joint Union High School District GO, 5.60%, 9/1/04 (MBIA)(1) 1,103,367 3,175,000 Whittier Health Rev., (Presbyterian Intercommunity Hospital), 5.50%, 6/1/02 (MBIA) 3,288,856 ------------ 126,993,634 ------------ PUERTO RICO -- 6.8% 3,000,000 Puerto Rico Commonwealth Aqueduct & Sewer Auth. Rev., Series 1985 A, 9.00%, 7/1/05 Prerefunded at 100% of Par (FSA)(1) 3,560,970 4,100,000 Puerto Rico Commonwealth GO, (Public Improvement), 5.00%, 7/1/05 (MBIA) 4,217,670 1,000,000 Puerto Rico Commonwealth Highway and Transportation Auth. Rev., Series 1996 Y, 6.00%, 7/1/03 (MBIA) 1,062,140 Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Puerto Rico Commonwealth Highway and Transportation Auth. Rev., Series 1996 Y, 6.25%, 7/1/06 (MBIA) $ 1,098,500 ------------ 9,939,280 ------------ VIRGIN ISLANDS -- 0.7% 1,000,000 Virgin Islands Water and Power Auth. Electric System Rev., 5.00%, 7/1/02 1,011,380 ------------ TOTAL MUNICIPAL SECURITIES 137,944,294 ------------ (Cost $137,400,662) SHORT-TERM MUNICIPAL SECURITIES -- 5.8% 5,000,000 California State Economic Development Financing Auth. Rev., Series 1998 C, VRDN, 2.55%, 9/1/99 (LOC: Bank of America N.T. & S.A.) 5,000,000 3,500,000 Irvine Improvement Bond Act 1915 Special Assessment, (District No. 87-8), VRDN, 2.40%, 9/1/99 3,500,000 ------------ TOTAL SHORT-TERM MUNICIPAL SECURITIES 8,500,000 ------------ (Cost $8,500,000) TOTAL INVESTMENT SECURITIES -- 100.0% $146,444,294 ============ (Cost $145,900,662) NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation LOC = Letter of Credit COP = Certificates of Participation MBIA = MBIA Insurance Corp. FGIC = Financial Guaranty Insurance Co. SBBPA = Standby Bond Purchase Agreement FSA = Financial Security Assurance Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 1999. GO = General Obligation (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated at the custodian bank for a when-issued security. (3) When-issued security. 10 1-800-345-2021 See Notes to Financial Statements California Intermediate-Term Tax-Free--Performance - -------------------------------------------------------------------------------- TOTAL RETURNS AS OF AUGUST 31, 1999 CALIFORNIA INT.-TERM LEHMAN 5-YEAR CALIF. INTERMEDIATE MUNICIPAL DEBT FUNDS(2) TAX-FREE GO INDEX AVERAGE RETURN FUND'S RANKING ================================================================================================= 6 MONTHS(1) -1.72% -0.50% -1.65% -- 1 YEAR 0.74% 2.21% 0.69% 17 OUT OF 26 ================================================================================================= AVERAGE ANNUAL RETURNS 3 YEARS 5.00% 5.21% 4.92% 13 OUT OF 21 5 YEARS 5.37% 5.50% 5.35% 11 OUT OF 18 10 YEARS 6.32% 6.45% 6.32% 1 OUT OF 1
The fund's inception date was 11/9/83. (1) Returns for periods less than one year are not annualized. (2) According to Lipper Inc., an independent mutual fund ranking service. See pages 35-36 for more information about returns, the comparative index, and Lipper fund rankings. [mountain graph - data below] GROWTH OF $10,000 OVER 10 YEARS Value on 8/31/99 California Intermediate-Term Tax-Free $18,448 Lehman 5-Year GO Index $18,682 California Intermediate-Term Lehman 5-Year Tax-Free GO Index DATE VALUE VALUE 8/31/89 $10,000 $10,000 8/31/90 $10,616 $10,675 8/31/91 $11,650 $11,752 8/31/92 $12,719 $12,920 8/31/93 $14,045 $14,062 8/31/94 $14,201 $14,293 8/31/95 $15,208 $15,454 8/31/96 $15,936 $16,041 8/31/97 $17,114 $17,112 8/31/98 $18,312 $18,278 8/31/99 $18,448 $18,682 The graph at left shows the growth of a $10,000 investment in the fund over 10 years, while the graph below shows the fund's year-by-year performance. The Lehman 5-Year General Obligation Index is provided for comparison in each graph. California Intermediate-Term Tax-Free's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. [bar graph - data below] ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED AUGUST 31) California Intermediate-Term Lehman 5-Year Tax-Free GO Index DATE RETURN RETURN 8/31/90 6.16% 5.91% 8/31/91 9.74% 10.09% 8/31/92 9.18% 9.93% 8/31/93 10.42% 8.83% 8/31/94 1.11% 1.64% 8/31/95 7.09% 8.12% 8/31/96 4.79% 3.80% 8/31/97 7.39% 6.10% 8/31/98 7.00% 6.80% 8/31/99 0.74% 2.21% www.americancentury.com 11 California Intermediate-Term Tax-Free--Q&A - -------------------------------------------------------------------------------- [photo of Colleen Denzler] An interview with Colleen Denzler, a portfolio manager on the California Tax-Free and Municipal funds investment team. HOW DID CALIFORNIA INTERMEDIATE-TERM TAX-FREE PERFORM IN THE FISCAL YEAR ENDED AUGUST 31, 1999? The fund's performance reflects the difficult investment climate for municipal bonds so far in 1999 (see the Market Perspective on page 3). For the fiscal year, California Intermediate-Term Tax-Free returned 0.74%. This compares with the 0.69% average return of the 26 "California Intermediate Municipal Debt Funds" tracked by Lipper Inc. (See the previous page for additional performance comparisons.) HOW DID THE PORTFOLIO'S YIELD COMPARE? California Intermediate-Term Tax-Free produced more state and federal tax-free income than the average California intermediate bond fund. On August 31, 1999, our fund had a 30-day SEC yield of 4.20%, while the Lipper group had an average yield of 4.01%. The portfolio's 4.20% yield translates into a tax-equivalent yield of 7.67% for an investor in the highest state and federal tax brackets. That tax-equivalent yield compares very favorably with the 6.07% yield on the 30-year Treasury bond at the end of August. CAN YOU EXPLAIN THE PORTFOLIO'S PERFORMANCE FOR THE 12 MONTHS? The fiscal year is really a tale of two distinct periods. California Intermediate-Term Tax-Free performed very well from late 1998 to early 1999, when interest rates on municipal bonds fell. But returns were limited in recent months as intermediate-term municipal bond yields rose. For example, a year ago, a five-year AAA municipal bond yielded 3.87%. By February, that yield was down to 3.70%. Bond prices and yields move in opposite directions, so lower yields meant healthy returns for the fund. But municipal bond yields rose for much of 1999 and by August 31, five-year municipal bonds were yielding 4.39%. Higher rates limited the fund's return in recent months. HOW DID YOU MANAGE THE FUND'S EXPOSURE TO INTEREST RATE CHANGES? We use duration to measure a portfolio's sensitivity to changes in interest rates. The longer a fund's duration, the more you gain when rates fall, and the more you lose when rates rise. Conversely, a shorter duration means a bond portfolio's price fluctuates less when rates change. So, ideally, you want to lengthen duration when interest rates are falling and shorten duration when rates are rising. Our duration was relatively long, at about 6.0 years, when municipal bond rates were falling in late 1998 and early 1999. That longer duration helped the fund's performance. But the strategy that worked well earlier in the year limited returns in mid-1999, when interest rates rose sharply. As a result, we started to rein in California Intermediate-Term Tax-Free's duration, bringing it down to about 5.7 years by August 31, 1999. [left margin] "CALIFORNIA INTERMEDIATE-TERM TAX-FREE PRODUCED MORE STATE AND FEDERAL TAX-FREE INCOME THAN THE AVERAGE CALIFORNIA INTERMEDIATE BOND FUND." YIELDS AS OF AUGUST 31, 1999 30-DAY SEC YIELD 4.20% 30-DAY TAX-EQUIVALENT YIELDS 34.70% TAX BRACKET 6.43% 37.42% TAX BRACKET 6.71% 41.95% TAX BRACKET 7.24% 45.22% TAX BRACKET 7.67% PORTFOLIO AT A GLANCE 8/31/99 8/31/98 NUMBER OF SECURITIES 153 151 WEIGHTED AVERAGE MATURITY 8.3 YRS 8.6 YRS AVERAGE DURATION 5.7 YRS 5.6 YRS EXPENSE RATIO 0.51% 0.51% Investment terms are defined in the Glossary on pages 36-37. 12 1-800-345-2021 California Intermediate-Term Tax-Free--Q&A - -------------------------------------------------------------------------------- (Continued) WHAT OTHER CHANGES DID YOU MAKE TO THE PORTFOLIO? We sold some securities to take advantage of supply and demand imbalances in the California municipal market. The supply of new bonds is down in California because the robust economy has boosted tax revenues, which reduces the need for municipalities to borrow. Meanwhile, demand from individual investors and brokerage firms surged. Individual investors typically buy high-quality short- and intermediate-term bonds trading at par (a price equal to their face value). Lower supply and higher demand made California par bonds attractive candidates for sale. As a result, we were able to lock in profits by selling some of these bonds. DID YOU MAKE ANY CHANGES TO TRY TO INCREASE THE FUND'S YIELD? Yes, we used the proceeds from the sale of these par bonds to buy securities that were out of favor by individual investors, such as callable and non-par bonds. Those trades helped us increase the fund's yield without taking on any additional credit risk. In addition, we increased the portfolio's yield by adding Puerto Rican bonds. (The income from Puerto Rican bonds is free from state and federal taxes for investors in all 50 states.) Yields on Puerto Rican securities were a little higher than those we could get on California municipal bonds with a similar maturity. Again, that's because California municipal bond yields were depressed by strong demand and limited supply. WHAT'S YOUR OUTLOOK FOR THE CALIFORNIA MUNICIPAL MARKET? We're cautiously optimistic. State and local credit quality is good, and inflation remains low. What's more, municipal bond yields are very attractive relative to yields on fully taxable investments. In fact, municipal bonds are as attractive relative to Treasury securities as they were at the height of the Asian economic crisis last year--but we see no comparable risk this year. As a result, we think municipal bonds represent very good values right now. GIVEN THAT OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND GOING FORWARD? In terms of duration, we'll continue to position the fund a little more conservatively than we did earlier in the year. In addition, we're likely to keep the portfolio's credit quality relatively high. That's because we don't see much yield advantage to taking on additional credit risk right now. We'll also continue to take some profits by selling par bonds to brokers and individual investors, while trying to find higher-yielding securities elsewhere in the market. [right margin] PORTFOLIO COMPOSITION BY CREDIT RATING % OF FUND INVESTMENTS AS OF AS OF 8/31/99 2/28/99 AAA 63% 65% AA 20% 17% A 16% 17% BBB 1% 1% Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35 for more information. TOP FIVE SECTORS (AS OF 8/31/99) % OF FUND INVESTMENTS COPS/LEASES 27% GO 19% SALES TAX REVENUE 11% WATER AND SEWER REVENUE 11% ELECTRIC REVENUE 10% TOP FIVE SECTORS (AS OF 2/28/99) % OF FUND INVESTMENTS COPS/LEASES 26% GO 20% SALES TAX REVENUE 12% WATER AND SEWER REVENUE 11% ELECTRIC REVENUE 8% Investment terms are defined in the Glossary on pages 36-37. www.americancentury.com 13 California Intermediate-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- This schedule lists all investments owned by the fund, as well as each security's market value, as of the last day of the reporting period. AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.1% CALIFORNIA -- 89.0% $ 1,350,000 Alameda Corridor Transportation Auth. Rev., Series 1999 A, 5.00%, 10/1/10 (MBIA) $ 1,360,814 8,845,000 Alameda County COP, (Santa Rita Jail), 5.375%, 6/1/09 (MBIA) 9,219,141 2,450,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Episcopal Homes Foundation), 4.80%, 7/1/06 2,442,086 4,060,000 Burbank Redevelopment Agency Tax Allocation, (West Olive), 6.50%, 12/1/01 (AMBAC) 4,282,732 280,000 California Educational Facilities Auth. Rev., (Santa Clara University), 5.25%, 9/1/10 (MBIA) 286,756 895,000 California Educational Facilities Auth. Rev., (Santa Clara University), 5.25%, 9/1/06, Prerefunded at 102% of Par (MBIA)(1) 950,535 2,145,000 California Educational Facilities Auth. Rev., (University of San Diego), 6.75%, 10/1/00, Prerefunded at 102% of Par (MBIA)(1) 2,257,119 1,045,000 California Health Facilities Financing Auth. Rev., (Valley Presbyterian Hospital), 5.25%, 5/1/03 (MBIA) 1,080,614 1,500,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 6.70%, 10/1/99(1) 1,503,810 1,745,000 California Health Facilities Financing Auth. Rev., Series 1993 A, (St. Francis Memorial Hospital), 5.625%, 11/1/02(1) 1,825,706 3,145,000 California Health Facilities Financing Auth. Rev., Series 1995 A, (Insured Health Facility), 6.00%, 7/1/04 (AMBAC) 3,365,276 1,000,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Casa De Las Campanas), 5.50%, 8/1/12 (California Mortgage Insurance) 1,003,090 3,250,000 California Public Works Board Energy Efficiency Rev., Series 1991 A, (Pooled Project), 6.00%, 9/1/99 3,250,000 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,320,000 California Public Works Board Energy Efficiency Rev., Series 1998 A, 5.00%, 10/1/11 (AMBAC) $ 1,318,165 4,520,000 California Public Works Board Lease Rev. COP, Series 1992 A, (Archives Building Project), 6.20%, 12/1/05 (AMBAC) 4,951,976 1,000,000 California Public Works Board Lease Rev. COP, Series 1992 A, (Various University of California Projects), 5.90%, 12/1/03 (AMBAC) 1,067,190 3,700,000 California Public Works Board Lease Rev. COP, Series 1993 D, (California State Prisons), 5.25%, 6/1/08 3,781,585 3,000,000 California Public Works Board Lease Rev. COP, Series 1994 A, (Various University of California Projects), 6.15%, 11/1/09 3,306,300 1,010,000 California Public Works Board Lease Rev. COP, Series 1997 A, (California Science Center), 4.60%, 10/1/05 1,016,626 1,470,000 California Public Works Board Lease Rev., Series 1996 C, (Department of Corrections), 5.125%, 9/1/11 (MBIA) 1,480,540 8,355,000 California Public Works Board Lease Rev., Series 1998 A, (California Community Colleges), 5.25%, 12/1/12 (AMBAC) 8,421,422 7,825,000 California Rural Home Mortgage Financing Auth. Lease Rev., Series 1996 A, 4.45%, 8/1/01 (MBIA) 7,837,442 4,795,000 California State Department of Water Resource Central Valley Project Rev., Series 1992 J-2, 5.80%, 12/1/04(2) 5,137,603 3,260,000 California State Department of Water Resource Central Valley Project Rev., Series 1998 T, 5.00%, 12/1/10 3,284,483 1,855,000 California State GO, 7.00%, 11/1/06 (FGIC) 2,127,073 7,460,000 California State GO, 5.00%, 10/1/07 7,651,647 5,860,000 California State GO, 5.75%, 10/1/08 6,294,695 7,000,000 California State GO, 6.60%, 2/1/11 (MBIA) 7,959,070 5,625,000 California State GO, 4.75%, 9/1/11 5,437,688 14 1-800-345-2021 See Notes to Financial Statements California Intermediate-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,700,000 California State GO, 5.00%, 10/1/11 $ 4,689,237 6,000,000 California State GO, 5.25%, 6/1/16 5,878,440 3,000,000 California State Universities and Colleges Rev., 5.75%, 11/1/15 (FGIC) 3,077,310 8,000,000 California Statewide Communities Development Auth. COP, (California Lutheran Homes), 5.375%, 11/15/06(1)(2) 8,428,640 2,385,000 California Statewide Communities Development Auth. COP, (St. Joseph Health System Obligation Group), 6.50%, 7/1/03(1) 2,579,378 2,500,000 California Statewide Communities Development Auth. COP, (St. Joseph Health System Obligation Group), 5.25%, 7/1/11 2,472,700 2,180,000 California Statewide Communities Development Auth. COP, (St. Joseph Health System Obligation Group), 5.00%, 7/1/12 2,102,784 2,545,000 Capistrano Unified Public Financing Auth. Special Tax Rev., Series 1996 A, (First Lien), 6.00%, 9/1/06 (AMBAC) 2,769,673 2,075,000 Chabot Las Positas Community College District COP, 5.50%, 12/1/10 (FSA) 2,177,858 5,435,000 Contra Costa County Transportation Auth. Sales Tax Rev., Series 1993 A, 6.00%, 3/1/05 (FGIC) 5,857,082 1,065,000 Contra Costa County Water District Rev., Series 1990 A, 7.00%, 10/1/00, Prerefunded at 102% of Par(1) 1,123,000 1,110,000 Contra Costa County Water District Rev., Series 1999 J, 5.125%, 10/1/10 (FGIC) 1,129,691 1,170,000 Contra Costa County Water District Rev., Series 1999 J, 5.125%, 10/1/11 (FGIC) 1,181,782 1,220,000 Coronado Community Development Agency Tax Allocation, 6.00%, 9/1/08 (FSA) 1,321,785 2,570,000 East Bay Municipal Utility District Water System Rev., 6.00%, 6/1/05 2,727,001 2,665,000 East Bay Municipal Utility District Water System Rev., 4.50%, 6/1/12 2,496,039 4,015,000 East Bay Regional Park District GO, 5.00%, 9/1/11 4,025,118 1,000,000 Foothill/Eastern Corridor Agency Toll Road Rev., 4.50%, 1/15/08 (MBIA) 985,220 5,730,000 Fresno Special Tax, (Community Facilities District No. 3), 4.75%, 9/1/05 (LOC: Rabobank Nederland N.V.) 5,737,678 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,285,000 Garden Grove Agency Community Development Tax Allocation, (Garden Grove Community), 5.30%, 10/1/02 $ 1,318,513 7,350,000 Imperial Irrigation District COP, (Electrical System), 6.50%, 11/1/07 (MBIA) 8,272,572 1,225,000 Imperial Irrigation District COP, (Electrical System), 5.20%, 11/1/09 (MBIA) 1,263,477 2,715,000 Irvine Unified School District Special Tax, (Community Facilities District No. 86-1), 5.50%, 11/1/10 (AMBAC) 2,840,704 1,090,000 Kings River Conservation District Pine Flat Power Rev., Series 1999 E, 5.125%, 1/1/15 1,055,066 1,750,000 Loma Linda Hospital Rev., (University Medical Center), 6.95%, 12/1/05 (AMBAC) 1,798,142 2,300,000 Los Angeles Airport Rev., Series 1995 A, 6.00%, 5/15/05 (FGIC) 2,481,930 4,000,000 Los Angeles Capital Asset Lease Rev. COP, 5.875%, 12/1/05 (AMBAC) 4,299,800 1,155,000 Los Angeles Convention and Exhibition Center Auth. Lease Rev. COP, Series 1993 A, 6.00%, 8/15/10 (MBIA) 1,260,151 2,625,000 Los Angeles County Metropolitan Transportation Auth. Rev., Series 1996 A, (Union Station), 5.10%, 7/1/10 (FSA) 2,659,650 1,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1995 A, (Proposition C), 5.90%, 7/1/06 (AMBAC) 1,081,080 6,175,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1997 A, (Proposition A), 5.25%, 7/1/12 (MBIA) 6,215,755 1,000,000 Los Angeles County Public Properties COP, 6.25%, 4/1/00 (BIGI) 1,015,390 2,625,000 Los Angeles County Sanitation Districts Financing Auth. Rev., Series 1993 A, (Capital), 5.20%, 10/1/05 2,739,476 2,900,000 Los Angeles County Transportation Commission COP, Series 1992 B, 6.00%, 7/1/01 2,997,469 4,665,000 Los Angeles County Transportation Commission COP, Series 1992 B, 6.20%, 7/1/03 4,967,572 2,000,000 Los Angeles County Transportation Commission COP, Series 1992 B, 6.25%, 7/1/04 2,133,320 See Notes to Financial Statements www.americanentury.com 15 California Intermediate-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,500,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1991 A, (Proposition A), 6.40%, 7/1/01, Prerefunded at 102% of Par(1) $ 2,655,725 3,515,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1992 A, (Proposition C), 6.20%, 7/1/04 3,783,898 3,765,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1992 A, (Proposition C), 6.40%, 7/1/06 4,143,194 4,780,000 Los Angeles County Wastewater System Rev., Series 1992 B, 6.20%, 6/1/02, Prerefunded at 102% of Par (AMBAC)(1) 5,136,014 1,000,000 Los Angeles Department of Water and Power Waterworks Rev., 6.30%, 4/15/06 (FGIC) 1,060,890 2,140,000 Los Angeles Department of Water and Power Waterworks Rev., 5.00%, 10/15/14 (FGIC) 2,079,074 1,000,000 Los Angeles GO, Series 1999 B, 5.00%, 9/1/08(3) 1,019,970 2,245,000 Los Angeles GO, Series 1999 B, 5.375%, 9/1/18(3) 2,208,272 1,790,000 Los Angeles Municipal Improvement Corp. Lease Rev., Series 1999 D, (Police Emergency), 4.375%, 9/1/10 1,696,222 2,915,000 Los Angeles Municipal Improvement Corp. Lease Rev., Series 1999 D, (Police Emergency), 4.50%, 9/1/11 2,758,202 2,900,000 Los Angeles Unified School District GO, Series 1997 A, 6.00%, 7/1/11 (FGIC) 3,146,993 1,000,000 Los Angeles Unified School District GO, Series 1997 A, 6.00%, 7/1/15 (FGIC) 1,069,300 3,115,000 Los Angeles Unified School District GO, Series 1999 C, 5.50%, 7/1/12 (MBIA) 3,210,942 1,610,000 Merced Unified High School District, Series 1999 A, 5.25%, 8/1/12 (FGIC) 1,622,574 1,000,000 Metropolitan Water District of Southern California Waterworks Rev., 6.625%, 7/1/01, Prerefunded at 102% of Par(1) 1,065,500 5,000,000 Metropolitan Water District of Southern California Waterworks Rev., Series 1996 C, 5.00%, 7/1/10 5,046,100 5,505,000 Mid-Peninsula Regional Open Space District Financing Auth. Rev., (Second Issue), 5.25%, 8/1/17 (AMBAC) 5,358,347 2,700,000 Modesto Irrigation District Financing Auth. Rev., Series 1996 A, 5.80%, 10/1/11 (MBIA) 2,863,620 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,100,000 Mojave California Water Agency Improvement District GO, (Morongo Basin), 5.40%, 9/1/08 (FGIC) $ 1,154,747 1,110,000 Ontario Redevelopment Financing Auth. Local Agency Rev., Series 1995 A, 5.80%, 9/2/06 (FSA) 1,180,685 3,000,000 Orange County Water District COP, Series 1997 A, 5.00%, 8/15/14 (MBIA) 2,906,280 1,330,000 Oxnard Harbor District Rev., 7.00%, 8/1/04 (FSA) 1,484,134 1,000,000 Ramona Municipal Water District COP, 6.90%, 10/1/01 (AMBAC) 1,050,030 1,060,000 Redding Joint Powers Financing Auth. Electric System Rev., Series 1996 A, 6.25%, 6/1/07 (MBIA) 1,171,035 1,010,000 Richmond Joint Powers Financing Auth. Rev. COP, Series 1995 A, 5.30%, 5/15/06 1,037,129 2,080,000 Riverside County Public Financing Auth. Special Tax Rev., Series 1995 A, 5.25%, 9/1/04 (MBIA) 2,172,331 1,225,000 Riverside County Transportation Commission Sales Tax Rev., Series 1993 A, 5.60%, 6/1/05 (AMBAC) 1,299,958 2,900,000 Riverside County Transportation Commission Sales Tax Rev., Series 1993 A, 5.70%, 6/1/06 (AMBAC) 3,103,029 1,025,000 Rocklin Unified School District Community Facility Special Tax Rev., (No. 1), 5.20%, 9/1/09 (MBIA) 1,054,305 2,600,000 Sacramento County Multifamily Housing Rev., Issue 1985 B, (Parcwood Apartments), 4.80%, 9/1/02 (Guaranteed: Connecticut General Life Insurance) 2,605,746 1,000,000 Sacramento Municipal Utility District Electric Rev., Series 1992 A, 6.25%, 8/15/10 (MBIA) 1,109,340 5,710,000 Sacramento Municipal Utility District Electric Rev., Series 1992 C, 5.75%, 11/15/07 (MBIA) 6,006,121 6,000,000 Sacramento Municipal Utility District Electric Rev., Series 1993 D, 5.25%, 11/15/12 (FGIC) 6,029,460 3,500,000 Sacramento Municipal Utility District Electric Rev., Series 1994 H, 5.75%, 1/1/11 (MBIA) 3,632,090 4,230,000 Sacramento Municipal Utility District Electric Rev., Series 1997 L, 5.00%, 7/1/10 (AMBAC) 4,260,752 16 1-800-345-2021 See Notes to Financial Statements California Intermediate-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,205,000 Saddleback Valley Unified School District Public Financing Special Tax Rev., 6.00%, 9/1/11 (FSA) $ 1,312,185 4,490,000 San Bernardino County COP, (Medical Center Financing), 5.00%, 8/1/02 4,568,350 5,000,000 San Bernardino County COP, Series 1995 A, (Medical Center Financing), 5.75%, 8/1/07 (MBIA) 5,379,450 700,000 San Diego County COP, (Burnham Institute), 5.70%, 9/1/11(3) 699,097 2,000,000 San Diego County COP, (Central Jail), 5.00%, 10/1/10 (AMBAC) 1,997,380 7,200,000 San Diego County Water Auth. Rev. COP, Series 1991 A, 6.125%, 5/1/03 7,550,568 3,505,000 San Diego Regional Transportation Commission Sales Tax Rev., Series 1992 A, 5.50%, 4/1/04 (FGIC) 3,684,842 4,000,000 San Diego Regional Transportation Commission Sales Tax Rev., Series 1994 A, 6.00%, 4/1/04 (FGIC) 4,284,280 1,000,000 San Francisco Bay Area Rapid Transit District Sales Tax Rev., 5.35%, 7/1/07 (FGIC) 1,044,380 3,255,000 San Francisco City and County Educational Facilities Unified School District GO, Series 1999 B, 5.50%, 6/15/12 3,337,677 1,605,000 San Francisco City and County Public Utilities Commission Water Rev., Series 1996 A, 5.00%, 11/1/11 1,608,980 3,405,000 San Francisco Port Commission Rev., 5.625%, 7/1/02 3,529,895 1,000,000 San Jacinto Unified School District COP, 3.875%, 10/1/02 (FSA) (SBBPA: First Union National Bank) 985,390 4,580,000 San Jose Financing Auth. Rev. COP, Series 1993 A, (Convention Center), 6.10%, 9/1/06 4,812,756 3,950,000 San Jose Financing Auth. Rev. COP, Series 1993 C, (Convention Center), 6.00%, 9/1/05 4,142,918 3,875,000 San Jose Redevelopment Agency Tax Allocation, Series 1992 A, (Merged Area Redevelopment), 6.00%, 8/1/02 (MBIA)(1) 4,034,495 1,620,000 San Mateo County Joint Powers Auth. Lease Rev., Series 1997 A, 4.875%, 7/15/11 (FSA) 1,594,112 4,585,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.00%, 6/1/11 (MBIA) 4,582,616 3,750,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.25%, 6/1/15 (MBIA) 3,723,900 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,015,000 Santa Ana Police Administration COP, Series 1994 A, 5.50%, 7/1/07 (MBIA) $ 1,067,668 1,610,000 Santa Clara County Financing Auth. Lease Rev., Series 1994 A, (VMC Facility Replacement), 6.75%, 11/15/04, Prerefunded at 102% of Par (AMBAC)(1) 1,823,148 1,510,000 Santa Clara County Financing Auth. Lease Rev., Series 1997 A, 6.00%, 11/15/12 (AMBAC) 1,637,021 2,855,000 Santa Clara County Financing Auth. Lease Rev., Series 1998 A, (Multiple Facilities), 4.50%, 5/15/11 (AMBAC) 2,711,251 1,250,000 Santa Monica-Malibu Unified School District GO, 5.25%, 8/1/13 1,255,462 1,000,000 Saratoga Unified School District GO, 5.125%, 9/1/13 (MBIA) 992,120 1,200,000 South Orange County Public Financing Auth. Special Tax Rev., Series 1994 C, (Foothill Area), 6.50%, 8/15/10 (FGIC) 1,356,348 1,785,000 South Sutter Water District Hydroelectric Rev., 6.80%, 8/1/01 (FGIC) 1,824,913 2,000,000 Southern California Public Power Auth. Rev., 6.75%, 7/1/00 2,047,900 3,000,000 Southern California Public Power Auth. Rev., 6.75%, 7/1/01 3,119,850 3,090,000 Southern California Public Power Auth. Rev., (Transmission), 5.625%, 7/1/03 (MBIA) 3,249,228 4,065,000 Southern California Rapid Transit District COP, (Workers Compensation), 6.20%, 7/1/02 (MBIA) 4,273,209 5,000,000 Southern California Rapid Transit District COP, (Workers Compensation), 6.40%, 7/1/04 (MBIA) 5,257,750 1,500,000 Southern California Rapid Transit District COP, (Workers Compensation), 6.50%, 7/1/07 (MBIA) 1,579,245 2,000,000 Stanislaus County COP, 5.50%, 5/1/06 (MBIA) 2,114,540 1,800,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/10 (AMBAC) 1,849,212 1,150,000 Taft Public Financing Auth. Lease Rev. COP, Series 1997 A, (Community Correctional Facility), 5.50%, 1/1/06 1,184,569 1,950,000 University of California Rev., (Medical Center), 5.60%, 7/1/09 (AMBAC) 2,040,578 2,510,000 Watsonville Hospital Insured Rev., Series 1996 A, (Watsonville Community Hospital), 5.45%, 7/1/03 (California Mortgage Insurance)(1) 2,622,122 See Notes to Financial Statements www.americanentury.com 17 California Intermediate-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,980,000 Whittier Health Facility Rev., (Presbyterian Intercommunity), 6.00%, 6/1/06 (MBIA) $ 4,301,067 1,465,000 Woodland Wastewater System COP, 6.00%, 3/1/06 (AMBAC) 1,588,089 ------------ 415,012,237 ------------ PUERTO RICO -- 9.1% 3,655,000 Puerto Rico Commonwealth GO, 6.00%, 7/1/16 (MBIA) 3,909,863 2,400,000 Puerto Rico Commonwealth GO, (Public Improvement), 5.00%, 7/1/05 (MBIA) 2,468,880 3,000,000 Puerto Rico Commonwealth GO, (Public Improvement), 5.00%, 7/1/05 (MBIA) 3,086,100 3,000,000 Puerto Rico Commonwealth GO, (Public Improvement), 5.25%, 7/1/11 3,014,220 10,000,000 Puerto Rico Commonwealth GO, (Public Improvement), 4.50%, 7/1/23 (FSA) 8,416,900 3,000,000 Puerto Rico Commonwealth Infrastructure Financing Auth. Special Tax Rev., Series 1998 A, 5.50%, 7/1/08 (AMBAC) 3,161,670 5,000,000 Puerto Rico Electric Power Auth. Rev., Series 1995 W, 6.00%, 7/1/03 (MBIA) 5,310,700 5,790,000 Puerto Rico Electric Power Auth. Rev., Series 1998 DD, 4.50%, 7/1/19 (FSA) 5,035,737 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,090,000 Puerto Rico Public Buildings Auth. Rev., Series 1995 A, 6.25%, 7/1/09 (AMBAC) $ 3,421,094 4,500,000 Puerto Rico Public Finance Corp., Series 1998 A, 5.375%, 6/1/11 (AMBAC) 4,626,045 ------------ 42,451,209 ------------ TOTAL MUNICIPAL SECURITIES 457,463,446 ------------ (Cost $452,870,155) SHORT-TERM MUNICIPAL SECURITIES -- 1.9% 4,000,000 California Pollution Control Financing Auth. Rev., Series 1986 A, (Southern California Edison), VRDN, 2.60%, 9/1/99 (Guaranteed: Southern California Edison Company) 4,000,000 4,100,000 California Pollution Control Financing Auth. Rev., Series 1986 C, (Southern California Edison), VRDN, 2.60%, 9/1/99 (Guaranteed: Southern California Edison Company) 4,100,000 700,000 Irvine Improvement Bond Act 1915 Special Assessment, (District No. 87-8), VRDN, 2.40%, 9/1/99 700,000 ------------ TOTAL SHORT-TERM MUNICIPAL SECURITIES 8,800,000 ------------ (Cost $8,800,000) TOTAL INVESTMENT SECURITIES -- 100.0% $466,263,446 ============ (Cost $461,670,155) NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation LOC = Letter of Credit BIGI = Bond Investor's Guaranty Inc. MBIA = MBIA Insurance Corp. COP = Certificates of Participation SBBPA = Standby Bond Purchase Agreement FGIC = Financial Guaranty Insurance Co. VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 1999. FSA = Financial Security Assurance Inc. GO = General Obligation (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated at the custodian bank for a when-issued security. (3) When-issued security. 18 1-800-345-2021 See Notes to Financial Statements California Long-Term Tax-Free--Performance - -------------------------------------------------------------------------------- TOTAL RETURNS AS OF AUGUST 31, 1999 CALIFORNIA LONG-TERM LEHMAN LONG-TERM CALIFORNIA MUNICIPAL DEBT FUNDS(2) TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING ============================================================================================ 6 MONTHS(1) -3.97% -4.29% -3.52% -- 1 YEAR -1.85% -2.14% -1.49% 70 OUT OF 106 ============================================================================================ AVERAGE ANNUAL RETURNS 3 YEARS 5.56% 6.35% 5.22% 33 OUT OF 90 5 YEARS 6.13% 7.07% 5.71% 23 OUT OF 72 10 YEARS 7.07% 7.92% 6.65% 9 OUT OF 35
The fund's inception date was 11/9/83. (1) Returns for periods less than one year are not annualized. (2) According to Lipper Inc., an independent mutual fund ranking service. See pages 35-36 for more information about returns, the comparative index, and Lipper fund rankings. [mountain graph - data below] GROWTH OF $10,000 OVER 10 YEARS Value on 8/31/99 California Long-Term Tax-Free $19,792 Lehman Long-Term Municipal Index $21,446 California Long-Term Lehman Long-Term Tax-Free Municipal Index DATE VALUE VALUE 8/31/89 $10,000 $10,000 8/31/90 $10,466 $10,611 8/31/91 $11,749 $12,040 8/31/92 $12,992 $13,557 8/31/93 $14,814 $15,558 8/31/94 $14,698 $15,240 8/31/95 $15,758 $16,677 8/31/96 $16,825 $17,824 8/31/97 $18,457 $19,831 8/31/98 $20,164 $21,915 8/31/99 $19,792 $21,446 The graph at left shows the growth of a $10,000 investment in the fund over 10 years, while the graph below shows the fund's year-by-year performance. The Lehman Long-Term Municipal Index is provided for comparison in each graph. California Long-Term Tax-Free's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. [bar graph - data below] ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED AUGUST 31) California Long-Term Lehman Long-Term Tax-Free Municipal Index DATE RETURN RETURN 8/31/90 4.66% 6.11% 8/31/91 12.26% 13.47% 8/31/92 10.58% 12.60% 8/31/93 14.02% 14.76% 8/31/94 -0.78% -2.05% 8/31/95 7.21% 9.43% 8/31/96 6.77% 6.88% 8/31/97 9.70% 11.26% 8/31/98 9.25% 10.51% 8/31/99 -1.85% -2.14% www.americancentury.com 19 California Long-Term Tax-Free--Q&A - -------------------------------------------------------------------------------- [photo of Dave MacEwen] An interview with Dave MacEwen, a portfolio manager on the California Tax-Free and Municipal funds investment team. HOW DID CALIFORNIA LONG-TERM TAX-FREE PERFORM DURING ITS FISCAL YEAR ENDED AUGUST 31, 1999? It was a disappointing year for both the municipal market and the fund. California Long-Term Tax-Free posted a total return of -1.85%, which lagged the - -1.49% average total return of its peer group--106 "California Municipal Debt Funds" tracked by Lipper Inc. Despite this recent setback, the fund's longer-term results remained solid. For the three-, five-, and 10-year periods ended August 31, 1999, the fund consistently ranked in the top 40% of its peer group. Additionally, California Long-Term Tax-Free produced more state and federal tax-free income than its peers. The fund's 30-day SEC yield as of August 31, 1999, was 4.95%, compared with the 4.26% average yield of the Lipper peer group The portfolio's below-average expenses helped boost the fund's long-term returns and its yield. WHY DID THE FUND TRAIL ITS PEERS DURING THE PAST YEAR? As is the case from time to time, the strategy that helped us outperform in one period hurt us in another. In this instance, California Long-Term Tax-Free's duration--a measure of its interest rate sensitivity--was longer than the average of its peers. (The longer a fund's duration, the more the share price will rise or fall when interest rates change.) This positioning helped performance in 1998 when interest rates fell, but hurt the fund in 1999 when rates rose. CAN YOU EXPLAIN WHY YOU KEPT DURATION RELATIVELY LONG? Our decision to maintain a somewhat longer duration was based on our view that interest rates would decline in 1999 in response to global economic weakness. Given that outlook, we wanted to protect the fund from "reinvestment" risk, which occurs when rates fall. Under those circumstances, municipalities refinance older, higher-yielding bonds and potentially force bondholders to reinvest the proceeds in newer bonds at lower interest rates. To guard against reinvestment risk, we used discount bonds. These bonds trade below face value (par)--at a "discount"--because their interest payments are below prevailing market interest rates. There's less incentive for issuers to refinance--or "call"--discount bonds. That natural "call protection" means the duration of discount bonds is relatively long to begin with. Unfortunately, rising rates diminished the likelihood that discount bonds would be called, so their lives extended further and their durations lengthened. That made the portfolio even more sensitive to rising rates. [left margin] "CALIFORNIA LONG-TERM TAX-FREE PRODUCED MORE STATE AND FEDERAL TAX-FREE INCOME THAN ITS PEERS." YIELDS AS OF AUGUST 31, 1999 30-DAY SEC YIELD 4.95% 30-DAY TAX-EQUIVALENT YIELDS 34.70% TAX BRACKET 7.58% 37.42% TAX BRACKET 7.91% 41.95% TAX BRACKET 8.53% 45.22% TAX BRACKET 9.04% PORTFOLIO AT A GLANCE 8/31/99 8/31/98 NUMBER OF SECURITIES 90 83 WEIGHTED AVERAGE MATURITY 19.3 YRS 19.5 YRS AVERAGE DURATION 9.4 YRS 8.7 YRS EXPENSE RATIO 0.51% 0.51% Investment terms are defined in the Glossary on pages 36-37. 20 1-800-345-2021 California Long-Term Tax-Free--Q&A - -------------------------------------------------------------------------------- (Continued) WHAT CHANGES DID YOU MAKE IN RESPONSE TO RISING INTEREST RATES? Rather than sell discount bonds at distressed prices and abandon a strategy we believe will ultimately help the fund, we chose another route. To prevent the fund from becoming overly interest rate sensitive, we sold some par bonds at relatively good prices and temporarily parked the proceeds in short-term investments such as money market securities, which helped offset the longer-maturity discount bonds. Rising rates and weak prices also gave us the opportunity to do some "tax swapping." When it was advantageous to do so, we sold some of our worst-performing bonds at a loss to offset capital gains incurred elsewhere in the fund. The proceeds were used to buy higher-yielding bonds, which helped to boost the fund's distribution yield. Finally, we increased our stake in BBB bonds. That helped performance because BBB bonds held up relatively well. WHAT'S THE ATTRACTION OF CERTIFICATES OF PARTICIPATION (COPS), THE FUND'S LARGEST POSITION THROUGHOUT THE PERIOD? COPs originated in 1978 when California voters approved "Proposition 13." That amendment put strict limits on the amount of money that could be raised from property taxes and required two-thirds voter approval to sell new general obligation bonds. Those restrictions helped COPs, which are an alternate form of financing that don't require voter approval, become more popular. We're attracted to COPs because they are less well understood than other bonds, which allows us to buy them at higher yields than comparably rated, more familiar types of securities with similar maturities. WHAT'S YOUR OUTLOOK FOR INTEREST RATES AND THE BOND MARKET? We're moderately bullish. The broad U.S. inflation gauges haven't changed much recently, and there's evidence that the U.S. economy may be slowing. Furthermore, we believe the Fed will remain sidelined for the balance of 1999 in recognition of low inflation and out of concern for potential Y2K problems. Beyond the end of 1999, the outlook is less clear. It's quite feasible that the tug-of-war between "good" (low inflation) and "evil" (tight labor markets and wage pressures) will continue well into 2000. Ultimately, we think that non-inflationary, moderate economic growth will win, providing a more favorable backdrop for bonds. Because municipal bonds are currently priced attractively relative to Treasury securities, we think municipals can be a prime beneficiary of more favorable market sentiment. GIVEN YOUR OUTLOOK, WHAT ARE YOUR PLANS FOR THE FUND OVER THE NEXT SIX MONTHS? As long as our outlook remains somewhat bullish, we're likely to maintain our current duration position and emphasis on discount bonds. We'll also continue working with our research staff to uncover attractively valued securities, such as COPs, that have the potential to enhance returns. And we plan to stick with the same value-oriented approach and below-average expenses that have contributed to our long-term success. [right margin] PORTFOLIO COMPOSITION BY CREDIT RATING % OF FUND INVESTMENTS AS OF AS OF 8/31/99 2/28/99 AAA 59% 60% AA 11% 9% A 24% 26% BBB 6% 5% Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 35 for more information. TOP FIVE SECTORS (AS OF 8/31/99) % OF FUND INVESTMENTS COPS/LEASES 19% TAX ALLOCATION REVENUE 16% GO 14% WATER AND SEWER REVENUE 8% HOSPITAL REVENUE 7% TOP FIVE SECTORS (AS OF 2/28/99) % OF FUND INVESTMENTS COPS/LEASES 21% TAX ALLOCATION REVENUE 14% GO 11% HIGHER EDUCATION 7% HOSPITAL REVENUE 7% Investment terms are defined in the Glossary on pages 36-37. www.americancentury.com 21 California Long-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- This schedule lists all investments owned by the fund, as well as each security's market value, as of the last day of the reporting period. AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 97.1% CALIFORNIA -- 93.1% $ 6,500,000 Alameda Corridor Transportation Auth. Rev., Series 1999 A, 5.00%, 10/1/29 (MBIA) $ 5,861,504 2,300,000 Alameda County COP, 6.80%, 6/15/17 (MBIA)(1) 842,651 2,700,000 Brea Public Finance Auth. Rev. Tax Allocation, (Project Area AB), 7.00%, 8/1/15 (MBIA) 2,879,658 1,220,000 Brea Redevelopment Agency Tax Allocation, (Project AB), 6.125%, 8/1/13 (MBIA) 1,287,649 1,500,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College and University Projects), 6.30%, 4/1/21 1,533,990 1,500,000 California Health Facilities Financing Auth. Rev., Series 1988 A, (H.M. Newhall Memorial Hospital), 8.00%, 10/1/18 (California Mortgage Insurance) 1,534,320 3,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 7.15%, 10/1/09(1) 1,784,280 1,730,000 California Health Facilities Financing Auth. Rev., Series 1990 A, (Gould Medical), 7.30%, 4/1/20(2) 1,801,138 2,500,000 California Health Facilities Financing Auth. Rev., Series 1991 B, (Adventist Health), 6.75%, 3/1/14 (MBIA) 2,628,600 2,000,000 California Health Facilities Financing Auth. Rev., Series 1992 A, 6.75%, 3/1/20 (California Mortgage Insurance) 2,114,480 1,290,000 California Health Facilities Financing Auth. Rev., Series 1992 C, (AIDS Healthcare Foundation), 6.25%, 9/1/17 (California Mortgage Insurance) 1,328,003 5,165,000 California Health Facilities Financing Auth. Rev., Series 1993 C, (St. Francis Memorial Hospital), 5.875%, 11/1/23(2) 5,437,454 5,125,000 California Housing Finance Agency Home Mortgage Rev., Series 1994 G, 7.25%, 8/1/17 5,284,285 1,290,000 California Housing Finance Agency Rev., (Multi-Unit Rental Housing), 6.875%, 2/1/22 1,296,631 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,125,000 California Housing Finance Agency Rev., Series 1995 C, (Home Mortgage), 6.80%, 8/1/17 $ 1,177,481 1,500,000 California Pollution Control Financing Auth. Rev., Series 1987 D, (Southern California Edison), 6.85%, 12/1/08 1,530,000 17,100,000 California Public Works Board Lease Rev., Series 1993 D, (Department of Corrections), 5.25%, 6/1/15 (FSA) 16,980,984 2,500,000 California Public Works Board Lease Rev., Series 1998 B, (Department of Corrections), 5.00%, 9/1/21 (MBIA) 2,295,350 5,000,000 California State Department of Water Resource Central Valley Project Rev., Series 1997 S, 5.00%, 12/1/29 4,507,650 1,000,000 California State Franchise Tax Board COP, 6.90%, 10/1/99, Prerefunded at 102% of Par(2) 1,022,710 3,000,000 California State GO, 6.125%, 10/1/11 (AMBAC) 3,301,740 2,945,000 California State GO, 5.00%, 2/1/20 2,729,809 9,000,000 California State GO, 4.50%, 12/1/21 (FGIC) 7,592,040 4,655,000 California State GO, 4.50%, 12/1/24 (FGIC) 3,881,804 8,000,000 California State GO, 4.25%, 10/1/26 (MBIA) 6,329,920 2,130,000 California State GO, 4.75%, 4/1/29 1,827,370 1,410,000 California State GO, Series 1984 B, (New Prison Construction), 10.00%, 8/1/03 1,697,626 9,000,000 California Statewide Communities Development Auth. Rev., Series 1998 A, (Sherman Oaks), 5.00%, 8/1/22 (AMBAC, California Mortgage Insurance) 8,290,890 5,695,000 Capistrano Unified School District Community Facilities Special Tax, (Refunding Issue 1988-1), 6.50%, 9/1/14 (FSA) 6,136,362 1,000,000 Coachella Valley Water District #71 COP, (Flood Control), 6.75%, 10/1/02, Prerefunded at 102% of Par(2) 1,095,150 1,320,000 Coalinga Public Financing Auth. Local Obligation Rev., Series 1998 A, 6.375%, 9/15/21 (AMBAC) 1,465,543 13,500,000 Compton Redevelopment Agency Tax Allocation, Series 1995 A, 6.50%, 8/1/13 (FSA) 14,694,345 22 1-800-345-2021 See Notes to Financial Statements California Long-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,580,000 Concord Joint Power Financing Auth. Lease Rev. COP, (Police Facilities), 5.25%, 8/1/13 $ 2,563,540 3,805,000 Contra Costa County Public Financing Auth. Tax Allocation Rev., 5.25%, 8/1/28 3,393,794 2,615,000 Corona Community Facilities District Tax Allocation, (Special Tax No. 86-2), 5.125%, 9/1/19 (AMBAC) 2,447,300 3,605,000 Inglewood Redevelopment Agency Tax Allocation, Series 1998 A, (Merged Redevelopment), 5.25%, 5/1/23 (AMBAC) 3,442,631 1,815,000 Kern County High School District GO, 7.15%, 8/1/14 (MBIA)(2) 2,170,413 1,305,000 Los Altos Association of Bay Area Governments COP, 5.90%, 5/1/27 1,314,513 3,475,000 Los Angeles Community Redevelopment Agency Housing Rev., Series 1994 A, 6.45%, 7/1/17 (AMBAC) 3,620,464 2,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1996 A, 6.00%, 7/1/06, Prerefunded at 101% of Par (MBIA)(2) 2,194,980 3,340,000 Los Angeles Department of Water and Power Waterworks Rev., 4.50%, 10/15/24 2,751,993 1,000,000 Los Angeles Transportation Commission Sales Tax Rev., 6.50%, 7/1/13 (MBIA) 1,054,990 1,865,000 Mendocino Coast District Health Care Facility Rev., 5.875%, 2/1/20 (California Mortgage Insurance) 1,868,562 8,000,000 Metropolitan Water District of Southern California Waterworks Rev., 5.75%, 8/10/18 8,223,600 4,650,000 Metropolitan Water District of Southern California Waterworks Rev., Series 1996 B, 4.75%, 7/1/21 (MBIA) 4,088,652 5,150,000 Mid-Peninsula Regional Open Space District GO, 7.00%, 9/1/14 5,632,298 5,830,000 Modesto, Stockton, Redding Public Power Agency Rev., Series 1989 D, (San Juan), 6.75%, 7/1/20 (MBIA)(2) 6,614,310 3,000,000 Oakland Redevelopment Agency Tax Allocation, (Central District), 5.50%, 2/1/14 (AMBAC) 3,061,320 2,960,000 Orange County Water District Rev. COP, Series 1999 A, 5.25%, 8/15/22 2,806,850 1,855,000 Pacifica Financing Auth. Sewer Rev., 6.20%, 8/1/26 1,877,854 2,950,000 Pasadena COP, (Old Pasadena Parking Facility), 6.25%, 1/1/18 3,188,596 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,475,000 Pittsburg Redevelopment Agency Tax Allocation, (Los Medanos Community Development), 6.20%, 8/1/19 $ 4,599,808 5,000,000 Pittsburg Redevelopment Agency Tax Allocation, (Los Medanos Community Development), 6.25%, 8/1/26 5,158,050 2,700,000 Pittsburg Redevelopment Agency Tax Allocation, Series 1993 B, (Los Medanos Community Development), 5.80%, 8/1/34 (FSA) 2,732,076 2,100,000 Pomona Public Financing Auth. Rev., Series 1992 A, (Water Treatment), 6.10%, 7/1/02, Prerefunded at 102% of Par (AMBAC)(2) 2,254,140 2,000,000 Rancho Cucamonga Redevelopment Agency Tax Allocation, 5.25%, 9/1/20 (FSA) 1,924,940 3,680,000 Riverside County Asset Leasing Corporation Rev. COP, Series 1997 B, (Riverside County Hospital), 5.00%, 6/1/19 (MBIA) 3,391,010 8,705,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.25%, 7/1/24 (AMBAC) 8,326,332 1,000,000 Saddleback Valley Unified School District Public Financing Auth. Special Tax Rev., Series 1997 A, 6.00%, 9/1/16 (FSA) 1,070,240 3,400,000 San Diego County COP, 5.625%, 9/1/12 (AMBAC) 3,531,988 3,500,000 San Diego County Regional Transportation Sales Tax Rev., Series 1991 A, 6.93%, 4/1/04(1)(2) 2,863,210 9,000,000 San Francisco City and County Airport Commission International Airport Rev., Issue 20, 4.50%, 5/1/23 (MBIA) 7,549,200 5,450,000 San Francisco City and County Airport Commission International Airport Rev., Issue 20, 4.50%, 5/1/26 (MBIA) 4,522,900 1,000,000 San Francisco City and County Redevelopment Hotel Tax Rev., 6.75%, 7/1/04, Prerefunded at 102% of Par (FSA)(2) 1,125,140 3,000,000 San Jose Financing Auth. Rev. COP, Series 1993 C, (Convention Center), 6.375%, 9/1/13 3,128,160 7,575,000 San Jose Financing Auth. Rev. COP, Series 1993 D, (Central Service Yard), 5.25%, 10/15/23 7,097,624 9,525,000 San Jose Redevelopment Agency Tax Allocation, Series 1993 D, (Merged Area Redevelopment), 5.75%, 8/1/24 9,532,048 See Notes to Financial Statements www.americancentury.com 23 California Long-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 5,000,000 San Marino Unified School District GO, Series 1998 B, 5.00%, 6/1/23 $ 4,592,800 3,975,000 San Mateo County Joint Powers Finance Auth. Lease Rev. COP, (Capital Projects Program), 6.50%, 7/1/16 (MBIA) 4,470,643 4,000,000 San Mateo County Joint Powers Finance Auth. Lease Rev. COP, (Capital Projects Program), 6.00%, 7/1/19 (MBIA) 4,261,840 3,500,000 Santa Ana Finance Auth. Lease Rev. COP, 6.25%, 7/1/15 (MBIA) 3,847,060 4,830,000 Santa Monica Community College District COP, Series 1997 A, 5.90%, 2/1/27 4,859,173 1,455,000 South Orange County Public Financing Auth. Special Tax Rev., Series 1999 A, 5.375%, 8/15/10 (FSA) 1,511,134 2,670,000 South Orange County Public Financing Auth. Special Tax Rev., Series 1999 A, 5.375%, 8/15/11 (FSA) 2,750,207 2,745,000 South Tahoe Joint Powers Financing Auth. Rev., Series 1999 A, 5.375%, 10/1/30 2,490,154 3,260,000 Southern California Public Power Auth. Rev., 6.00%, 7/1/18 3,270,302 7,315,000 Southern California Public Power Auth. Rev., (Multiple Projects), 6.75%, 7/1/12 (FSA) 8,399,814 3,730,000 Southern California Public Power Auth. Rev., (Multiple Projects), 6.75%, 7/1/13 (FSA) 4,276,967 1,425,000 Southern California Public Power Auth. Rev., (Transportation Auth.), 7.00%, 7/1/09 1,486,318 3,000,000 Southern California Public Power Auth. Rev., Series 1989 A, 7.15%, 7/1/04 (AMBAC)(1) 2,423,400 2,000,000 Southern Orange County Finance Auth. Special Tax Rev., Series 1994 A, 7.00%, 9/1/11 (MBIA) 2,346,800 800,000 Stockton Health Facilities Rev., Series 1997 A, (Dameron Hospital Association), 5.70%, 12/1/14 775,376 2,000,000 Taft Public Financing Auth. Lease Rev. COP, Series 1997 A, (Community Correctional Facility), 6.05%, 1/1/17 2,034,740 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,400,000 Torrance Redevelopment Agency Rev., Series 1998 A, (Downtown Redevelopment), 5.60%, 9/1/28 $ 1,299,074 3,020,000 Watsonville Insured Hospital Rev., Series 1996 A, (Watsonville Community Hospital), 6.20%, 7/1/12 (California Mortgage Insurance)(2) 3,276,368 ------------ 311,667,113 ------------ PUERTO RICO -- 4.0% 16,250,000 Puerto Rico Commonwealth GO, 4.50%, 7/1/23 13,511,388 ------------ TOTAL MUNICIPAL SECURITIES 325,178,501 ------------ (Cost $323,523,453) MUNICIPAL DERIVATIVES(3) -- 1.1% 4,000,000 Northern California Transmission Rev., Inverse Floater, 6.78%, 4/29/24 (MBIA) 3,815,000 ------------ (Cost $3,963,920) SHORT-TERM MUNICIPAL SECURITIES -- 1.8% 1,000,000 California Health Facilities Financing Auth. Rev., Series 1995 C, (Catholic Healthcare West), VRDN, 2.75%, 9/1/99 (MBIA) (SBBPA: Rabobank Nederland N.V.) 1,000,000 3,000,000 California Statewide Communities Development Auth. Rev. COP, (Sutter Health Obligation Group), VRDN, 2.40%, 9/1/99 (AMBAC) (SBBPA: KBC Bank N.V.) 3,000,000 2,000,000 Irvine Improvement Bond Act 1915 Special Assessment, (District No. 89-10), VRDN, 2.40%, 9/1/99 (LOC: National Westminster Bank PLC) 2,000,000 ------------ TOTAL SHORT-TERM MUNICIPAL SECURITIES 6,000,000 ------------ (Cost $6,000,000) TOTAL INVESTMENT SECURITIES -- 100.0% $334,993,501 ============ (Cost $333,487,373) 24 1-800-345-2021 See Notes to Financial Statements California Long-Term Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation LOC = Letter of Credit COP = Certificates of Participation MBIA = MBIA Insurance Corp. FGIC = Financial Guaranty Insurance Co. SBBPA = Standby Bond Purchase Agreement FSA = Financial Security Assurance Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 1999. GO = General Obligation (1) Security is a zero-coupon municipal bond. The yield to maturity at purchase is indicated. Zero-coupon securities are purchased at a substantial discount from their value at maturity. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) Inverse floaters have interest rates that move inversely to market interest rates. Inverse floaters typically have durations longer than long-term bonds, which may cause their value to be more volatile than long-term bonds when interest rates change. See Notes to Financial Statements www.americancentury.com 25 Statements of Assets and Liabilities - -------------------------------------------------------------------------------- This statement breaks down the fund's ASSETS (such as securities, cash, and other receivables) and LIABILITIES (money owed for securities purchased, management fees, and other liabilities) as of the last day of the reporting period. Subtracting the liabilities from the assets results in the fund's NET ASSETS. The net assets divided by shares outstanding is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets into capital (shareholder investments) and performance (investment income and gains/losses).
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM AUGUST 31, 1999 TAX-FREE TAX-FREE TAX-FREE ASSETS Investment securities, at value (identified cost of $145,900,662, $461,670,155 and $333,487,373, respectively) (Note 3) ............. $ 146,444,294 $ 466,263,446 $ 334,993,501 Receivable for investments sold ...... -- 1,679,122 3,367,787 Interest receivable .................. 1,856,007 6,478,922 4,228,401 ------------- ------------- ------------- 148,300,301 474,421,490 342,589,689 ------------- ------------- ------------- LIABILITIES Disbursements in excess of demand deposit cash ................ 4,484,358 10,226,730 6,281,233 Payable for investments purchased .... 2,147,669 3,907,442 3,349,712 Accrued management fees (Note 2) ........................... 59,930 198,332 143,871 Dividends payable .................... 58,655 228,984 187,081 Payable for trustees' fees and expenses ....................... 241 798 579 ------------- ------------- ------------- 6,750,853 14,562,286 9,962,476 ------------- ------------- ------------- Net Assets ........................... $ 141,549,448 $ 459,859,204 $ 332,627,213 ============= ============= ============= CAPITAL SHARES Outstanding (unlimited number of shares authorized) .............. 13,782,306 42,387,303 30,640,236 ============= ============= ============= Net Asset Value Per Share ............ $ 10.27 $ 10.85 $ 10.86 ============= ============= ============= NET ASSETS CONSIST OF: Capital paid in ...................... $ 141,451,152 $ 456,045,861 $ 332,027,691 Accumulated net realized loss on investments ..................... (445,336) (779,948) (906,606) Net unrealized appreciation on investments (Note 3) ............ 543,632 4,593,291 1,506,128 ------------- ------------- ------------- $ 141,549,448 $ 459,859,204 $ 332,627,213 ============= ============= =============
26 1-800-345-2021 See Notes to Financial Statements Statements of Operations - -------------------------------------------------------------------------------- This statement shows how the fund's net assets changed during the reporting period as a result of the fund's operations. In other words, it shows how much money the fund made or lost as a result of dividend and interest income, fees and expenses, and investment gains or losses.
LIMITED-TERM INTERMEDIATE-TERM LONG-TERM YEAR ENDED AUGUST 31, 1999 TAX-FREE TAX-FREE TAX-FREE INVESTMENT INCOME Income: Interest ............................ $ 6,327,039 $ 23,434,766 $ 18,661,903 ------------ ------------ ------------ Expenses (Note 2): Management fees ..................... 744,334 2,402,570 1,729,194 Trustees' fees and expenses ......... 5,805 16,496 12,154 ------------ ------------ ------------ 750,139 2,419,066 1,741,348 ------------ ------------ ------------ Net investment income ............... 5,576,900 21,015,700 16,920,555 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3) Net realized gain on investments .... 135,223 1,469,341 178,811 Change in net unrealized appreciation on investments ....... (2,294,647) (19,090,647) (23,792,754) ------------ ------------ ------------ Net realized and unrealized loss on investments ............... (2,159,424) (17,621,306) (23,613,943) ------------ ------------ ------------ Net Increase (Decrease) in Net Assets Resulting from Operations .. $ 3,417,476 $ 3,394,394 $ (6,693,388) ============ ============ ============
See Notes to Financial Statements www.americancentury.com 27 Statements of Changes in Net Assets - -------------------------------------------------------------------------------- This statement shows how the fund's net assets changed over the past two reporting periods. It details how much a fund grew or shrank as a result of operations (as detailed on the previous page for the most recent period), income and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 LIMITED-TERM INTERMEDIATE-TERM LONG-TERM TAX-FREE TAX-FREE TAX-FREE Increase (Decrease) in Net Assets 1999 1998 1999 1998 1999 1998 OPERATIONS Net investment income ........... $ 5,576,900 $ 5,160,591 $ 21,015,700 $ 20,402,484 $ 16,920,555 $ 15,874,999 Net realized gain on investments ................ 135,223 253,098 1,469,341 3,919,772 178,811 2,963,978 Change in net unrealized appreciation on investments ... (2,294,647) 1,302,650 (19,090,647) 5,632,637 (23,792,754) 8,929,558 ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ............... 3,417,476 6,716,339 3,394,394 29,954,893 (6,693,388) 27,768,535 ------------- ------------- ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ...... (5,576,900) (5,160,591) (21,023,720) (20,402,484) (16,929,588) (15,874,999) From net realized gains on investment transactions ....... -- -- (4,068,589) (5,651,243) (1,834,114) (5,354,293) In excess of net realized gains on investment transactions .................. -- -- (779,994) -- (906,606) -- ------------- ------------- ------------- ------------- ------------- ------------- Decrease in net assets from distributions ............ (5,576,900) (5,160,591) (25,872,303) (26,053,727) (19,670,308) (21,229,292) ------------- ------------- ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ....... 65,637,307 43,612,098 161,571,112 155,826,396 159,063,547 98,878,179 Proceeds from reinvestment of distributions .............. 3,592,859 3,439,775 19,097,750 19,653,179 13,437,962 14,613,846 Payments for shares redeemed ...................... (55,657,881) (45,102,215) (158,935,588) (154,216,741) (138,704,256) (99,508,180) ------------- ------------- ------------- ------------- ------------- ------------- Net increase in net assets from capital share transactions .................. 13,572,285 1,949,658 21,733,274 21,262,834 33,797,253 13,983,845 ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets ................. 11,412,861 3,505,406 (744,635) 25,164,000 7,433,557 20,523,088 NET ASSETS Beginning of period ............. 130,136,587 126,631,181 460,603,839 435,439,839 325,193,656 304,670,568 ------------- ------------- ------------- ------------- ------------- ------------- End of period ................... $ 141,549,448 $ 130,136,587 $ 459,859,204 $ 460,603,839 $ 332,627,213 $ 325,193,656 ============= ============= ============= ============= ============= ============= Undistributed net investment income ........................ -- -- -- $ 8,020 -- $ 9,033 ============= ============= ============= ============= ============= ============= TRANSACTIONS IN SHARES OF THE FUNDS Sold ............................ 6,293,053 4,214,707 14,367,915 13,806,443 13,855,858 8,544,372 Issued in reinvestment of distributions .............. 344,983 332,197 1,699,082 1,741,245 1,167,760 1,262,693 Redeemed ........................ (5,337,253) (4,357,987) (14,186,136) (13,662,495) (12,126,150) (8,606,849) ------------- ------------- ------------- ------------- ------------- ------------- Net increase .................... 1,300,783 188,917 1,880,861 1,885,193 2,897,468 1,200,216 ============= ============= ============= ============= ============= =============
28 1-800-345-2021 See Notes to Financial Statements Notes to Financial Statements - -------------------------------------------------------------------------------- AUGUST 31, 1999 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century California Tax-Free and Municipal Funds (the trust) is registered under the Investment Company Act of 1940 as an open-end management investment company. California Limited-Term Tax-Free Fund (Limited-Term), California Intermediate-Term Tax-Free Fund (Intermediate-Term), and California Long-Term Tax-Free Fund (Long-Term) (the funds) are three of the seven funds issued by the trust. The funds are diversified under the 1940 Act. The funds seek to obtain as high a level of interest income exempt from federal and California income taxes as is consistent with prudent investment management and conservation of shareholders' capital. The funds invest primarily in municipal obligations with maturities based on each fund's investment objective. The funds concentrate their investments in a single state and therefore may have more exposure to credit risk related to the state of California than a fund with a broader geographical diversification. The following significant accounting policies are in accordance with generally accepted accounting principles; these principles may require the use of estimates by fund management. SECURITY VALUATIONS -- Portfolio securities are valued through a commercial pricing service or at the mean of the most recent bid and asked prices. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. INCOME TAX STATUS -- It is the funds' policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared daily and distributed monthly. Distributions from net realized gains are declared and paid annually. For the year ended August 31, 1999, 100% (unaudited) of the funds' distributions from net investment income have been designated as exempt from federal and California state income tax. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes and may result in reclassification among certain capital accounts. At August 31, 1999, accumulated net realized capital loss carryovers of $445,336 for Limited-Term (expiring in 2004) may be used to offset future taxable gains. FUTURES CONTRACTS -- Each fund may buy and sell interest rate futures contracts relating to debt securities. Each fund may use futures transactions to maintain cash reserves while remaining fully invested, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns when a futures contract is priced more attractively than its underlying security or index. One of the risks of entering into futures contracts may include the possibility that the changes in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the funds are required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the funds. The variation margin is equal to the daily change in the contract value and is recorded as an unrealized gain or loss. The funds recognize a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of realized gain (loss) on investments and unrealized appreciation (depreciation) on investments, respectively. There were no open futures contracts at August 31, 1999. ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's distributor. Certain officers of FDI are also officers of the trust. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH RELATED PARTIES The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides each fund with investment advisory and management services in exchange for a single, unified management fee. The Agreement provides that all expenses of the funds, except brokerage, taxes, portfolio insurance, interest, fees and expenses of the Trustees who are not considered "interested persons" as defined in the Investment Company Act of 1940 (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is calculated daily and paid monthly. It consists of an Investment Category Fee based on the average net assets of the funds in a specific fund's investment category and a Complex Fee based on the average net assets of all the funds managed by ACIM. The rates for the Investment Category Fee range from 0.1625% to 0.2800% and the rates for the Complex Fee range from 0.2900% to 0.3100%. For the year ended August 31, 1999, the effective annual management fee was 0.51%, for Limited-Term, Intermediate-Term, and Long-Term. Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc., the parent of the trust's investment manager, ACIM, and the trust's transfer agent, American Century Services Corporation. www.americancentury.com 29 Notes to Financial Statements - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, were as follows: LIMITED-TERM INTERMEDIATE-TERM LONG-TERM TAX-FREE TAX-FREE TAX-FREE PURCHASES Municipal Obligations ..$94,401,285 $274,073,862 $209,500,031 PROCEEDS FROM SALES Municipal Obligations ..$82,427,961 $255,931,595 $175,200,491 On August 31, 1999, the composition of unrealized appreciation and depreciation of investment securities based on the aggregate cost of investments for federal income tax purposes was as follows: LIMITED-TERM INTERMEDIATE-TERM LONG-TERM TAX-FREE TAX-FREE TAX-FREE Appreciation ...........$893,425 $10,079,386 $9,854,934 Depreciation ...........(349,793) (5,486,095) (8,348,806) ---------------- ------------------- --------------- Net ....................$543,632 $ 4,593,291 $1,506,128 ================ =================== =============== The aggregate cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. - -------------------------------------------------------------------------------- 4. BANK LOANS Effective December 18, 1998, the funds, along with certain other funds managed by ACIM, entered into an unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank. Borrowings under the agreement bear interest at the Federal Funds rate plus 0.40%. The funds may borrow money for temporary or emergency purposes to fund shareholder redemptions. The funds did not borrow from the line during the period December 18, 1998 through August 31, 1999. 30 1-800-345-2021 California Limited-Term Tax-Free--Financial Highlights - -------------------------------------------------------------------------------- This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 1999 1998 1997 1996 1995 PER-SHARE DATA Net Asset Value, Beginning of Period .. $ 10.43 $ 10.30 $ 10.19 $ 10.23 $ 10.12 ----------- ----------- ----------- ----------- ----------- Income From Investment Operations Net Investment Income ............... 0.39 0.42 0.43 0.43 0.41 Net Realized and Unrealized Gain (Loss) on Investment Transactions ............. (0.16) 0.13 0.11 (0.04) 0.11 ----------- ----------- ----------- ----------- ----------- Total From Investment Operations .... 0.23 0.55 0.54 0.39 0.52 ----------- ----------- ----------- ----------- ----------- Distributions From Net Investment Income .......... (0.39) (0.42) (0.43) (0.43) (0.41) ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period ........ $ 10.27 $ 10.43 $ 10.30 $ 10.19 $ 10.23 =========== =========== =========== =========== =========== Total Return(1) ..................... 2.26% 5.40% 5.42% 3.87% 5.33% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ............... 0.51% 0.52% 0.49% 0.49% 0.51% Ratio of Net Investment Income to Average Net Assets ............... 3.78% 4.02% 4.20% 4.20% 4.10% Portfolio Turnover Rate ............... 57% 44% 47% 44% 50% Net Assets, End of Period (in thousands) ...................... $ 141,549 $ 130,137 $ 126,631 $ 103,707 $ 104,723
(1) Total return assumes reinvestment of dividends and capital gains distributions, if any. See Notes to Financial Statements www.americancentury.com 31 California Intermediate-Term Tax-Free--Financial Highlights - -------------------------------------------------------------------------------- This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 1999 1998 1997 1996 1995 PER-SHARE DATA Net Asset Value, Beginning of Period .. $ 11.37 $ 11.27 $ 11.05 $ 11.06 $ 10.86 ----------- ----------- ----------- ----------- ----------- Income From Investment Operations Net Investment Income ............... 0.49 0.52 0.54 0.54 0.54 Net Realized and Unrealized Gain (Loss) on Investment Transactions ............ (0.41) 0.25 0.25 (0.01) 0.20 ----------- ----------- ----------- ----------- ----------- Total From Investment Operations .... 0.08 0.77 0.79 0.53 0.74 ----------- ----------- ----------- ----------- ----------- Distributions From Net Investment Income .......... (0.49) (0.52) (0.54) (0.54) (0.54) From Net Realized Gains on Investment Transactions ............. (0.09) (0.15) (0.03) -- -- In Excess of Net Realized Gains ..... (0.02) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total Distributions ................. (0.60) (0.67) (0.57) (0.54) (0.54) ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period ........ $ 10.85 $ 11.37 $ 11.27 $ 11.05 $ 11.06 =========== =========== =========== =========== =========== Total Return(1) ..................... 0.74% 7.00% 7.39% 4.79% 7.09% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ............... 0.51% 0.51% 0.48% 0.48% 0.48% Ratio of Net Investment Income to Average Net Assets ............... 4.41% 4.60% 4.81% 4.87% 5.02% Portfolio Turnover Rate ............... 54% 28% 42% 36% 25% Net Assets, End of Period (in thousands) ...................... $ 459,859 $ 460,604 $ 435,440 $ 430,950 $ 417,550
(1) Total return assumes reinvestment of dividends and capital gains distributions, if any. 32 1-800-345-2021 See Notes to Financial Statements California Long-Term Tax-Free--Financial Highlights - -------------------------------------------------------------------------------- This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 1999 1998 1997 1996 1995 PER-SHARE DATA Net Asset Value, Beginning of Period ..$ 11.72 $ 11.48 $ 11.06 $ 10.94 $ 10.88 ----------- ----------- ----------- ----------- ----------- Income From Investment Operations Net Investment Income ............... 0.57 0.59 0.61 0.61 0.62 Net Realized and Unrealized Gain (Loss) on Investment Transactions ............. (0.76) 0.44 0.44 0.12 0.12 ----------- ----------- ----------- ----------- ----------- Total From Investment Operations .... (0.19) 1.03 1.05 0.73 0.74 ----------- ----------- ----------- ----------- ----------- Distributions From Net Investment Income .......... (0.57) (0.59) (0.61) (0.61) (0.62) From Net Realized Gains on Investment Transactions ............. (0.07) (0.20) (0.02) -- (0.06) In Excess of Net Realized Gains ..... (0.03) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total Distributions ................. (0.67) (0.79) (0.63) (0.61) (0.68) ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period ........$ 10.86 $ 11.72 $ 11.48 $ 11.06 $ 10.94 =========== =========== =========== =========== =========== Total Return(1) ..................... (1.85)% 9.25% 9.70% 6.77% 7.21% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ............... 0.51% 0.51% 0.48% 0.48% 0.49% Ratio of Net Investment Income to Average Net Assets ............... 4.94% 5.07% 5.40% 5.48% 5.84% Portfolio Turnover Rate ............... 52% 36% 50% 42% 60% Net Assets, End of Period (in thousands) ......................$ 332,627 $ 325,194 $ 304,671 $ 288,022 $ 276,085
(1) Total return assumes reinvestment of dividends and capital gains distributions, if any. See Notes to Financial Statements www.americancentury.com 33 Report of Independent Accountants - -------------------------------------------------------------------------------- To the Trustees of the American Century California Tax-Free and Municipal Funds and Shareholders of the California Limited-Term Tax-Free Fund, the California Intermediate-Term Tax-Free Fund and the California Long-Term Tax-Free Fund: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the California Limited-Term Tax-Free Fund, the California Intermediate-Term Tax-Free Fund and the California Long-Term Tax-Free Fund (formerly the American Century - Benham California Limited-Term Tax-Free Fund, the American Century - Benham California Intermediate-Term Tax-Free Fund and the American Century - Benham California Long-Term Tax-Free Fund, respectively) (the "Funds") at August 31, 1999, and the results of their operations for the year then ended, the changes in their net assets and the financial highlights for each of the two years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. The financial highlights for each of the three years in the period ended August 31, 1997, were audited by other auditors, whose report, dated October 3, 1997, expressed an unqualified opinion on those statements. We conducted our audits of these financial statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 1999 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Kansas City, Missouri October 13, 1999 34 1-800-345-2021 Background Information - -------------------------------------------------------------------------------- INVESTMENT PHILOSOPHY AND POLICIES American Century offers 38 fixed-income funds, ranging from money market portfolios to long-term bond funds and including both taxable and tax-exempt funds. Each is managed to provide a "pure play" on a specific sector of the fixed-income market. To ensure adherence to this principle, the basic structure of each portfolio is tied to a specific market index. Fund managers attempt to add value by making modest portfolio adjustments based on their analysis of prevailing market conditions. Investment decisions are made by management teams, which meet regularly to discuss market analysis and investment strategies. In addition to these principles, each fund has its own investment policies CALIFORNIA LIMITED-TERM TAX-FREE seeks interest income exempt from both federal and California state income taxes. The fund invests primarily in California municipal securities and maintains a weighted average maturity of five years or less. CALIFORNIA INTERMEDIATE-TERM TAX-FREE seeks interest income exempt from both federal and California state income taxes. The fund invests primarily in California municipal securities and maintains a weighted average maturity of 5-10 years. CALIFORNIA LONG-TERM TAX-FREE seeks interest income exempt from federal and California state income taxes. The fund invests primarily in California municipal securities and maintains a weighted average maturity of 10 years or more. COMPARATIVE INDICES The following indices are used in the report for fund performance comparisons. They are not investment products available for purchase. The LEHMAN BROTHERS 3-YEAR MUNICIPAL BOND INDEX is composed of more than 4,000 municipal bonds with maturities of 2-4 years. The average credit rating of the securities in the index is AA1/AA2. The index's average maturity is 3 years The LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of more than 5,000 municipal bonds with maturities of 4-6 years. The average credit rating of the securities in the index is AA1/AA2. The index's average maturity is approximately 5 years. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of more than 2,800 municipal bonds with maturities greater than 22 years. The average credit rating of the securities in the index is AA2/AA3. The index's average maturity is approximately 27 years. LIPPER RANKINGS LIPPER INC. is an independent mutual fund ranking service that groups funds according to their investment objectives. Rankings are based on average annual returns for each fund in a given category for the periods indicated. Rankings are not included for periods less than one year. CALIFORNIA SHORT-INTERMEDIATE MUNICIPAL DEBT FUNDS (Limited-Term Tax-Free) - -- funds that invest at least 65% of assets in municipal debt issues that are exempt from taxation in California with dollar-weighted average maturities of 1-5 years. CALIFORNIA INTERMEDIATE MUNICIPAL DEBT FUNDS (Intermediate-Term Tax-Free) - -- funds that invest at least 65% of assets in municipal debt issues that are exempt from taxation in California with dollar-weighted average maturities of 5-10 years. CALIFORNIA MUNICIPAL DEBT FUNDS (Long-Term Tax-Free) -- funds that invest at least 65% of assets in municipal debt issues that are exempt from taxation in California. [right margin] INVESTMENT TEAM LEADERS Portfolio Managers COLLEEN DENZLER DAVE MACEWEN TODD PARDULA Credit Research Director STEVEN PERMUT CREDIT RATING GUIDELINES CREDIT RATINGS ARE ISSUED BY INDEPENDENT RESEARCH COMPANIES SUCH AS STANDARD & POOR'S AND MOODY'S. THEY ARE BASED ON AN ISSUER'S FINANCIAL STRENGTH AND ABILITY TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER. SECURITIES RATED AAA, AA, A, OR BBB ARE CONSIDERED "INVESTMENT-GRADE" SECURITIES, MEANING THEY ARE RELATIVELY SAFE FROM DEFAULT. HERE ARE THE MOST COMMON CREDIT RATINGS AND THEIR DEFINITIONS: * AAA--EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS. * AA--VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS. * A--STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS. * BBB--GOOD ABILITY TO MEET FINANCIAL OBLIGATIONS. IT'S IMPORTANT TO NOTE THAT CREDIT RATINGS ARE SUBJECTIVE, REFLECTING THE OPINIONS OF THE RATING AGENCIES; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY. www.americancentury.com 35 Glossary - -------------------------------------------------------------------------------- RETURNS * TOTAL RETURN figures show the overall percentage change in the value of a hypothetical investment in the fund and assume that all of the fund's distributions are reinvested. * AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would have produced the fund's cumulative total returns if the fund's performance had been constant over the entire period. Average annual returns smooth out variations in a fund's return; they are not the same as fiscal year-by-year results. (For fiscal year-by-year returns, please refer to the "Financial Highlights" on pages 31-33.) YIELDS * 30-DAY SEC YIELD represents net investment income earned by the fund over a 30-day period, expressed as an annual percentage rate based on the fund's share price at the end of the 30-day period. The SEC yield should be regarded as an estimate of the fund's rate of investment income, and it may not equal the fund's actual income distribution rate, the income paid to a shareholder's account, or the income reported in the fund's financial statements. * TAX-EQUIVALENT YIELDS show the taxable yields that investors in a combined California and federal income tax bracket would have to earn before taxes to equal the fund's tax-free yield. INVESTMENT TERMS * BASIS POINT -- one one-hundredth of a percentage point (or 0.01%). Therefore, 100 basis points equal one percentage point (or 1%). * YIELD CURVE -- a graphic representation of the relationship between maturity and yield for fixed-income securities. STATISTICAL TERMINOLOGY * NUMBER OF SECURITIES -- the number of different securities held by a fund on a given date. * WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a fixed-income portfolio to interest rate changes. WAM indicates the average time until the securities in the portfolio mature, weighted by dollar amount. * AVERAGE DURATION -- a time-weighted average of the interest and principal payments of the securities in a portfolio. As the duration of a portfolio increases, so does the impact of a change in interest rates on the value of the portfolio. * EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage of average net assets. Shareholders pay an annual fee to the investment manager for investment advisory and management services. The expenses and fees are deducted from fund income, not from each shareholder account. (See Note 2 in the Notes to Financial Statements.) TYPES OF MUNICIPAL SECURITIES * COPS (CERTIFICATES OF PARTICIPATION)/ LEASES --securities issued to finance public property improvements (such as city halls and police stations) and equipment purchases. Certificates of participation represent long-term debt obligations, but leases have a higher risk profile because they require annual appropriation. * GO (GENERAL OBLIGATION) BONDS -- securities backed by the taxing power of the issuer. * LAND-SECURED BONDS -- securities such as Mello-Roos bonds and 1915 Act bonds that are issued to finance real estate development projects. * PREREFUNDED/ETM BONDS -- securities refinanced or escrowed to maturity by the issuer because of their premium coupons (higher-than-market interest rates). These bonds tend to have higher credit ratings because they are backed by Treasury securities. * REVENUE BONDS -- securities backed by revenues from sales taxes or from a specific project, system, or facility (such as a hospital, electric utility, or water system). 36 1-800-345-2021 Glossary - -------------------------------------------------------------------------------- (Continued) FUND CLASSIFICATIONS INVESTMENT OBJECTIVE The investment objective may be based on the fund's objective as stated in its prospectus or fund profile, or the fund's categorization by independent rating organizations based on its management style. * CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for relative stability of principal and liquidity. * INCOME -- offers funds that can provide current income and competitive yields, as well as a strong and stable foundation and generally lower volatility levels than stock funds. * GROWTH & INCOME -- offers funds that emphasize both growth and income provided by either dividend-paying equities or a combination of equity and fixed-income securities. * GROWTH -- offers funds with a focus on capital appreciation and long-term growth, generally providing high return potential with corresponding high price fluctuation risk. RISK The classification of funds by risk category is based on quantitative historical measures as well as qualitative prospective measures. It is not intended to be a precise indicator of future risk or return levels. The degree of risk within each category can vary significantly, and some fund returns have historically been higher than more aggressive funds or lower than more conservative funds. Please be aware that the fund's category may change over time. Therefore, it is important that you read a fund's prospectus or fund profile carefully before investing to ensure its objectives, policies and risk potential are consistent with your needs. * CONSERVATIVE -- these funds generally provide lower return potential with either low or minimal price fluctuation risk. * MODERATE -- these funds generally provide moderate return potential with moderate price fluctuation risk. * AGGRESSIVE -- these funds generally provide high return potential with corresponding high price fluctuation risk. www.americancentury.com 37 Notes - -------------------------------------------------------------------------------- 38 1-800-345-2021 Notes - -------------------------------------------------------------------------------- www.americancentury.com 39 Notes - -------------------------------------------------------------------------------- 40 1-800-345-2021 [inside back cover] =============================================================================== INVESTMENT OBJECTIVE - CAPITAL PRESERVATION =============================================================================== RISK LEVEL - CONSERVATIVE TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS Premium Capital Reserve FL Municipal Money Market Prime Money Market CA Municipal Money Market Premium Government Reserve CA Tax-Free Money Market Government Agency Tax-Free Money Market Money Market Capital Preservation =============================================================================== INVESTMENT OBJECTIVE - INCOME =============================================================================== RISK LEVEL - AGGRESSIVE TAXABLE BONDS TAX-FREE BONDS Target 2025* CA High-Yield Municipal Target 2020* High-Yield Municipal Target 2015* Target 2010* High-Yield International Bond RISK LEVEL - MODERATE TAXABLE BONDS TAX-FREE BONDS Long-Term Treasury CA Long-Term Tax-Free Target 2005* Long-Term Tax-Free Bond CA Insured Tax-Free Premium Bond RISK LEVEL - CONSERVATIVE TAXABLE BONDS TAX-FREE BONDS Intermediate-Term Bond CA Intermediate-Term Tax-Free Intermediate-Term Treasury AZ Intermediate-Term Municipal GNMA FL Intermediate-Term Municipal Inflation-Adjusted Treasury Intermediate-Term Tax-Free Limited-Term Bond CA Limited-Term Tax-Free Target 2000* Limited-Term Tax-Free Short-Term Government Short-Term Treasury =============================================================================== INVESTMENT OBJECTIVE - GROWTH AND INCOME =============================================================================== RISK LEVEL - AGGRESSIVE DOMESTIC EQUITY Small Cap Quantitative Small Cap Value RISK LEVEL - MODERATE ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY Strategic Allocation -- Equity Growth Utilities Aggressive Equity Index Real Estate Balanced Tax-Managed Value Strategic Allocation -- Income & Growth Moderate Value Strategic Allocation -- Large Cap Value Conservative Equity Income =============================================================================== INVESTMENT OBJECTIVE - GROWTH =============================================================================== RISK LEVEL - AGGRESSIVE DOMESTIC EQUITY SPECIALTY INTERNATIONAL New Opportunities Global Gold Emerging Markets Giftrust(reg.tm) International Discovery Vista International Growth Heritage Global Growth Growth Ultra(reg.tm) Select RISK LEVEL - MODERATE SPECIALTY Global Natural Resources The investment objective may be based on the fund's objective as stated in its prospectus or fund profile, or the fund's categorization by independent rating organizations based on its management style. The classification of funds by risk category is based on quantitative historical measures as well as qualitative prospective measures. It is not intended to be a precise indicator of future risk or return levels. The degree of risk within each category can vary significantly, and some fund returns have historically been higher than more aggressive funds or lower than more conservative funds. Please be aware that a fund's category may change over time. Therefore, it is important that you read a fund's prospectus or fund profile carefully before investing to ensure its objectives, policies and risk potential are consistent with your needs.For a definition of fund categories, see the Glossary. * While listed within the Income investment objective, the Target funds do not pay current dividend income. Income dividends are distributed once a year in December. The Target funds are listed in all three risk categories due to the dramatic price volatility investors may experience during certain market conditions. If held to their target dates, however, they can offer a conservative, dependable way to invest for a specific time horizon. Please call 1-800-345-2021 for a prospectus or profile on any American Century fund. These documents contain important information including charges and expenses, and you should read them carefully before you invest or send money. [back cover] [american century logo(reg.sm)] American Century P.O. BOX 419200 KANSAS CITY, MISSOURI 64141-6200 WWW.AMERICANCENTURY.COM INVESTOR RELATIONS 1-800-345-2021 OR 816-531-5575 AUTOMATED INFORMATION LINE 1-800-345-8765 FAX: 816-340-7962 TELECOMMUNICATIONS DEVICE FOR THE DEAF 1-800-634-4113 OR 816-444-3485 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES 1-800-345-6488 AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. KANSAS CITY, MISSOURI THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. - -------------------------------------------------------------------------------- American Century Investments BULK RATE P.O. Box 419200 U.S. POSTAGE PAID Kansas City, MO 64141-6200 AMERICAN CENTURY www.americancentury.com COMPANIES Funds Distributor, Inc. is 9910 the distributor of American Century funds SH-ANN-18085 (c)1999 American Century Services Corporation [front cover] AUGUST 31, 1999 ANNUAL REPORT - ------------------ AMERICAN CENTURY [graphic of stairs] CALIFORNIA HIGH-YIELD MUNICIPAL CALIFORNIA INSURED TAX-FREE [american century logo(reg.sm)] American Century [inside front cover] Y2K TESTING EFFORTS PAY DIVIDENDS IN PREPAREDNESS - -------------------------------------------------------------------------------- Y2K, short for the Year 2000, refers more specifically to the date change from December 31, 1999 to January 1, 2000. This date change is significant for computers because many were originally programmed to process dates with two-character years--99 instead of 1999. When the calendar rolls to 2000, this can create problems for computers programmed this way because they will read the date as "00," and may interpret it as 1900. Most companies have been working to reprogram their computer systems with four-digit years. Reprogramming is very labor-intensive and requires testing to ensure that there are no errors and that all lines of code were successfully changed. Recognizing the possible impact of the Y2K issue, our senior-level Steering Committee, programmers, business partners and Y2K team have been working diligently to make January 1, 2000 a non-event for American Century investors. Currently, our systems have been modified, tested and returned to production, and we have tested our systems with our vendors and business partners. In March and April of this year, we participated in the Security Industry Association's (SIA) industry-wide test and successfully processed transactions for dates up to and beyond 2000. American Century transactions with our partner firms were processed free of Y2K bugs. We also participated in the Market Data Test conducted by the SIA and Financial Information Forum in May. Again, the computer scripts were executed successfully with no Y2K-related errors. In addition, our Y2K team has developed contingency plans. These plans are designed to minimize the impact on our investors and help us maintain operations in the event of any Y2K-related incidents. We have conducted practice drills of contingency scenarios and will continue to refine our plans during the rest of 1999 to respond quickly and effectively so that the date change is as seamless as possible for investors. We expect the Year 2000 to be business as usual at American Century. Year 2000 Readiness Disclosure [left margin] CALIFORNIA HIGH-YIELD MUNICIPAL (BCHYX) - ---------------------------------------- CALIFORNIA INSURED TAX-FREE (BCINX) - ---------------------------------------- TURN TO THE INSIDE BACK COVER OF THIS REPORT TO SEE A LIST OF AMERICAN CENTURY FUNDS CLASSIFIED BY OBJECTIVE AND RISK. RECEIVE YOUR ANNUAL REPORTS ONLINE CHOOSE OUR ELECTRONIC COMMUNICATION PROGRAM Access annual reports, newsletters and prospectuses electronically. All you need is your OnePIN. Don't have a OnePIN? Visit www.americancentury.com and set up your OnePIN by following two easy steps using your automated phone line personal access code. OnePIN opens the door to services that help you stay in control of your money: * MONITOR YOUR INVESTMENTS on your Personal Homepage any time, any day * STAY INFORMED and set up a watch list of securities -- or even a test portfolio * REDUCE CLUTTER IN YOUR MAILBOX by selecting the electronic communication link from your Personal Homepage Set up your OnePIN and choose the electronic communication program today. Questions? Call 1-800-345-2021 or go to www.americancentury.com. Our Message to You - -------------------------------------------------------------------------------- [photo of James E. Stowers III, seated, with James E. Stowers, Jr.] Strong economic growth, increasing inflation anxiety, and rising interest rates set the tone for the U.S. bond market in 1999. These factors helped determine the performance of American Century's California municipal funds for the fiscal year ended August 31, 1999. Municipal bond funds enjoyed gains during the second half of 1998 when interest rates fell and bond markets rallied. Those positive returns were largely negated in 1999, however, as the recovery of overseas economies and unabated U.S. growth reignited inflation fears and sent interest rates soaring. While the Federal Reserve (the Fed--the U.S. central bank) saw fit to cut short-term interest rates three times during the fall of 1998, the Fed raised rates twice during the summer of 1999. Though market behavior and Fed interest rate policy swung from one extreme to the other, one thing that remained remarkably consistent was the performance of the American Century California municipal funds against their peers. All seven of our California municipal money market and bond funds provided higher tax-free yields and lower expenses than the average of their Lipper Inc. peer groups. That's a hallmark of the American Century municipal investment approach. The strength of our municipal investment and credit research teams also contributed to fund performance. The investment and credit teams, as well as fund investors, have benefited from our commitment to build and maintain a talented fund management group. American Century's entire investment management team has doubled in size over the past three years. In addition to strengthening our portfolio and research staff, we've recently made strategic investments in several other financial companies, including Archipelago, Tradepoint Financial Networks, W.R. Hambrecht, and WorldStreet Corporation. These investments demonstrate our active support of the development and use of technologies that improve the efficiencies of capital markets, lower trading costs, and ultimately offer better returns for shareholders. One final note--in the spirit of our ongoing Year 2000 readiness disclosures, we've provided a complete update on our preparations for Y2K on the inside front cover of this report. We understand that our continued diligence in this area is very important to you. As always, we appreciate your continued confidence in American Century. Sincerely, /s/James E. Stowers, Jr. /s/James E. Stowers III James E. Stowers, Jr. James E. Stowers III Chairman of the Board and Founder Vice Chairman of the Board and Chief Executive Officer [right margin] Table of Contents Report Highlights ...................................................... 2 Market Perspective ..................................................... 3 Municipal Credit Review ................................................ 4 CALIFORNIA HIGH-YIELD MUNICIPAL Performance Information ................................................ 5 Management Q&A ......................................................... 6 Yields ................................................................. 6 Portfolio at a Glance .................................................. 6 Top Five Sectors ....................................................... 7 Schedule of Investments ................................................ 8 CALIFORNIA INSURED TAX-FREE Performance Information ................................................ 14 Management Q&A ......................................................... 15 Yields ................................................................. 15 Portfolio at a Glance .................................................. 15 Top Five Sectors ....................................................... 16 Schedule of Investments ................................................ 17 FINANCIAL STATEMENTS Statements of Assets and Liabilities ......................................................... 20 Statements of Operations ............................................... 21 Statements of Changes in Net Assets ....................................................... 22 Notes to Financial Statements .......................................................... 23 Financial Highlights ................................................... 25 Report of Independent Accountants ......................................................... 27 OTHER INFORMATION Background Information Investment Philosophy and Policies ..................................................... 28 Comparative Indices ................................................. 28 Lipper Rankings ..................................................... 28 Investment Team Leaders .......................................................... 28 Credit Rating Guidelines ....................................................... 28 Glossary ............................................................... 29 www.americancentury.com 1 Report Highlights - -------------------------------------------------------------------------------- MARKET PERSPECTIVE * Municipal bond prices sagged under the weight of rising interest rates and weaker demand in the year ended August 31, 1999. * A healthy U.S. economy, better growth overseas, and worries about inflation led the Federal Reserve to raise interest rates twice in 1999. * Short-term bonds, which are least sensitive to rate changes, performed best, while intermediate- and longer-term securities had flat to negative returns. CREDIT REVIEW * A healthy economy and state budget surplus led Standard & Poor's to upgrade California's credit rating. * California produced jobs faster than the national average, and the state's unemployment rate hit a nine-year low in August. * A key to California's economic health has been the "wealth effect"--household incomes and spending have been boosted by the big gains in housing prices and the stock market. CALIFORNIA HIGH-YIELD MUNICIPAL * California High-Yield Municipal continued to perform very well against its peers. Its fiscal year performance put it in the top 5% of its Lipper peer group. (See page 5 for standardized ranking information.) * However, like most other U.S. bond funds, its one-year returns were low. Rising interest rates put downward pressure on bond prices. * The portfolio performed well versus similar funds for two important reasons. First, it was less sensitive (as measured by duration) to rising interest rates. Second, it held a relatively large position in unrated bonds, which generally outperformed other municipal securities. * This fund typically focuses much more on high-yielding, undervalued securities than on changing its interest rate sensitivity. We plan to continue this long-term value strategy as long as the California economy remains strong CALIFORNIA INSURED TAX-FREE * Higher interest rates weighed on fund returns in 1999. The fund's relatively long duration, which boosted performance when interest rates fell in 1998, limited returns this year. * The fund produced more current income than the average California insured municipal fund, with a 30-day SEC yield in the top 11% of the peer group, according to Lipper. * We have a generally positive outlook for California municipal bonds--their yields are attractive relative to Treasurys, and we think we'll continue to see low inflation and modest economic growth. * We'll likely keep duration a little long while continuing to emphasize the same value-oriented approach that's helped the fund to its solid long-term performance. [left margin] CALIFORNIA HIGH-YIELD MUNICIPAL (BCHYX) TOTAL RETURNS: AS OF 8/31/99 6 Months -2.09%* 1 Year 0.26% 30-DAY SEC YIELD: 5.12% INCEPTION DATE: 12/30/86 NET ASSETS: $342.0 million CALIFORNIA INSURED TAX-FREE (BCINX) TOTAL RETURNS: AS OF 8/31/99 6 Months -3.85%* 1 Year -1.71% 30-DAY SEC YIELD: 4.73% INCEPTION DATE: 12/30/86 NET ASSETS: $211.9 million * Not annualized. Investment terms are defined in the Glossary on pages 29-30. 2 1-800-345-2021 Market Perspective from Randall W. Merk - -------------------------------------------------------------------------------- [photo of Randall W. Merk] Randall W. Merk, chief investment officer of fixed income MUNICIPAL BOND PERFORMANCE Municipal bond prices came under pressure during the year ended August 31, 1999, as improving global economic conditions caused inflation anxiety. But the fiscal year didn't begin that way. Bonds rallied in the second half of 1998 when recessionary expectations surged due to financial crises in Asia, Russia, and Latin America. The Federal Reserve (the Fed) bolstered the bond market when it cut interest rates three times during the fall of 1998 to stem overseas problems and shore up U.S. economic growth. Early 1999 brought evidence that the Fed's actions worked. The U.S. economy remained robust, and Japan appeared on the mend. By the spring, recessionary expectations gave way to inflation fears. Changing market sentiment and rate hikes in June and August by the Fed pushed bond yields higher, taking their toll on bond prices. LONGER-TERM BONDS LAG Long-term bond yields rose the most and their prices dipped furthest, while shorter-term bonds generally posted modest gains. (See the accompanying chart.) Long-term bonds stumbled because of their greater interest rate sensitivity, though falling demand also figured heavily in their losses. Bargain-hunting insurance companies--who had helped boost long-term municipal bonds in the first half of the fiscal year--later turned their backs on them. They gravitated instead to corporate bonds, which offered low prices and attractive yields as companies swamped the market with new debt to avoid potential fourth-quarter Year 2000 problems. Meanwhile, lower interest rate sensitivity and steady demand helped support shorter-term bonds. SECTOR OVERVIEW Although the strong economic environment created a stormy backdrop for bonds, it contained a silver lining. Tax collections and municipal revenues in California soared, boosting the creditworthiness of many municipal issuers in the state. Among the biggest beneficiaries were land-based bonds, buoyed by the strong real estate environment, and general obligation bonds, which are backed by tax collections. Confidence in the economy and investors' appetite for higher yields were reflected in a narrowing yield gap between lower quality municipal bonds (those rated BBB) and higher-rated (A to AAA) bonds, causing BBBs to outperform AAAs. On the flip side, interest rate-sensitive discount bonds--which sell below face value--and hospital bonds performed poorly. [right margin] "MUNICIPAL BOND PRICES CAME UNDER PRESSURE DURING THE YEAR ENDED AUGUST 31, 1999." MUNICIPAL BOND INDEX RETURNS FOR THE YEAR ENDED AUGUST 31, 1999 LEHMAN THREE-YEAR MUNICIPAL INDEX 2.92% LEHMAN FIVE-YEAR GENERAL OBLIGATION INDEX 2.21% LEHMAN LONG-TERM MUNICIPAL INDEX -2.14% Source: Lipper Inc., Russell/Mellon Analytical [line graph - data below] RISING MUNICIPAL YIELD CURVES 8/31/98 2/28/99 8/31/99 YEARS TO MATURITY 1 3.41% 3.05% 3.59% 2 3.57% 3.30% 3.94% 3 3.68% 3.45% 4.15% 4 3.78% 3.58% 4.27% 5 3.87% 3.70% 4.39% 6 3.95% 3.81% 4.49% 7 4.03% 3.91% 4.59% 8 4.11% 3.99% 4.69% 9 4.19% 4.07% 4.79% 10 4.27% 4.15% 4.89% 11 4.35% 4.25% 4.97% 12 4.43% 4.35% 5.05% 13 4.51% 4.45% 5.13% 14 4.59% 4.55% 5.20% 15 4.66% 4.65% 5.27% 16 4.69% 4.70% 5.31% 17 4.72% 4.75% 5.35% 18 4.75% 4.80% 5.39% 19 4.79% 4.84% 5.43% 20 4.83% 4.88% 5.47% 21 4.83% 4.89% 5.47% 22 4.83% 4.90% 5.48% 23 4.83% 4.91% 5.48% 24 4.84% 4.92% 5.49% 25 4.84% 4.92% 5.50% 26 4.84% 4.92% 5.50% 27 4.85% 4.93% 5.51% 28 4.85% 4.93% 5.51% 29 4.86% 4.94% 5.52% 30 4.86% 4.94% 5.52% Source: Bloomberg Financial Markets www.americancentury.com 3 California Municipal Credit Review - -------------------------------------------------------------------------------- California's vibrant economy solidified municipal credit conditions during the year ended August 31, 1999. A long list of positive economic data and a favorable political climate spurred a credit upgrade for the state, which should continue to benefit from its current strength for the next two or three years. SUNNY ECONOMIC WEATHER By most accounts, several key segments of California's economy continued to grow faster than the national average. In fact, California showed few signs of the pain it was supposed to suffer due to the economic weakness of many of the state's Pacific Rim trading partners. Instead, state unemployment hit a nine-year low of 5.1% in August, and the 2.8% rate of job growth outpaced the national average. Personal bankruptcy filings declined at twice the national average, house prices increased at nearly double the national rate, and sales of existing single-family homes reached a record pace. On top of that, with California's governor and assembly working in unison, the state's budget--including a healthy surplus--was passed on time for the first time in seven years. Based on these improved financial and political conditions, Standard & Poor's upgraded the state's general obligation bond rating to AA- during the summer. WHAT'S BEHIND THE GOLDEN GLOW While high-technology hardware businesses such as semiconductors struggled with offshore competition, other areas such as software, multimedia, biotechnology, and Internet-related businesses were very strong. Construction--notably in affordable housing in Central California--and service industries have been particularly solid. Plus, even though tourism dollars from Asia dropped off as expected, California was able to take up the slack by attracting tourists from inside the U.S. In addition, as much as 1% was added to California's growth rate by what is known as the "wealth effect"--household income and spending increases due to the bull market in stocks, the cashing in of stock options, and the sale of single-family homes that have skyrocketed in value. The wealth effect was particularly strong in Northern California. CLOUDS ON THE HORIZON? Some observers believe California has reached a peak in its current economic cycle. There are questions as to the sustainability of the wealth effect due to the possibility of a stock market pullback caused by higher interest rates and weaker corporate profits. In addition, rapidly increasing property values have led to some consumer price inflation. However, we don't believe these influences will cause any near-term problems in California. The state stands to benefit from any rebound in foreign trade and the expansion of the Internet. Those are two of the key reasons why we think that there are at least two or three years of economic strength ahead. [left margin] "A LONG LIST OF POSITIVE ECONOMIC DATA AND A FAVORABLE POLITICAL CLIMATE SPURRED A CREDIT UPGRADE FOR THE STATE." [line graph - data bel0w] FALLING UNEMPLOYMENT RATES California U.S. 1991 7.7% 6.9% 1992 9.3% 7.8% 1993 9.4% 7.0% 1994 8.7% 6.1% 1995 7.9% 5.6% 1996 7.2% 5.3% 1997 6.3% 5.0% 1998 5.9% 4.5% 1999 5.4% 4.3% Source: Employment Development Department, Bureau of Labor Statistics "SEVERAL KEY SEGMENTS OF CALIFORNIA'S ECONOMY CONTINUED TO GROW FASTER THAN THE NATIONAL AVERAGE." 4 1-800-345-2021 California High-Yield Municipal--Performance - -------------------------------------------------------------------------------- TOTAL RETURNS AS OF AUGUST 31, 1999 CALIFORNIA HIGH-YIELD LEHMAN LONG-TERM CALIFORNIA MUNICIPAL DEBT FUNDS(2) MUNICIPAL MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING ================================================================================ 6 MONTHS(1) -2.09% -4.29% -3.52% -- 1 YEAR 0.26% -2.14% -1.49% 4 OUT OF 106 ================================================================================ AVERAGE ANNUAL RETURNS 3 YEARS 6.64% 6.35% 5.22% 4 OUT OF 90 5 YEARS 7.00% 7.07% 5.71% 3 OUT OF 72 10 YEARS 7.47% 7.92% 6.65% 2 OUT OF 35 The fund's inception date was 12/30/86. (1) Returns for periods less than one year are not annualized. (2) According to Lipper Inc., an independent mutual fund ranking service. See pages 28-29 for more information about returns, the comparative index, and Lipper fund rankings. [mountain graph - data below] GROWTH OF $10,000 OVER 10 YEARS Value on 8/31/99 California High-Yield Municipal $20,548 Lehman Long-Term Municipal Index $21,440 California High-Yield Lehman Long-Term Municipal Municipal Index DATE VALUE VALUE 8/31/1989 $10,000 $10,000 8/31/1990 $10,577 $10,611 8/31/1991 $11,713 $12,040 8/31/1992 $12,897 $13,556 8/31/1993 $14,523 $15,557 8/31/1994 $14,650 $15,238 8/31/1995 $15,689 $16,675 8/31/1996 $16,947 $17,822 8/31/1997 $18,745 $19,826 8/31/1998 $20,497 $21,909 8/31/1999 $20,548 $21,440 The graph at left shows the growth of a $10,000 investment in the fund over 10 years, while the graph below shows the fund's year-by-year performance. The Lehman Long-Term Municipal Index is provided for comparison in each graph. California High-Yield Municipal's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. [bar graph - data below] ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED AUGUST 31) California High-Yield Lehman Long-Term Municipal Municipal Index DATE RETURN RETURN 8/31/1990 5.77% 6.11% 8/31/1991 10.75% 13.47% 8/31/1992 10.11% 12.60% 8/31/1993 12.61% 14.76% 8/31/1994 0.87% -2.05% 8/31/1995 7.09% 9.43% 8/31/1996 8.02% 6.88% 8/31/1997 10.61% 11.26% 8/31/1998 9.35% 10.51% 8/31/1999 0.26% -2.14% www.americancentury.com 5 California High-Yield Municipal--Q&A - -------------------------------------------------------------------------------- [photo of Steven Permut] An interview with Steven Permut, a portfolio manager on the California Tax-Free and Municipal funds investment team. HOW DID CALIFORNIA HIGH-YIELD MUNICIPAL PERFORM DURING ITS FISCAL YEAR ENDED AUGUST 31, 1999? California High-Yield Municipal continued to perform very well against its peers. The fund returned 0.26%, compared with the -1.49% average total return of the 106 "California Municipal Debt Funds" tracked by Lipper Inc. That performance put the portfolio in the top 5% of the Lipper group for the fiscal year. In addition, for the key long-term performance periods ended August 31, 1999, California High-Yield Municipal consistently placed in the top 10% of its peer group. But that can't obscure the fact that 1999 has been a difficult year for bonds. As a result, the fund's absolute returns, like the returns for most U.S. bond funds during the period, were low. But on the bright side, the portfolio provided a very attractive 30-day SEC yield. As of August 31, 1999, the SEC yield was 5.12%, compared with the 4.26% average yield of the Lipper group. WHAT HELPED BOOST CALIFORNIA HIGH-YIELD MUNICIPAL'S PERFORMANCE? Two important factors. The portfolio's duration--a measure of its sensitivity to changes in interest rates--was shorter than the average duration of its peers. That meant that California High-Yield Municipal was hurt less as interest rates rose during the period. In addition, the fund held a more substantial weighting in higher-yielding unrated bonds than most of its competitors. These bonds provided superior performance. WHAT SPURRED THE SUPERIOR PERFORMANCE OF UNRATED BONDS? At the beginning of the period, there was concern about continued economic weakness in Asia and its impact on California's economy. Bonds of low credit quality, including unrated bonds, suffered from this anxiety. However, the Asian problems did not hurt the California economy as much as expected, and we never saw a weakening in the prospects for our unrated holdings. As unrated bonds held their value, the yield differential between unrated and rated California municipal bonds narrowed significantly when interest rates rose. Unrated bonds basically enjoyed an increase in value relative to rated securities. By overweighting unrated bonds--our unrated bond holdings increased from 45% to 57% of the portfolio over the past six months--and using our experienced credit team to help us avoid credit problems, California High-Yield Municipal outpaced most of its competition. [left margin] "CALIFORNIA HIGH-YIELD MUNICIPAL CONTINUED TO PERFORM VERY WELL AGAINST ITS PEERS." YIELDS AS OF AUGUST 31, 1999 30-DAY SEC YIELD 5.12% 30-DAY TAX-EQUIVALENT YIELDS 34.70% TAX BRACKET 7.84% 37.42% TAX BRACKET 8.18% 41.95% TAX BRACKET 8.82% 45.22% TAX BRACKET 9.35% PORTFOLIO AT A GLANCE 8/31/99 8/31/98 NUMBER OF SECURITIES 155 146 WEIGHTED AVERAGE MATURITY 19.3 YRS 20.8 YRS AVERAGE DURATION 7.7 YRS 7.9 YRS EXPENSE RATIO 0.54% 0.54% Investment terms are defined in the Glossary on pages 29-30. 6 1-800-345-2021 California High-Yield Municipal--Q&A - -------------------------------------------------------------------------------- (Continued) AMONG UNRATED SECURITIES, WHAT WERE THE MOST IMPORTANT SECTORS? Land-secured bonds were fertile ground for us. This is a sector that we've continually overweighted relative to its representation in the California municipal market. On August 31, 1999, land-secured deals made up about 3-4% of the market. The portfolio, on the other hand, had 33% of its assets invested in land-secured investments, with an additional 10% in housing revenue bonds. Land-secured bonds are typically issued to support residential or commercial real estate development. As the land is developed and ownership diversifies, the credit risk diminishes. There's less chance that one participant's credit problems will keep bondholders from receiving timely interest and principal payments, and the credit quality of the land-secured bonds improves. So do their prices, and that's when we typically sell the bonds. Land-secured bonds performed particularly well because of the strength of the California economy and a dramatic increase in property values. Within this sector, we focused primarily on affordable single-family residential districts in some of the economically healthier regions of the state, such as the San Francisco Bay Area, Sacramento, southern Orange County and northern San Diego County. WHAT ARE THE POTENTIAL RISKS ASSOCIATED WITH DEDICATING SUCH A LARGE PART OF THE PORTFOLIO TO LAND-SECURED BONDS? If the economy were to weaken, real estate would be one of the first sectors that would be hurt. Therefore, it's clearly a sector to overweight only in a period of strong or improving credit quality. If economic problems appeared, we would try to reduce our holdings in land-secured bonds, particularly those issued by districts in the early stages of development. We'd also likely increase holdings in essential service revenue bonds, which are typically least affected by the economic cycle. In addition, it's important to remember two factors. First, we benefit from the local expertise of our municipal credit analysts, which helps them pick promising investments, watch over them, and sell them if problems arise. Second, our credit expertise spills into other unrated areas that have provided significant yield and benefited the portfolio, including hotels, mobile home parks, healthcare facilities for the elderly, and hospitals. AS 1999 WINDS DOWN, WHAT IS YOUR INTEREST RATE OUTLOOK AND HOW WILL THAT AFFECT YOUR STRATEGY? Inflation still appears to be under control, and there's evidence that the U.S. economy may be slowing. But the outlook remains murky--interest rates could continue to rise as investors react to economic reports perceived as potentially inflationary, or to saber rattling by the Fed. Looking at portfolio strategy, we intend to keep California High-Yield Municipal's duration neutral, avoiding a significant bet on the direction of interest rates. Instead, we'll aim to add value through our security selection process, picking the bonds we think have the best long-term credit fundamentals and offer the most appealing yields. This is the same strategy that has been consistently successful for us. [right margin] PORTFOLIO COMPOSITION BY CREDIT RATING % OF FUND INVESTMENTS AS OF AS OF 8/31/99 2/28/99 AAA 19% 28% AA 3% 2% A 11% 13% BBB 10% 12% UNRATED 57% 45% Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 28 for more information. TOP FIVE SECTORS (AS OF 8/31/99) % OF FUND INVESTMENTS LAND BASED 33% TAX ALLOCATION REVENUE 12% PREREFUNDED 11% HOUSING REVENUE 10% COPS/LEASES 9% TOP FIVE SECTORS (AS OF 2/28/99) % OF FUND INVESTMENTS LAND BASED 27% COPS/LEASES 15% TAX ALLOCATION REVENUE 11% TRANSPORTATION REVENUE 7% PREREFUNDED 7% Investment terms are defined in the Glossary on pages 29-30. www.americancentury.com 7 California High-Yield Municipal--Schedule of Investments - -------------------------------------------------------------------------------- This schedule lists all investments owned by the fund, as well as each security's market value, as of the last day of the reporting period. AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 96.2% $ 2,000,000 Alameda Public Financing Auth. Local Agency Rev., Series 1996 A, (Community Facility District No. 1), 7.00%, 8/1/19 $ 2,142,840 1,000,000 American Canyon Joint Powers Financing Auth. Lease Rev., (Civic-Recreation Facilities), 6.40%, 6/1/22 1,014,840 1,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Eskaton Gold River Lodge), 6.375%, 11/15/15 986,480 3,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Eskaton Gold River Lodge), 6.375%, 11/15/28 2,890,200 3,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Rhoda Haas Goldman Plaza), 5.125%, 5/15/23 (California Mortgage Insurance) 2,735,220 700,000 Bishop, Escalon & Lemoore Cities COP, Series 1991 A, 7.70%, 5/1/11 728,735 1,800,000 Blythe Redevelopment No. 1 Tax Allocation, 5.80%, 5/1/28 1,725,930 7,000,000 Bonita Canyon Public Facilities Financing Auth. Special Tax, (Community Facilities District No. 98-1), 5.375%, 9/1/28 6,257,160 3,000,000 Brawley COP, (Water System Improvement), 6.40%, 12/1/06, Prerefunded at 102% of Par(1) 3,393,480 1,250,000 Brea Community Facilities District Special Tax, (Olinda Heights No. 1997-1), 5.80%, 9/1/28 1,193,575 2,000,000 Brea Olinda Unified School District Community Facilities Special Tax, (No. 95-1), 5.75%, 9/1/28 1,888,520 1,540,000 Brisbane COP, (Capital Improvement Refinancing), 6.00%, 4/1/18 1,533,932 1,000,000 Cabrillo Unified School District GO, Series 1996 A, 5.95%, 8/1/17 (AMBAC)(2) 366,280 500,000 California Educational Facilities Auth. Rev., (California Lutheran University), 7.375%, 12/1/00, Prerefunded at 102% of Par(1) 531,265 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 California Educational Facilities Auth. Rev., (Mills College), 6.875%, 9/1/02, Prerefunded at 102% of Par(1) $ 1,096,850 2,330,000 California Educational Facilities Auth. Rev., (Santa Clara University), 5.25%, 9/1/26 2,200,149 1,000,000 California Educational Facilities Auth. Rev., (University of San Diego), 4.98%, 10/1/15 (AMBAC)(2) 412,330 1,000,000 California Educational Facilities Auth. Rev., Series 1993 B, (Pooled College & University Financing), 6.125%, 6/1/09 1,034,080 4,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 7.15%, 10/1/12 (AMBAC)(2) 1,990,800 240,000 California Housing Finance Agency Home Mortgage Rev., Series 1990 C, 7.60%, 8/1/30 244,476 1,955,000 California Housing Finance Agency Home Mortgage Rev., Series 1997 B, 6.10%, 2/1/28 (MBIA) 1,974,394 1,500,000 California Housing Finance Agency Home Mortgage Rev., Series 1997 E, 6.10%, 8/1/29 (AMBAC) 1,527,825 3,500,000 California Housing Finance Agency Multi-Unit Mortgage Rev., Series 1992 C, 6.875%, 8/1/24 3,675,035 3,455,000 California Housing Finance Agency Multifamily Mortgage Rev., Series 1997 A, 5.95%, 8/1/28 (MBIA) 3,489,515 2,500,000 California Housing Finance Agency Single Family Mortgage Rev., Series 1997 A-1, 5.95%, 8/1/16 2,556,625 2,845,000 California Housing Finance Agency Single Family Mortgage Rev., Series 1997 C-2, 5.65%, 2/1/25 2,737,317 400,000 California Public Capital Improvements Financing Auth. Rev., Series 1988 A, (Pooled Project), 8.50%, 3/1/18 407,232 7,000,000 California Public Works Board Lease Rev. COP, Series 1998 A, (California Community Colleges), 5.25%, 12/1/14 6,894,790 2,000,000 California Public Works Board Lease Rev., Series 1993 D, (Department of Corrections State Prisons), 5.25%, 6/1/15 (FSA) 1,986,080 8 1-800-345-2021 See Notes to Financial Statements California High-Yield Municipal--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,755,000 California Rural Home Mortgage Financing Auth. Single Family Mortgage Rev., Series 1999 A, 5.20%, 6/1/30 (GNMA/FNMA) $ 4,005,233 1,555,000 California State and Local Government Financing Auth. Rev., (Marin Valley Mobile Country-B), 7.50%, 10/1/24 (Acquired 3/13/97, Cost $1,555,000)(3) 1,587,904 1,000,000 California State GO, 4.50%, 12/1/24 (FGIC) 833,900 3,665,000 California State GO, 6.75%, 9/1/09(2) 2,224,692 2,850,000 California Statewide Communities Development Auth. COP, (St. Joseph Health System Obligation Group), 5.25%, 7/1/11 2,818,878 3,250,000 California Statewide Communities Development Auth. COP, (Sonoma County Indian Health), 6.40%, 9/1/29 3,116,555 7,000,000 California Statewide Communities Development Auth. Lease Rev., Series 1997 A, (United Airlines), 5.70%, 10/1/33(4) 6,510,140 1,000,000 California Statewide Communities Development Auth. Rev. COP, Series 1996 A, (Insurance Health Facility, San Gabriel Valley), 5.50%, 9/1/06, Prerefunded at 102% of Par (California Mortgage Insurance)(1) 985,460 1,000,000 Calleguas-Las Virgines Public Financing Auth. Installment Purchase Rev., (Las Virgines Municipal Water District), 5.00%, 11/1/23 (FSA) 911,740 2,500,000 Capistrano Unified School District Community Facilities Special Tax, (No. 98-2 Ladera), 5.70%, 9/1/20 2,364,125 3,520,000 Central Valley Schools Financing Auth. Tax and Rev. Anticipation Notes, 3.50%, 1/27/00 3,517,114 155,000 Clayton Improvement Bond Act 1915 Special Assessment, (Oakhurst Assessment District), 8.00%, 9/2/14 160,865 40,000 Clayton Improvement Bond Act 1915 Special Assessment, Series 1988 A, (Oakhurst Assessment District), 8.40%, 9/2/10 41,647 4,500,000 Colton Public Financing Auth. Rev., (Electric System), 7.50%, 10/1/03, Prerefunded at 101% of Par(1) 5,090,580 750,000 Contra Costa County Public Financing Auth. Tax Allocation Rev., Series 1992 A, 7.10%, 8/1/22 806,580 Principal Amount Value - -------------------------------------------------------------------------------- $ 670,000 Corcoran COP, 8.75%, 6/1/16 (Acquired 4/28/92, Cost $670,000)(3) $ 706,361 1,750,000 Corona Community Facilities District Special Tax, (Eagle Glen), 5.875%, 9/1/23 1,686,842 1,000,000 Davis Community Facility District No. 1991-2 Special Tax, Series 1992 B, 7.80%, 9/1/02, Prerefunded at 103% of Par(1) 1,131,420 1,500,000 Del Mar Race Track Auth. Rev., 6.20%, 8/15/11 1,572,345 4,500,000 El Dorado County Special Tax, (Community Facilities District No. 1992-1), 5.60%, 9/1/09 4,454,235 275,000 Fairfield Housing Auth. Rev., (Creekside Estates), 5.50%, 9/1/12 264,869 300,000 Fairfield Housing Auth. Rev., (Creekside Estates), 5.55%, 9/1/13 288,432 340,000 Fairfield Housing Auth. Rev., (Creekside Estates), 5.55%, 9/1/14 326,305 1,215,000 Fairfield Housing Auth. Rev., (Creekside Estates), 5.625%, 9/1/23 1,153,011 3,400,000 Fairfield Redevelopment Agency Tax Allocation, 5.00%, 8/1/04 3,325,336 4,000,000 Folsom Public Financing Auth. Rev., Series 1997 A, 6.875%, 9/2/19 4,127,320 2,000,000 Folsom Special Tax, (Community Facilities District No. 11), 5.65%, 9/1/18 1,881,380 1,750,000 Folsom Special Tax, (Community Facilities District No. 11), 5.75%, 9/1/23 1,649,200 2,495,000 Folsom Special Tax, (Community Facilities District No. 7), 5.75%, 9/1/14 2,401,687 2,500,000 Folsom Special Tax, (Community Facilities District No. 7), 6.00%, 9/1/24 2,432,250 1,500,000 Folsom Special Tax, (Community Facilities District No. 7), 7.25%, 9/1/21 1,590,930 2,500,000 Fontana Redevelopment Agency Tax Allocation, Series 1994 B, (Jurupa Hills), 7.70%, 1/1/05, Prerefunded at 102% of Par(1) 2,916,750 1,040,000 Foothill-De Anza Community College District COP, (Campus Center), 7.35%, 9/1/03, Prerefunded at 100% of Par(1) 1,159,683 2,500,000 Foster City Redevelopment Agency Tax Allocation, (Metro Center), 6.75%, 9/1/20 2,661,000 1,770,000 Galt Capital Improvements Auth. Rev., (Wastewater), 5.25%, 9/1/16 1,648,472 See Notes to Financial Statements www.americancentury.com 9 California High-Yield Municipal--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,185,000 Gateway Improvement Auth. Rev., Series 1995 A, (Marin City Community Facility), 7.75%, 9/1/05, Prerefunded at 102% of Par(1) $ 1,409,569 1,520,000 Glendale Health Facilities Rev., Series 1995 A, (Memorial Hospital and Health Center), 5.625%, 11/15/15 (Connie Lee) 1,534,774 1,250,000 High Desert Memorial Health Care District Rev., 5.50%, 10/1/15 1,158,900 2,000,000 Industry Urban Redevelopment Agency Tax Allocation, (Project 3), 6.90%, 11/1/16 2,122,520 2,000,000 La Mirada Redevelopment Agency Special Tax Rev., (Community Facilities District No. 89-1), 5.70%, 10/1/20 1,882,880 4,250,000 Lake Elsinore School Financing Auth. Rev., (Horsethief Canyon), 5.625%, 9/1/16 4,008,218 1,000,000 Lake Elsinore School Financing Auth. Rev., 6.125%, 9/1/19 1,007,560 1,000,000 Lake Elsinore Unified School District Community Facilities Special Tax, (No. 88-1), 8.25%, 9/1/01, Prerefunded at 102% of Par(1) 1,100,000 1,000,000 Long Beach Industrial Development Rev., Series 1998 A, (CSU Foundation), 5.25%, 2/1/13 957,690 2,000,000 Los Angeles Community Facilities District Special Tax, (Cascades Business Park), 6.40%, 9/1/22 2,026,500 3,230,000 Los Angeles County Community Facilities District No. 7 Special Tax, Series 1999 A, 6.00%, 9/1/29 3,127,544 70,000 Los Angeles County Single Family Mortgage Rev., (GNMA Mortgage, Issue B), 9.00%, 12/1/20 (GNMA) 70,626 1,000,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1991 B, 6.50%, 7/1/13 1,054,080 10,000 Los Angeles Home Mortgage Rev., 9.00%, 6/15/18 10,106 2,150,000 Los Angeles State Building Auth. Lease Rev. COP, Series 1993 A, 5.625%, 5/1/11 2,252,985 3,000,000 Los Angeles Unified School District COP, Series 1996 A, 5.50%, 10/1/16 (FSA) 3,011,550 4,145,000 Milpitas Improvement Bond Act 1915 Special Assessment, (Local Improvement District 18), 5.65%, 9/2/14 3,974,350 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,000,000 Milpitas Improvement Bond Act 1915 Special Assessment, Series 1996 A, (Local Improvement District 18), 6.75%, 9/2/16 $ 3,119,580 2,020,000 Milpitas Improvement Bond Act 1915 Special Assessment, Series 1998 A, (Local Improvement District 18), 5.85%, 9/2/18 1,935,625 2,000,000 Novato Community Facility District No. 1 Special Tax, (Vintage Oaks), 7.20%, 8/1/15 2,124,760 4,930,000 Oceanside Mobile Home Park Financing Auth. Rev., (Laguna Vista Mobile Estates), 5.80%, 3/1/28 4,744,139 1,000,000 Orange County Community Facilities District Special Tax, Series 1993 A, (No. 87-5E), 7.30%, 8/15/02, Prerefunded at 102% of Par(1) 1,105,430 2,900,000 Palomar Pomerado Health Care District COP, (Indian Health Council Inc.), 6.25%, 10/1/29 2,724,724 1,000,000 Pioneer Union Elementary School District GO, 7.50%, 8/1/14 1,039,760 1,645,000 Pittsburg Infrastructure Financing Auth. Rev. Improvement Special Assessment, Series 1998 A, 5.55%, 9/2/16 1,557,552 3,500,000 Pittsburg Redevelopment Agency Tax Allocation, (Los Medanos Community Development), 6.25%, 8/1/26(4) 3,610,635 5,000,000 Pomona Improvement Bond Act 1915, (Rio Rancho Assessment District), 7.50%, 9/2/21 5,278,200 475,000 Pomona Public Financing Auth. Rev., Series 1994 L, (Southwest Pomona Redevelopment), 5.70%, 2/1/04, Prerefunded at 102% of Par(1) 509,841 1,025,000 Pomona Public Financing Auth. Rev., Series 1994 L, (Southwest Pomona Redevelopment), 5.70%, 2/1/13 1,043,378 1,955,000 Poway Community Facilities District Special Tax, (No. 88-1, Parkway Business Center), 6.75%, 8/15/15 2,065,790 2,000,000 Poway Redevelopment Agency Tax Allocation, (Paguay Redevelopment), 4.75%, 12/15/03 1,964,900 2,250,000 Rancho Mirage Joint Powers Financing Auth. COP, (Eisenhower Memorial Hospital), 7.00%, 3/1/02, Prerefunded at 102% of Par(1) 2,447,482 10 1-800-345-2021 See Notes to Financial Statements California High-Yield Municipal--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,815,000 Redondo Beach Public Financing Auth. Rev., (South Bay Center Redevelopment), 7.125%, 7/1/26 $ 1,946,787 1,000,000 Richmond Joint Powers Financing Auth. Rev. COP, Series 1995 A, 5.25%, 5/15/13 975,600 500,000 Roseville Community Facilities District No. 2 Special Tax, 8.25%, 9/1/00, Prerefunded at 102% of Par(1) 531,695 2,350,000 Roseville Special Tax, (Central Community District No. 1), 4.85%, 9/1/03 2,319,802 2,720,000 Roseville Special Tax, (Central Community District No. 1), 5.20%, 9/1/06 2,663,859 4,250,000 Roseville Special Tax, (Central Community District No. 1), 5.80%, 9/1/17 4,096,150 5,200,000 Roseville Special Tax, (Roseville Community Facilities District No. 1), 5.75%, 9/1/23 4,900,480 6,000,000 Sacramento City Financing Auth. Rev., Series 1999 A, (Convention Center Hotel), 6.25%, 1/1/30 5,784,840 2,230,000 Sacramento County Improvement Bond Act 1915 Special Assessment, (Sunrise/Cordova Reassessment), 5.20%, 9/2/08 2,179,446 2,200,000 Sacramento County Improvement Bond Act 1915 Special Assessment, (Sunrise/Cordova Reassessment), 5.30%, 9/2/09 2,144,560 635,000 Sacramento County Special Tax, (Community Facilities District No. 1), 5.60%, 9/1/07 640,658 645,000 Sacramento County Special Tax, (Community Facilities District No. 1), 5.70%, 9/1/08 652,101 2,250,000 Sacramento County Special Tax, (Community Facilities District No. 1), 5.70%, 12/1/20 2,130,322 1,500,000 Sacramento County Special Tax, (Community Facilities District No. 1), 6.30%, 9/1/21 1,509,615 3,970,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.25%, 7/1/24 (AMBAC) 3,797,305 750,000 Salinas Improvement Bond Act 1915 Special Assessment, (District No. 90-1, Series C-185), 5.45%, 9/2/13 710,272 1,000,000 Salinas Improvement Bond Act 1915 Special Assessment, (District No. 90-1, Series C-185), 5.50%, 9/2/14 943,910 1,915,000 Salinas Improvement Bond Act 1915 Special Assessment, (Harden Ranch Assessment District 94-1), 6.875%, 9/2/11 1,999,432 Principal Amount Value - -------------------------------------------------------------------------------- $ 5,000,000 San Bernardino County Unified School District GO, Series 1999 A, 5.875%, 8/1/24 (FGIC)(5) $ 5,133,500 1,000,000 San Diego Community Facilities District No. 1 Special Tax, Series 1995 B, 7.10%, 9/1/05, Prerefunded at 102% of Par(1) 1,156,260 1,600,000 San Diego County COP, (Burnham Institute), 6.25%, 9/1/29(5) 1,594,624 3,990,000 San Diego County Improvement Bond Act 1915 GO, 6.25%, 9/2/12 4,074,748 1,500,000 San Francisco City and County Airport Commission International Airport Rev., Issue 12A, 5.90%, 5/1/26 1,510,425 3,000,000 San Francisco City and County Airport Commission International Airport Rev., Issue 20, 4.50%, 5/1/18 (MBIA) 2,600,310 1,250,000 San Francisco City and County Redevelopment Agency Lease Rev., (George R. Moscone), 7.05%, 7/1/13(2) 575,612 7,585,000 San Francisco Community College District COP, Series 1998 A, 5.95%, 1/1/00, Prerefunded at 100% of Par(1) 7,594,178 1,780,000 San Jose Finance Auth. Rev. COP, Series 1993 C, (Convention Center), 6.30%, 9/1/09 1,877,419 5,000,000 San Jose Multifamily Housing Rev., Series 1999 A, (Helzer Courts Apartments), 6.40%, 12/1/41 (LOC: Union Bank of California) 4,816,400 5,000,000 San Marcos Public Facilities Auth. Rev., Series 1993 A, (Civic Center), 6.20%, 8/1/22 5,046,650 10,390,000 San Marcos Public Facilities Auth. Rev., Series 1999 A, (Area No. 3), 6.00%, 8/1/31 9,983,543 1,575,000 San Marcos Redevelopment Agency Tax Allocation Rev., (Area No. 1), 6.00%, 8/1/29 1,494,423 2,365,000 San Marcos Redevelopment Agency Tax Allocation, Series 1998 A, (Affordable Housing), 5.65%, 10/1/28 2,256,305 5,000,000 Santa Ana Financing Auth. Rev., Series 1998 A, (South Harbor Blvd.), 5.00%, 9/1/19 (MBIA) 4,656,000 4,284,000 Santa Clara County Housing Auth. Multifamily Housing Rev., Series 1999 A, (The Willows Apartments), 6.40%, 6/1/30 4,138,515 1,000,000 Santa Clara Improvement Bond Act 1915 Special Assessment, (Convention Center), 5.10%, 9/2/09 969,460 See Notes to Financial Statements www.americancentury.com 11 California High-Yield Municipal--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 Santa Clara Improvement Bond Act 1915 Special Assessment, (Convention Center), 5.15%, 9/2/10 $ 963,090 2,500,000 Solano County COP, (Capital Improvement Program), 5.00%, 11/15/19 (AMBAC) 2,326,825 1,615,000 South San Francisco Redevelopment Agency Tax Allocation, 7.60%, 9/1/02, Prerefunded at 102% of Par(1) 1,804,181 380,000 Southern California Housing Finance Auth. Single Family Mortgage Rev., Series 1991 A, (GNMA & FNMA Mortgage- Backed Securities), 7.35%, 9/1/24 394,098 500,000 Southern California Public Power Auth. Rev., (Pooled Project), 6.75%, 7/1/10 (FSA) 574,495 2,400,000 Southern California Public Power Auth. Rev., (Transmission), 6.35%, 7/1/14 (MBIA)(2) 1,064,712 1,250,000 Southern California Public Power Auth. Rev., (Transmission), 6.35%, 7/1/15 (MBIA)(2) 519,350 3,000,000 Stockton Community Facilities District Special Tax Rev., Series 1998 A, (Mello Roos-Weston Ranch), 5.80%, 9/1/14 2,931,060 2,935,000 Stockton Community Facilities District Special Tax Rev., Series 1998 A, (Mello Roos-Weston Ranch), 6.00%, 9/1/24 2,855,462 1,770,000 Tehama Community COP, (Social Services Building), 7.00%, 10/1/05, Prerefunded at 102% of Par(1) 2,040,881 1,610,000 Torrance Hospital Rev., (Little County of Mary Hospital), 6.875%, 7/1/02, Prerefunded at 102% of Par(1) 1,753,548 2,235,000 Tracy Operating Partnership Joint Powers Auth. Rev., (Jr. Lien Assessment District 87-3), 6.375%, 9/2/11 2,285,533 1,565,000 Twentynine Palms Water District COP, 7.10%, 8/1/22 1,653,250 2,250,000 Vacaville Improvement Bond Act 1915 Special Assessment, (Northeast Sector Assessment District A), 7.00%, 9/2/22 2,292,346 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,850,000 Vacaville Special Tax, Series 1998 C, (Community Facilities District No. 2), 5.60%, 9/1/15 $ 3,701,045 5,000,000 Vallejo Hiddenbrooke Improvement District No. 1 Rev., 6.50%, 9/1/31 5,003,950 1,645,000 Vallejo Multifamily Housing Rev., Series 1998 B, (Solano Affordable Housing), 8.25%, 4/1/39 (Acquired 10/21/98, Cost $1,598,134)(3) 1,552,239 2,000,000 West Contra Costa Unified School District COP, 7.125%, 1/1/24 2,170,860 1,520,000 Windsor Redevelopment Agency Tax Allocation, 6.875%, 9/1/15 1,623,483 ------------ TOTAL MUNICIPAL SECURITIES 334,866,458 ------------ (Cost $334,728,346) SHORT-TERM MUNICIPAL SECURITIES -- 3.8% 4,000,000 California Health Facilities Financing Auth. Rev., Series 1995 C, (Catholic Healthcare West), VRDN, 2.75%, 9/1/99 (MBIA) (SBBPA: Rabobank Nederland N.V.) 4,000,000 1,000,000 California Pollution Control Financing Auth. Rev., Series 1986 A, (Southern California Edison), VRDN, 2.60%, 9/1/99 (Guaranteed: Southern California Edison Company) 1,000,000 4,450,000 California Pollution Control Financing Auth. Rev., Series 1986 C, (Southern California Edison), VRDN, 2.60%, 9/1/99 (Guaranteed: Southern California Edison Company) 4,450,000 200,000 California Statewide Communities Development Auth. Rev. COP, (Sutter Health Obligation Group), VRDN, 2.40%, 9/1/99 200,000 3,625,000 Los Angeles Convention and Exhibition Center Auth. Lease Rev., VRDN, 3.10%, 9/1/99 (MBIA) (SBBPA: Bank of New York) (Acquired 8/10/99, Cost $3,625,000)(3) 3,625,000 ------------ TOTAL SHORT-TERM MUNICIPAL SECURITIES 13,275,000 ------------ (Cost $13,275,000) TOTAL INVESTMENT SECURITIES -- 100.0% $348,141,458 ============ (Cost $348,003,346) 12 1-800-345-2021 See Notes to Financial Statements California High-Yield Municipal--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation GO = General Obligation COP = Certificates of Participation LOC = Letter of Credit FGIC = Financial Guaranty Insurance Co. MBIA = MBIA Insurance Corp. FNMA = Federal National Mortgage Association SBBPA = Standby Bond Purchase Agreement FSA = Financial Security Assurance Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 1999. GNMA = Government National Mortgage Association (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security is a zero-coupon municipal bond. The yield to maturity at purchase is indicated. Zero-coupon securities are purchased at a substantial discount from their value at maturity. (3) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement, and unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of these securities at August 31, 1999, was $7,471,504 which represented 2.2% of net assets. None of these securities are considered illiquid. (4) Security, or a portion thereof, has been segregated at the custodian bank for a when-issued security. (5) When-issued security. See Notes to Financial Statements www.americancentury.com 13 California Insured Tax-Free--Performance - -------------------------------------------------------------------------------- TOTAL RETURNS AS OF AUGUST 31, 1999 CALIFORNIA LEHMAN LONG-TERM CALIFORNIA INSURED MUNICIPAL DEBT FUNDS(2) INSURED TAX-FREE MUNICIPAL INDEX AVERAGE RETURN FUND'S RANKING ======================================================================================== 6 MONTHS(1) -3.85% -4.29% -3.55% -- 1 YEAR -1.71% -2.14% -1.45% 15 OUT OF 23 ======================================================================================== AVERAGE ANNUAL RETURNS 3 YEARS 5.38% 6.35% 5.10% 6 OUT OF 22 5 YEARS 6.16% 7.07% 5.82% 4 OUT OF 15 10 YEARS 6.95% 7.92% 6.95% 3 OUT OF 7
The fund's inception date was 12/30/86. (1) Returns for periods less than one year are not annualized. (2) According to Lipper Inc., an independent mutual fund ranking service. See pages 28-29 for more information about returns, the comparative index, and Lipper fund rankings. [mountain graph - data below] GROWTH OF $10,000 OVER 10 YEARS Value on 8/31/99 California Insured Tax-Free $19,582 Lehman Long-Term Municipal Index $21,440 California Insured Lehman Long-Term Tax-Free Municipal Index DATE VALUE VALUE 8/31/1989 $10,000 $10,000 8/31/1990 $10,396 $10,611 8/31/1991 $11,630 $12,040 8/31/1992 $12,987 $13,556 8/31/1993 $14,772 $15,557 8/31/1994 $14,524 $15,238 8/31/1995 $15,698 $16,675 8/31/1996 $16,735 $17,822 8/31/1997 $18,283 $19,826 8/31/1998 $19,921 $21,909 8/31/1999 $19,582 $21,440 The graph at left shows the growth of a $10,000 investment in the fund over 10 years, while the graph below shows the fund's year-by-year performance. The Lehman Long-Term Municipal Index is provided for comparison in each graph. California Insured Tax-Free's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Past performance does not guarantee future results. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. [bar graph - data below] ONE-YEAR RETURNS OVER 10 YEARS (PERIODS ENDED AUGUST 31) California Insured Lehman Long-Term Tax-Free Municipal Index DATE RETURN RETURN 8/31/1990 3.96% 6.11% 8/31/1991 11.87% 13.47% 8/31/1992 11.67% 12.60% 8/31/1993 13.74% 14.76% 8/31/1994 -1.68% -2.05% 8/31/1995 8.09% 9.43% 8/31/1996 6.60% 6.88% 8/31/1997 9.25% 11.26% 8/31/1998 8.96% 10.51% 8/31/1999 -1.71% -2.14% 14 1-800-345-2021 California Insured Tax-Free--Q&A - -------------------------------------------------------------------------------- [photo of Dave MacEwen] An interview with Dave MacEwen, a portfolio manager on the California Tax-Free and Municipal funds investment team. HOW DID CALIFORNIA INSURED TAX-FREE PERFORM DURING THE FISCAL YEAR ENDED AUGUST 31, 1999? The fund's performance reflected the difficulties the municipal bond market faced. California Insured Tax-Free returned -1.71%, which lagged the -1.45% average total return of its peer group--23 "California Insured Municipal Debt Funds" tracked by Lipper Inc. Even with the recent disappointing performance, the fund's longer-term record remained compelling. For the three- and five-year periods ended August 31, 1999, the fund consistently ranked in the top third of its peer group. Additionally, California Insured Tax-Free produced more current income than its peers. The fund's 30-day SEC yield as of August 31, 1999, was 4.73%, compared with the 4.01% average yield of the Lipper group. The fund's strong yield and long-term returns can be attributed in part to below-average expenses. Other things being equal, lower expenses mean higher yields and returns for shareholders. WHAT FACTORS CAUSED THE FUND TO LAG ITS PEERS DURING THE PAST YEAR? The main factor was the fund's increased interest rate sensitivity, measured by its somewhat long duration relative to its peers. (The longer a fund's duration, the more the share price will rise and fall in response to interest rate changes.) In August 1998, our outlook called for falling interest rates in response to global economic weakness. To capture more of the anticipated gains resulting from declining rates, we focused on discount bonds. These bonds trade below face value (par)--at a discount--because their interest coupons are below prevailing market interest rates. When interest rates declined in 1998, the fund's somewhat longer duration and focus on discount bonds gave it an advantage over its peers. But when rates began to move higher in 1999, those same factors hurt performance. WHAT MADE DISCOUNT BONDS SO SUSCEPTIBLE TO RISING INTEREST RATES? A bond's price and duration reflect in part the likelihood that it will be called (refinanced) by its issuer before maturity. If it appears likely that a bond is in jeopardy of being called, investors tend to push its price lower because they don't relish the prospect of being forced to forfeit higher-yielding bonds and reinvest at lower rates. At the same time, the bond's duration shortens. Because their interest coupons are below prevailing interest rates, discount bonds are generally the last bonds to be refinanced. That "call [right margin] "CALIFORNIA INSURED TAX-FREE PRODUCED MORE CURRENT INCOME THAN ITS PEERS." YIELDS AS OF AUGUST 31, 1999 30-DAY SEC YIELD 4.73% 30-DAY TAX-EQUIVALENT YIELDS 34.70% TAX BRACKET 7.24% 37.42% TAX BRACKET 7.56% 41.95% TAX BRACKET 8.15% 45.22% TAX BRACKET 8.63% PORTFOLIO AT A GLANCE 8/31/99 8/31/98 NUMBER OF SECURITIES 72 71 WEIGHTED AVERAGE MATURITY 18.1 YRS 17.9 YRS AVERAGE DURATION 8.9 YRS 8.5 YRS EXPENSE RATIO 0.51% 0.51% Investment terms are defined in the Glossary on pages 29-30. www.americancentury.com 15 California Insured Tax-Free--Q&A - -------------------------------------------------------------------------------- (Continued) protection" means the duration of discount bonds is relatively long compared with higher-coupon bonds, and that their duration lengthens when rates rise. Their heightened sensitivity to rising interest rates--coupled with diminished demand for call-protection--caused discount bonds to perform poorly during 1999. WHAT CHANGES IN STRATEGY DID YOU MAKE DURING THE YEAR? We didn't want to sell discount bonds at distressed prices or abandon a strategy we believe could ultimately serve the fund well. So to keep the fund from becoming overly interest rate sensitive, we began to "barbell" the portfolio, increasing our holdings in short-term investments such as cash to help offset long-duration discount bonds. In addition, we sold some of our worst-performing bonds at a loss to offset capital gains incurred elsewhere in the portfolio. We invested the proceeds in higher-yielding bonds, which helped boost the fund's distribution yield. IN TERMS OF SECTORS, WHAT CHOICES DID YOU MAKE? One area of emphasis was certificates of participation (COPs). As a quick review, you may recall that COPs originated in 1978 when California voters approved "Proposition 13." That amendment put strict limits on the amount of money that could be raised from property taxes and required two-thirds voter approval by the issuing jurisdiction to sell new general obligation bonds. Those restrictions helped COPs, which are an alternate form of financing that don't require voter approval, become more popular. We favor COPs because they are less well known than other bonds, which allows us to buy them for less than comparable, more familiar types of securities. WHAT DO YOU SEE AHEAD FOR INTEREST RATES AND THE MUNICIPAL MARKET? We're more cautious than we were a year ago, but we're still optimistic about the municipal bond market. Inflation still appears to be under control, and there's evidence that the U.S. economy may be slowing. Given that backdrop, we believe the Fed will refrain from raising interest rates further for the balance of 1999, in part to avoid upsetting global financial markets that are already jittery about Y2K. As for next year, the outlook is murkier. The market could continue to experience volatility as investors focus on each economic data release to determine if the economy is growing at an inflationary pace or if it's slowing down. But eventually, we think that interest rates will move down in response to slower economic growth. WITH THAT BACKDROP IN MIND, HOW WILL YOU POSITION THE FUND? We're likely to maintain our current duration position and hold discount bonds as long as we believe that rates will eventually fall. We also plan to continue to work closely with our credit research team to look for attractively valued securities, such as COPs. That approach has helped contribute to our long-term success. [left margin] PORTFOLIO COMPOSITION BY CREDIT RATING % OF FUND INVESTMENTS AS OF AS OF 8/31/99 2/28/99 AAA 100% 100% Ratings provided by Standard & Poor's. See Credit Rating Guidelines on page 28 for more information. TOP FIVE SECTORS (AS OF 8/31/99) % OF FUND INVESTMENTS COPS/LEASES 25% ELECTRIC REVENUE 13% TRANSPORTATION REVENUE 11% WATER AND SEWER REVENUE 10% TAX ALLOCATION REVENUE 10% TOP FIVE SECTORS (AS OF 2/28/99) % OF FUND INVESTMENTS COPS/LEASES 24% ELECTRIC REVENUE 14% WATER AND SEWER REVENUE 12% TAX ALLOCATION REVENUE 9% GO 7% Investment terms are defined in the Glossary on pages 29-30. 16 1-800-345-2021 California Insured Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- This schedule lists all investments owned by the fund, as well as each security's market value, as of the last day of the reporting period. AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 97.1% $ 6,000,000 Alameda Corridor Transportation Auth. Rev., Series 1999 A, 5.00%, 10/1/29 (MBIA) $ 5,410,620 1,000,000 Banning COP, (Wastewater System, Refunding & Improvement), 8.00%, 1/1/19 (AMBAC) 1,237,490 900,000 Brea Redevelopment Agency Tax Allocation, (Project AB), 6.125%, 8/1/13 (MBIA) 949,905 1,250,000 California Health Facilities Financing Auth. Rev., Series 1991 A, (Adventist Health), 7.00%, 3/1/13 (MBIA) 1,317,612 1,470,000 California Public Capital Improvements Financing Auth. Rev., Series 1988 B, (Pooled Project), 8.10%, 3/1/18 (BIGI) 1,497,004 4,000,000 California Public Works Board Lease Rev., Series 1993 A, (Department of Corrections), 5.00%, 12/1/19 (AMBAC) 3,745,640 6,000,000 California Public Works Board Lease Rev., Series 1993 D, (Department of Corrections), 5.25%, 6/1/15 (FSA) 5,958,240 2,565,000 California State GO, 4.50%, 12/1/21 (FGIC) 2,163,731 6,035,000 California State GO, 4.50%, 12/1/24 (FGIC) 5,032,586 3,500,000 California State GO, 4.25%, 10/1/26 (MBIA) 2,769,340 4,135,000 California State Universities and Colleges Rev., 5.75%, 11/1/15 (FGIC) 4,241,559 3,925,000 California Statewide Communities Development Auth. Rev. COP, (Gemological Institute), 6.75%, 5/1/10 (Connie Lee) 4,478,464 7,000,000 California Statewide Communities Development Auth. Rev., Series 1998 A, (Sherman Oaks), 5.00%, 8/1/22 (AMBAC, California Mortgage Insurance) 6,448,470 1,520,000 Castaic Lake Water Agency COP, Series 1994 A, (Water System Improvement), 7.00%, 8/1/12 (MBIA) 1,767,927 1,200,000 Contra Costa Water District Rev., Series 1992 E, 6.25%, 10/1/12 (AMBAC) 1,328,700 1,000,000 East Valley Water District COP, (Treatment Plant), 6.60%, 12/1/14 (AMBAC) 1,073,910 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,000,000 Escondido Joint Powers Financing Auth. Rev., 6.125%, 9/1/11 (AMBAC) $ 2,104,600 2,620,000 Escondido Unified School District COP, 4.75%, 7/1/19 (MBIA) 2,342,411 1,695,000 Escondido Unified School District COP, 4.75%, 7/1/23 (MBIA) 1,489,583 2,000,000 Fontana Unified School District GO, Series 1997 D, 5.85%, 5/1/22 (FGIC)(1) 1,908,960 3,100,000 Foothill-De Anza Community College District COP, 6.25%, 9/1/13 (Connie Lee) 3,302,027 1,975,000 Fresno Sewer Rev., Series 1993 A-1, 6.25%, 9/1/14 (AMBAC) 2,175,028 1,240,000 Fresno Sewer Rev., Series 1993 A-1, 4.75%, 9/1/21 (AMBAC) 1,098,466 5,000,000 Glendale Hospital Rev., Series 1991 A, (Adventist Health), 6.75%, 3/1/13 (MBIA) 5,252,500 4,830,000 Glendale Unified School District COP, Series 1994 A, 6.50%, 3/1/12 (AMBAC) 5,235,817 1,340,000 Kern High School District GO, Series 1992 C, 6.25%, 8/1/13 (MBIA)(2) 1,484,385 3,630,000 Kern High School District GO, Series 1993 D, 7.00%, 8/1/17 (MBIA)(2) 4,055,436 2,000,000 La Quinta Financing Auth. Lease Rev. COP, (La Quinta City Hall), 5.55%, 10/1/18 (MBIA) 2,027,000 790,000 Lake Elsinore Public Financing Auth. Tax Allocation, Series 1992 C, (Redevelopment), 6.625%, 2/1/00, Prerefunded at 102% of Par (FGIC)(2) 813,645 1,500,000 Lakewood Redevelopment Agency Tax Allocation, Series 1992 A, (Project No. 1), 6.50%, 9/1/17 (FSA) 1,605,405 2,260,000 Long Beach Board Financing Auth. Lease Rev., Series 1999 A, (Rainbow Harbor), 5.25%, 5/1/24 (AMBAC) 2,135,994 2,000,000 Long Beach Water Rev., Series 1997 A, 5.00%, 5/1/24 (MBIA) 1,821,780 400,000 Los Angeles Community Redevelopment Agency Housing Rev., Series 1994 C, 7.00%, 1/1/14 (AMBAC) 427,228 3,500,000 Los Angeles Community Redevelopment Agency Tax Allocation, Series 1993 H, (Bunker Hill), 6.50%, 12/1/14 (FSA) 3,797,990 See Notes to Financial Statements www.americancentury.com 17 California Insured Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,000,000 Los Angeles Community Redevelopment Agency Tax Allocation, Series 1993 H, (Bunker Hill), 6.50%, 12/1/15 (FSA) $ 4,332,520 1,000,000 Los Angeles County Transportation Commission Sales Tax Rev., 6.50%, 7/1/13 (AMBAC) 1,054,990 3,000,000 Metropolitan Water District of Southern California Waterworks Rev., Series 1996 B, 4.75%, 7/1/21 (MBIA) 2,637,840 1,915,000 Mid-Peninsula Regional Open Space District Financing Auth. Rev., 5.90%, 9/1/14 (AMBAC) 1,983,787 5,000,000 Modesto, Stockton, Redding Public Power Agency Rev., Series 1989 D, (San Juan), 6.75%, 7/1/20 (MBIA)(2) 5,672,650 2,810,000 Oakland Redevelopment Agency Tax Allocation, (Central District), 5.50%, 2/1/14 (AMBAC) 2,867,436 1,940,000 Oakland Unified School District Alameda County GO, Series 1999 E, 5.25%, 8/1/21 (MBIA) 1,841,894 2,700,000 Orange County Financing Auth. Tax Allocation, Series 1992 A, 6.25%, 9/1/14 (MBIA) 2,843,721 1,950,000 Ramona Municipal Water District COP, 7.20%, 10/1/10 (AMBAC) 2,051,380 2,000,000 Rancho Cucamonga Redevelopment Agency Tax Allocation, 5.25%, 9/1/20 (FSA) 1,924,940 1,100,000 Redlands Unified School District COP, 6.00%, 9/1/12 (FSA) 1,140,777 17,500,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.25%, 7/1/24 (AMBAC) 16,738,750 295,000 Sacramento Redevelopment Agency Tax Allocation, Series 1990 A, 6.50%, 11/1/13 (MBIA) 308,399 2,210,000 Sacramento Redevelopment Agency Tax Allocation, Series 1990 A, 6.50%, 11/1/00, Prerefunded at 102% of Par (MBIA)(2) 2,323,815 1,345,000 San Diego Community College District Lease Rev. COP, 6.125%, 12/1/06, Prerefunded at 102% of Par (MBIA)(2) 1,502,298 7,000,000 San Diego County COP, 5.625%, 9/1/12 (AMBAC) 7,271,740 3,250,000 San Francisco Bay Area Rapid Transportation District Sales Tax Rev., 6.75%, 7/1/00, Prerefunded at 102% of Par (AMBAC)(2) 3,398,265 Principal Amount Value - -------------------------------------------------------------------------------- $ 8,330,000 San Francisco City and County Airport Commission International Airport Rev., Issue 2, 6.75%, 5/1/20 (MBIA) $ 9,025,638 1,670,000 San Francisco City and County Airport Commission International Airport Rev., Issue 2, 6.75%, 5/1/03, Prerefunded at 102% of Par (MBIA)(2) 1,845,784 2,000,000 San Francisco City and County Airport Commission International Airport Rev., Issue 15B, 4.50%, 5/1/25 (MBIA) 1,670,060 3,500,000 San Francisco City and County Airport Commission International Airport Rev., Issue 20, 4.50%, 5/1/26 (MBIA) 2,904,615 6,000,000 San Francisco City and County Airport Commission International Airport Rev., Issue 21, 4.50%, 5/1/23 (MBIA) 5,032,800 3,500,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 5.00%, 7/1/21 (MBIA) 3,247,405 3,535,000 San Mateo County Joint Powers Auth. Lease Rev. COP, (Capital Projects Program), 6.50%, 7/1/15 (MBIA) 3,979,314 1,000,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.25%, 6/1/18 (MBIA) 973,740 1,000,000 San Ysidro School District GO, 6.125%, 8/1/21 (AMBAC) 1,068,050 3,500,000 Santa Ana Financing Auth. Rev., Series 1999 B, (South Harbor Boulevard), 5.125%, 9/1/19 (MBIA) 3,311,560 2,000,000 Santa Margarita-Dana Point Auth. Rev., Series 1994 B, (Improvement Districts 3, 3A, 4, 4A), 7.25%, 8/1/14 (MBIA) 2,401,500 1,265,000 Sierra Valley Hospital District GO, 5.50%, 8/1/23 (MBIA) 1,242,647 1,150,000 Simi Valley Unified School District COP, (Refunding & Capital Improvement Projects), 5.25%, 8/1/17 (AMBAC) 1,124,494 1,800,000 Simi Valley Unified School District COP, (Refunding & Capital Improvement Projects), 5.25%, 8/1/22 (AMBAC) 1,729,243 2,500,000 South Coast Air Quality Management District Building GO, (Installment Sale Headquarters), 6.00%, 8/1/11 (AMBAC) 2,721,126 2,500,000 Ukiah Electric Rev., 6.25%, 6/1/18 (MBIA) 2,737,450 18 1-800-345-2021 See Notes to Financial Statements California Insured Tax-Free--Schedule of Investments - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,445,000 Walnut Valley Unified School District GO, Series 1992 B, 6.00%, 8/1/10 (AMBAC)(2) $ 1,577,449 4,525,000 Woodland COP, (Wastewater System Reference), 5.75%, 3/1/12 (AMBAC) 4,744,011 ------------ TOTAL MUNICIPAL SECURITIES 203,731,541 ------------ (Cost $201,981,733) MUNICIPAL DERIVATIVES(3) -- 2.9% 2,000,000 East Bay Municipal Utility District Wastewater Treatment System Rev., Yield Curve Notes, Inverse Floater, 6.82%, 6/1/13 (AMBAC) 2,052,500 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 San Diego County Water Auth. Rev. COP, (Reg Rites), Yield Curve Notes, Inverse Floater, 7.25%, 4/22/09 (FGIC) $ 1,115,000 2,750,000 Southern California Public Power Auth. Rev., Yield Curve Notes, Inverse Floater, 6.62%, 7/1/17 (FGIC) 2,846,250 ------------ TOTAL MUNICIPAL DERIVATIVES 6,013,750 ------------ (Cost $5,833,405) TOTAL INVESTMENT SECURITIES -- 100.0% $209,745,291 ============ (Cost $207,815,138) NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation FSA = Financial Security Assurance Inc. BIGI = Bond Investor's Guaranty Inc. GO = General Obligation COP = Certificates of Participation MBIA = MBIA Insurance Corp. FGIC = Financial Guaranty Insurance Co. (1) Step-coupon security. Yield to maturity at purchase is indicated. These securities become interest bearing at a predetermined rate and future date and are purchased at a substantial discount from their value at maturity. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) Inverse floaters have interest rates that move inversely to market interest rates. Inverse floaters typically have durations longer than long-term bonds, which may cause their value to be more volatile than long-term bonds when interest rates change. See Notes to Financial Statements www.americancentury.com 19 Statements of Assets and Liabilities - -------------------------------------------------------------------------------- This statement breaks down the fund's ASSETS (such as securities, cash, and other receivables) and LIABILITIES (money owed for securities purchased, management fees, and other liabilities) as of the last day of the reporting period. Subtracting the liabilities from the assets results in the fund's NET ASSETS. The net assets divided by shares outstanding is the share price, or NET ASSET VALUE PER SHARE. This statement also breaks down the fund's net assets into capital (shareholder investments) and performance (investment income and gains/losses). HIGH-YIELD INSURED AUGUST 31, 1999 MUNICIPAL TAX-FREE ASSETS Investment securities, at value (identified cost of $348,003,346 and $207,815,138, respectively) (Note 3) ..... $ 348,141,458 $ 209,745,291 Interest receivable ........................ 6,508,382 3,340,773 ------------- ------------- 354,649,840 213,086,064 ------------- ------------- LIABILITIES Disbursements in excess of demand deposit cash ................... 5,601,612 939,708 Payable for investments purchased .......... 6,720,789 -- Accrued management fees (Note 2) ........... 155,492 91,584 Dividends payable .......................... 203,079 116,991 Payable for trustees' fees and expenses .... 591 369 ------------- ------------- 12,681,563 1,148,652 ------------- ------------- Net Assets ................................. $ 341,968,277 $ 211,937,412 ============= ============= CAPITAL SHARES Outstanding (unlimited number of shares authorized) .................... 36,540,790 21,441,721 ============= ============= Net Asset Value Per Share .................. $ 9.36 $ 9.88 ============= ============= NET ASSETS CONSIST OF: Capital paid in ............................ $ 345,146,562 $ 210,396,899 Accumulated net realized loss on investment transactions ............... (3,316,397) (389,640) Net unrealized appreciation on investments (Note 3) .................. 138,112 1,930,153 ------------- ------------- $ 341,968,277 $ 211,937,412 ============= ============= 20 1-800-345-2021 See Notes to Financial Statements Statements of Operations - -------------------------------------------------------------------------------- This statement shows how the fund's net assets changed during the reporting period as a result of the fund's operations. In other words, it shows how much money the fund made or lost as a result of dividend and interest income, fees and expenses, and investment gains or losses. HIGH-YIELD INSURED YEAR ENDED AUGUST 31, 1999 MUNICIPAL TAX-FREE INVESTMENT INCOME Income: Interest ................................... $ 18,673,591 $ 11,726,658 ------------ ------------ Expenses (Note 2): Management fees ............................ 1,778,084 1,118,237 Trustees' fees and expenses ................ 11,914 8,202 ------------ ------------ 1,789,998 1,126,439 ------------ ------------ Net investment income ...................... 16,883,593 10,600,219 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3) Net realized gain (loss) on investments .... (1,869,375) 98,190 Change in net unrealized appreciation on investments .............. (15,057,989) (14,425,798) ------------ ------------ Net realized and unrealized loss on investments ...................... (16,927,364) (14,327,608) ------------ ------------ Net Decrease in Net Assets Resulting from Operations ................ $ (43,771) $ (3,727,389) ============ ============ See Notes to Financial Statements www.americancentury.com 21 Statements of Changes in Net Assets - -------------------------------------------------------------------------------- This statement shows how the fund's net assets changed over the past two reporting periods. It details how much a fund grew or shrank as a result of operations (as detailed on the previous page for the most recent period), income and capital gain distributions, and shareholder investments and redemptions.
YEARS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 HIGH-YIELD MUNICIPAL INSURED TAX-FREE Increase (Decrease) in Net Assets 1999 1998 1999 1998 OPERATIONS Net investment income ............$ 16,883,593 $ 12,677,129 $ 10,600,219 $ 9,928,056 Net realized gain (loss) on investments ................. (1,869,375) 2,562,512 98,190 1,583,804 Change in net unrealized appreciation on investments .... (15,057,989) 6,311,903 (14,425,798) 5,870,522 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations ................ (43,771) 21,551,544 (3,727,389) 17,382,382 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ....... (16,902,404) (12,677,129) (10,600,219) (9,928,056) From net realized gains on investment transactions ........ (113,197) (2,545,652) (779,876) (2,921,262) In excess of net realized gains on investment transactions ..... (3,316,396) -- (389,640) -- ------------- ------------- ------------- ------------- Decrease in net assets from distributions ............. (20,331,997) (15,222,781) (11,769,735) (12,849,318) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ........ 183,401,537 181,804,274 78,766,649 82,053,478 Proceeds from reinvestment of distributions ............... 14,343,428 11,152,218 8,188,008 8,954,545 Payments for shares redeemed ..... (139,242,460) (88,275,006) (75,029,338) (69,176,578) ------------- ------------- ------------- ------------- Net increase in net assets from capital share transactions ..... 58,502,505 104,681,486 11,925,319 21,831,445 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets .................. 38,126,737 111,010,249 (3,571,805) 26,364,509 NET ASSETS Beginning of period .............. 303,841,540 192,831,291 215,509,217 189,144,708 ------------- ------------- ------------- ------------- End of period ....................$ 341,968,277 $ 303,841,540 $ 211,937,412 $ 215,509,217 ============= ============= ============= ============= Undistributed net investment income .............. -- $ 18,811 -- -- ============= ============= ============= ============= TRANSACTIONS IN SHARES OF THE FUNDS Sold ............................. 18,760,200 18,553,052 7,534,351 7,856,824 Issued in reinvestment of distributions ............... 1,469,140 1,137,993 785,177 855,798 Redeemed ......................... (14,282,754) (9,015,907) (7,203,629) (6,627,802) ------------- ------------- ------------- ------------- Net increase ..................... 5,946,586 10,675,138 1,115,899 2,084,820 ============= ============= ============= =============
22 1-800-345-2021 See Notes to Financial Statements Notes to Financial Statements - -------------------------------------------------------------------------------- AUGUST 31, 1999 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century California Tax-Free and Municipal Funds (the trust) is registered under the Investment Company Act of 1940 as an open-end management investment company. California High-Yield Municipal Fund (High-Yield) and California Insured Tax-Free Fund (Insured) (the funds) are two of the seven funds issued by the trust. The funds are diversified under the 1940 Act. The funds seek income that is exempt from federal and California income taxes. High-Yield seeks to provide as high a level of current income as is consistent with its investment policies, which permit investment in lower-rated and unrated municipal securities. Insured seeks to provide as high a level of current income as is consistent with safety of principal through investment in insured California municipal securities. The funds concentrate their investments in a single state and therefore may have more exposure to credit risk related to the state of California than a fund with a broader geographical diversification. The following significant accounting policies are in accordance with generally accepted accounting principles; these principles may require the use of estimates by fund management. SECURITY VALUATIONS -- Portfolio securities are valued through a commercial pricing service or at the mean of the most recent bid and asked prices. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. INCOME TAX STATUS -- It is the funds' policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income for the funds are declared daily and distributed monthly. Distributions from net realized gains for the funds are declared and paid annually. For the year ended August 31, 1999, 100% (unaudited) of the funds' distributions from net investment income have been designated as exempt from federal and California state income tax. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes and may result in reclassification among certain capital accounts. FUTURES CONTRACTS -- The funds may buy and sell interest rate futures contracts relating to debt securities. Futures transactions may be used to maintain cash reserves while remaining fully invested, to facilitate trading, to reduce transaction costs, or to pursue higher investment returns when a futures contract is priced more attractively than its underlying security or index. One of the risks of entering into futures contracts may include the possibility that the changes in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the funds are required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the funds. The variation margin is equal to the daily change in the contract value and is recorded as an unrealized gain or loss. The funds recognize a realized gain or loss when the contract is closed or expired. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of realized gain (loss) on investments and unrealized appreciation (depreciation) on investments, respectively. There were no open futures contracts at August 31, 1999. ADDITIONAL INFORMATION -- Funds Distributor, Inc. (FDI) is the trust's distributor. Certain officers of FDI are also officers of the trust. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH RELATED PARTIES The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides each fund with investment advisory and management services in exchange for a single, unified management fee. The Agreement provides that all expenses of the funds, except brokerage, taxes, portfolio insurance, interest, fees and expenses of the Trustees who are not considered "interested persons" as defined in the Investment Company Act of 1940 (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is calculated daily and paid monthly. It consists of an Investment Category Fee based on the average net assets of the funds in a specific fund's investment category and a Complex Fee based on the average net assets of all the funds managed by ACIM. The rates for the Investment Category Fee range from 0.1925% to 0.3100% and 0.1625% to 0.2800%, for High-Yield and Insured, respectively. The rates for the Complex Fee range from 0.2900% to 0.3100%. For the year ended August 31, 1999, the effective annual management fee was 0.54% and 0.51% for High-Yield and Insured, respectively. Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc., the parent of the trust's investment manager, ACIM, and the trust's transfer agent, American Century Services Corporation. www.americancentury.com 23 Notes to Financial Statements - -------------------------------------------------------------------------------- (Continued) AUGUST 31, 1999 - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS Purchases of investment securities, excluding short-term investments, for High-Yield and Insured totaled $243,924,904 and $84,501,806, respectively. Sales of investment securities, excluding short-term investments, for High-Yield and Insured totaled $189,374,467 and $70,465,934, respectively. As of August 31, 1999, accumulated net unrealized appreciation for High-Yield and Insured was $138,112 and $1,930,153, respectively, which consisted of unrealized appreciation of $7,348,211 and $6,555,115, respectively, and unrealized depreciation of $7,210,099 and $4,624,962, respectively. The aggregate cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. - -------------------------------------------------------------------------------- 4. BANK LOANS Effective December 18, 1998, the funds, along with certain other funds managed by ACIM, entered into an unsecured $570,000,000 bank line of credit agreement with Chase Manhattan Bank. Borrowings under the agreement bear interest at the Federal Funds rate plus 0.40%. The funds may borrow money for temporary or emergency purposes to fund shareholder redemptions. The funds did not borrow from the line during the period December 18, 1998 through August 31, 1999. 24 1-800-345-2021 California High-Yield Municipal--Financial Highlights - -------------------------------------------------------------------------------- This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 1999 1998 1997 1996 1995 PER-SHARE DATA Net Asset Value, Beginning of Period ... $ 9.93 $ 9.68 $ 9.27 $ 9.11 $ 9.06 ----------- ----------- ----------- ----------- ----------- Income From Investment Operations Net Investment Income ................ 0.49 0.51 0.55 0.56 0.56 Net Realized and Unrealized Gain (Loss) on Investment Transactions .............. (0.46) 0.37 0.41 0.16 0.05 ----------- ----------- ----------- ----------- ----------- Total From Investment Operations ..... 0.03 0.88 0.96 0.72 0.61 ----------- ----------- ----------- ----------- ----------- Distributions From Net Investment Income ........... (0.49) (0.51) (0.55) (0.56) (0.56) From Net Realized Gains .............. --(1) (0.12) -- -- -- In Excess of Net Realized Gains ...... (0.11) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total Distributions .................. (0.60) (0.63) (0.55) (0.56) (0.56) ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period ......... $ 9.36 $ 9.93 $ 9.68 $ 9.27 $ 9.11 =========== =========== =========== =========== =========== Total Return(2) ...................... 0.26% 9.35% 10.61% 8.02% 7.09% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................ 0.54% 0.54% 0.50% 0.51% 0.51% Ratio of Net Investment Income to Average Net Assets ................ 5.08% 5.23% 5.77% 5.99% 6.30% Portfolio Turnover Rate ................ 59% 36% 46% 36% 40% Net Assets, End of Period (in thousands) ....................... $ 341,968 $ 303,842 $ 192,831 $ 144,675 $ 116,166
(1) Per share amount was less than $0.005. (2) Total return assumes reinvestment of dividends and capital gains distributions, if any. See Notes to Financial Statements www.americancentury.com 25 California Insured Tax-Free--Financial Highlights - -------------------------------------------------------------------------------- This table itemizes investment results and distributions on a per-share basis to illustrate share price changes for each of the last five fiscal years. It also includes several key statistics for each reporting period, including TOTAL RETURN, INCOME RATIO (net income as a percentage of average net assets), EXPENSE RATIO (operating expenses as a percentage of average net assets), and PORTFOLIO TURNOVER (a gauge of the fund's trading activity).
FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 1999 1998 1997 1996 1995 PER-SHARE DATA Net Asset Value, Beginning of Period ... $ 10.60 $ 10.37 $ 10.00 $ 9.89 $ 9.67 ----------- ----------- ----------- ----------- ----------- Income From Investment Operations Net Investment Income ................ 0.50 0.51 0.53 0.53 0.53 Net Realized and Unrealized Gain (Loss) on Investment Transactions .............. (0.66) 0.39 0.37 0.11 0.22 ----------- ----------- ----------- ----------- ----------- Total From Investment Operations ..... (0.16) 0.90 0.90 0.64 0.75 ----------- ----------- ----------- ----------- ----------- Distributions From Net Investment Income ........... (0.50) (0.51) (0.53) (0.53) (0.53) From Net Realized Gains .............. (0.04) (0.16) -- -- -- In Excess of Net Realized Gains ...... (0.02) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total Distributions .................. (0.56) (0.67) (0.53) (0.53) (0.53) ----------- ----------- ----------- ----------- ----------- Net Asset Value, End of Period ......... $ 9.88 $ 10.60 $ 10.37 $ 10.00 $ 9.89 =========== =========== =========== =========== =========== Total Return(1) ...................... (1.71)% 8.96% 9.25% 6.60% 8.09% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets ................ 0.51% 0.51% 0.48% 0.49% 0.50% Ratio of Net Investment Income to Average Net Assets ................ 4.78% 4.91% 5.23% 5.30% 5.54% Portfolio Turnover Rate ................ 32% 31% 46% 43% 40% Net Assets, End of Period (in thousands) ....................... $ 211,937 $ 215,509 $ 189,145 $ 191,811 $ 178,913
(1) Total return assumes reinvestment of dividends and capital gains distributions, if any. 26 1-800-345-2021 See Notes to Financial Statements Report of Independent Accountants - -------------------------------------------------------------------------------- To the Trustees of the American Century California Tax-Free and Municipal Funds and Shareholders of the California High-Yield Municipal Fund and the California Insured Tax-Free Fund: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the California High-Yield Municipal Fund and the California Insured Tax-Free Fund (formerly the American Century - Benham California High-Yield Municipal Fund and the American Century - Benham California Insured Tax-Free Fund, respectively) (the "Funds") at August 31, 1999, and the results of their operations for the year then ended, the changes in their net assets and the financial highlights for each of the two years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. The financial highlights for each of the three years in the period ended August 31, 1997, were audited by other auditors, whose report, dated October 3, 1997, expressed an unqualified opinion on those statements. We conducted our audits of these financial statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 1999 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Kansas City, Missouri October 13, 1999 www.americancentury.com 27 Background Information - -------------------------------------------------------------------------------- INVESTMENT PHILOSOPHY AND POLICIES American Century offers 38 fixed-income funds, ranging from money market portfolios to long-term bond funds and including both taxable and tax-exempt funds. Each is managed to provide a "pure play" on a specific sector of the fixed-income market. To ensure adherence to this principle, the basic structure of each portfolio is tied to a specific market index. Fund managers attempt to add value by making modest portfolio adjustments based on their analysis of prevailing market conditions. Investment decisions are made by management teams, which meet regularly to discuss market analysis and investment strategies. In addition to these principles, each fund has its own investment policies CALIFORNIA HIGH-YIELD MUNICIPAL seeks to provide a high level of interest income exempt from both federal and California state income taxes by investing in California municipal securities. The fund typically invests a portion of its assets in lower-quality and unrated securities, which are subject to increased credit risk, default risk and liquidity risk. The fund is managed to maintain an average maturity of 10 years or more. CALIFORNIA INSURED TAX-FREE seeks to provide a high level of interest income exempt from both federal and California state income taxes by investing in insured California municipal securities. The fund is managed to maintain an average maturity of 10 years or more. Fund shares are not insured. COMPARATIVE INDICES The following index is used in the report for fund performance comparisons. It is not an investment product available for purchase. THE LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of more than 2,800 municipal bonds with maturities greater than 22 years. The average credit rating of the securities in the index is AA2/AA3. The average maturity of the index is approximately 27 years. LIPPER RANKINGS LIPPER INC. is an independent mutual fund ranking service that groups funds according to their investment objectives. Rankings are based on average annual returns for each fund in a given category for the periods indicated. Rankings are not included for periods less than one year. The Lipper categories for the California High-Yield Municipal and Insured Tax-Free funds are: CALIFORNIA MUNICIPAL DEBT FUNDS (High-Yield Municipal) -- funds that invest at least 65% of assets in securities that are exempt from taxation in California. CALIFORNIA INSURED MUNICIPAL DEBT FUNDS (Insured Tax-Free) -- funds that invest at least 65% of assets in securities that are exempt from taxation in California and insured as to timely payment of interest and repayment of principal. [left margin] INVESTMENT TEAM LEADERS Portfolio Managers DAVE MACEWEN STEVEN PERMUT Credit Research Manager STEVEN PERMUT CREDIT RATING GUIDELINES CREDIT RATINGS ARE ISSUED BY INDEPENDENT RESEARCH COMPANIES SUCH AS STANDARD & POOR'S AND MOODY'S. THEY ARE BASED ON AN ISSUER'S FINANCIAL STRENGTH AND ABILITY TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER. SECURITIES RATED AAA, AA, A, OR BBB ARE CONSIDERED "INVESTMENT-GRADE" SECURITIES, MEANING THEY ARE RELATIVELY SAFE FROM DEFAULT. CALIFORNIA HIGH-YIELD MUNICIPAL MAY INVEST MORE THAN 50% OF ITS PORTFOLIO IN SECURITIES THAT ARE BELOW INVESTMENT GRADE OR NOT RATED. HERE ARE THE MOST COMMON CREDIT RATINGS AND THEIR DEFINITIONS: * AAA--EXTREMELY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS. * AA--VERY STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS. * A--STRONG ABILITY TO MEET FINANCIAL OBLIGATIONS. * BBB--GOOD ABILITY TO MEET FINANCIAL OBLIGATIONS. * BB--LESS VULNERABLE TO DEFAULT THAN OTHER LOWER-QUALITY ISSUES BUT DO NOT QUITE MEET INVESTMENT-GRADE STANDARDS. * IT'S IMPORTANT TO NOTE THAT CREDIT RATINGS ARE SUBJECTIVE, REFLECTING THE OPINIONS OF THE RATING AGENCIES; THEY ARE NOT ABSOLUTE STANDARDS OF QUALITY. 28 1-800-345-2021 Glossary - -------------------------------------------------------------------------------- RETURNS * TOTAL RETURN figures show the overall percentage change in the value of a hypothetical investment in the fund and assume that all of the fund's distributions are reinvested. * AVERAGE ANNUAL RETURNS illustrate the annually compounded returns that would have produced the fund's cumulative total returns if the fund's performance had been constant over the entire period. Average annual returns smooth out variations in a fund's return; they are not the same as fiscal year-by-year results. For fiscal year-by-year returns, please refer to the "Financial Highlights" on pages 25-26. YIELDS * 30-DAY SEC YIELD represents net investment income earned by the fund over a 30-day period, expressed as an annual percentage rate based on the fund's share price at the end of the 30-day period. The SEC yield should be regarded as an estimate of the fund's rate of investment income, and it may not equal the fund's actual income distribution rate, the income paid to a shareholder's account, or the income reported in the fund's financial statements. * 30-DAY TAX-EQUIVALENT YIELDS show the taxable yields that investors in a combined California and federal income tax bracket would have to earn before taxes to equal the fund's tax-free 30-day SEC yield. INVESTMENT TERMS * BASIS POINT -- a basis point equals one one-hundredth of a percentage point (or 0.01%). Therefore, 100 basis points equal one percentage point (or 1%). * COUPON -- the stated interest rate of a security. * YIELD CURVE -- a graphic representation of the relationship between maturity and yield for fixed-income securities. Yield curve graphs plot lengthening maturities along the horizontal axis and rising yields along the vertical axis. STATISTICAL TERMINOLOGY * NUMBER OF SECURITIES -- the number of different securities held by a fund on a given date. * WEIGHTED AVERAGE MATURITY (WAM) -- a measure of the sensitivity of a fixed-income portfolio to interest rate changes. WAM indicates the average time until the securities in the portfolio mature, weighted by dollar amount. * AVERAGE DURATION -- another measure of the sensitivity of a fixed-income portfolio to interest rate changes. Duration is a time-weighted average of the interest and principal payments of the securities in a portfolio. * EXPENSE RATIO -- the operating expenses of the fund, expressed as a percentage of average net assets. Shareholders pay an annual fee to the investment manager for investment advisory and management services. The expenses and fees are deducted from fund income, not from each shareholder account. (See Note 2 in the Notes to Financial Statements.) TYPES OF MUNICIPAL SECURITIES * COPS (CERTIFICATES OF PARTICIPATION)/ LEASES --securities issued to finance public property improvements (such as city halls and police stations) and equipment purchases. Certificates of participation represent long-term debt obligations, but leases have a higher risk profile because they require annual appropriation. * GO (GENERAL OBLIGATION) BONDS -- securities backed by the taxing power of the issuer. * LAND-SECURED BONDS -- securities such as Mello-Roos bonds and 1915 Act bonds that are issued to finance real estate development projects. * PREREFUNDED/ETM BONDS -- securities refinanced or escrowed to maturity by the issuer because of their premium coupons (higher-than-market interest rates). These bonds tend to have higher credit ratings because they are backed by Treasury securities. * REVENUE BONDS--securities backed by revenues from sales taxes or from a specific project, system, or facility (such as a hospital, electric utility, or water system). www.americancentury.com 29 Glossary - -------------------------------------------------------------------------------- (Continued) FUND CLASSIFICATIONS INVESTMENT OBJECTIVE The investment objective may be based on the fund's objective as stated in its prospectus or fund profile, or the fund's categorization by independent rating organizations based on its management style. * CAPITAL PRESERVATION -- offers taxable and tax-free money market funds for relative stability of principal and liquidity. * INCOME -- offers funds that can provide current income and competitive yields, as well as a strong and stable foundation and generally lower volatility levels than stock funds. * GROWTH & INCOME -- offers funds that emphasize both growth and income provided by either dividend-paying equities or a combination of equity and fixed-income securities. * GROWTH -- offers funds with a focus on capital appreciation and long-term growth, generally providing high return potential with corresponding high price fluctuation risk. RISK The classification of funds by risk category is based on quantitative historical measures as well as qualitative prospective measures. It is not intended to be a precise indicator of future risk or return levels. The degree of risk within each category can vary significantly, and some fund returns have historically been higher than more aggressive funds or lower than more conservative funds. Please be aware that the fund's category may change over time. Therefore, it is important that you read a fund's prospectus or fund profile carefully before investing to ensure its objectives, policies and risk potential are consistent with your needs. * CONSERVATIVE -- these funds generally provide lower return potential with either low or minimal price fluctuation risk. * MODERATE -- these funds generally provide moderate return potential with moderate price fluctuation risk. * AGGRESSIVE -- these funds generally provide high return potential with corresponding high price fluctuation risk. 30 1-800-345-2021 Notes - -------------------------------------------------------------------------------- www.americancentury.com 31 Notes - -------------------------------------------------------------------------------- 32 1-800-345-2021 [inside back cover] =============================================================================== INVESTMENT OBJECTIVE - CAPITAL PRESERVATION =============================================================================== RISK LEVEL - CONSERVATIVE TAXABLE MONEY MARKETS TAX-FREE MONEY MARKETS Premium Capital Reserve FL Municipal Money Market Prime Money Market CA Municipal Money Market Premium Government Reserve CA Tax-Free Money Market Government Agency Tax-Free Money Market Money Market Capital Preservation =============================================================================== INVESTMENT OBJECTIVE - INCOME =============================================================================== RISK LEVEL - AGGRESSIVE TAXABLE BONDS TAX-FREE BONDS Target 2025* CA High-Yield Municipal Target 2020* High-Yield Municipal Target 2015* Target 2010* High-Yield International Bond RISK LEVEL - MODERATE TAXABLE BONDS TAX-FREE BONDS Long-Term Treasury CA Long-Term Tax-Free Target 2005* Long-Term Tax-Free Bond CA Insured Tax-Free Premium Bond RISK LEVEL - CONSERVATIVE TAXABLE BONDS TAX-FREE BONDS Intermediate-Term Bond CA Intermediate-Term Tax-Free Intermediate-Term Treasury AZ Intermediate-Term Municipal GNMA FL Intermediate-Term Municipal Inflation-Adjusted Treasury Intermediate-Term Tax-Free Limited-Term Bond CA Limited-Term Tax-Free Target 2000* Limited-Term Tax-Free Short-Term Government Short-Term Treasury =============================================================================== INVESTMENT OBJECTIVE - GROWTH AND INCOME =============================================================================== RISK LEVEL - AGGRESSIVE DOMESTIC EQUITY Small Cap Quantitative Small Cap Value RISK LEVEL - MODERATE ASSET ALLOCATION/BALANCED DOMESTIC EQUITY SPECIALTY Strategic Allocation -- Equity Growth Utilities Aggressive Equity Index Real Estate Balanced Tax-Managed Value Strategic Allocation -- Income & Growth Moderate Value Strategic Allocation -- Large Cap Value Conservative Equity Income =============================================================================== INVESTMENT OBJECTIVE - GROWTH =============================================================================== RISK LEVEL - AGGRESSIVE DOMESTIC EQUITY SPECIALTY INTERNATIONAL New Opportunities Global Gold Emerging Markets Giftrust(reg.tm) International Discovery Vista International Growth Heritage Global Growth Growth Ultra(reg.tm) Select RISK LEVEL - MODERATE SPECIALTY Global Natural Resources The investment objective may be based on the fund's objective as stated in its prospectus or fund profile, or the fund's categorization by independent rating organizations based on its management style. The classification of funds by risk category is based on quantitative historical measures as well as qualitative prospective measures. It is not intended to be a precise indicator of future risk or return levels. The degree of risk within each category can vary significantly, and some fund returns have historically been higher than more aggressive funds or lower than more conservative funds. Please be aware that a fund's category may change over time. Therefore, it is important that you read a fund's prospectus or fund profile carefully before investing to ensure its objectives, policies and risk potential are consistent with your needs.For a definition of fund categories, see the Glossary. * While listed within the Income investment objective, the Target funds do not pay current dividend income. Income dividends are distributed once a year in December. The Target funds are listed in all three risk categories due to the dramatic price volatility investors may experience during certain market conditions. If held to their target dates, however, they can offer a conservative, dependable way to invest for a specific time horizon. Please call 1-800-345-2021 for a prospectus or profile on any American Century fund. These documents contain important information including charges and expenses, and you should read them carefully before you invest or send money. [back cover] [american century logo(reg.sm)] American Century P.O. BOX 419200 KANSAS CITY, MISSOURI 64141-6200 WWW.AMERICANCENTURY.COM INVESTOR RELATIONS 1-800-345-2021 OR 816-531-5575 AUTOMATED INFORMATION LINE 1-800-345-8765 FAX: 816-340-7962 TELECOMMUNICATIONS DEVICE FOR THE DEAF 1-800-634-4113 OR 816-444-3485 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES 1-800-345-6488 AMERICAN CENTURY CALIFORNIA TAX-FREE AND MUNICIPAL FUNDS INVESTMENT MANAGER AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. KANSAS CITY, MISSOURI THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. - -------------------------------------------------------------------------------- American Century Investments BULK RATE P.O. Box 419200 U.S. POSTAGE PAID Kansas City, MO 64141-6200 AMERICAN CENTURY www.americancentury.com COMPANIES Funds Distributor, Inc. is 9910 the distributor of American Century funds SH-ANN-18084 (c)1999 American Century Services Corporation -----END PRIVACY-ENHANCED MESSAGE-----