UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-3706 --------------------------------------------- American Century California Tax-Free and Municipal Funds - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 4500 Main Street, Kansas City, Missouri 64141 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) David C. Tucker, Esq., 4500 Main Street, 9th Floor, Kansas City, Missouri 64111 - ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 816-531-5575 ---------------------------- Date of fiscal year end: August 31, 2003 -------------------------------------------------------- Date of reporting period: August 31, 2003 -------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS. [front cover] August 31, 2003 American Century Annual Report [photo] California Tax-Free Money Market California Limited-Term Tax-Free California Intermediate-Term Tax-Free California Long-Term Tax-Free [american century logo and text logo (reg.sm)] [inside front cover] Table of Contents Our Message to You........................................................ 1 CALIFORNIA TAX-FREE MONEY MARKET Performance............................................................... 2 Portfolio Commentary...................................................... 3 Schedule of Investments................................................... 4 CALIFORNIA LIMITED-TERM TAX-FREE Performance............................................................... 8 Portfolio Commentary...................................................... 9 Schedule of Investments................................................... 11 CALIFORNIA INTERMEDIATE-TERM TAX-FREE Performance............................................................... 15 Portfolio Commentary...................................................... 16 Schedule of Investments................................................... 18 CALIFORNIA LONG-TERM TAX-FREE Performance............................................................... 24 Portfolio Commentary...................................................... 25 Schedule of Investments................................................... 27 FINANCIAL STATEMENTS Statement of Assets and Liabilities....................................... 32 Statement of Operations................................................... 33 Statement of Changes in Net Assets........................................ 34 Notes to Financial Statements............................................. 36 Financial Highlights...................................................... 40 Report of Independent Auditors............................................ 44 OTHER INFORMATION Management................................................................ 45 Index Definitions......................................................... 48 The opinions expressed in the Portfolio Commentary reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing.Our Message to You [photo] James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the annual report for the American Century California Tax-Free Money Market Fund and the American Century California Limited-, Intermediate-, and Long-Term Tax-Free Funds for the fiscal year ended August 31, 2003. The report includes comparative performance figures, portfolio and market commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Also, through our Web site, we provide quarterly commentaries on all American Century portfolios, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. Your next shareholder report for these funds will be the semiannual report dated February 29, 2004, available in approximately six months. As always, we deeply appreciate your investment with American Century. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /s/James E. Stowers III James E. Stowers III Co-Chairman of the Board ----- 1 California Tax-Free Money Market - Performance TOTAL RETURNS AS OF AUGUST 31, 2003 ----------------------------- AVERAGE ANNUAL RETURNS - ----------------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - ----------------------------------------------------------------------------------------- CALIFORNIA TAX-FREE MONEY MARKET 0.73% 2.11% 2.53% 3.38% 11/9/83 - ----------------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS 0.67% 1.94% 2.40% 3.49%(1) -- - ----------------------------------------------------------------------------------------- Fund's Lipper Ranking(2) 23 of 63 9 of 47 9 of 37 -- -- - ----------------------------------------------------------------------------------------- (1) Since 11/30/83, the date nearest the Investor Class's inception for which data are available. (2) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/03 2/28/03 - -------------------------------------------------------------------------------- A-1+ 72% 71% - -------------------------------------------------------------------------------- A-1 28% 29% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. PORTFOLIO COMPOSITION BY MATURITY - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/03 2/28/03 - -------------------------------------------------------------------------------- 1-30 days 89% 83% - -------------------------------------------------------------------------------- 31-90 days -- 5% - -------------------------------------------------------------------------------- 91-180 days -- 12% - -------------------------------------------------------------------------------- More than 180 days 11% -- - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 0.39% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 0.39% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 0.57% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 0.60% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 0.64% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 0.66% - -------------------------------------------------------------------------------- *The tax brackets indicated are for combined state and federal income taxes. 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 current yield more closely reflects the current earnings of the fund than the total return. - ----- 2 California Tax-Free Money Market - Portfolio Commentary By Todd Pardula, portfolio manager PERFORMANCE SUMMARY For the fiscal year ended August 31, 2003, California Tax-Free Money Market outperformed the average return of its Lipper peer group. And it's worth noting that the fund achieved that performance without investing in generally higher-yielding securities that are subject to the federal alternative minimum tax. Longer-term results were also appealing. (See the previous page for details.) ECONOMIC & MARKET REVIEW U.S. economic growth (as measured by gross domestic product) decelerated early in the fiscal year but picked up steam toward the end of the period. With that environment in mind, the Federal Reserve lowered the federal funds rate target from 1.75% to a 45-year low of 1.00%. Noting the rising "risk of inflation becoming undesirably low," the Fed stated in August that its accommodative interest rate policy "can be maintained for a considerable period." As a result, municipal money market yields generally fell during the fiscal year, tracking the Fed's rate cuts. The fund's 7-day current yield fell from 0.84% on August 31, 2002, to 0.39% on August 31, 2003. In addition to that backdrop, California faced a host of state-specific issues such as a budget stalemate, cries for a gubernatorial recall, and two credit-rating downgrades. PORTFOLIO STRATEGY The fund's average maturity was relatively short during the fiscal year, averaging about 35 days. This reflected the portfolio's emphasis on short-term variable-rate demand notes (VRDNs, also known as "floaters"), which typically comprised 70-80% of the portfolio. Floaters generally offered yields that were fairly competitive with the yields of one-year municipal securities. We extended the fund's average maturity significantly at two points during the fiscal year. In October 2002, we bought some municipal mandatory put bonds with various 2003 maturities issued by the California Department of Water Resources. In June, we purchased some one-year revenue anticipation warrants issued by the state, which extended the portfolio's average maturity from less than 25 days to approximately 60 days. A NOTE ABOUT THE FUND'S YIELD The sharp decline in interest rates over the past several years has brought money market yields down to very low levels. Nonetheless, we expect California Tax-Free Money Market to maintain a positive yield unless the Fed cuts interest rates significantly in the future. Should that happen, American Century will examine all possible ways to maintain yields that are competitive and positive, including the waiver of management fees. ----- 3 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 100.0% CALIFORNIA -- 100.0% - -------------------------------------------------------------------------------- $ 9,995,000 ABN AMRO Leasetops Certificates Trust COP, Series 2002-1, VRDN, 1.02%, 9/3/03 (FSA) (Acquired 8/28/02, Cost $9,995,000) (SBBPA: ABN AMRO)(1) $ 9,995,000 - -------------------------------------------------------------------------------- 11,867,653 ABN AMRO Leasetops Certificates Trust Rev., Series 2003-1, VRDN, 1.02%, 9/3/03 (AMBAC) (Acquired 1/29/03, Cost $11,867,653) (SBBPA: ABN AMRO)(1) 11,867,653 - -------------------------------------------------------------------------------- 2,260,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 1997 D, VRDN, 0.85%, 9/4/03 (LOC: Bank of Nova Scotia) 2,260,000 - -------------------------------------------------------------------------------- 840,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 2000 I, VRDN, 0.85%, 9/4/03 (AMBAC) (LOC: KBC Bank N.V.) 840,000 - -------------------------------------------------------------------------------- 1,625,000 Alvord Unified School District Financing Corporation COP, VRDN, 0.85%, 9/4/03 (LOC: KBC Bank N.V.) 1,625,000 - -------------------------------------------------------------------------------- 1,900,000 Anaheim Union High School District COP, (School Facilities), VRDN, 0.90%, 9/4/03 (FSA) (SBBPA: Wachovia Bank, N.A.) 1,900,000 - -------------------------------------------------------------------------------- 5,400,000 Apple Valley COP, (Public Facilities Financing), VRDN, 0.85%, 9/4/03 (LOC: California State Teacher's Retirement System) 5,400,000 - -------------------------------------------------------------------------------- 1,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., (Point Loma Nazarene University), VRDN, 0.90%, 9/4/03 (LOC: Allied Irish Bank plc) 1,000,000 - -------------------------------------------------------------------------------- 2,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., Series 2002 A, (Hamilin School), VRDN, 0.85%, 9/4/03 (LOC: BNP Paribas) 2,000,000 - -------------------------------------------------------------------------------- 8,000,000 Auburn Union School District COP, VRDN, 0.85%, 9/4/03 (FSA) (SBBPA: Dexia Credit Local) 8,000,000 - -------------------------------------------------------------------------------- 4,465,000 Baldwin Park COP, (Street Improvement Program), VRDN, 0.85%, 9/3/03 (LOC: Allied Irish Bank plc) 4,465,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 2,400,000 Barstow Multifamily Housing Rev., (Desert Vista Apartments), VRDN, 0.84%, 9/3/03 (FHLB) (LOC: Redlands Federal Bank) $ 2,400,000 - -------------------------------------------------------------------------------- 3,295,000 California Department of Water Resources Rev., (PT-748), VRDN, 0.95%, 9/4/03 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 2/27/03, Cost $3,295,000)(1) 3,295,000 - -------------------------------------------------------------------------------- 7,800,000 California Department of Water Resources Rev., Series 2002 B2, VRDN, 0.85%, 9/2/03 (LOC: BNP Paribas) 7,800,000 - -------------------------------------------------------------------------------- 12,400,000 California Department of Water Resources Rev., Series 2002 C4, VRDN, 0.85%, 9/4/03 (LOC: JP Morgan Chase Bank, California State Teacher's Retirement System) 12,400,000 - -------------------------------------------------------------------------------- 6,000,000 California Department of Water Resources Rev., Series 2002 C5, VRDN, 0.85%, 9/4/03 (LOC: Dexia Credit Local) 6,000,000 - -------------------------------------------------------------------------------- 25,000,000 California Department of Water Resources Rev., Series 2002 C7, VRDN, 0.80%, 9/4/03 (FSA) (SBBPA: Dexia Credit Local) 25,000,000 - -------------------------------------------------------------------------------- 10,000,000 California Department of Water Resources Rev., Series 2002 C12, VRDN, 0.85%, 9/4/03 (LOC: Landesbank Hessen-Thuringen Girozentrale) 10,000,000 - -------------------------------------------------------------------------------- 25,000,000 California Department of Water Resources Rev., Series 2002 C14, VRDN, 0.85%, 9/4/03 (LOC: Westdeutsche Landesbank) 25,000,000 - -------------------------------------------------------------------------------- 6,000,000 California Department of Water Resources Rev., Series 2002 C16, VRDN, 0.85%, 9/4/03 (LOC: Bank of New York) 6,000,000 - -------------------------------------------------------------------------------- 6,000,000 California Department of Water Resources Rev., Series 2002 C17, VRDN, 0.85%, 9/4/03 (LOC: Bank of New York) 6,000,000 - -------------------------------------------------------------------------------- 6,000,000 California Department of Water Resources Rev., Series 2002 C18, VRDN, 0.85%, 9/4/03 (LOC: Bank of New York) 6,000,000 - -------------------------------------------------------------------------------- 1,300,000 California Economic Development Financing Auth. Rev., (Volk Enterprises Inc.), VRDN, 0.90%, 9/4/03 (LOC: Harris Trust & Savings Bank) (Acquired 2/6/02, Cost $1,300,000)(1) 1,300,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 4 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,900,000 California Educational Facilities Auth. Rev., (Chapman University), VRDN, 0.95%, 9/3/03 (LOC: Allied Irish Bank plc) $ 4,900,000 - -------------------------------------------------------------------------------- 3,860,000 California Educational Facilities Auth. Rev., Series 2002 A, (Art Center Design College), VRDN, 0.90%, 9/4/03 (LOC: Allied Irish Bank plc) 3,860,000 - -------------------------------------------------------------------------------- 7,605,000 California Educational Facilities Auth. Rev., Series 2002 B, (Art Center Design College), VRDN, 0.90%, 9/4/03 (LOC: Allied Irish Bank plc) 7,605,000 - -------------------------------------------------------------------------------- 2,500,000 California GO, Series 2003 B3, VRDN, 0.80%, 9/4/03 (LOC: Bank of New York, BNP Paribas) 2,500,000 - -------------------------------------------------------------------------------- 15,000,000 California GO, Series 2003 B4, VRDN, 0.80%, 9/4/03 (LOC: Bank of New York, BNP Paribas) 15,000,000 - -------------------------------------------------------------------------------- 5,000,000 California GO, Series 2003 C3, VRDN, 0.80%, 9/4/03 (LOC: Bank of Nova Scotia, Landesbank Hessen-Thuringen Girozentrale) 5,000,000 - -------------------------------------------------------------------------------- 10,000,000 California GO, Series 2003 C4, VRDN, 0.85%, 9/4/03 (LOC: Bank of Nova Scotia, Landesbank Hessen-Thuringen Girozentrale) 10,000,000 - -------------------------------------------------------------------------------- 5,900,000 California Health Facilities Financing Auth. Rev., (Southern California Presbyterian), VRDN, 0.84%, 9/3/03 (MBIA) (SBBPA: Bank of America, N.A.) 5,900,000 - -------------------------------------------------------------------------------- 16,900,000 California Health Facilities Financing Auth. Rev., Series 1991 A, (Adventist Health System), VRDN, 0.90%, 9/4/03 (LOC: U.S. Bank, N.A.) 16,900,000 - -------------------------------------------------------------------------------- 13,685,000 California Housing Finance Agency Rev., Series 2001 F, (Multifamily Housing III), VRDN, 0.85%, 9/3/03 (SBBPA: FNMA) 13,685,000 - -------------------------------------------------------------------------------- 10,300,000 California Housing Finance Agency Rev., Series 2002 B, (Multifamily Housing III), VRDN, 0.85%, 9/4/03 (SBBPA: FNMA) 10,300,000 - -------------------------------------------------------------------------------- 4,000,000 California Infrastructure & Economic Development Bank Rev., Series 2003 A, (SRI International), VRDN, 0.85%, 9/4/03 (LOC: Wells Fargo Bank, N.A.) 4,000,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 6,000,000 California Pollution Control Financing Auth. Rev., (Sierra Pacific Industries), VRDN, 0.85%, 9/3/03 (LOC: Bank of America N.A.) $ 6,000,000 - -------------------------------------------------------------------------------- 26,500,000 California Rev. Anticipation Warrants, Series 2003 A, 2.00%, 6/16/04 26,686,623 - -------------------------------------------------------------------------------- 8,000,000 California School Cash Reserve Program Auth. Rev., Series 2003 A, 2.00%, 7/6/04 (AMBAC) 8,073,762 - -------------------------------------------------------------------------------- 13,800,000 California Statewide Communities Development Auth. Rev., (The Painted Turtle), VRDN, 0.85%, 9/4/03 (LOC: Allied Irish Bank plc) 13,800,000 - -------------------------------------------------------------------------------- 15,000,000 California Statewide Communities Development Auth. Rev., Series 2002 A, (Biola University), VRDN, 0.90%, 9/4/03 (LOC: Allied Irish Bank plc) 15,000,000 - -------------------------------------------------------------------------------- 11,400,000 California Statewide Communities Development Auth. Rev., Series 2003 A, (Kaiser Permanente), VRDN, 0.91%, 9/3/03 11,400,000 - -------------------------------------------------------------------------------- 7,320,000 California Statewide Communities Development Auth. Rev., (PT-1786), VRDN, 0.95%, 9/4/03 (SBBPA: Merrill Lynch Capital Services, Inc.) 7,320,000 - -------------------------------------------------------------------------------- 5,605,000 California Statewide Communities Development Auth. Special Tax COP, (PT-1269), VRDN, 0.95%, 9/4/03 (LOC: Merrill Lynch & Co., Inc.) (Acquired 8/6/01- 3/13/03, Cost $5,605,000)(1) 5,605,000 - -------------------------------------------------------------------------------- 5,000,000 California GO, (PA-1164), VRDN, 1.08%, 9/4/03 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 7/10/03, Cost $5,000,000)(1) 5,000,000 - -------------------------------------------------------------------------------- 2,500,000 Carlsbad Unified School District GO, (School Facilities), VRDN, 0.90%, 9/4/03 (FSA) (SBBPA: Wachovia Bank, N.A.) 2,500,000 - -------------------------------------------------------------------------------- 2,100,000 Davis Special Tax Rev., (Community Facilities District No. 1999-2), VRDN, 0.90%, 9/4/03 (LOC: Wells Fargo Bank, N.A.) 2,100,000 - -------------------------------------------------------------------------------- 4,000,000 Diamond Bar Public Financing Auth. Lease Rev., Series 2002 A, (Community/Senior Center), VRDN, 0.90%, 9/3/03 (LOC: California State Teacher's Retirement System) 4,000,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 5 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,630,000 East Side Union High School District-Santa Clara County GO, Series 2003-15, (Stars Certificates), VRDN, 0.96%, 9/4/03 (MBIA) (SBBPA: BNP Paribas) (Acquired 8/15/03, Cost $2,630,000)(1) $ 2,630,000 - -------------------------------------------------------------------------------- 3,310,000 El Monte COP, Series 2003 A, (Community Improvement), VRDN, 0.85%, 9/4/03 (LOC: California State Teacher's Retirement System) 3,310,000 - -------------------------------------------------------------------------------- 6,480,000 Fresno Unified School District GO, VRDN, 0.86%, 9/4/03 (MBIA) (SBBPA: Westdeutsche Landesbank) 6,480,000 - -------------------------------------------------------------------------------- 3,600,000 Grant Joint Union High School District GO, VRDN, 0.90%, 9/4/03 (FSA) (SBBPA: Wachovia Bank, N.A.) 3,600,000 - -------------------------------------------------------------------------------- 3,800,000 Hemet Multifamily Housing Auth. Rev., (West Acacia), VRDN, 0.85%, 9/4/03 (LOC: FHLB) 3,800,000 - -------------------------------------------------------------------------------- 23,000,000 Inland Valley Development Agency Tax Allocation Rev., VRDN, 0.95%, 9/3/03 (LOC: California State Teacher's Retirement System) 23,000,000 - -------------------------------------------------------------------------------- 3,560,000 Kern County Superintendent of Schools COP, Series 1996 A, VRDN, 0.85%, 9/4/03 (SBBPA: Anchor National Life Insurance Co.) 3,560,000 - -------------------------------------------------------------------------------- 28,081,425 Koch Certificates Trust Rev., Series 1999-2, VRDN, 0.88%, 9/4/03 (AMBAC) (MBIA) (SBBPA: State Street Bank & Trust Co.) (Acquired 2/11/00- 4/17/00, Cost $28,081,425)(1) 28,081,425 - -------------------------------------------------------------------------------- 1,500,000 Los Angeles Community Redevelopment Agency Rev., (Grand Promenade), VRDN, 0.80%, 9/4/03 (FHLMC) 1,500,000 - -------------------------------------------------------------------------------- 3,100,000 Los Angeles Community Redevelopment Agency Rev., (Skyline at Southpark), VRDN, 0.85%, 9/3/03 (LOC: Westdeutsche Landesbank) 3,100,000 - -------------------------------------------------------------------------------- 4,990,000 Los Angeles GO, (PT-1476), VRDN, 0.86%, 9/4/03 (MBIA) (SBBPA: Merrill Lynch & Co., Inc.) 4,990,000 - -------------------------------------------------------------------------------- 5,000,000 Manhattan Beach Unified School District COP, (Capital Improvement), VRDN, 0.90%, 9/4/03 (FSA) (SBBPA: Wachovia Bank, N.A.) 5,000,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 4,600,000 National City Community Development Commission Tax Allocation Rev., Series 2001 B, VRDN, 0.85%, 9/4/03 (AMBAC) (LOC: Bank of Nova Scotia) $ 4,600,000 - -------------------------------------------------------------------------------- 5,450,000 Orange County Mulitfamily Housing Auth. Rev., (Heritage Point Apartments), VRDN, 0.85%, 9/3/03 (LOC: Allied Irish Bank plc) 5,450,000 - -------------------------------------------------------------------------------- 2,100,000 Orange County Sanitation District COP, Series 2000 A, VRDN, 0.75%, 9/2/03 (SBBPA: Dexia Credit Local) 2,100,000 - -------------------------------------------------------------------------------- 2,400,000 Redwood City COP, (City Hall), VRDN, 0.85%, 9/4/03 (LOC: KBC Bank N.V.) 2,400,000 - -------------------------------------------------------------------------------- 2,960,000 Riverside County Community Facilities District No. 89-1 Special Tax, VRDN, 0.85%, 9/4/03 (LOC: KBC Bank N.V.) 2,960,000 - -------------------------------------------------------------------------------- 6,000,000 Riverside Unified School District COP, (School Facility Boarding Refunding Program), VRDN, 0.90%, 9/4/03 (FSA) (SBBPA: Wachovia Bank, N.A.) 6,000,000 - -------------------------------------------------------------------------------- 1,510,000 Riverside Unified School District COP, VRDN, 0.90%, 9/4/03 (FSA) (SBBPA: Wachovia Bank, N.A.) 1,510,000 - -------------------------------------------------------------------------------- 3,000,000 San Bernardino City Unified School District COP, (School Facilities), VRDN, 0.90%, 9/4/03 (FSA) (SBBPA: Wachovia Bank, N.A.) 3,000,000 - -------------------------------------------------------------------------------- 7,000,000 San Bernardino County COP, (Medical Center Financing), VRDN, 0.82%, 9/3/03, Prerefunded at 102% of Par (MBIA) (SBBPA: Landesbank Hessen-Thuringen Girozentrale)(2) 7,000,000 - -------------------------------------------------------------------------------- 21,535,000 San Bernardino County COP, (PA-100), VRDN, 0.89%, 9/4/03 (MBIA) (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 11/29/02- 1/24/03, Cost $21,535,000)(1) 21,535,000 - -------------------------------------------------------------------------------- 30,500,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1990 A, (Highland Hills), 1.25%, 5/1/04 (FHLB) (Acquired 4/30/03, Cost $30,500,000)(1) 30,500,000 - -------------------------------------------------------------------------------- 4,330,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1993 A, (Rialto Heritage), VRDN, 0.85%, 9/4/03 (LOC: FHLB) 4,330,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 6 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,000,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1997 A, (Mountain View), VRDN, 0.77%, 9/4/03 (LOC: FHLB) $ 4,000,000 - -------------------------------------------------------------------------------- 1,985,000 San Bernardino County Rev., (Gold West Phase 2), VRDN, 0.80%, 9/4/03 (LOC: FHLB) 1,985,000 - -------------------------------------------------------------------------------- 3,600,000 San Francisco City & County Redevelopment Agency Rev., (South Harbor), VRDN, 0.85%, 9/4/03 (LOC: Dexia Credit Local) 3,600,000 - -------------------------------------------------------------------------------- 1,500,000 San Jose Multifamily Housing Auth. Rev., (Fairway Glen), VRDN, 0.90%, 9/4/03 (LOC: FGIC) 1,500,000 - -------------------------------------------------------------------------------- 9,200,000 San Jose Multifamily Housing Auth. Rev., (Foxchase), VRDN, 0.90%, 9/4/03 (LOC: FGIC) 9,200,000 - -------------------------------------------------------------------------------- 2,660,000 San Jose Multifamily Housing Auth. Rev., (Timberwood), VRDN, 0.85%, 9/3/03 (LOC: Wells Fargo & Co.) 2,660,000 - -------------------------------------------------------------------------------- 3,570,000 San Juan Unified School District GO, (Election of 2002), 4.00%, 8/1/04 (MBIA) 3,667,230 - -------------------------------------------------------------------------------- 11,700,000 San Ramon Valley Unified School District GO, VRDN, 0.85%, 9/4/03 (LOC: BNP Paribas) 11,700,000 - -------------------------------------------------------------------------------- 6,590,000 Sanger Public Financing Auth. Rev., Series 2002 A, (Utility System Financing), VRDN, 0.85%, 9/3/03 (LOC: California State Teacher's Retirement System) 6,590,000 - -------------------------------------------------------------------------------- 4,800,000 Santa Paula Public Financing Auth. Lease Rev., (Water System Acquisition), VRDN, 0.80%, 9/3/03 (LOC: California State Teacher's Retirement System) 4,800,000 - -------------------------------------------------------------------------------- 4,660,000 Sweetwater Union High School District COP, VRDN, 0.90%, 9/4/03 (FSA) (SBBPA: Wachovia Bank, N.A.) 4,660,000 - -------------------------------------------------------------------------------- 6,750,000 Temecula Public Financing Auth. Special Tax, Series 2002 A, (Harveston), VRDN, 0.85%, 9/4/03 (LOC: Bank of America N.A.) 6,750,000 - -------------------------------------------------------------------------------- 1,300,000 Triunfo Sanitation District Rev., VRDN, 0.90%, 9/3/03 (LOC: BNP Paribas) 1,300,000 - -------------------------------------------------------------------------------- 1,000,000 Upland Community Redevelopment Agency Multifamily Housing Rev., Series 2000 A, (Northwoods 156), VRDN, 0.80%, 9/4/03 (LOC: FNMA) 1,000,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 Upland Community Redevelopment Agency Multifamily Housing Rev., Series 2000 A, (Northwoods 168), VRDN, 0.80%, 9/4/03 (LOC: FNMA) $ 1,000,000 - -------------------------------------------------------------------------------- 1,295,000 Vallejo COP, VRDN, 0.90%, 9/4/03 (LOC: KBC Bank N.V.) 1,295,000 - -------------------------------------------------------------------------------- 5,710,000 West Covina Redevelopment Agency Lease Rev., (Lakes Public Parking), VRDN, 0.95%, 9/3/03 (LOC: Allied Irish Bank plc) 5,710,000 - -------------------------------------------------------------------------------- 3,600,000 Westminster COP, Series 1998 A, (Civic Center), VRDN, 0.85%, 9/4/03 (AMBAC) (SBBPA: Wachovia Bank, N.A.) 3,600,000 - -------------------------------------------------------------------------------- 1,700,000 Westminster Redevelopment Agency Tax Allocation Rev., (Commercial Redevelopment Project No. 1), VRDN, 0.85%, 9/4/03 (AMBAC) (SBBPA: Landesbank Hessen-Thuringen Girozentrale) 1,700,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% $624,836,693 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FHLB = Federal Home Loan Bank FHLMC = Federal Home Loan Mortgage Corporation FNMA = Federal National Mortgage Association FSA = Financial Security Assurance Inc. GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 2003. (1) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at August 31, 2003, was $119,809,078, which represented 19.3% of net assets. Restricted securities considered illiquid represent 4.9% of net assets. (2) Escrowed to maturity in U.S. government or state and local government securities. See Notes to Financial Statements. ----- 7 California Limited-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2003 ------------------------------ AVERAGE ANNUAL RETURNS - ------------------------------------------------------------------------------------------ SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - ------------------------------------------------------------------------------------------ CALIFORNIA LIMITED-TERM TAX-FREE 1.87% 4.27% 4.32% 4.59% 6/1/92 - ------------------------------------------------------------------------------------------ LEHMAN 3-YEAR MUNICIPAL BOND INDEX 3.06% 4.87% 4.89% 5.15%(1) -- - ------------------------------------------------------------------------------------------ AVERAGE RETURN OF LIPPER'S CALIF. SHORT-INTERM. MUNICIPAL DEBT FUNDS 1.72% 3.91% 4.27% 4.66%(2) -- - ------------------------------------------------------------------------------------------ Fund's Lipper Ranking(3) 6 of 12 1 of 9 2 of 4 -- -- - ------------------------------------------------------------------------------------------ (1) Since 5/31/92, the date nearest the fund's inception for which data are available. (2) Since 6/4/92, the date nearest the fund's inception for which data are available. (3) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made August 31, 1993
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 - ---------------------------------------------------------------------------------------------------------------------- CALIFORNIA LIMITED- TERM TAX-FREE 1.90% 5.33% 3.87% 5.42% 5.40% 2.26% 5.44% 6.94% 4.91% 1.87% - ---------------------------------------------------------------------------------------------------------------------- LEHMAN 3-YEAR MUNICIPAL BOND INDEX 2.52% 6.66% 3.95% 5.65% 5.76% 2.92% 4.72% 8.05% 5.71% 3.06% - ---------------------------------------------------------------------------------------------------------------------- The charts on the performance page give historical return data for the fund. Returns for the index are provided for comparison. The fund'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. None of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. - ----- 8 California Limited-Term Tax-Free - Portfolio Commentary By Robert Miller, portfolio manager PERFORMANCE OVERVIEW California Limited-Term Tax-Free's total return during the fiscal year ended August 31, 2003, edged past the average return of the fund's Lipper peers. (See the previous page for details.) High-quality bonds remained a key focus during the somewhat volatile economic and market period as we continued to center our efforts on our time-tested security-selection process. Lower-than-average expenses benefited performance as well. And although we had hoped for an even better finish, we believe that the portfolio is well positioned for the current environment. ANNUALIZED DISTRIBUTION RATE The accompanying yield table provides an annualized distribution rate (ADR) in addition to 30-day SEC and tax-equivalent yields. California Limited-Term Tax-Free's ADR was calculated by summing its accumulated daily dividends for the final 30 days of the period, multiplying that result by 12, and then dividing that product by the share price (net asset value) as of August 31, 2003. ECONOMIC BACKDROP California municipal bonds generally provided modest returns during what proved to be a rather volatile economic period. Going into the fiscal year, economic activity (as measured by seasonally adjusted real gross domestic product) surged to a 4.0% annual rate during the third quarter of 2002. Growth tapered off from there, however, dropping to a 1.4% annual pace during the final quarter of 2002 and first quarter of 2003. But growth accelerated again during the second quarter of 2003. On the inflation front, prices remained well contained. As measured by the consumer price index for all urban consumers, and excluding food and energy components, seasonally adjusted inflation rose an annualized 1.2% during the first eight months of 2003, compared with a 1.9% advance for all of 2002. In addition, geopolitical tensions eased by mid-2003, rolling back oil prices, bolstering consumer confidence, and benefiting financial markets. However, sustainable economic growth remained largely out of reach, even though coupled with ongoing productivity growth, historically low interest rates, and expectations for better economic times ahead. With those developments in mind, the Federal Reserve reduced its short-term interest rate benchmark to only 1.0% in late June 2003. PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/03 8/31/02 - -------------------------------------------------------------------------------- Weighted Average Maturity 3.6 yrs 4.1 yrs - -------------------------------------------------------------------------------- Average Duration 3.0 yrs 3.2 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 1.93% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 2.84% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 2.96% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 3.18% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 3.27% - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE (ADR) - -------------------------------------------------------------------------------- 2.71% - -------------------------------------------------------------------------------- *The tax brackets indicated are for combined state and federal income taxes. (continued) ----- 9 California Limited-Term Tax-Free - Portfolio Commentary Yet by August, signs pointed to mixed economic activity, a still-weak labor market, and only slightly improved industrial production, although consumer spending and homebuilding remained bright spots. MARKET BACKDROP A bevy of state-specific issues drove California municipal bonds to generally underperform their national counterparts: the Lehman Brothers 3-year Municipal Bond Index (comprised of municipal bonds throughout the country with two- to four-year maturities) returned over a full percentage point more than the average total return of the fund's Lipper peer group. The potential recall of Governor Gray Davis, California's budget stalemate, and two credit-rating downgrades that left the state's general obligation debt rated the lowest of the fifty states judged by Standard & Poor's all played a hand in the underperformance of California's municipal bonds. Record levels of new bond issuance in the state during the first part of 2003 weighed on returns as well. However, interest in the state's municipal securities increased in August as the spread, or difference in yield, between California municipal bonds and their national counterparts widened out to what some considered the most attractive levels in at least a decade. PORTFOLIO STRATEGIES We emphasized top-rated municipal bonds for the portfolio in that environment. As a result, the combined percentage of bonds carrying AAA and AA ratings represented approximately 80% of the portfolio at end of August 2003, down only 4% from the start of the fiscal year. Signs of a slowly improving economy began to appear in 2003, so we positioned the portfolio for a continuation of that trend. To do so, we reduced the fund's interest rate sensitivity on occasion while generally emphasizing shorter- and longer-term bonds for the portfolio at the expense of bonds with intermediate-term maturities. Lastly, we continued to lean toward essential-service revenue bonds rather than California general obligation bonds. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/03 2/28/03 - -------------------------------------------------------------------------------- AAA 72% 71% - -------------------------------------------------------------------------------- AA 8% 10% - -------------------------------------------------------------------------------- A 13% 13% - -------------------------------------------------------------------------------- BBB 7% 6% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. TOP FIVE SECTORS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- GO 24% - -------------------------------------------------------------------------------- COPs/Leases 22% - -------------------------------------------------------------------------------- Electric Revenue 10% - -------------------------------------------------------------------------------- Tax and Revenue Anticipation Notes 9% - -------------------------------------------------------------------------------- Housing Revenue 6% - -------------------------------------------------------------------------------- - ----- 10 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.0% CALIFORNIA -- 86.4% - -------------------------------------------------------------------------------- $ 2,335,000 Alameda Unified School District GO, 5.50%, 7/1/05 (FSA) $ 2,509,261 - -------------------------------------------------------------------------------- 1,460,000 Alameda Unified School District GO, 5.50%, 7/1/06 (FSA) 1,607,314 - -------------------------------------------------------------------------------- 2,595,000 Alameda Unified School District GO, 5.50%, 7/1/07 (FSA) 2,900,899 - -------------------------------------------------------------------------------- 2,740,000 Alameda Unified School District GO, 5.50%, 7/1/08 (FSA) 3,089,021 - -------------------------------------------------------------------------------- 890,000 Alameda Unified School District GO, 5.50%, 7/1/09 (FSA) 1,005,273 - -------------------------------------------------------------------------------- 1,545,000 Alameda Unified School District GO, 5.50%, 7/1/10 (FSA) 1,736,410 - -------------------------------------------------------------------------------- 425,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., (Odd Fellows Home), 4.65%, 8/15/04 (California Mortgage Insurance) 437,414 - -------------------------------------------------------------------------------- 1,520,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., (Odd Fellows Home), 4.00%, 11/15/07 (California Mortgage Insurance) 1,579,356 - -------------------------------------------------------------------------------- 340,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., (San Diego Hospital), 4.00%, 3/1/08 343,199 - -------------------------------------------------------------------------------- 1,015,000 Atascadero Unified School District COP, Series 2003 A, (Measure B Capital Projects), 2.50%, 8/1/04 (MBIA) 1,029,200 - -------------------------------------------------------------------------------- 875,000 Brea Redevelopment Agency Tax Allocation Rev., Series 2003 AB, 2.00%, 8/1/04 (AMBAC) 883,234 - -------------------------------------------------------------------------------- 735,000 Brea Redevelopment Agency Tax Allocation Rev., Series 2003 AB, 2.00%, 8/1/05 (AMBAC) 743,923 - -------------------------------------------------------------------------------- 1,830,000 California County Securitization Agency Special Tax TOB Rev., (Alameda County), 3.875%, 6/1/08 1,668,484 - -------------------------------------------------------------------------------- 2,000,000 California Department of Water Resources Rev., Series 2002 A, 3.00%, 5/1/06 (MBIA) 2,057,660 - -------------------------------------------------------------------------------- 3,000,000 California Department of Water Resources Rev., Series 2002 A, 5.50%, 5/1/08 (MBIA) 3,296,820 - -------------------------------------------------------------------------------- 1,125,000 California Department of Water Resources Rev., Series 2002 A, 5.25%, 5/1/12 (MBIA) 1,228,163 - -------------------------------------------------------------------------------- 1,910,000 California Educational Facilities Auth. Rev., Series 1997 A, (University of Southern California), 5.60%, 10/1/03 1,917,793 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 440,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 5.65%, 4/1/04 $ 450,278 - -------------------------------------------------------------------------------- 465,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 5.75%, 4/1/05 492,616 - -------------------------------------------------------------------------------- 1,000,000 California GO, 6.35%, 11/1/04 (FGIC) 1,060,600 - -------------------------------------------------------------------------------- 1,615,000 California GO, 9.00%, 11/1/04 1,754,924 - -------------------------------------------------------------------------------- 4,275,000 California GO, 6.50%, 2/1/08 (AMBAC) 4,936,384 - -------------------------------------------------------------------------------- 2,500,000 California GO, 4.50%, 10/1/08 (FSA) 2,704,525 - -------------------------------------------------------------------------------- 2,500,000 California GO, 5.00%, 12/1/09 (AMBAC) 2,761,675 - -------------------------------------------------------------------------------- 3,000,000 California GO, 5.00%, 3/1/10 (XLCA) 3,230,850 - -------------------------------------------------------------------------------- 1,000,000 California GO, 5.50%, 3/1/11 (XLCA) 1,100,650 - -------------------------------------------------------------------------------- 2,000,000 California Infrastructure & Economic Development Bank Rev., (Clean Water State Revolving Fund), 4.00%, 10/1/10 2,075,240 - -------------------------------------------------------------------------------- 1,065,000 California Mobilehome Park Financing Auth. Rev., Series 2000 A, (Union City Tropics), 4.80%, 8/15/06 (ACA) 1,112,733 - -------------------------------------------------------------------------------- 500,000 California Public Works Board Lease Rev., Series 1993 A, (Various University of California Projects), 5.50%, 6/1/10 555,005 - -------------------------------------------------------------------------------- 1,485,000 California Public Works Board Lease Rev., Series 1994 A, (Community College Projects), 9.00%, 10/1/03 1,494,860 - -------------------------------------------------------------------------------- 15,000,000 California Rev. Anticipation Warrants, Series 2003 A, 2.00%, 6/16/04 15,021,449 - -------------------------------------------------------------------------------- 5,000,000 California Rev. Anticipation Warrants, Series 2003 B, 2.00%, 6/16/04 5,007,149 - -------------------------------------------------------------------------------- 345,000 California Statewide Communities Development Auth. Special Tax Rev., Series 2001 B, (Pooled Financing Program), 3.00%, 10/1/04 (FSA) 352,435 - -------------------------------------------------------------------------------- 400,000 California Statewide Communities Development Auth. Special Tax Rev., Series 2001 B, (Pooled Financing Program), 3.75%, 10/1/08 (FSA) 420,324 - -------------------------------------------------------------------------------- 2,000,000 California University Channel Islands Financing Auth. Rev., (Rental Housing), 3.375%, 8/1/04 (LOC: Citibank N.A.) 2,044,580 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 11 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,860,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.00%, 7/1/04 $ 1,907,635 - -------------------------------------------------------------------------------- 1,125,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.00%, 7/1/05 1,181,948 - -------------------------------------------------------------------------------- 1,000,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.00%, 7/1/06 1,061,150 - -------------------------------------------------------------------------------- 1,130,000 Carson Redevelopment Agency Residential Mortgage COP, (Area No. 1), 5.50%, 10/1/11 (MBIA) 1,264,334 - -------------------------------------------------------------------------------- 475,000 Central California Joint Powers Health Financing Auth. COP, (Fresno Community Hospitals), 5.25%, 2/1/04 481,745 - -------------------------------------------------------------------------------- 895,000 Central California Joint Powers Health Financing Auth. COP, (Fresno Community Hospitals), 5.00%, 2/1/07 943,062 - -------------------------------------------------------------------------------- 895,000 Central California Joint Powers Health Financing Auth. COP, (Fresno Community Hospitals), 5.125%, 2/1/08 946,454 - -------------------------------------------------------------------------------- 1,245,000 Central California Joint Powers Health Financing Auth. COP, (Fresno Community Hospitals), 5.125%, 2/1/09 1,308,358 - -------------------------------------------------------------------------------- 675,000 Central California Joint Powers Health Financing Auth. COP, (Fresno Community Hospitals), 5.25%, 2/1/10 708,507 - -------------------------------------------------------------------------------- 860,000 Central California Joint Powers Health Financing Auth. COP, (Fresno Community Hospitals), 5.25%, 2/1/11 891,442 - -------------------------------------------------------------------------------- 1,070,000 Chaffey Community College District GO, Series 2002 A, 4.25%, 7/1/11 (FSA) 1,110,050 - -------------------------------------------------------------------------------- 310,000 Coachella Valley Recreation & Park District Improvement GO, (District 1), 4.875%, 9/2/07 (MBIA) 339,949 - -------------------------------------------------------------------------------- 905,000 Delano Financing Auth. Rev., (Correctional Facilities), 3.00%, 4/1/04 914,656 - -------------------------------------------------------------------------------- 980,000 Delta Diablo Sanitation District Rev., 3.00%, 12/1/03 (FSA) 985,145 - -------------------------------------------------------------------------------- 6,000,000 East Bay-Delta Housing & Finance Agency Rev., Series 2001 A, (Pass Thru Lease Purchase Program), 4.25%, 6/1/05 (MBIA) 6,232,199 - -------------------------------------------------------------------------------- 1,735,000 Fairfield Public Financing Auth. Rev., Series 2003 A, (Fairfield Redevelopment), 2.00%, 8/1/04 (AMBAC) 1,751,326 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,160,000 Fairfield Public Financing Auth. Rev., Series 2003 A, (Fairfield Redevelopment), 2.00%, 8/1/05 (AMBAC) $ 1,174,082 - -------------------------------------------------------------------------------- 1,000,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.00%, 9/1/03 1,000,160 - -------------------------------------------------------------------------------- 505,000 Garden Grove Agency for Community Development Tax Allocation, 2.25%, 10/1/06 (AMBAC) 511,111 - -------------------------------------------------------------------------------- 410,000 Garden Grove Agency for Community Development Tax Allocation, 3.00%, 10/1/07 (AMBAC) 421,054 - -------------------------------------------------------------------------------- 1,190,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/09 (AMBAC) 1,342,094 - -------------------------------------------------------------------------------- 1,755,000 Industry Urban Development Agency Rev., 4.50%, 5/1/11 (MBIA) 1,806,615 - -------------------------------------------------------------------------------- 750,000 Long Beach Bond Finance Auth. GO, Series 2002 A, (North Long Beach Redevelopment), 5.00%, 8/1/10 (AMBAC) 820,440 - -------------------------------------------------------------------------------- 2,315,000 Long Beach Bond Finance Auth. GO, Series 2002 A, (North Long Beach Redevelopment), 5.00%, 8/1/11 (AMBAC) 2,515,479 - -------------------------------------------------------------------------------- 500,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 4.75%, 7/1/07 (ACA) 524,540 - -------------------------------------------------------------------------------- 615,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 4.875%, 7/1/08 (ACA) 644,637 - -------------------------------------------------------------------------------- 500,000 Los Angeles County Community Facilities District No. 3 Special Tax Rev., Series 2000 A, (Improvement Area B), 4.125%, 9/1/05 (AMBAC) 527,240 - -------------------------------------------------------------------------------- 2,100,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, 5.25%, 7/1/11 (FSA) 2,320,374 - -------------------------------------------------------------------------------- 1,360,000 Los Angeles County Public Works Financing Auth. Lease Rev., Series 1996 A, 6.00%, 9/1/04 (MBIA) 1,427,320 - -------------------------------------------------------------------------------- 3,130,000 Los Angeles Department of Water & Power Rev., Series 2001 AA1, (Power Systems), 5.25%, 7/1/10 (MBIA) 3,470,481 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 12 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 6,450,000 Los Angeles GO, Series 1993 A, 5.25%, 9/1/09, Prerefunded at 102% of Par(1)(2) $ 6,580,547 - -------------------------------------------------------------------------------- 2,000,000 Los Angeles Unified School District COP, Series 2002 B, 4.00%, 10/1/04 (FSA) 2,064,260 - -------------------------------------------------------------------------------- 380,000 Lynwood Public Financing Auth. Rev., (Public Capital Improvement), 2.125%, 9/1/06 (AMBAC) 383,131 - -------------------------------------------------------------------------------- 355,000 Lynwood Public Financing Auth. Rev., (Public Capital Improvement), 2.70%, 9/1/07 (AMBAC) 360,350 - -------------------------------------------------------------------------------- 575,000 Lynwood Public Financing Auth. Rev., (Public Capital Improvement), 4.125%, 9/1/12 (AMBAC) 583,349 - -------------------------------------------------------------------------------- 520,000 Mountain View COP, (Capital Projects), 4.00%, 8/1/05(3) 545,163 - -------------------------------------------------------------------------------- 750,000 Mountain View COP, (Capital Projects), 4.00%, 8/1/06(3) 794,603 - -------------------------------------------------------------------------------- 1,600,000 Napa Valley Community College District GO, Series 2003 A, 2.50%, 8/1/06 (MBIA) 1,630,912 - -------------------------------------------------------------------------------- 1,330,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.00%, 10/1/06 (AMBAC) 1,456,244 - -------------------------------------------------------------------------------- 3,000,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.25%, 10/1/08 (AMBAC) 3,362,160 - -------------------------------------------------------------------------------- 1,225,000 Oceanside COP, Series 2003 A, 5.00%, 4/1/11 (AMBAC) 1,324,446 - -------------------------------------------------------------------------------- 865,000 Orange County Development Agency Tax Allocation GO, 4.00%, 9/1/03 (MBIA) 865,147 - -------------------------------------------------------------------------------- 1,230,000 Orange County Rev., Series 1995 A, (Recovery), 6.00%, 6/1/08 (MBIA) 1,411,253 - -------------------------------------------------------------------------------- 2,295,000 Pacific Housing & Finance Agency Lease Rev., Series 1999 A, (Pass Thru Obligation- Lease Purchase), 4.625%, 12/1/04 (MBIA) 2,361,348 - -------------------------------------------------------------------------------- 1,800,000 Poway Unified School District Special Tax Rev., (Community Facilities District No. 1), 5.00%, 10/1/07 (MBIA) 1,989,702 - -------------------------------------------------------------------------------- 585,000 Rancho Water District Financing Auth. Rev., Series 2001 A, 5.00%, 8/1/07 (FSA) 644,717 - -------------------------------------------------------------------------------- 1,650,000 Riverside Sewer Rev., 7.00%, 8/1/07 (FGIC) 1,936,176 - -------------------------------------------------------------------------------- 1,500,000 Riverside Unified School District GO, Series 2002 A, 3.00%, 2/1/04 (FGIC) 1,513,140 - -------------------------------------------------------------------------------- 1,000,000 Sacramento County Sanitation District Auth. Rev., Series 2000 A, 4.70%, 12/1/03 1,009,490 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,800,000 Sacramento County Sanitation District Auth. Rev., Series 2000 A, 5.10%, 12/1/09 $ 4,226,018 - -------------------------------------------------------------------------------- 2,585,000 Sacramento Municipal Utility District Electric Rev., Series 2002 Q, 5.00%, 8/15/09 (FSA) 2,858,726 - -------------------------------------------------------------------------------- 3,000,000 Sacramento Municipal Utility District Electric Rev., Series 2003 S, 5.00%, 11/15/11 (MBIA) 3,273,390 - -------------------------------------------------------------------------------- 1,000,000 San Bernardino County COP, Series 1995 A, (Medical Center Financing), 5.20%, 8/1/04 (MBIA) 1,037,900 - -------------------------------------------------------------------------------- 2,000,000 San Bernardino County Transportation Auth. Rev., Series 2001 A, 5.00%, 3/1/05 (AMBAC) 2,109,720 - -------------------------------------------------------------------------------- 1,040,000 San Buenaventura COP, Series 2002 B, 3.25%, 1/1/04 (AMBAC) 1,047,935 - -------------------------------------------------------------------------------- 1,075,000 San Buenaventura COP, Series 2002 B, 3.50%, 1/1/05 (AMBAC) 1,105,767 - -------------------------------------------------------------------------------- 1,115,000 San Buenaventura COP, Series 2002 B, 3.50%, 1/1/06 (AMBAC) 1,158,597 - -------------------------------------------------------------------------------- 1,185,000 Santa Ana COP, Series 2003 A, 2.50%, 6/1/04 (AMBAC) 1,198,853 - -------------------------------------------------------------------------------- 1,200,000 Santa Ana COP, Series 2003 A, 3.00%, 6/1/06 (AMBAC) 1,238,460 - -------------------------------------------------------------------------------- 3,120,000 Santa Clara County Financing Auth. Lease Rev., Series 2000 B, (Multiple Facilities), 5.50%, 5/15/04 (AMBAC) 3,220,246 - -------------------------------------------------------------------------------- 2,000,000 Santa Clara County Financing Auth. Lease Rev., Series 2000 B, (Multiple Facilities), 5.50%, 5/15/07 (AMBAC) 2,228,980 - -------------------------------------------------------------------------------- 5,000,000 Santa Clara County Financing Auth. Special Obligation Rev., (Measure B Transportation Improvement Program), 4.00%, 8/1/06 5,231,899 - -------------------------------------------------------------------------------- 1,250,000 South Orange County Public Financing Auth. Rev., Series 1994 C, (Foothill Area), 7.50%, 8/15/07 (FGIC) 1,489,500 - -------------------------------------------------------------------------------- 2,000,000 South Orange County Public Financing Auth. Special Tax, Series 2003 A, (Senior Lien), 5.00%, 9/1/12 (MBIA) 2,166,980 - -------------------------------------------------------------------------------- 1,500,000 Southern California Public Power Auth. Rev., Series 2002 A, (San Juan Unit 3), 4.00%, 1/1/05 (FSA) 1,554,075 - -------------------------------------------------------------------------------- 1,240,000 Stockton Health Facilities Auth. Rev., Series 1997 A, (Dameron Hospital Association), 5.00%, 12/1/05 1,302,459 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 13 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 515,000 Tehachapi COP, (Installment Sale), 4.80%, 11/1/04 (FSA) $ 537,547 - -------------------------------------------------------------------------------- 1,385,000 Truckee-Donner Public Utility District COP, Series 2003 A, 3.50%, 1/1/06 (ACA) 1,418,309 - -------------------------------------------------------------------------------- 2,175,000 Turlock Irrigation District Rev., Series 2003 A, 5.00%, 1/1/13 (MBIA) 2,340,365 - -------------------------------------------------------------------------------- 3,270,000 William S. Hart Union High School District COP, (School Facilities), 2.40%, 1/15/04 (FSA) 3,285,533 - -------------------------------------------------------------------------------- 2,815,000 Woodland Finance Auth. Lease Rev., 3.00%, 3/1/04 (XLCA) 2,842,953 - -------------------------------------------------------------------------------- 3,060,000 Woodland Finance Auth. Lease Rev., 3.00%, 3/1/05 (XLCA) 3,132,308 - -------------------------------------------------------------------------------- 1,375,000 Woodland Finance Auth. Lease Rev., 3.00%, 3/1/07 (XLCA) 1,405,319 - -------------------------------------------------------------------------------- 197,371,265 - -------------------------------------------------------------------------------- GUAM -- 2.4% - -------------------------------------------------------------------------------- 5,000,000 Guam Government Limited GO, Series 2001 A, 5.00%, 12/1/09 (FSA) 5,545,200 - -------------------------------------------------------------------------------- NORTHERN MARIANA ISLANDS -- 1.0% - -------------------------------------------------------------------------------- 1,425,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.00%, 6/1/06 (ACA) 1,515,901 - -------------------------------------------------------------------------------- 675,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/07 (ACA) 733,354 - -------------------------------------------------------------------------------- 2,249,255 - -------------------------------------------------------------------------------- PUERTO RICO -- 7.5% - -------------------------------------------------------------------------------- 1,500,000 Childrens Trust Fund Tobacco Settlement Rev., 5.00%, 7/1/08(1) 1,664,445 - -------------------------------------------------------------------------------- 2,000,000 Puerto Rico Commonwealth GO, 5.00%, 7/1/05 (FGIC) 2,133,800 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/08 (FSA) 1,099,830 - -------------------------------------------------------------------------------- 3,000,000 Puerto Rico Electric Power Auth. Rev., 5.00%, 7/1/06 3,227,700 - -------------------------------------------------------------------------------- 2,460,000 Puerto Rico Electric Power Auth. Rev., 5.00%, 7/1/08 2,671,314 - -------------------------------------------------------------------------------- 1,500,000 Puerto Rico Electric Power Auth. Rev., Series 1999 FF, 5.25%, 7/1/09 (MBIA) 1,679,895 - -------------------------------------------------------------------------------- 1,530,000 Puerto Rico Municipal Finance Agency GO, Series 1999 B, 5.00%, 8/1/04 (FSA) 1,586,824 - -------------------------------------------------------------------------------- 1,315,000 Puerto Rico Municipal Finance Agency Rev., Series 2002 A, 4.50%, 8/1/10 (FSA) 1,404,525 - -------------------------------------------------------------------------------- 1,500,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.50%, 7/1/10 1,651,755 - -------------------------------------------------------------------------------- 17,120,088 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 0.7% - -------------------------------------------------------------------------------- $ 1,500,000 Virgin Islands Public Finance Auth. Rev., Series 1998 C, 5.50%, 10/1/07 $ 1,620,760 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $218,319,706) 223,906,568 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 2.0% CALIFORNIA -- 2.0% - -------------------------------------------------------------------------------- 1,905,000 California Housing Finance Agency Rev., Series 2000 D, VRDN, 0.85%, 9/2/03 1,905,000 - -------------------------------------------------------------------------------- 1,100,000 California Statewide Communities Development Auth. COP, (Sutter Health Obligation Group), VRDN, 0.75%, 9/2/03 1,100,000 - -------------------------------------------------------------------------------- 1,500,000 California Statewide Communities Development Auth. Rev., (The Painted Turtle), VRDN, 0.85%, 9/4/03 (LOC: Allied Irish Bank plc) 1,500,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $4,505,000) 4,505,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $222,824,706) $228,411,568 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS ACA = American Capital Access AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance Inc. GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. TOB = Tender Option Bond 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, 2003. XLCA = XL Capital Assurance Corp. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated for a when-issued security. (3) When-issued security. See Notes to Financial Statements. - ----- 14 California Intermediate-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2003 ------------------------------ AVERAGE ANNUAL RETURNS - ------------------------------------------------------------------------------------------ SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - ------------------------------------------------------------------------------------------ CALIFORNIA INTERMEDIATE-TERM TAX-FREE 1.91% 4.65% 5.05% 6.37% 11/9/83 - ------------------------------------------------------------------------------------------ LEHMAN MUNICIPAL 5-YEAR GO INDEX 3.57% 5.31% 5.34% 7.03%(1) -- - ------------------------------------------------------------------------------------------ AVERAGE RETURN OF LIPPER'S CALIF. INTERMEDIATE MUNICIPAL DEBT FUNDS 1.38% 4.46% 4.72% 6.37%(2) -- - ------------------------------------------------------------------------------------------ Fund's Lipper Ranking(3) 10 of 37 7 of 23 2 of 9 -- -- - ------------------------------------------------------------------------------------------ (1) Since 10/31/83, the date nearest the fund's inception for which data are available. (2) Since 11/10/83, the date nearest the fund's inception for which data are available. (3) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made August 31, 1993
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 - ---------------------------------------------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE-TERM TAX-FREE 1.11% 7.09% 4.79% 7.39% 7.00% 0.74% 6.95% 8.22% 5.63% 1.91% - ---------------------------------------------------------------------------------------------------------------------- LEHMAN MUNICIPAL 5-YEAR GO INDEX 1.64% 8.12% 3.80% 6.68% 6.81% 2.21% 5.33% 8.99% 6.56% 3.57% - ---------------------------------------------------------------------------------------------------------------------- The charts on the performance page give historical return data for the fund. Returns for the index are provided for comparison. The fund'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. None of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. ----- 15 California Intermediate-Term Tax-Free - Portfolio Commentary By Robert Miller, portfolio manager BETTER-THAN-AVERAGE PERFORMANCE California Intermediate-Term Tax-Free's total return for the fiscal year ended August 31, 2003, outpaced the average return of the 37 California intermediate municipal debt funds tracked by Lipper. The fund's longer-term returns were also favorable: California Intermediate-Term Tax-Free finished among the top third of its Lipper peers for the five- and 10-year periods ended August 31, 2003. (See the previous page for details.) Economic and market conditions remained somewhat volatile, so we kept the bulk of the portfolio in high-quality bonds while focusing on our disciplined, time-tested process for selecting securities. Lower fees than the average charged by the Lipper group helped performance too. And although we had hoped for an even better finish, we believe that the portfolio is well positioned for what appears to be a generally improving U.S. economy. ECONOMIC BACKDROP Economic volatility provided part of the backdrop for the modest performance of California municipal bonds. Going into the fiscal year, economic growth (as measured by seasonally adjusted real gross domestic product) surged to a 4.0% annual rate during the third quarter of 2002 before dropping to a 1.4% annual pace during the final quarter of 2002 and first quarter of 2003. Growth took off again during the second quarter of 2003, however, rising at an annualized rate of 3.3%. Inflation remained well contained in that environment. As measured by the consumer price index for all urban consumers, and excluding food and energy components, seasonally adjusted inflation rose an annualized 1.2% during the first eight months of 2003. In addition, geopolitical tensions eased by mid-year, rolling back oil prices, bolstering consumer confidence, and benefiting financial markets. In spite of those developments, sustainable economic growth remained elusive. As a result, the Federal Reserve reduced its short-term interest rate benchmark to 1.0% in late June 2003, after having reduced that target to 1.25% in November 2002. PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/03 8/31/02 - -------------------------------------------------------------------------------- Weighted Average Maturity 8.1 yrs 8.5 yrs - -------------------------------------------------------------------------------- Average Duration 4.9 yrs 5.2 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 2.95% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 4.34% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 4.52% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 4.86% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 5.00% - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE (ADR) - -------------------------------------------------------------------------------- 4.02% - -------------------------------------------------------------------------------- *The tax brackets indicated are for combined state and federal income taxes. (continued) - ----- 16 California Intermediate-Term Tax-Free - Portfolio Commentary Yet by August, signs pointed to mixed economic activity, a still-weak labor market, and only slightly improved industrial production, although consumer spending and homebuilding remained bright spots. MARKET BACKDROP California municipal bonds generally underperformed their national counterparts: the Lehman Brothers Municipal 5-year GO Index (comprised of municipal bonds throughout the country with four- to six-year maturities) produced more than twice the average total return of the fund's Lipper peer group. California's budget stalemate, cries for a gubernatorial recall, and two credit-rating downgrades all played a hand in that performance. Record levels of new bond issuance in the state during the first part of 2003 didn't help matters. But with the spread, or difference in yield, between California municipal bonds and their national counterparts increasing to what some considered the most attractive levels in at least a decade, interest in the state's municipal securities rose, boosting performance at period-end. PORTFOLIO STRATEGIES We continued to look for attractively valued, higher-yielding municipals, but felt that most of the lower-quality securities that we came across offered too little yield for too much risk. Mixed signs of slowly improving conditions became more prevalent in 2003, so we positioned the portfolio for better economic times. That meant tightening up the reins on the fund's interest rate sensitivity on occasion and continuing to generally emphasize shorter- and longer-term bonds for the portfolio at the expense of intermediate-term ones. Unfortunately, the fruits of those labors didn't pay off as handsomely as we had hoped. But we feel that the portfolio is well positioned if the economy begins to gather momentum and if short-term bond yields begin to rise more quickly than long-term bond yields. Interest rates currently sit at historic lows, inflation is under control, and the White House has been making a concerted effort to bolster growth. So we think that eventual economic improvement seems the most likely scenario. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/03 2/28/03 - -------------------------------------------------------------------------------- AAA 77% 75% - -------------------------------------------------------------------------------- AA 9% 10% - -------------------------------------------------------------------------------- A 9% 10% - -------------------------------------------------------------------------------- BBB 5% 5% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. TOP FIVE SECTORS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- COPs/Leases 21% - -------------------------------------------------------------------------------- GO 21% - -------------------------------------------------------------------------------- Electric Revenue 13% - -------------------------------------------------------------------------------- Water and Sewer Revenue 12% - -------------------------------------------------------------------------------- Sales Tax Revenue 8% - -------------------------------------------------------------------------------- ----- 17 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 97.6% CALIFORNIA -- 89.1% - -------------------------------------------------------------------------------- $ 1,000,000 Adelanto Public Financing Auth. GO, (Community Correctional Facility), 4.00%, 4/1/05 $ 1,033,740 - -------------------------------------------------------------------------------- 4,845,000 Alameda County COP, (Santa Rita Jail), 5.375%, 6/1/09 (MBIA) 5,371,845 - -------------------------------------------------------------------------------- 1,385,000 Alameda County COP, Series 2001 A, 5.375%, 12/1/15 (MBIA) 1,502,725 - -------------------------------------------------------------------------------- 1,580,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., Series 2003 A, (Odd Fellows Home), 5.00%, 11/15/08 (California Mortgage Insurance) 1,704,030 - -------------------------------------------------------------------------------- 5,000,000 Beverly Hills Public Financing Auth. Rev., Series 2003 A, 5.25%, 6/1/12 (MBIA) 5,500,600 - -------------------------------------------------------------------------------- 4,795,000 California Department of Water Resources Rev., Series 1992 J2, (Central Valley Project), 5.80%, 12/1/04 5,075,651 - -------------------------------------------------------------------------------- 1,085,000 California Department of Water Resources Rev., Series 1998 U, 5.125%, 12/1/08, Prerefunded at 101% of Par(1) 1,225,453 - -------------------------------------------------------------------------------- 915,000 California Department of Water Resources Rev., Series 1998 U, 5.125%, 12/1/12 978,730 - -------------------------------------------------------------------------------- 1,500,000 California Department of Water Resources Rev., Series 2001 W, (Central Valley Project), 5.50%, 12/1/17 1,627,350 - -------------------------------------------------------------------------------- 2,000,000 California Department of Water Resources Rev., Series 2002 A, 5.50%, 5/1/08 2,197,880 - -------------------------------------------------------------------------------- 3,000,000 California Department of Water Resources Rev., Series 2002 A, 5.50%, 5/1/12 3,242,790 - -------------------------------------------------------------------------------- 5,000,000 California Department of Water Resources Rev., Series 2002 A, 5.375%, 5/1/17 (XLCA) 5,297,450 - -------------------------------------------------------------------------------- 4,000,000 California Educational Facilities Auth. Rev., (Golden Gate University), 5.50%, 10/1/18 4,026,600 - -------------------------------------------------------------------------------- 1,095,000 California Educational Facilities Auth. Rev., (Scripps College), 5.25%, 8/1/16 1,145,096 - -------------------------------------------------------------------------------- 1,315,000 California Educational Facilities Auth. Rev., (Southwestern University), 5.00%, 11/1/15 1,347,481 - -------------------------------------------------------------------------------- 430,000 California Educational Facilities Auth. Rev., (Southwestern University), 5.00%, 11/1/18 431,699 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,605,000 California Educational Facilities Auth. Rev., Series 2000 B, (Pooled LaVerne and Western University Projects), 6.625%, 6/1/20 $ 1,732,228 - -------------------------------------------------------------------------------- 5,000,000 California GO, 7.50%, 10/1/07 (MBIA) 5,977,650 - -------------------------------------------------------------------------------- 2,175,000 California GO, 8.00%, 11/1/07 (FGIC) 2,458,881 - -------------------------------------------------------------------------------- 4,480,000 California GO, 6.00%, 10/1/09 (AMBAC) 5,177,446 - -------------------------------------------------------------------------------- 3,350,000 California GO, 5.75%, 4/1/10 (AMBAC) 3,783,256 - -------------------------------------------------------------------------------- 5,000,000 California GO, 5.50%, 4/1/12 (MBIA) 5,545,450 - -------------------------------------------------------------------------------- 10,000,000 California GO, 5.25%, 10/1/14 (FGIC)(2) 10,621,899 - -------------------------------------------------------------------------------- 2,000,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Kaiser Permanente), 5.25%, 6/1/11 (FSA) 2,154,500 - -------------------------------------------------------------------------------- 4,000,000 California Infrastructure & Economic Development Bank Rev., (Clean Water State Revolving Fund), 4.00%, 10/1/13 4,005,320 - -------------------------------------------------------------------------------- 1,000,000 California Infrastructure & Economic Development Bank Rev., Series 2000 A, (Scripps Research Institute), 5.625%, 7/1/20 1,056,200 - -------------------------------------------------------------------------------- 1,075,000 California Mobilehome Park Financing Auth. Rev., Series 2000 A, (Union City Tropics), 5.375%, 8/15/14 (ACA) 1,117,817 - -------------------------------------------------------------------------------- 3,000,000 California Public Works Board Lease Rev., Series 1992 A, (Secretary of State), 6.20%, 12/1/05 3,311,190 - -------------------------------------------------------------------------------- 1,500,000 California Public Works Board Lease Rev., Series 1993 A, (Various University of California Projects), 5.50%, 6/1/14 1,652,925 - -------------------------------------------------------------------------------- 3,000,000 California Public Works Board Lease Rev., Series 1994 A, (Various University of California Projects), 6.15%, 11/1/04 3,220,980 - -------------------------------------------------------------------------------- 6,000,000 California Rev. Anticipation Warrants, Series 2003 A, 2.00%, 6/16/04 6,008,580 - -------------------------------------------------------------------------------- 5,000,000 California Rev. Anticipation Warrants, Series 2003 B, 2.00%, 6/16/04 5,007,150 - -------------------------------------------------------------------------------- 8,000,000 California Statewide Communities Development Auth. COP, (California Lutheran Homes), 5.375%, 11/15/06(1) 8,809,200 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 18 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,230,000 California Statewide Communities Development Auth. Rev., Series 2000 B, (Brentwood School), 5.75%, 10/1/20 (FSA) $ 3,535,913 - -------------------------------------------------------------------------------- 1,695,000 California Statewide Communities Development Auth. Rev., Series 2002 B, 5.20%, 10/1/18 (FSA) 1,778,648 - -------------------------------------------------------------------------------- 3,100,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.25%, 7/1/12 3,197,123 - -------------------------------------------------------------------------------- 1,250,000 California University System Rev., Series 2002 A, 5.375%, 11/1/18 (AMBAC) 1,328,963 - -------------------------------------------------------------------------------- 2,545,000 Capistrano Unified Public Financing Auth. Special Tax Rev., Series 1996 A, (First Lien), 6.00%, 9/1/06 (AMBAC) 2,849,051 - -------------------------------------------------------------------------------- 2,100,000 Castaic Lake Water Agency Rev., Series 2001 A, 5.375%, 8/1/17 (MBIA) 2,235,891 - -------------------------------------------------------------------------------- 1,070,000 Central Union High School District-Imperial County GO, 5.00%, 8/1/17 (FGIC) 1,115,443 - -------------------------------------------------------------------------------- 2,075,000 Chabot Las Positas Community College District COP, 5.50%, 12/1/10 (FSA) 2,335,516 - -------------------------------------------------------------------------------- 1,535,000 Chaffey Community College District GO, Series 2002 A, 5.25%, 7/1/14 (FSA) 1,671,247 - -------------------------------------------------------------------------------- 3,000,000 Chino Ontario Upland Water Facilities Auth. COP, Series 1997 A, (Agua de Lejos), 5.20%, 10/1/15 (FGIC) 3,194,040 - -------------------------------------------------------------------------------- 5,435,000 Contra Costa Transportation Auth. Sales Tax Rev., Series 1993 A, 6.00%, 3/1/05 (FGIC) 5,808,058 - -------------------------------------------------------------------------------- 1,220,000 Coronado Community Development Agency Tax Allocation, 6.00%, 9/1/08 (FSA) 1,378,380 - -------------------------------------------------------------------------------- 1,000,000 East Bay Municipal Utility District Rev., 5.75%, 6/1/04 (MBIA) 1,035,940 - -------------------------------------------------------------------------------- 2,300,000 Eastern Municipal Water District COP, Series 2001 A, 5.25%, 7/1/13 (FGIC) 2,482,068 - -------------------------------------------------------------------------------- 4,000,000 El Cajon Redevelopment Agency COP, 5.20%, 10/1/15 (AMBAC) 4,257,360 - -------------------------------------------------------------------------------- 1,095,000 El Segundo Unified School District GO, 5.375%, 9/1/16 (FGIC) 1,181,702 - -------------------------------------------------------------------------------- 1,020,000 El Segundo Unified School District GO, 5.375%, 9/1/17 (FGIC) 1,092,899 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 Folsom Cordova Unified School District Facilities Improvement No. 2 GO, Series 2002 A, 5.375%, 10/1/15 (MBIA) $ 1,086,630 - -------------------------------------------------------------------------------- 1,225,000 Folsom Cordova Unified School District Facilities Improvement No. 2 GO, Series 2002 A, 5.375%, 10/1/16 (MBIA) 1,322,363 - -------------------------------------------------------------------------------- 1,225,000 Folsom Public Financing Auth. Rev., (City Hall & Community Center), 5.25%, 10/1/14 (FSA) 1,328,280 - -------------------------------------------------------------------------------- 1,290,000 Folsom Public Financing Auth. Rev., (City Hall & Community Center), 5.25%, 10/1/15 (FSA) 1,388,866 - -------------------------------------------------------------------------------- 500,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.25%, 9/1/04 514,945 - -------------------------------------------------------------------------------- 1,385,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.25%, 9/1/06 1,472,463 - -------------------------------------------------------------------------------- 2,615,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.25%, 9/1/08 2,769,050 - -------------------------------------------------------------------------------- 2,760,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.40%, 9/1/09 2,897,779 - -------------------------------------------------------------------------------- 2,550,000 Fremont Union High School District Santa Clara County GO, Series 2000 B, 5.25%, 9/1/16 2,724,446 - -------------------------------------------------------------------------------- 4,445,000 Fresno Special Tax Rev., (Community Facilities District No. 3), 4.75%, 9/1/05 (LOC: Rabobank Nederland N.V.) 4,455,668 - -------------------------------------------------------------------------------- 7,350,000 Imperial Irrigation District COP, (Electrical System), 6.50%, 11/1/07 (MBIA) 8,547,242 - -------------------------------------------------------------------------------- 1,675,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/16 (AMBAC) 1,823,589 - -------------------------------------------------------------------------------- 2,715,000 Irvine Unified School District Special Tax Rev., (Community Facilities District No. 86-1), 5.50%, 11/1/10 (AMBAC) 3,024,320 - -------------------------------------------------------------------------------- 2,030,000 Long Beach Bond Finance Auth. Lease Rev., (Plaza Parking Facility), 5.25%, 11/1/16 2,114,001 - -------------------------------------------------------------------------------- 1,030,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 5.30%, 7/1/13 (ACA) 1,044,430 - -------------------------------------------------------------------------------- 1,155,000 Los Angeles Convention and Exhibition Center Auth. Lease Rev., Series 1993 A, 6.00%, 8/15/10 (MBIA) 1,332,466 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 19 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,000,000 Los Angeles County Capital Asset Lease Rev., 5.875%, 12/1/05 (AMBAC) $ 4,390,160 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1997 A, (Proposal A), 5.25%, 7/2/12 (MBIA) 3,230,340 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, (Proposal A), 5.25%, 7/1/13 (FSA) 3,267,810 - -------------------------------------------------------------------------------- 6,680,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, (Proposal A), 5.25%, 7/1/16 (FSA) 7,129,497 - -------------------------------------------------------------------------------- 2,000,000 Los Angeles County Sanitation Districts Financing Auth. Rev., Series 1993 A, (Capital Projects), 5.20%, 10/2/05 2,047,480 - -------------------------------------------------------------------------------- 1,720,000 Los Angeles County Special Tax Rev., (Bus Acquisition), 4.00%, 7/1/04 1,761,744 - -------------------------------------------------------------------------------- 3,515,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1992 A, (Proposition C), 6.20%, 7/1/04 3,661,470 - -------------------------------------------------------------------------------- 3,765,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1992 A, (Proposition C), 6.40%, 7/1/06 4,210,663 - -------------------------------------------------------------------------------- 2,675,000 Los Angeles Unified School District COP, Series 2002 B, 4.00%, 10/1/05 (FSA) 2,818,514 - -------------------------------------------------------------------------------- 3,500,000 Los Angeles Unified School District GO, 5.50%, 7/1/12 (MBIA) 3,915,100 - -------------------------------------------------------------------------------- 3,115,000 Los Angeles Unified School District GO, Series 1999 C, 5.50%, 7/1/12, Prerefunded at 101% of Par(1) 3,563,404 - -------------------------------------------------------------------------------- 8,000,000 Los Angeles Unified School District GO, Series 2000 D, 5.625%, 7/1/14 (FGIC) 9,101,120 - -------------------------------------------------------------------------------- 5,000,000 Los Angeles Unified School District GO, Series 2002 E, 5.00%, 7/1/11 (MBIA) 5,440,350 - -------------------------------------------------------------------------------- 1,390,000 Los Gatos Joint Union High School District GO, Series 2002 C, 5.375%, 6/1/17 (FSA) 1,495,890 - -------------------------------------------------------------------------------- 3,000,000 Metropolitan Water District of Southern California Rev., Series 1992 B, 8.00%, 7/1/08 3,723,480 - -------------------------------------------------------------------------------- 2,920,000 Metropolitan Water District of Southern California Rev., Series 2001 A, 5.125%, 7/1/09 3,233,462 - -------------------------------------------------------------------------------- 3,075,000 Metropolitan Water District of Southern California Rev., Series 2001 A, 5.25%, 7/1/15 3,288,897 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,520,000 Mojave Unified School District Facilities Improvement No. 1 GO, 5.25%, 8/1/20 (FGIC) $ 1,579,736 - -------------------------------------------------------------------------------- 1,100,000 Mojave Water Agency Improvement District GO, (Morongo Basin), 5.40%, 9/1/08 (FGIC) 1,220,824 - -------------------------------------------------------------------------------- 4,000,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.25%, 10/1/07 (AMBAC) 4,457,080 - -------------------------------------------------------------------------------- 1,310,000 Oceanside COP, Series 2003 A, 5.00%, 4/1/12 (AMBAC) 1,407,634 - -------------------------------------------------------------------------------- 1,000,000 Ontario Redevelopment Financing Auth. Local Agency Rev., Series 1995 A, 5.80%, 9/2/06 (FSA) 1,023,640 - -------------------------------------------------------------------------------- 2,210,000 Orange County Local Transportation Auth. Sales Tax Rev., Series 1997 A, 5.70%, 2/15/08 (AMBAC) 2,493,300 - -------------------------------------------------------------------------------- 1,805,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/15 (AMBAC) 1,970,771 - -------------------------------------------------------------------------------- 1,000,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/16 (AMBAC) 1,084,180 - -------------------------------------------------------------------------------- 3,030,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/17 (AMBAC) 3,260,825 - -------------------------------------------------------------------------------- 1,720,000 Orange County Recovery COP, Series 1996 A, 6.00%, 7/1/07 (MBIA) 1,952,148 - -------------------------------------------------------------------------------- 1,330,000 Oxnard Harbor District Rev., 7.00%, 8/1/04 (FSA) 1,402,778 - -------------------------------------------------------------------------------- 1,830,000 Pomona Public Financing Auth. Rev., Series 2001 AD, (Merged Redevelopment), 4.75%, 2/1/13 (MBIA) 1,915,424 - -------------------------------------------------------------------------------- 1,060,000 Redding Joint Powers Financing Auth. Electric System Rev., Series 1996 A, 6.25%, 6/1/07 (MBIA) 1,209,036 - -------------------------------------------------------------------------------- 1,010,000 Richmond Joint Powers Financing Auth. Rev., Series 1995 A, 5.30%, 5/15/06 1,092,931 - -------------------------------------------------------------------------------- 8,000,000 Sacramento City Financing Auth. Rev., Series 1993 A, 5.40%, 11/1/20 (AMBAC) 8,659,280 - -------------------------------------------------------------------------------- 5,290,000 Sacramento City Financing Auth. Rev., Series 2002 A, (City Hall & Redevelopment), 5.25%, 12/1/15 (FSA) 5,701,456 - -------------------------------------------------------------------------------- 1,625,000 Sacramento Municipal Utility District Electric Rev., Series 1992 A, 6.25%, 8/15/10 (MBIA) 1,896,310 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 20 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,890,000 Sacramento Municipal Utility District Electric Rev., Series 1992 C, 5.75%, 11/15/07 (MBIA)(1) $ 1,936,059 - -------------------------------------------------------------------------------- 2,980,000 Sacramento Municipal Utility District Electric Rev., Series 1994 H, 5.75%, 1/1/04, Prerefunded at 102% of Par (MBIA)(1) 3,087,906 - -------------------------------------------------------------------------------- 3,105,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.70%, 7/1/17 (AMBAC) 3,514,674 - -------------------------------------------------------------------------------- 5,005,000 Sacramento Municipal Utility District Electric Rev., Series 2001 O, 5.25%, 8/15/11 (MBIA) 5,536,731 - -------------------------------------------------------------------------------- 1,000,000 Sacramento Municipal Utility District Electric Rev., Series 2003 S, 5.00%, 11/15/14 (MBIA) 1,070,530 - -------------------------------------------------------------------------------- 5,000,000 San Bernardino County COP, Series 1995 A, (Medical Center), 5.75%, 8/1/07 (MBIA) 5,634,300 - -------------------------------------------------------------------------------- 1,695,000 San Buenaventura County COP, Series 2002 B, 5.50%, 1/1/15 (AMBAC) 1,851,177 - -------------------------------------------------------------------------------- 1,790,000 San Buenaventura County COP, Series 2002 B, 5.50%, 1/1/16 (AMBAC) 1,944,423 - -------------------------------------------------------------------------------- 2,030,000 San Diego Redevelopment Agency Rev., (Horton Plaza), 5.70%, 11/1/17 2,133,733 - -------------------------------------------------------------------------------- 2,635,000 San Diego Redevelopment Agency Rev., (Horton Plaza), 5.80%, 11/1/21 2,735,525 - -------------------------------------------------------------------------------- 1,460,000 San Diego Redevelopment Agency Tax Allocation Rev., (North Park), 5.90%, 9/1/25 1,495,361 - -------------------------------------------------------------------------------- 935,000 San Diego Redevelopment Agency Tax Allocation Rev., Series 2003 A, (Horton Plaza), 4.65%, 11/1/16 881,051 - -------------------------------------------------------------------------------- 980,000 San Diego Redevelopment Agency Tax Allocation Rev., Series 2003 A, (Horton Plaza), 4.75%, 11/1/17 922,964 - -------------------------------------------------------------------------------- 4,000,000 San Diego Regional Transportation Commission Sales Tax Rev., Series 1994 A, 6.00%, 4/1/04 (FGIC) 4,117,440 - -------------------------------------------------------------------------------- 1,000,000 San Francisco City & County Airports Commission Rev., Series 2001-27B, 5.25%, 5/1/17 (FGIC) 1,061,460 - -------------------------------------------------------------------------------- 2,255,000 San Francisco City & County Educational Facilities Unified School District GO, Series 1999 B, 5.50%, 6/15/12 2,473,690 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,115,000 San Francisco City & County Redevelopment Financing Auth. Tax Allocation Rev., Series 2003 C, 5.25%, 8/1/17 (FGIC) $ 1,188,189 - -------------------------------------------------------------------------------- 2,680,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.25%, 6/1/18 (MBIA) 2,893,328 - -------------------------------------------------------------------------------- 1,155,000 Santa Ana Unified School District GO, 5.375%, 8/1/18 (MBIA) 1,229,856 - -------------------------------------------------------------------------------- 3,350,000 Santa Barbara County COP, 5.375%, 10/1/17 (AMBAC) 3,600,949 - -------------------------------------------------------------------------------- 1,000,000 Santa Clara Redevelopment Agency Tax Allocation, (Bayshore North), 5.00%, 6/1/15 (MBIA) 1,043,770 - -------------------------------------------------------------------------------- 2,075,000 Santa Clara Valley Water District COP, Series 2000 A, 5.20%, 2/1/13 2,224,089 - -------------------------------------------------------------------------------- 1,120,000 Santa Fe Springs Community Development Commission Rev., Series 2002 A, 5.375%, 9/1/16 (MBIA) 1,209,085 - -------------------------------------------------------------------------------- 1,250,000 Santa Monica-Malibu Unified School District GO, 5.25%, 8/1/13 1,374,638 - -------------------------------------------------------------------------------- 2,000,000 Southern California Public Power Auth. Rev., 6.75%, 7/1/10 (LOC: PNC Bank) 2,364,160 - -------------------------------------------------------------------------------- 5,000,000 Southern California Public Power Auth. Rev., Series 2002 A, (Southern Transmission), 5.25%, 7/1/17 (FSA) 5,298,750 - -------------------------------------------------------------------------------- 3,325,000 Southern California Public Power Auth. Rev., Series 2002 A, (Southern Transmission), 5.25%, 7/1/18 (FSA) 3,501,292 - -------------------------------------------------------------------------------- 1,975,000 Southwestern Community College District GO, 5.625%, 8/1/17 (AMBAC) 2,158,280 - -------------------------------------------------------------------------------- 2,000,000 Stanislaus County COP, 5.50%, 5/1/06 (MBIA) 2,190,620 - -------------------------------------------------------------------------------- 2,770,000 Stockton Community Facilities District Special Tax, (No. 1 Weston Ranch), 5.40%, 9/1/15 2,863,211 - -------------------------------------------------------------------------------- 325,000 Stockton Community Facilities District Special Tax, (No. 1 Weston Ranch), 5.50%, 9/1/16 335,936 - -------------------------------------------------------------------------------- 1,800,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/10 (AMBAC) 1,990,332 - -------------------------------------------------------------------------------- 1,025,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/13 (FSA) 1,106,242 - -------------------------------------------------------------------------------- 1,080,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/14 (FSA) 1,161,119 - -------------------------------------------------------------------------------- 1,135,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/15 (FSA) 1,214,677 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 21 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,195,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/16 (FSA) $ 1,274,826 - -------------------------------------------------------------------------------- 730,000 Taft Public Financing Auth. Lease Rev., Series 1997 A, (Community Correctional Facility), 5.50%, 1/1/06 761,660 - -------------------------------------------------------------------------------- 1,760,000 Tobacco Securitization Auth. of Southern California Rev., Series 2002 A, 4.60%, 6/1/10 1,566,470 - -------------------------------------------------------------------------------- 2,410,000 Tobacco Securitization Auth. of Southern California Rev., Series 2002 A, 4.70%, 6/1/11 2,109,256 - -------------------------------------------------------------------------------- 5,000,000 University of California Rev., Series 2003 A, 5.00%, 5/15/12 (AMBAC)(3) 5,406,850 - -------------------------------------------------------------------------------- 3,000,000 Ventura County Public Financing Auth. COP, 4.75%, 8/15/11 (FSA) 3,162,660 - -------------------------------------------------------------------------------- 3,980,000 Whittier Health Facility Rev., (Presbyterian Intercommunity), 6.00%, 6/1/06 (MBIA) 4,412,308 - -------------------------------------------------------------------------------- 3,250,000 Woodland Finance Auth. Lease Rev., 3.00%, 3/1/06 (XLCA) 3,338,855 - -------------------------------------------------------------------------------- 1,465,000 Woodland Wastewater System COP, 6.00%, 3/1/06 (AMBAC) 1,614,782 - -------------------------------------------------------------------------------- 403,274,520 - -------------------------------------------------------------------------------- GUAM -- 1.0% - -------------------------------------------------------------------------------- 4,000,000 Guam Government GO, Series 2001 A, (Section 30), 5.50%, 12/1/10 (FSA) 4,524,320 - -------------------------------------------------------------------------------- NORTHERN MARIANA ISLANDS -- 0.5% - -------------------------------------------------------------------------------- 1,000,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/08 (ACA) 1,090,890 - -------------------------------------------------------------------------------- 1,000,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/09 (ACA) 1,087,780 - -------------------------------------------------------------------------------- 2,178,670 - -------------------------------------------------------------------------------- PUERTO RICO -- 6.8% - -------------------------------------------------------------------------------- 5,000,000 Childrens Trust Fund Tobacco Settlement Rev., 5.00%, 7/1/08(1) 5,548,150 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/08 (FSA) 1,099,830 - -------------------------------------------------------------------------------- 3,000,000 Puerto Rico Commonwealth Infrastructure Financing Auth. Special Tax Rev., Series 1998 A, 5.50%, 7/1/08 (AMBAC) 3,386,520 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,700,000 Puerto Rico Electric Power Auth. Rev., Series 2002 II, 5.375%, 7/1/18 (MBIA) $ 4,002,253 - -------------------------------------------------------------------------------- 2,655,000 Puerto Rico Electric Power Auth. Rev., Series 2002 KK, 5.25%, 7/1/13 (FSA) 2,938,554 - -------------------------------------------------------------------------------- 3,140,000 Puerto Rico Electric Power Auth. Rev., Series 2002 KK, 5.50%, 7/1/14 (FSA) 3,543,396 - -------------------------------------------------------------------------------- 1,450,000 Puerto Rico Municipal Finance Agency GO, Series 1999 B, 6.00%, 8/1/15 (FSA) 1,656,393 - -------------------------------------------------------------------------------- 3,090,000 Puerto Rico Public Buildings Auth. Rev., Series 1995 A, 6.25%, 7/1/09 (AMBAC) 3,615,949 - -------------------------------------------------------------------------------- 4,670,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.25%, 7/1/11 5,039,678 - -------------------------------------------------------------------------------- 30,830,723 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 0.2% - -------------------------------------------------------------------------------- 1,050,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, 5.50%, 10/1/13 1,088,388 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $421,104,545) 441,896,621 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 2.4% CALIFORNIA -- 2.4% - -------------------------------------------------------------------------------- 3,400,000 California Department of Water Resources Rev., Series 2002 B2, VRDN, 0.85%, 9/2/03 (LOC: BNP Paribas) 3,400,000 - -------------------------------------------------------------------------------- 1,500,000 Los Angeles Community Redevelopment Agency Rev., (Grand Promenade), VRDN, 0.80%, 9/4/03 (FHLMC) 1,500,000 - -------------------------------------------------------------------------------- 5,940,000 Oakland Joint Powers Financing Auth. Rev., Series 1998 A2, VRDN, 0.80%, 9/4/03 (FSA) 5,940,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $10,840,000) 10,840,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $431,944,545) $452,736,621 ================================================================================ See Notes to Financial Statements. (continued) - ----- 22 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 NOTES TO SCHEDULE OF INVESTMENTS ACA = American Capital Access AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance Inc. GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. 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, 2003. XLCA = XL Capital Assurance Corp. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated for a when-issued security. (3) When-issued security. See Notes to Financial Statements. ----- 23 California Long-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2003 ------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------------------- CALIFORNIA LONG-TERM TAX-FREE 1.81% 4.60% 5.47% 7.52% 11/9/83 - -------------------------------------------------------------------------------------------- LEHMAN LONG-TERM MUNICIPAL BOND INDEX 2.62% 5.05% 6.06% 9.16%(1) -- - -------------------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S CALIF. MUNICIPAL DEBT FUNDS 1.36% 3.96% 5.04% 7.52%(2) -- - -------------------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 42 of 120 15 of 90 9 of 49 -- -- - -------------------------------------------------------------------------------------------- (1) Since 10/31/83, the date nearest the fund's inception for which data are available. (2) Since 11/10/83, the date nearest the fund's inception for which data are available. (3) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made August 31, 1993
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ----------------------------------------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------- CALIFORNIA LONG- TERM TAX-FREE -0.79% 7.21% 6.77% 9.70% 9.25% -1.85% 7.79% 10.55% 5.14% 1.81% - ----------------------------------------------------------------------------------------------------------------- LEHMAN LONG- TERM MUNICIPAL BOND INDEX -2.05% 9.43% 6.88% 11.24% 10.51% -2.14% 7.34% 12.35% 5.62% 2.62% - ----------------------------------------------------------------------------------------------------------------- The charts on the performance page give historical return data for the fund. Returns for the index are provided for comparison. The fund'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. None of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. - ----- 24 California Long-Term Tax-Free - Portfolio Commentary By Dave MacEwen, portfolio manager FUND RETURNS BEAT LIPPER PEER AVERAGES California Long-Term Tax-Free (Cal Long-Term) performed well relative to its fund peers during the fiscal year ended August 31, 2003. The fund returned 1.81% compared with the 1.36% average return of 120 California municipal debt funds tracked by Lipper Inc., earning a top 35% ranking in the Lipper group. Longer-term performance ranked even higher: For the five- and 10-year periods ended August 31, 2003, the fund's returns ranked in the top 20% (see page 24 for more details). SEC YIELD EARNS TOP-THIRD LIPPER RANKING As of August 31, 2003, Cal Long-Term's 30-day SEC yield was 3.92%, compared with the 3.74% Lipper group average, earning a top 33% ranking out of 125 California municipal debt funds. Part of the reason for the higher yield was lower expenses; Cal Long-Term's expense ratio for the year ended August 31, 2003, was 0.51%, less than half the 1.07% average of the Lipper group. Also, since Cal Long-Term's yield is federal and state tax-exempt for California investors, it equates to a significantly higher tax-equivalent yield. The table above shows the tax-equivalent yields for investors in four common combined tax brackets. ADR, ANOTHER WAY TO REPORT YIELD The yield table also shows an annualized distribution rate (ADR). ADRs are relatively easy to calculate--they're based on fund distributions rather than investment income. Cal Long-Term's ADR equals the ordinary dividends earned over the 30 days ended August 31, 2003, multiplied by 12 and divided by the current share price (net asset value) at the end of the period. ECONOMIC & BOND MARKET PERSPECTIVE Returns remained positive for most Cal muni bonds for the fiscal year ended August 31, 2003--the Lehman Brothers index of 5,500 investment-grade Cal tax-exempt bonds returned 2%. That happened despite several factors that put downward pressure on bond prices and caused the Cal tax-exempt index and Cal Long-Term's broad market index (the Lehman Brothers Long-Term Municipal Bond Index) to decline about 1% in the second half of the fiscal year. PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/03 8/31/02 - -------------------------------------------------------------------------------- Weighted Average Maturity 16.0 yrs 16.1 yrs - -------------------------------------------------------------------------------- Average Duration 7.0 yrs 6.5 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 3.92% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 5.76% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 6.00% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 6.45% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 6.65% - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE (ADR) - -------------------------------------------------------------------------------- 4.69% - -------------------------------------------------------------------------------- *The tax brackets indicated are for combined state and federal income taxes. (continued) ----- 25 California Long-Term Tax-Free - Portfolio Commentary Those factors included improving national economic conditions (which triggered a strong stock market rally--the S&P 500 and the Nasdaq Composite indices were up 12% and 38% respectively for the fiscal year); rising federal and state budget deficits (more bonds were issued, meaning lower bond prices); a summer selloff (including one of the worst months--July--in U.S. bond market history); and California's fiscal and political uncertainty (resulting from credit rating downgrades, a lingering budget shortfall, and a recall election for the state's governor). But there was also good news for bonds, particularly earlier in the fiscal year. Annualized U.S. economic growth was just 1.4% in the fourth quarter of 2002 and the first quarter of 2003. Excess capacity and declines in demand related to the war with Iraq made it difficult for the manufacturing and labor markets to recover from the 2001 recession, forcing the Federal Reserve to cut its short-term interest rate target two more times. As a result, U.S. bonds mostly rallied from the end of October through mid-June. Not even the subsequent summer selloff could erase all of those positive returns. Cal munis generally had lower returns compared with the national muni market; the broad market index (+2.62%) outperformed the Cal index (+2%). But as Cal yields rose, Cal bonds became attractive again to investors. Keeping in mind that California still has an investment-grade bond rating, muni investors began to anticipate that the yield premium will diminish (Cal munis would outperform) as the national economy improves, the recall election fades in the rearview mirror, and state budgetary problems are resolved. In fact, strong demand helped Cal muni bond yields decline in August 2003. OTHER FISCAL-YEAR FUND PERFORMANCE FACTORS Our primary investment objective is to seek income that is exempt from federal and California income tax. We also attempt to protect the value of the investment portfolio. Strategies we employed during the fiscal year included minimizing exposure to direct state general obligation bonds and managing the portfolio's sensitivity to interest rate changes using noncallable and premium bonds. We think the premium bonds should continue to help provide some cushion for the portfolio if interest rates rise. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/03 2/28/03 - -------------------------------------------------------------------------------- AAA 74% 73% - -------------------------------------------------------------------------------- AA 6% 4% - -------------------------------------------------------------------------------- A 10% 12% - -------------------------------------------------------------------------------- BBB 10% 11% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. TOP FIVE SECTORS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- COPs/Leases 27% - -------------------------------------------------------------------------------- Tax Allocation Revenue 14% - -------------------------------------------------------------------------------- GO 10% - -------------------------------------------------------------------------------- Electric Revenue 9% - -------------------------------------------------------------------------------- Water and Sewer Revenue 8% - -------------------------------------------------------------------------------- - ----- 26 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 99.5% CALIFORNIA -- 98.5% - -------------------------------------------------------------------------------- $ 1,980,000 Alameda COP, 5.00%, 5/1/25 $ 1,885,475 - -------------------------------------------------------------------------------- 1,190,000 Alameda Corridor Transportation Auth. Rev., Series 1999 A, 5.125%, 10/1/17 (MBIA) 1,241,682 - -------------------------------------------------------------------------------- 2,300,000 Alameda County COP, 6.80%, 6/15/17 (MBIA)(1) 1,142,824 - -------------------------------------------------------------------------------- 10,235,000 Antioch Public Financing Auth. Rev., Series 2002 A, (Municipal Facilities), 5.50%, 1/1/32 (MBIA) 10,653,152 - -------------------------------------------------------------------------------- 4,730,000 Antioch Public Financing Auth. Rev., Series 2002 B, (Municipal Facilities), 5.625%, 1/1/22 (MBIA) 5,064,316 - -------------------------------------------------------------------------------- 6,005,000 Antioch Public Financing Auth. Rev., Series 2002 B, (Municipal Facilities), 5.625%, 1/1/27 (MBIA) 6,346,384 - -------------------------------------------------------------------------------- 1,000,000 Banning COP, (Wastewater System, Refunding & Improvement), 8.00%, 1/1/19 (AMBAC) 1,266,190 - -------------------------------------------------------------------------------- 1,205,000 Berryessa Union School District GO, Series 2001 B, (Election of 1999), 5.375%, 8/1/17 (FSA) 1,290,422 - -------------------------------------------------------------------------------- 1,205,000 Berryessa Union School District GO, Series 2001 B, (Election of 1999), 5.375%, 8/1/18 (FSA) 1,283,096 - -------------------------------------------------------------------------------- 1,500,000 Big Bear Lake Water Rev., 6.00%, 4/1/22 (MBIA) 1,712,640 - -------------------------------------------------------------------------------- 1,000,000 Blythe Redevelopment No. 1 Tax Allocation Rev., 5.80%, 5/1/28 1,019,440 - -------------------------------------------------------------------------------- 1,950,000 Cabrillo Community College District GO, Series 2000 B, 6.15%, 8/1/20 (FGIC)(1) 787,196 - -------------------------------------------------------------------------------- 7,300,000 California Department of Water Resources Rev., Series 2002 A, 5.375%, 5/1/22 7,390,009 - -------------------------------------------------------------------------------- 4,000,000 California Educational Facilities Auth. Rev., (Pepperdine University), 5.75%, 9/15/30 4,260,680 - -------------------------------------------------------------------------------- 1,930,000 California Educational Facilities Auth. Rev., (Southwestern University), 5.00%, 11/1/23 1,871,907 - -------------------------------------------------------------------------------- 8,570,000 California Educational Facilities Auth. Rev., (University of Southern California), 5.50%, 10/1/27 8,896,688 - -------------------------------------------------------------------------------- 1,920,000 California Educational Facilities Auth. Rev., (Western University Health Sciences), 6.00%, 10/1/32 1,941,984 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,035,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 6.30%, 4/1/21 $ 3,196,098 - -------------------------------------------------------------------------------- 3,000,000 California GO, 6.125%, 10/1/11 (AMBAC) 3,479,430 - -------------------------------------------------------------------------------- 3,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 7.15%, 10/1/09(1) 2,350,560 - -------------------------------------------------------------------------------- 1,385,000 California Health Facilities Financing Auth. Rev., Series 1992 A, 6.75%, 3/1/20 (California Mortgage Insurance) 1,403,905 - -------------------------------------------------------------------------------- 1,290,000 California Health Facilities Financing Auth. Rev., Series 1992 C, (AIDS Healthcare Foundation), 6.25%, 9/1/17 (California Mortgage Insurance) 1,307,067 - -------------------------------------------------------------------------------- 5,165,000 California Health Facilities Financing Auth. Rev., Series 1993 C, (St. Francis Memorial Hospital), 5.875%, 11/1/23(2) 5,858,969 - -------------------------------------------------------------------------------- 600,000 California Housing Finance Agency Multi-Unit Rental Rev., 6.875%, 2/1/22 603,156 - -------------------------------------------------------------------------------- 1,855,000 California Housing Finance Agency Single Family Mortgage Rev., Series 1998 C4, 5.65%, 8/1/16 (FHA/VA) 1,937,919 - -------------------------------------------------------------------------------- 2,000,000 California Infrastructure & Economic Development Bank Rev., (Claremont University Consortium), 5.25%, 10/1/33 1,986,420 - -------------------------------------------------------------------------------- 4,000,000 California Public Works Board Lease Rev., Series 1993 A, (Department of Corrections), 5.00%, 12/1/19 (AMBAC) 4,141,960 - -------------------------------------------------------------------------------- 1,000,000 California Public Works Board Lease Rev., Series 1993 B, (Various University of California Projects), 5.25%, 6/1/20 1,050,740 - -------------------------------------------------------------------------------- 18,600,000 California Public Works Board Lease Rev., Series 1993 D, (Department of Corrections), 5.25%, 6/1/15 (FSA) 20,207,039 - -------------------------------------------------------------------------------- 10,000,000 California Rev. Anticipation Warrants, Series 2003 A, 2.00%, 6/16/04 10,014,300 - -------------------------------------------------------------------------------- 3,135,000 California State Universities and Colleges Rev., 5.75%, 11/1/15 (FGIC) 3,424,549 - -------------------------------------------------------------------------------- 3,925,000 California Statewide Communities Development Auth. Rev. COP, (Gemological Institute), 6.75%, 5/1/10 (Connie Lee) 4,717,301 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 27 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $16,000,000 California Statewide Communities Development Auth. Rev., Series 1998 A, (Sherman Oaks), 5.00%, 8/1/22 (AMBAC, California Mortgage Insurance) $ 15,873,759 - -------------------------------------------------------------------------------- 5,110,000 California Statewide Communities Development Auth. Rev., Series 2003 A, 5.25%, 10/1/23 (FSA) 5,244,649 - -------------------------------------------------------------------------------- 1,040,000 California University System Rev., Series 2002 A, (Sacramento Auxiliary), 5.50%, 10/1/32 (MBIA) 1,082,567 - -------------------------------------------------------------------------------- 1,340,000 California University System Rev., Series 2002 A, (Sacramento Auxiliary), 5.50%, 10/1/37 (MBIA) 1,392,059 - -------------------------------------------------------------------------------- 5,695,000 Capistrano Unified School District Community Facilities Special Tax Rev., (Refunding Issue 1988-1), 6.50%, 9/1/14 (FSA) 6,463,483 - -------------------------------------------------------------------------------- 1,275,000 Carson Redevelopment Agency Residential Mortgage COP, (Area No. 1), 5.50%, 10/1/16 (MBIA) 1,424,838 - -------------------------------------------------------------------------------- 1,520,000 Castaic Lake Water Agency COP, Series 1994 A, (Water System Improvement), 7.00%, 8/1/12 (MBIA) 1,863,003 - -------------------------------------------------------------------------------- 2,700,000 Cerritos Public Financing Auth. Tax Allocation Rev., Series 1993 A, (Los Coyotes Redevelopment), 6.50%, 11/1/23 (AMBAC) 3,259,143 - -------------------------------------------------------------------------------- 7,000,000 Cerritos Public Financing Auth. Tax Allocation Rev., Series 2002 B, 5.20%, 11/1/24 6,516,090 - -------------------------------------------------------------------------------- 1,320,000 Coalinga Public Financing Auth. Local Obligation Rev., Series 1998 A, 6.375%, 9/15/21 (AMBAC) 1,576,172 - -------------------------------------------------------------------------------- 13,500,000 Compton Community Redevelopment Agency Tax Allocation Rev., Series 1995 A, 6.50%, 8/1/13 (FSA) 14,880,510 - -------------------------------------------------------------------------------- 2,615,000 Concord Joint Powers Financing Auth. Lease Rev., (Concord Avenue Parking Structure), 5.125%, 3/1/23 2,592,720 - -------------------------------------------------------------------------------- 2,580,000 Concord Joint Powers Financing Auth. Lease Rev., (Police Facilities), 5.25%, 8/1/13 2,797,675 - -------------------------------------------------------------------------------- 2,200,000 Contra Costa Water District Rev., Series 1992 E, 6.25%, 10/1/12 (AMBAC) 2,559,414 - -------------------------------------------------------------------------------- 2,400,000 Covina-Valley Unified School District GO, Series 2002 A, 5.50%, 8/1/26 (FSA) 2,512,944 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,580,000 El Segundo Unified School District GO, 5.375%, 9/1/19 (FGIC) $ 1,671,245 - -------------------------------------------------------------------------------- 2,620,000 Escondido Unified School District COP, 4.75%, 7/1/19 (MBIA) 2,656,339 - -------------------------------------------------------------------------------- 3,100,000 Foothill-De Anza Community College District COP, 6.25%, 9/1/13 (Connie Lee) 3,162,899 - -------------------------------------------------------------------------------- 1,975,000 Fresno Sewer Rev., Series 1993 A1, 6.25%, 9/1/14 (AMBAC) 2,322,205 - -------------------------------------------------------------------------------- 1,965,000 Glendale Unified School District GO, Series 2001 D, 5.375%, 9/1/20 (MBIA) 2,072,210 - -------------------------------------------------------------------------------- 4,195,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2003 A1, 6.75%, 6/1/39 3,459,700 - -------------------------------------------------------------------------------- 2,000,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2003 A3, 7.875%, 6/1/42 1,904,880 - -------------------------------------------------------------------------------- 9,350,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (AMBAC) 9,740,737 - -------------------------------------------------------------------------------- 2,815,000 John Swett Unified School District GO, Series 2002 A, 5.50%, 8/1/26 (FSA) 2,936,805 - -------------------------------------------------------------------------------- 1,815,000 Kern High School District GO, 7.15%, 8/1/14 (MBIA)(2) 2,299,296 - -------------------------------------------------------------------------------- 1,340,000 Kern High School District GO, Series 1992 C, 6.25%, 8/1/13 (MBIA)(2) 1,595,176 - -------------------------------------------------------------------------------- 3,630,000 Kern High School District GO, Series 1993 D, 7.00%, 8/1/17 (MBIA)(2) 3,789,756 - -------------------------------------------------------------------------------- 635,000 Lakewood Redevelopment Agency Tax Allocation Rev., Series 1992 A, (Project No. 1), 6.50%, 9/1/17 (FSA) 643,769 - -------------------------------------------------------------------------------- 1,335,000 Little Lake City School District GO, Series 2000 A, 6.125%, 7/1/25 (FSA) 1,494,746 - -------------------------------------------------------------------------------- 1,055,000 Little Lake City School District GO, Series 2002 B, 5.375%, 7/1/27 (FSA) 1,086,618 - -------------------------------------------------------------------------------- 1,605,000 Long Beach Bond Finance Auth. Lease Rev., (Plaza Parking Facility), 5.25%, 11/1/21 1,624,549 - -------------------------------------------------------------------------------- 2,000,000 Long Beach Bond Finance Auth. Lease Rev., (Plaza Parking Facility), 5.375%, 11/1/27 2,014,700 - -------------------------------------------------------------------------------- 1,305,000 Los Altos Association of Bay Area Governments COP, 5.90%, 5/1/27 1,331,257 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 28 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,285,000 Los Angeles Community Redevelopment Agency Housing Rev., Series 1994 A, 6.45%, 7/1/17 (AMBAC) $ 3,436,176 - -------------------------------------------------------------------------------- 400,000 Los Angeles Community Redevelopment Agency Housing Rev., Series 1994 C, 7.00%, 1/1/14 (AMBAC) 412,640 - -------------------------------------------------------------------------------- 3,500,000 Los Angeles Community Redevelopment Agency Tax Allocation Rev., Series 1993 H, (Bunker Hill), 6.50%, 12/1/14 (FSA) 3,611,650 - -------------------------------------------------------------------------------- 4,000,000 Los Angeles Community Redevelopment Agency Tax Allocation Rev., Series 1993 H, (Bunker Hill), 6.50%, 12/1/15 (FSA) 4,127,160 - -------------------------------------------------------------------------------- 8,000,000 Metropolitan Water District of Southern California Rev., 5.75%, 8/10/18 9,074,640 - -------------------------------------------------------------------------------- 1,915,000 Mid-Peninsula Regional Open Space District Financing Auth. Rev., 5.90%, 9/1/14 (AMBAC) 2,109,353 - -------------------------------------------------------------------------------- 5,150,000 Mid-Peninsula Regional Open Space District GO, 7.00%, 9/1/14 5,513,590 - -------------------------------------------------------------------------------- 10,655,000 Modesto, Stockton, Redding Public Power Agency Rev., Series 1989 D, (San Juan), 6.75%, 7/1/20 (MBIA)(2) 12,871,773 - -------------------------------------------------------------------------------- 1,065,000 Mountain View School District Santa Clara County GO, Series 2000 B, 6.125%, 7/1/25 (FSA) 1,192,438 - -------------------------------------------------------------------------------- 1,000,000 New Haven Unified School District GO, 12.00%, 8/1/18 (FSA) 1,760,040 - -------------------------------------------------------------------------------- 1,000,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.50%, 10/1/14 (AMBAC) 1,118,500 - -------------------------------------------------------------------------------- 6,110,000 Oakland Redevelopment Agency Tax Allocation Rev., (Central District), 5.50%, 2/1/14 (AMBAC) 6,799,208 - -------------------------------------------------------------------------------- 1,680,000 Oceanside COP, Series 2003 A, 5.25%, 4/1/17 (AMBAC) 1,776,516 - -------------------------------------------------------------------------------- 3,100,000 Oxnard School District GO, Series 2001 A, 5.75%, 8/1/22 (MBIA) 3,448,967 - -------------------------------------------------------------------------------- 2,950,000 Pasadena COP, (Old Pasadena Parking Facility), 6.25%, 1/1/18 3,407,486 - -------------------------------------------------------------------------------- 2,500,000 Pico Rivera Water Auth. Rev., Series 1999 A, (Water Systems), 5.50%, 5/1/29 (MBIA) 2,681,325 - -------------------------------------------------------------------------------- 4,475,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development), 6.20%, 8/1/19 4,725,332 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 5,000,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development), 6.25%, 8/1/26 $ 5,252,750 - -------------------------------------------------------------------------------- 1,130,000 Pomona COP, Series 2002 AE, (Mission Promenade), 5.375%, 10/1/19 (AMBAC) 1,197,133 - -------------------------------------------------------------------------------- 1,000,000 Pomona Unified School District GO, Series 2000 A, 6.55%, 8/1/29 (MBIA) 1,224,610 - -------------------------------------------------------------------------------- 1,000,000 Pomona Unified School District GO, Series 2001 A, 6.15%, 8/1/30 (MBIA) 1,143,910 - -------------------------------------------------------------------------------- 3,000,000 Poway Housing Rev., (Poinsettia Mobile Home Park), 5.50%, 5/1/38 2,896,290 - -------------------------------------------------------------------------------- 1,110,000 Poway Redevelopment Agency COP, (Paguay Redevelopment), 5.375%, 12/15/20 (AMBAC) 1,164,534 - -------------------------------------------------------------------------------- 585,000 Redlands Unified School District COP, 6.00%, 9/1/12 (FSA) 587,071 - -------------------------------------------------------------------------------- 1,000,000 Redwood City Elementary School District GO, 5.00%, 8/1/16 (FGIC) 1,066,250 - -------------------------------------------------------------------------------- 1,500,000 Sacramento City Financing Auth. Lease Rev., Series 1993 A, 5.40%, 11/1/20 (AMBAC) 1,623,615 - -------------------------------------------------------------------------------- 1,000,000 Sacramento City Financing Auth. Rev., 5.50%, 6/1/20 1,058,680 - -------------------------------------------------------------------------------- 1,915,000 Sacramento City Financing Auth. Rev., 5.60%, 6/1/24 2,016,380 - -------------------------------------------------------------------------------- 12,500,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.25%, 7/1/24 (AMBAC) 13,058,000 - -------------------------------------------------------------------------------- 3,555,000 Sacramento Municipal Utility District Electric Rev., Series 2001 P, 5.25%, 8/15/20 (FSA) 3,697,662 - -------------------------------------------------------------------------------- 5,000,000 Sacramento Power Auth. Rev., (Cogeneration Projects), 6.00%, 7/1/22 5,176,350 - -------------------------------------------------------------------------------- 1,000,000 Saddleback Valley Unified School District Public Financing Auth. Special Tax Rev., Series 1997 A, 6.00%, 9/1/16 (FSA) 1,163,110 - -------------------------------------------------------------------------------- 1,345,000 San Diego Community College District Lease Rev., 6.125%, 12/1/06, Prerefunded at 102% of Par (MBIA)(2) 1,550,906 - -------------------------------------------------------------------------------- 10,400,000 San Diego County COP, 5.625%, 9/1/12 (AMBAC) 11,640,720 - -------------------------------------------------------------------------------- 4,640,000 San Diego County COP, (Burnham Institute), 6.25%, 9/1/29 4,752,798 - -------------------------------------------------------------------------------- 3,500,000 San Diego County Regional Transportation Commission Sales Tax Rev., Series 1991 A, 6.93%, 4/1/04(1)(2) 3,480,015 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 29 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,355,000 San Diego Redevelopment Agency Tax Allocation Rev., (Centre City Redevelopment), 5.25%, 9/1/19 (FSA) $ 3,510,337 - -------------------------------------------------------------------------------- 2,600,000 San Diego Redevelopment Agency Tax Allocation Rev., (Centre City Redevelopment), 5.25%, 9/1/20 (FSA) 2,703,610 - -------------------------------------------------------------------------------- 510,000 San Diego Redevelopment Agency Tax Allocation Rev., Series 2003 A, (Horton Plaza), 4.85%, 11/1/18 483,643 - -------------------------------------------------------------------------------- 1,090,000 San Diego Redevelopment Agency Tax Allocation Rev., Series 2003 A, (Horton Plaza), 5.05%, 11/1/20 1,026,508 - -------------------------------------------------------------------------------- 5,000,000 San Diego Unified School District GO, Series 2003 E, (Election 1998), 5.25%, 7/1/23 (FSA) 5,139,100 - -------------------------------------------------------------------------------- 2,715,000 San Marcos Public Facilities Auth. Rev., Series 2000 A, (Tax Increment Project Area 3), 6.75%, 10/1/30 2,923,050 - -------------------------------------------------------------------------------- 3,535,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 6.50%, 7/1/15 (MBIA) 4,255,857 - -------------------------------------------------------------------------------- 3,975,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 6.50%, 7/1/16 (MBIA) 4,802,118 - -------------------------------------------------------------------------------- 4,000,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 6.00%, 7/1/19 (MBIA) 4,632,080 - -------------------------------------------------------------------------------- 1,000,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.25%, 6/1/18 (MBIA) 1,079,600 - -------------------------------------------------------------------------------- 3,500,000 Santa Ana Financing Auth. Lease Rev., 6.25%, 7/1/15 (MBIA) 4,097,590 - -------------------------------------------------------------------------------- 3,355,000 Santa Barbara County GO, 5.50%, 10/1/22 (AMBAC) 3,542,276 - -------------------------------------------------------------------------------- 2,000,000 Santa Margarita-Dana Point Auth. Rev., Series 1994 B, (Improvement Districts 3, 3A, 4, 4A), 7.25%, 8/1/14 (MBIA) 2,521,840 - -------------------------------------------------------------------------------- 4,470,000 Sierra Unified School District COP, 6.125%, 3/1/18 4,586,265 - -------------------------------------------------------------------------------- 2,415,000 Solano County COP, 5.25%, 11/1/22 (MBIA) 2,475,786 - -------------------------------------------------------------------------------- 1,625,000 Solano County COP, 5.25%, 11/1/23 (MBIA) 1,659,873 - -------------------------------------------------------------------------------- 2,500,000 South Coast Air Quality Management District Building Corp. Rev., (Installment Sale Headquarters), 6.00%, 8/1/11 (AMBAC) 2,886,625 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 2,705,000 South Gate COP, Series 2002 A, 5.50%, 9/1/21 (AMBAC) $ 2,880,906 - -------------------------------------------------------------------------------- 2,000,000 South Gate Public Financing Auth. Tax Allocation Rev., (Redevelopment Project No. 1), 5.75%, 9/1/22 (XLCA) 2,144,160 - -------------------------------------------------------------------------------- 1,800,000 South Gate Public Financing Auth. Tax Allocation Rev., (Redevelopment Project No. 1), 5.125%, 9/1/24 (XLCA) 1,781,730 - -------------------------------------------------------------------------------- 1,425,000 Southern California Public Power Auth. Rev., 7.00%, 7/1/09 (Pittsburgh National Bank) 1,494,968 - -------------------------------------------------------------------------------- 3,260,000 Southern California Public Power Auth. Rev., 6.00%, 7/1/18 (Pittsburgh National Bank) 3,263,521 - -------------------------------------------------------------------------------- 7,315,000 Southern California Public Power Auth. Rev., (Multiple Projects), 6.75%, 7/1/12 (FSA) 8,854,442 - -------------------------------------------------------------------------------- 3,730,000 Southern California Public Power Auth. Rev., (Multiple Projects), 6.75%, 7/1/13 (FSA) 4,540,343 - -------------------------------------------------------------------------------- 3,000,000 Southern California Public Power Auth. Rev., Series 1989 A, 7.15%, 7/1/04 (AMBAC)(1) 2,972,160 - -------------------------------------------------------------------------------- 5,635,000 Southern California Public Power Auth. Rev., Series 2002 A, (Southern Transmission Project), 5.25%, 7/1/16 (FSA) 6,014,179 - -------------------------------------------------------------------------------- 2,000,000 Southern Orange County Finance Auth. Special Tax Rev., Series 1994 A, 7.00%, 9/1/11 (MBIA) 2,440,060 - -------------------------------------------------------------------------------- 1,525,000 Stanton Redevelopment Agency Tax Allocation Rev., (Community Development), 5.45%, 12/1/17 (AMBAC) 1,568,737 - -------------------------------------------------------------------------------- 2,850,000 Stockton Health Facilities Auth. Rev., Series 1997 A, (Dameron Hospital Association), 5.70%, 12/1/14 2,951,318 - -------------------------------------------------------------------------------- 1,255,000 Sweetwater Auth. Water Rev., 5.50%, 4/1/17 (FSA) 1,357,772 - -------------------------------------------------------------------------------- 1,325,000 Sweetwater Auth. Water Rev., 5.50%, 4/1/18 (FSA) 1,428,827 - -------------------------------------------------------------------------------- 2,000,000 Taft Public Financing Auth. Lease Rev., Series 1997 A, (Community Correctional Facility), 6.05%, 1/1/17 2,086,780 - -------------------------------------------------------------------------------- 2,500,000 Ukiah Electric Rev., 6.25%, 6/1/18 (MBIA) 2,942,575 - -------------------------------------------------------------------------------- 1,445,000 Walnut Valley Unified School District GO, Series 1992 B, 6.00%, 8/1/10 (AMBAC) 1,679,018 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 30 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,020,000 Watsonville Insured Hospital Rev., Series 1996 A, (Community Hospital), 6.20%, 7/1/12 (California Mortgage Insurance)(2) $ 3,512,351 - -------------------------------------------------------------------------------- 2,185,000 West Kern County Water District COP, 5.625%, 6/1/31 2,195,685 - -------------------------------------------------------------------------------- 4,525,000 Woodland COP, (Wastewater System Reference), 5.75%, 3/1/12 (AMBAC) 5,113,431 - -------------------------------------------------------------------------------- 484,946,110 - -------------------------------------------------------------------------------- PUERTO RICO -- 1.0% - -------------------------------------------------------------------------------- 4,000,000 Puerto Rico Electric Power Auth. Rev., Series 2002 II, 5.375%, 7/1/17 (XLCA) 4,339,120 - -------------------------------------------------------------------------------- 500,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 D, (Government Facilities), 5.375%, 7/1/12 561,820 - -------------------------------------------------------------------------------- 4,900,940 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $462,257,893) 489,847,050 - -------------------------------------------------------------------------------- MUNICIPAL DERIVATIVES -- 0.3% CALIFORNIA -- 0.3% - -------------------------------------------------------------------------------- 1,000,000 San Diego County Water Auth. Rev. COP, (Registration Rites), Yield Curve Notes, Inverse Floater, 10.29%, 4/22/09 (FGIC)(3) 1,248,470 (Cost $1,037,750) - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 0.2% CALIFORNIA -- 0.2% - -------------------------------------------------------------------------------- $ 900,000 California Department of Water Resources Rev., Series 2002 B2, VRDN, 0.85%, 9/2/03 (LOC: BNP Paribas) $ 900,000 (Cost $900,000) - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $464,195,643) $491,995,520 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FHA = Federal Housing Authority FSA = Financial Security Assurance Inc. GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. VA = Veteran's Administration VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective August 31, 2003. XLCA = XL Capital Assurance Corp. (1) Security is a zero-coupon municipal bond. The rate indicated is the yield to maturity at purchase. Zero-coupon securities are issued 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. Final maturity is indicated and used in calculating the weighted average portfolio maturity. See Notes to Financial Statements. ----- 31 Statement of Assets and Liabilities AUGUST 31, 2003 - -------------------------------------------------------------------------------------------------------------- CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA TAX-FREE LIMITED-TERM INTERMEDIATE- LONG-TERM MONEY MARKET TAX-FREE TERM TAX-FREE TAX-FREE - -------------------------------------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------------------------------------- Investment securities, at value (cost of $624,836,693, $222,824,706, $431,944,545 and $464,195,643, respectively) $624,836,693 $228,411,568 $452,736,621 $491,995,520 - ------------------------------------ Receivable for capital shares sold -- 167,014 534,345 509,900 - ------------------------------------ Interest receivable 792,053 2,317,744 5,997,444 6,507,756 - ------------------------------------ Prepaid portfolio insurance 30,903 -- -- -- - -------------------------------------------------------------------------------------------------------------- 625,659,649 230,896,326 459,268,410 499,013,176 - -------------------------------------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 3,632,198 1,330,373 2,205,573 1,034,619 - ------------------------------------ Payable for investments purchased -- 1,337,540 5,382,450 -- - ------------------------------------ Accrued management fees 261,780 97,340 192,747 212,085 - ------------------------------------ Dividends payable 18,244 100,638 356,190 601,057 - -------------------------------------------------------------------------------------------------------------- 3,912,222 2,865,891 8,136,960 1,847,761 - -------------------------------------------------------------------------------------------------------------- NET ASSETS $621,747,427 $228,030,435 $451,131,450 $497,165,415 ============================================================================================================== CAPITAL SHARES - -------------------------------------------------------------------------------------------------------------- Outstanding (unlimited number of shares authorized) 621,867,602 21,311,864 39,992,203 43,487,273 ============================================================================================================== NET ASSET VALUE PER SHARE $1.00 $10.70 $11.28 $11.43 ============================================================================================================== NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------------------------------------- Capital paid in $621,867,602 $222,386,944 $430,612,172 $469,050,022 - ------------------------------------ Undistributed net investment income 306,629 -- -- 143,335 - ------------------------------------ Accumulated undistributed net realized gain (loss) on investment transactions (426,804) 56,629 (272,798) 172,181 - ------------------------------------ Net unrealized appreciation on investments -- 5,586,862 20,792,076 27,799,877 - -------------------------------------------------------------------------------------------------------------- $621,747,427 $228,030,435 $451,131,450 $497,165,415 ============================================================================================================== See Notes to Financial Statements. - ----- 32 Statement of Operations YEAR ENDED AUGUST 31, 2003 - -------------------------------------------------------------------------------------------------------------- CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA TAX-FREE LIMITED-TERM INTERMEDIATE- LONG-TERM MONEY MARKET TAX-FREE TERM TAX-FREE TAX-FREE - -------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------------------------------------- INCOME: - ------------------------------------ Interest $8,337,241 $7,563,160 $20,980,922 $27,120,498 - -------------------------------------------------------------------------------------------------------------- EXPENSES: - ------------------------------------ Management fees 3,245,204 1,151,762 2,384,424 2,687,720 - ------------------------------------ Trustees' fees and expenses 25,402 10,343 21,928 25,780 - ------------------------------------ Portfolio insurance and other expenses 76,009 2,715 2,542 2,755 - -------------------------------------------------------------------------------------------------------------- 3,346,615 1,164,820 2,408,894 2,716,255 - -------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 4,990,626 6,398,340 18,572,028 24,404,243 - -------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investment transactions (142,175) 200,408 353,599 3,654,490 - ------------------------------------ Change in net unrealized appreciation on investments -- (2,577,417) (9,538,543) (17,666,821) - -------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS (142,175) (2,377,009) (9,184,944) (14,012,331) - -------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,848,451 $4,021,331 $ 9,387,084 $10,391,912 ============================================================================================================== See Notes to Financial Statements. ----- 33 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2003 AND AUGUST 31, 2002 - -------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-FREE CALIFORNIA LIMITED-TERM MONEY MARKET TAX-FREE - -------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2003 2002 2003 2002 - -------------------------------------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------------------------------------- Net investment income $4,990,626 $6,736,534 $6,398,340 $5,845,670 - ------------------------------------ Net realized gain (loss) (142,175) 7,883 200,408 341,467 - ------------------------------------ Change in net unrealized appreciation -- -- (2,577,417) 2,627,108 - -------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 4,848,451 6,744,417 4,021,331 8,814,245 - -------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------------------------------------- From net investment income (4,829,134) (6,736,534) (6,398,340) (5,845,670) - ------------------------------------ From net realized gains -- -- (405,727) (459,423) - -------------------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (4,829,134) (6,736,534) (6,804,067) (6,305,093) - -------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------------------------------------- Proceeds from shares sold 400,535,152 432,980,678 103,841,525 96,716,058 - ------------------------------------ Issued in connection with acquisition 174,309,752 -- -- -- - ------------------------------------ Proceeds from reinvestment of distributions 4,059,759 5,051,170 5,160,683 4,744,677 - ------------------------------------ Payments for shares redeemed (485,364,815) (461,573,487) (83,255,099) (62,832,787) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 93,539,848 (23,541,639) 25,747,109 38,627,948 - -------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 93,559,165 (23,533,756) 22,964,373 41,137,100 NET ASSETS - -------------------------------------------------------------------------------------------------------------- Beginning of period 528,188,262 551,722,018 205,066,062 163,928,962 - -------------------------------------------------------------------------------------------------------------- End of period $621,747,427 $528,188,262 $228,030,435 $205,066,062 ============================================================================================================== Undistributed net investment income $306,629 $275,802 -- -- ============================================================================================================== TRANSACTIONS IN SHARES OF THE FUNDS - -------------------------------------------------------------------------------------------------------------- Sold 400,535,152 432,980,678 9,598,820 9,088,959 - ------------------------------------ Issued in connection with acquisition 174,461,022 -- -- -- - ------------------------------------ Issued in reinvestment of distributions 4,059,759 5,051,170 477,778 446,086 - ------------------------------------ Redeemed (485,364,815) (461,573,487) (7,716,350) (5,923,690) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in shares of the funds 93,691,118 (23,541,639) 2,360,248 3,611,355 ============================================================================================================== See Notes to Financial Statements. (continued) - ----- 34 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2003 AND AUGUST 31, 2002 - -------------------------------------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE-TERM CALIFORNIA LONG-TERM TAX-FREE TAX-FREE - -------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2003 2002 2003 2002 - -------------------------------------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------------------------------------- Net investment income $18,572,028 $18,738,497 $24,404,243 $14,708,126 - ------------------------------------ Net realized gain 353,599 2,152,760 3,654,490 294,782 - ------------------------------------ Change in net unrealized appreciation (9,538,543) 4,119,745 (17,666,821) 985,657 - -------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 9,387,084 25,011,002 10,391,912 15,988,565 - -------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------------------------------------- From net investment income (18,572,028) (18,749,892) (24,404,243) (14,708,126) - ------------------------------------ From net realized gains (1,711,879) (2,896,393) -- -- - -------------------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (20,283,907) (21,646,285) (24,404,243) (14,708,126) - -------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------------------------------------- Proceeds from shares sold 74,151,881 71,184,335 61,811,816 62,989,133 - ------------------------------------ Issued in connection with acquisition -- -- 227,891,347 -- - ------------------------------------ Proceeds from reinvestment of distributions 15,096,684 16,021,640 16,418,189 9,907,648 - ------------------------------------ Payments for shares redeemed (104,714,256) (63,051,543) (122,093,954) (78,116,596) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (15,465,691) 24,154,432 184,027,398 (5,219,815) - -------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (26,362,514) 27,519,149 170,015,067 (3,939,376) NET ASSETS - -------------------------------------------------------------------------------------------------------------- Beginning of period 477,493,964 449,974,815 327,150,348 331,089,724 - -------------------------------------------------------------------------------------------------------------- End of period $451,131,450 $477,493,964 $497,165,415 $327,150,348 ============================================================================================================== Undistributed net investment income -- -- $143,335 -- ============================================================================================================== TRANSACTIONS IN SHARES OF THE FUNDS - -------------------------------------------------------------------------------------------------------------- Sold 6,419,910 6,299,096 5,275,521 5,453,926 - ------------------------------------ Issued in connection with acquisition -- -- 19,398,549 -- - ------------------------------------ Issued in reinvestment of distributions 1,310,096 1,417,365 1,398,001 859,579 - ------------------------------------ Redeemed (9,096,606) (5,577,878) (10,426,334) (6,778,586) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in shares of the funds (1,366,600) 2,138,583 15,645,737 (465,081) ============================================================================================================== See Notes to Financial Statements. ----- 35 Notes to Financial Statements AUGUST 31, 2003 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century California Tax-Free and Municipal Funds (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. California Tax-Free Money Market Fund (Tax-Free Money Market), 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) (collectively, the funds) are four funds in a series issued by the trust. The funds are diversified under the 1940 Act. The funds' investment objectives are to seek safety of principal and high current income that is exempt from federal and California income taxes. The funds invest primarily in municipal obligations with maturities based on the maturity range described in that fund's name. 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 is a summary of the funds' significant accounting policies. SECURITY VALUATIONS -- Securities of Tax-Free Money Market are valued at amortized cost, which approximates current market value. Securities of Limited-Term, Intermediate-Term, and Long-Term are valued at current market value as provided by 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. WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds may engage in securities transactions on a when-issued or forward commitment basis. Under these arrangements, the securities' prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The funds will segregate cash, cash equivalents or other appropriate liquid securities on their records in amounts sufficient to meet the purchase price. 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 provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. FUTURES CONTRACTS -- Limited-Term, Intermediate-Term, and Long-Term may enter into futures contracts in order to manage their exposure to changes in market conditions. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, Limited-Term, Intermediate-Term, and Long-Term 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 unrealized gains and losses. Limited-Term, Intermediate-Term, and Long-Term 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 investment transactions and unrealized appreciation (depreciation) on investments, respectively. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually. Tax-Free Money Market does not expect to realize any long-term capital gains, and accordingly, does not expect to pay any capital gains distributions. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. (continued) - ----- 36 Notes to Financial Statements AUGUST 31, 2003 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides the funds 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 commissions, taxes, portfolio insurance, interest, fees and expenses of those trustees who are not considered "interested persons" as defined in the 1940 Act (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid monthly in arrears. 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% for Tax-Free Money Market and from 0.1625% to 0.2800% for Limited-Term, Intermediate-Term, and Long-Term. The rates for the Complex Fee range from 0.2900% to 0.3100%. For the year ended August 31, 2003, the effective annual management fee was 0.49% for Tax-Free Money Market and 0.50% for Limited-Term, Intermediate-Term, and Long-Term. MONEY MARKET INSURANCE -- Tax-Free Money Market, along with other money market funds managed by ACIM, has entered into an insurance agreement with MBIA Insurance Corporation (MBIA). MBIA provides limited coverage for certain loss events including issuer defaults as to payment of principal or interest and insolvency of a credit enhancement provider. Tax-Free Money Market pays annual premiums to MBIA, which are amortized daily over one year. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust's investment manager, ACIM, the distributor of the trust, American Century Investment Services, Inc., and the trust's transfer agent, American Century Services Corporation. Limited-Term, Intermediate-Term, and Long-Term have a bank line of credit agreement with J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the year ended August 31, 2003, were as follows: - -------------------------------------------------------------------------------- INTERMEDIATE- LIMITED-TERM TERM LONG-TERM - -------------------------------------------------------------------------------- PURCHASES - -------------------------------------------------------------------------------- Municipal Obligations $109,955,301 $116,240,154 $119,531,938 - -------------------------------------------------------------------------------- PROCEEDS FROM SALES - -------------------------------------------------------------------------------- Municipal Obligations $71,820,325 $123,205,531 $167,233,736 - -------------------------------------------------------------------------------- All investment transactions for Tax-Free Money Market were considered short-term during the year ended August 31, 2003. 4. BANK LINE OF CREDIT Limited-Term, Intermediate-Term, and Long-Term, along with certain other funds managed by ACIM, have a $620,000,000 unsecured bank line of credit agreement with JPM, which was renewed from $650,000,000 effective December 17, 2002. Limited-Term, Intermediate-Term, and Long-Term may borrow money for temporary or emergency purposes to fund shareholder redemptions. Borrowings under the agreement bear interest at the Federal Funds rate plus 0.50%. Limited-Term, Intermediate-Term, and Long-Term did not borrow from the line during the year ended August 31, 2003. (continued) ----- 37 Notes to Financial Statements AUGUST 31, 2003 5. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended August 31, 2003 and August 31, 2002 were as follows: - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET LIMITED-TERM - -------------------------------------------------------------------------------- 2003 2002 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $4,829,134 $6,736,534 $6,495,231 $6,188,237 - -------------------------------------------------------------------------------- Long-term capital gains -- -- $308,836 $116,856 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTERMEDIATE-TERM LONG-TERM - -------------------------------------------------------------------------------- 2003 2002 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $19,586,780 $20,933,024 $24,404,243 $14,708,126 - -------------------------------------------------------------------------------- Long-term capital gains $697,127 $713,261 -- -- - -------------------------------------------------------------------------------- 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. As of August 31, 2003, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: - -------------------------------------------------------------------------------------------------------------- TAX-FREE INTERMEDIATE- MONEY MARKET LIMITED-TERM TERM LONG-TERM - -------------------------------------------------------------------------------------------------------------- COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST - -------------------------------------------------------------------------------------------------------------- Federal tax cost of investments $624,836,693 $222,824,706 $431,944,545 $464,195,643 ============================================================================================================== Gross tax appreciation of investments -- $5,920,128 $21,653,104 $30,366,438 - ------------------------------------- Gross tax depreciation of investments -- (333,266) (861,028) (2,566,561) - -------------------------------------------------------------------------------------------------------------- Net tax appreciation of investments -- $5,586,862 $20,792,076 $27,799,877 ============================================================================================================== Undistributed ordinary income $306,629 -- -- $143,335 - ------------------------------------- Accumulated long-term gains -- $56,629 -- $172,181 - ------------------------------------- Accumulated capital losses $(264,690) -- -- -- - ------------------------------------- Capital loss deferral $(162,114) -- $(272,798) -- - -------------------------------------------------------------------------------------------------------------- The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryover expires in 2004 through 2008 for Tax-Free Money Market. The capital loss deferrals represent net capital losses incurred in the ten-month period ended August 31, 2003. The funds have elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. (continued) - ----- 38 Notes to Financial Statements AUGUST 31, 2003 6. REORGANIZATION PLANS On September 3, 2002, Tax-Free Money Market acquired all of the net assets of California Municipal Money Market Fund (Municipal Money Market), a fund that was issued by the trust, pursuant to a plan of reorganization approved by the shareholders of Municipal Money Market on August 2, 2002. Tax-Free Money Market is the surviving fund for purposes of maintaining the financial statements and performance history in the post-reorganization. The acquisition was accomplished by a tax-free exchange of 174,461,022 shares of Tax-Free Money Market for 174,461,022 shares of Municipal Money Market, outstanding on September 3, 2002. The net assets of Tax-Free Money Market and Municipal Money Market immediately before the acquisition were $528,188,262 and $174,309,752, respectively. Immediately after the acquisition, the combined net assets were $702,498,014. Tax-Free Money Market acquired capital loss carryovers for federal income tax purposes of $151,270. These acquired capital loss carryovers are subject to limitations on their use under the Internal Revenue Code, as amended. On September 3, 2002, the net assets of California Insured Tax-Free Fund (Insured), a fund that was issued by the trust, were acquired by Long-Term. The acquisition was pursuant to a plan of reorganization approved by the shareholders of Insured on August 2, 2002. Long-Term is the surviving fund for purposes of maintaining the financial statements and performance history in the post-reorganization. The acquisition was accomplished by a tax-free exchange of 19,398,549 shares of Long-Term for 21,242,586 shares of Insured, outstanding on September 3, 2002. The net assets of Insured and Long-Term immediately before the acquisition were $227,891,347 and $327,150,348, respectively. Insured's unrealized appreciation of $18,339,518 was combined with that of Long-Term. Immediately after the acquisition, the combined net assets were $555,041,695. Long-Term acquired capital loss carryovers for federal income tax purposes of $305,795. These acquired capital loss carryovers may be subject to limitations on their use under the Internal Revenue Code, as amended. 7. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The funds designate exempt interest and capital gain dividends for the fiscal year ended August 31, 2003, as follows: - ---------------------------------------------------------------------------------------------------- TAX-FREE INTERMEDIATE- MONEY MARKET LIMITED-TERM TERM LONG-TERM - ---------------------------------------------------------------------------------------------------- Exempt interest dividends $4,829,134 $6,398,340 $18,572,028 $24,272,133 - ---------------------------------------------------------------------------------------------------- Long-term capital gains -- $308,852 $691,818 -- - ---------------------------------------------------------------------------------------------------- ----- 39 California Tax-Free Money Market - Financial Highlights For a Share Outstanding Throughout the Years Ended August 31 - -------------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------- 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 0.01 0.01 0.03 0.03 0.03 - -------------------------------------------------------------------------------------------------------------- Distributions - ------------------------------------ From Net Investment Income (0.01) (0.01) (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) 0.73% 1.24% 2.86% 3.11% 2.62% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.50% 0.49% 0.50% - ------------------------------------ Ratio of Net Investment Income to Average Net Assets 0.76% 1.24% 2.84% 3.07% 2.59% - ------------------------------------ Net Assets, End of Period (in thousands) $621,747 $528,188 $551,722 $640,476 $558,175 - -------------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ----- 40 California Limited-Term Tax-Free - Financial Highlights For a Share Outstanding Throughout the Years Ended August 31 - -------------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.82 $10.69 $10.40 $10.27 $10.43 - -------------------------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------ Net Investment Income 0.30 0.35 0.42 0.41 0.39 - ------------------------------------ Net Realized and Unrealized Gain (Loss) (0.10) 0.16 0.29 0.13 (0.16) - -------------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.20 0.51 0.71 0.54 0.23 - -------------------------------------------------------------------------------------------------------------- Distributions - ------------------------------------ From Net Investment Income (0.30) (0.35) (0.42) (0.41) (0.39) - ------------------------------------ From Net Realized Gains (0.02) (0.03) -- -- -- - -------------------------------------------------------------------------------------------------------------- Total Distributions (0.32) (0.38) (0.42) (0.41) (0.39) - -------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.70 $10.82 $10.69 $10.40 $10.27 ============================================================================================================== TOTAL RETURN(1) 1.87% 4.91% 6.94% 5.44% 2.26% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.51% 0.51% 0.51% - ------------------------------------ Ratio of Net Investment Income to Average Net Assets 2.78% 3.30% 3.97% 4.05% 3.78% - ------------------------------------ Portfolio Turnover Rate 34% 50% 63% 97% 57% - ------------------------------------ Net Assets, End of Period (in thousands) $228,030 $205,066 $163,929 $142,205 $141,549 - -------------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. ----- 41 California Intermediate-Term Tax-Free - Financial Highlights For a Share Outstanding Throughout the Years Ended August 31 - -------------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.55 $11.47 $11.08 $10.85 $11.37 - -------------------------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------ Net Investment Income 0.45 0.47 0.50 0.50 0.49 - ------------------------------------ Net Realized and Unrealized Gain (Loss) (0.23) 0.15 0.39 0.23 (0.41) - -------------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.22 0.62 0.89 0.73 0.08 - -------------------------------------------------------------------------------------------------------------- Distributions - ------------------------------------ From Net Investment Income (0.45) (0.47) (0.50) (0.50) (0.49) - ------------------------------------ From Net Realized Gains (0.04) (0.07) -- -- (0.11) - -------------------------------------------------------------------------------------------------------------- Total Distributions (0.49) (0.54) (0.50) (0.50) (0.60) - -------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $11.28 $11.55 $11.47 $11.08 $10.85 ============================================================================================================== TOTAL RETURN(1) 1.91% 5.63% 8.22% 6.95% 0.74% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.51% 0.51% 0.51% - ------------------------------------ Ratio of Net Investment Income to Average Net Assets 3.89% 4.13% 4.45% 4.64% 4.41% - ------------------------------------ Portfolio Turnover Rate 25% 41% 94% 73% 54% - ------------------------------------ Net Assets, End of Period (in thousands) $451,131 $477,494 $449,975 $444,571 $459,859 - -------------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ----- 42 California Long-Term Tax-Free - Financial Highlights For a Share Outstanding Throughout the Years Ended August 31 - -------------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.75 $11.70 $11.11 $10.86 $11.72 - -------------------------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------ Net Investment Income 0.53 0.53 0.55 0.56 0.57 - ------------------------------------ Net Realized and Unrealized Gain (Loss) (0.32) 0.05 0.59 0.25 (0.76) - -------------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.21 0.58 1.14 0.81 (0.19) - -------------------------------------------------------------------------------------------------------------- Distributions - ------------------------------------ From Net Investment Income (0.53) (0.53) (0.55) (0.56) (0.57) - ------------------------------------ From Net Realized Gains -- -- -- -- (0.10) - -------------------------------------------------------------------------------------------------------------- Total Distributions (0.53) (0.53) (0.55) (0.56) (0.67) - -------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $11.43 $11.75 $11.70 $11.11 $10.86 ============================================================================================================== TOTAL RETURN(1) 1.81% 5.14% 10.55% 7.79% (1.85)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.51% 0.51% 0.51% - ------------------------------------ Ratio of Net Investment Income to Average Net Assets 4.54% 4.58% 4.87% 5.24% 4.94% - ------------------------------------ Portfolio Turnover Rate 23% 43% 31% 24% 52% - ------------------------------------ Net Assets, End of Period (in thousands) $497,165 $327,150 $331,090 $303,480 $332,627 - -------------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. ----- 43 Report of Independent Auditors To the Trustees of the American Century California Tax-Free and Municipal Funds and Shareholders of the California Tax-Free Money Market Fund, 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 Tax-Free Money Market Fund, the California Limited-Term Tax-Free Fund, the California Intermediate-Term Tax-Free Fund and the California Long-Term Tax-Free Fund (four of the five funds in the American Century California Tax-Free and Municipal Funds, hereafter referred to as the "Funds") at August 31, 2003, the results of each of their operations for the year then ended, and the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. 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. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Kansas City, Missouri October 8, 2003 - ----- 44 Management The individuals listed below serve as trustees or officers of the funds. Each trustee serves until his or her successor is duly elected and qualified or until he or she retires. Mandatory retirement age for independent trustees is 75. Those listed as interested trustees are "interested" primarily by virtue of their engagement as officers of American Century Companies, Inc. (ACC) or its wholly-owned subsidiaries, including the funds' investment advisor, American Century Investment Management, Inc. (ACIM); the funds' principal underwriter, American Century Investment Services, Inc. (ACIS); and the funds' transfer agent, American Century Services Corporation (ACSC). The other trustees (more than two-thirds of the total number) are independent; that is, they are not employees or officers of, and have no financial interest in, ACC or any of its wholly-owned subsidiaries, including ACIM, ACIS, and ACSC All persons named as officers of the funds also serve in similar capacities for other funds advised by ACIM. Only officers with policy-making functions are listed. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds and are appointed or re-appointed on an annual basis. INDEPENDENT TRUSTEES - -------------------------------------------------------------------------------- ALBERT EISENSTAT (73) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: General Partner, Discovery Ventures (Venture capital firm, 1996 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Independent Director, Sungard Data Systems (1991 to present); Independent Director, Business Objects S/A (1994 to present) - -------------------------------------------------------------------------------- RONALD J. GILSON (56) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Mark and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present); Counsel, Marron, Reid & Sheehy (a San Francisco law firm, 1984 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- KATHRYN A. HALL (45) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Investment Officer, Offit Hall Capital Management, LLC (April 2002 to present); President and Managing Director, Laurel Management Company, L.L.C. (1996 to April 2002) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Princeton University Investment Company (1997 to present); Director, Stanford Management Company (2001 to present); Director, UCSF Foundation (2000 to present); Director, San Francisco Day School (1999 to present) - -------------------------------------------------------------------------------- MYRON S. SCHOLES (62) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 22 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Partner, Oak Hill Capital Management (1999 to present); Principal, Long-Term Capital Management (investment advisor, 1993 to January 1999); Frank E. Buck Professor of Finance, Stanford Graduate School of Business (1981 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Smith Breeden Family of Funds (1992 to present) - -------------------------------------------------------------------------------- (continued) ----- 45 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- KENNETH E. SCOTT (74) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 31 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Ralph M. Parsons Professor of Law and Business, Stanford Law School (1972 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- JOHN B. SHOVEN (56) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1977 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to present); Director, Watson Wyatt Worldwide (2002 to present); Director, Palmsource Inc. (2002 to present) - -------------------------------------------------------------------------------- JEANNE D. WOHLERS (58) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 18 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Director and Partner, Windy Hill Productions, LP (educational software, 1994 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Indus International (software solutions, January 1999 to present); Director, Quintus Corporation (automation solutions, 1995 to present) - -------------------------------------------------------------------------------- INTERESTED TRUSTEE - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to present); President, ACIM (September 2002 to present); President, ACIS (July 2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000); Also serves as: Executive Vice President, ACSC, and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ----- 46 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: See entry under "Interested Trustees." - -------------------------------------------------------------------------------- ROBERT T. JACKSON (57) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Executive Vice President LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC (August 1997 to present); Chief Financial Officer, ACC (May 1995 to October 2002); President, ACSC (January 1999 to present); Executive Vice President, ACC (May 1995 to present); Also serves as: Executive Vice President and Chief Financial Officer, ACIM, ACIS, and other ACC subsidiaries - -------------------------------------------------------------------------------- MARYANNE ROEPKE, CPA (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Accounting Officer LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Assistant Treasurer, ACSC - -------------------------------------------------------------------------------- DAVID C. TUCKER (45) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present) - -------------------------------------------------------------------------------- ROBERT LEACH (37) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- C. JEAN WADE (39) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- JON ZINDEL (36) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Tax Officer LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC (April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries (April 1999 to present); President, American Century Employee Benefit Services, Inc. (January 2000 to December 2000); Treasurer, American Century Ventures, Inc. (December 1999 to January 2001) - -------------------------------------------------------------------------------- The SAI has additional information about the funds' trustees and is available without charge upon request by calling 1-800-345-2021. ----- 47 Index Definitions and Proxy Voting Guidelines INDEX DEFINITIONS The following indices are used to illustrate investment market, sector, or style performance or to serve as fund performance comparisons. They are not investment products available for purchase. The Lehman Brothers Municipal Bond Index is a market-value-weighted index designed for the long-term tax-exempt bond market. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. The LEHMAN BROTHERS 3-YEAR MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities of 2-4 years. The NASDAQ COMPOSITE INDEX is a market-value weighted index of all domestic and international common stocks listed on the Nasdaq stock market. The S&P 500 INDEX is a market-value weighted index of the stocks of 500 publicly-traded U.S. companies chosen for market size, liquidity, and industry group representation that are considered to be leading firms in dominant industries. Each stock's weight in the index is proportionate to its market value. Created by Standard & Poor's, it is considered to be a broad measure of U.S. stock market performance. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the funds' manager, is responsible for exercising the voting rights associated with the securities purchased and/or held by the funds. A description of the policies and procedures the manager uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's Web site at www.americancentury.com and on the Securities and Exchange Commission's Web site at www.sec.gov. - ----- 48 [inside back cover - blank] [back cover] CONTACT US WWW.AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR RELATIONS: 1-800-345-2021 or 816-531-5575 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 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 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. 0310 American Century Investment Services, Inc. SH-ANN-36002N (c)2003 American Century Services Corporation
[front cover] August 31, 2003 American Century Annual Report [photo] California High-Yield Municipal [american century logo and text logo (reg.sm)] [inside front cover] Table of Contents Our Message to You........................................................ 1 CALIFORNIA HIGH-YIELD MUNICIPAL Performance............................................................... 2 Portfolio Commentary...................................................... 4 Portfolio at a Glance.................................................. 4 Yields................................................................. 4 Portfolio Composition by Credit Rating................................. 5 Top Five Sectors....................................................... 5 Schedule of Investments................................................... 6 FINANCIAL STATEMENTS Statement of Assets and Liabilities....................................... 11 Statement of Operations................................................... 12 Statement of Changes in Net Assets........................................ 13 Notes to Financial Statements............................................. 14 Financial Highlights...................................................... 18 Report of Independent Auditors............................................ 22 OTHER INFORMATION Management................................................................ 23 Share Class Information................................................... 26 Index Definition and Proxy Voting Guidelines.............................. 27 The opinions expressed in the Portfolio Commentary reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo] James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the annual report for the American Century California High-Yield Municipal Fund for the fiscal year ended August 31, 2003. The report includes comparative performance figures, portfolio and market commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Also, through our Web site, we provide quarterly commentaries on all American Century portfolios, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. Your next shareholder report for this fund will be the semiannual report dated February 29, 2004, available in approximately six months. As always, we deeply appreciate your investment with American Century. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /s/James E. Stowers III James E. Stowers III Co-Chairman of the Board ----- 1 California High-Yield Municipal - Performance TOTAL RETURNS AS OF AUGUST 31, 2003 --------------------------------- AVERAGE ANNUAL RETURNS - ----------------------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - ----------------------------------------------------------------------------------------------- INVESTOR CLASS 3.35% 5.13% 6.13% 6.38% 12/30/86 - ----------------------------------------------------------------------------------------------- LEHMAN LONG-TERM MUNICIPAL BOND INDEX 2.62% 5.05% 6.06% 7.67%(1) -- - ----------------------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S CALIF. MUNICIPAL DEBT FUNDS 1.36% 3.96% 5.04% 6.31%(1) -- - ----------------------------------------------------------------------------------------------- Fund's Lipper Ranking(2) 1 of 120 2 of 90 1 of 49 -- -- - ----------------------------------------------------------------------------------------------- A Class(3) 1/31/03 No sales charge* -- -- -- 1.48%(4) With sales charge* -- -- -- -3.08%(4) - ----------------------------------------------------------------------------------------------- B Class(3) 1/31/03 No sales charge* -- -- -- 1.05%(4) With sales charge* -- -- -- -3.95%(4) - ----------------------------------------------------------------------------------------------- C Class(3) 1/31/03 No sales charge* -- -- -- 1.22%(4) With sales charge* -- -- -- 0.24%(4) - ----------------------------------------------------------------------------------------------- *Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. (A Class shares have an initial sales charge and CDSC; B and C Class shares have CDSCs. Please see the Share Class Information page for more about the applicable sales charges for each share class.) The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Since 12/31/86, the date nearest the Investor Class's inception for which data are available. (2) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated. (3) Class returns would have been lower if service and distribution fees had not been voluntarily waived from 1/31/03 to 3/10/03, 2/19/03, and 3/4/03 for the A, B, and C Class shares, respectively. (4) Returns for periods less than one year are not annualized. (continued) - ----- 2 California High-Yield Municipal - Performance
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made August 31, 1993
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ----------------------------------------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------- INVESTOR CLASS 0.87% 7.09% 8.02% 10.61% 9.35% 0.26% 6.70% 9.50% 6.07% 3.35% - ----------------------------------------------------------------------------------------------------------------- LEHMAN LONG-TERM MUNICIPAL BOND INDEX -2.05% 9.43% 6.88% 11.24% 10.51% -2.14% 7.34% 12.35% 5.62% 2.62% - ----------------------------------------------------------------------------------------------------------------- The charts on the performance pages give historical return data for the fund. Returns for the index are provided for comparison. The fund'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. Unless otherwise indicated, the charts are based on Investor Class shares; performance for other classes will vary due to differences in fee structures (see the Total Returns table on the previous page). Past performance does not guarantee future results. None of these charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. ----- 3 California High-Yield Municipal - Portfolio Commentary By Steven Permut, portfolio manager RETURNS EARN HIGH LIPPER RANKINGS During the fiscal year ended August 31, 2003, California High-Yield Municipal (Cal High-Yield) returned 3.35% compared with 1.36% for the average return of 120 California municipal debt funds tracked by Lipper Inc.* That earned a #1 ranking in the Lipper group and also contributed to #2 and #1 rankings, respectively, in the Lipper group for the five- and 10-year periods ended August 31, 2003 (see page 2 for more details). YIELD ALSO BEATS LIPPER AVERAGE Yield contributed significantly to Cal High-Yield's excellent comparative returns. As of August 31, 2003, the fund's 30-day SEC yield was 5.09%, compared with 3.74% for the Lipper group average of 125 funds. Part of the reason for the higher yield was lower expenses; Cal High-Yield's expense ratio for the year ended August 31, 2003, was 0.54%, around half the 1.07% average of the Lipper group. Another reason was credit quality--the Lipper group includes funds that invest primarily in investment-grade securities. Those funds typically have lower yields than high-yield funds. Since the fund's yield is federal and state tax-exempt for California investors, it equates to a significantly higher tax-equivalent yield. The table above shows the tax-equivalent yields for investors in four common combined tax brackets. ADR, ANOTHER WAY TO REPORT YIELD The yield table also shows annualized distribution rates (ADRs). ADRs are relatively easy to calculate--they're based on fund distributions. Cal High-Yield's ADR for each share class equals the ordinary dividends earned by the share class over the 30 days ended August 31, 2003, multiplied by 12 and divided by the current share price (net asset value) at the end of the period. PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/03 8/31/02 - -------------------------------------------------------------------------------- Weighted Average Maturity 21.7 yrs 22.7 yrs - -------------------------------------------------------------------------------- Average Duration 7.6 yrs 7.7 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 5.09% - -------------------------------------------------------------------------------- A Class 4.62% - -------------------------------------------------------------------------------- B Class 4.11% - -------------------------------------------------------------------------------- C Class 4.34% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 31.98% Tax Bracket 7.48% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 7.79% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 8.38% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 8.63% - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE (ADR) - -------------------------------------------------------------------------------- Investor Class 5.47% - -------------------------------------------------------------------------------- A Class 5.22% - -------------------------------------------------------------------------------- B Class 4.52% - -------------------------------------------------------------------------------- C Class 4.71% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are for combined state and federal income taxes. *All fund returns, yields, and fees referenced in this commentary are for Investor Class shares. (continued) - ----- 4 California High-Yield Municipal - Portfolio Commentary ECONOMIC & BOND MARKET PERSPECTIVE Returns were positive for most Cal muni bonds for the fiscal year ended August 31, 2003. That happened despite several factors that put downward pressure on muni bond prices and caused them to generally decline in the second half of the fiscal year. Those factors included improving national economic conditions; rising federal and state budget deficits (more bonds were issued, meaning lower bond prices); a summer selloff; and California's fiscal and political uncertainty (resulting from state credit rating downgrades, a lingering budget shortfall, and a recall election for the state's governor). But there was also good news for bonds, particularly earlier in the fiscal year. Annualized U.S. economic growth was just 1.4% in the fourth quarter of 2002 and the first quarter of 2003. Excess capacity and declines in demand related to the war with Iraq made it difficult for the manufacturing and labor markets to recover from the 2001 recession, forcing the Federal Reserve to cut its short-term interest rate target two more times. As a result, U.S. bonds mostly rallied from the end of October through mid-June. Not even the subsequent summer selloff could erase all of those positive returns. OTHER FISCAL-YEAR FUND PERFORMANCE FACTORS We believe the fund's consistently high Lipper rankings are attributable to our consistent investment process. We continued to focus on thorough credit reviews and meticulous security selection -- the foundations of our approach. We believe our process reduces the risks of potential downgrades and defaults inherent to the high-yield sector, and helped to keep the fund out of areas that dragged down the performance of other funds. For example, during the fiscal year we avoided securities from struggling sectors like direct state general obligations, airlines, and project finance. We also had limited exposure to the tobacco sector and health care. Our investment objective is to provide high current federal and state tax-exempt income. We also seek bond price appreciation, achieved at least in part through improvements in the credit quality of the portfolio. Expected economic growth should help credit quality, while the portfolio's high yield can help cushion price changes, an important attribute when interest rates rise and bond prices fall. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/03 2/28/03 - -------------------------------------------------------------------------------- AAA 30% 35% - -------------------------------------------------------------------------------- AA 1% 1% - -------------------------------------------------------------------------------- A -- 2% - -------------------------------------------------------------------------------- BBB 5% 6% - -------------------------------------------------------------------------------- BB 1% 1% - -------------------------------------------------------------------------------- Unrated 63% 55% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. TOP FIVE SECTORS AS OF AUGUST 31, 2003 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Land Based 44% - -------------------------------------------------------------------------------- GO 12% - -------------------------------------------------------------------------------- COPs/Leases 8% - -------------------------------------------------------------------------------- Electric Revenue 7% - -------------------------------------------------------------------------------- Housing Revenue 5% - -------------------------------------------------------------------------------- ----- 5 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 99.4% CALIFORNIA -- 99.4% - -------------------------------------------------------------------------------- $ 1,000,000 ABC Unified School District GO, Series 2000 B, 6.14%, 8/1/21 (FGIC)(1) $ 376,590 - -------------------------------------------------------------------------------- 2,000,000 Alameda Public Financing Auth. Local Agency Rev., Series 1996 A, (Community Facility District No. 1), 7.00%, 8/1/19 2,144,000 - -------------------------------------------------------------------------------- 1,200,000 Anaheim Public Financing Auth. Rev., Series 1997 A, 6.00%, 9/1/24 (FSA) 1,359,672 - -------------------------------------------------------------------------------- 975,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Eskaton Gold River Lodge), 6.375%, 11/15/15 (Acquired 8/13/99, Cost $958,942)(2) 946,598 - -------------------------------------------------------------------------------- 3,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Eskaton Gold River Lodge), 6.375%, 11/15/28 (Acquired 8/13/99, Cost $2,878,260)(2) 2,707,200 - -------------------------------------------------------------------------------- 2,500,000 Beaumont Financing Auth. Rev., Series 2003 A, 6.875%, 9/1/27 2,518,250 - -------------------------------------------------------------------------------- 1,190,000 Berryessa Unified School District GO, Series 2000 A, 6.18%, 8/1/21 (FSA)(1) 448,380 - -------------------------------------------------------------------------------- 1,220,000 Berryessa Unified School District GO, Series 2000 A, 6.05%, 8/1/22 (FSA)(1) 429,745 - -------------------------------------------------------------------------------- 1,000,000 Berryessa Unified School District GO, Series 2000 A, 6.06%, 8/1/23 (FSA)(1) 330,260 - -------------------------------------------------------------------------------- 1,000,000 Cabrillo Unified School District GO, Series 1996 A, 5.95%, 8/1/17 (AMBAC)(1) 495,690 - -------------------------------------------------------------------------------- 2,000,000 Cabrillo Unified School District GO, Series 1996 A, 5.95%, 8/1/18 (AMBAC)(1) 926,320 - -------------------------------------------------------------------------------- 3,700,000 Cabrillo Unified School District GO, Series 1996 A, 6.00%, 8/1/21 (AMBAC)(1) 1,393,124 - -------------------------------------------------------------------------------- 1,815,000 Calaveras Unified School District GO, 5.89%, 8/1/23 (FSA)(1) 598,732 - -------------------------------------------------------------------------------- 1,880,000 Calaveras Unified School District GO, 5.90%, 8/1/24 (FSA)(1) 581,841 - -------------------------------------------------------------------------------- 1,950,000 Calaveras Unified School District GO, 5.91%, 8/1/25 (FSA)(1) 566,963 - -------------------------------------------------------------------------------- 1,505,000 California Educational Facilities Auth. Rev., (Western University Health Sciences), 6.00%, 10/1/21 1,522,232 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 4,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 7.15%, 10/1/12 (AMBAC)(1) $ 2,690,040 - -------------------------------------------------------------------------------- 2,500,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Kaiser Permanente), 5.50%, 6/1/22 (FSA) 2,587,331 - -------------------------------------------------------------------------------- 4,410,000 California Mobilehome Park Financing Auth. Rev., Series 2000 B, (Union City Tropics), 7.30%, 8/15/35 4,517,384 - -------------------------------------------------------------------------------- 1,905,000 California Mobilehome Park Financing Auth. Rev., Series 2001 B, (Rancho Vallecitos - San Marcos), 6.75%, 11/15/36 1,888,026 - -------------------------------------------------------------------------------- 6,345,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B (Palomar Estates E & W), 7.00%, 9/15/36 6,418,793 - -------------------------------------------------------------------------------- 2,000,000 California Public Works Board Lease Rev., Series 1993 D, (Department of Corrections), 5.25%, 6/1/15 (FSA) 2,172,800 - -------------------------------------------------------------------------------- 1,465,000 California State and Local Government Financing Auth. Rev., Series 1997 B, (Marin Valley Mobile Country), 7.50%, 10/1/24 (Acquired 3/13/97, Cost $1,465,000)(2) 1,515,308 - -------------------------------------------------------------------------------- 3,080,000 California Statewide Communities Development Auth. COP, (Sonoma County Indian Health), 6.40%, 9/1/29 (Acquired 7/20/99, Cost $3,039,282)(2) 2,856,638 - -------------------------------------------------------------------------------- 2,000,000 California Statewide Communities Development Auth. COP, (Windward School), 6.90%, 9/1/23 2,078,140 - -------------------------------------------------------------------------------- 9,330,000 California Statewide Communities Development Auth. COP, Series 1999 A, (Windsor Terrace Healthcare), 7.875%, 10/1/29 (Acquired 10/26/99, Cost $9,330,000)(2) 9,063,068 - -------------------------------------------------------------------------------- 2,000,000 California Statewide Communities Development Auth. Special Tax Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/31 2,025,580 - -------------------------------------------------------------------------------- 4,630,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 6.00%, 7/1/26 4,701,441 - -------------------------------------------------------------------------------- 2,500,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 6.00%, 7/1/31 2,512,625 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 6 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,455,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 7.00%, 7/1/31 $ 2,438,306 - -------------------------------------------------------------------------------- 4,070,000 Capistrano Unified School District Special Tax Rev., (No. 90-2 Talega), 6.00%, 9/1/32 4,050,586 - -------------------------------------------------------------------------------- 1,000,000 Carmel Unified School District GO, 5.50%, 8/1/25 (MBIA) 1,046,980 - -------------------------------------------------------------------------------- 1,075,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.00%, 8/1/23 (MBIA)(1) 351,880 - -------------------------------------------------------------------------------- 1,075,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.00%, 8/1/24 (MBIA)(1) 330,670 - -------------------------------------------------------------------------------- 1,085,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.05%, 8/1/25 (MBIA)(1) 313,457 - -------------------------------------------------------------------------------- 1,085,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.05%, 8/1/26 (MBIA)(1) 295,532 - -------------------------------------------------------------------------------- 1,700,000 Chino Valley Unified School District COP, Series 2001 A, 5.375%, 9/1/20 (FSA) 1,793,041 - -------------------------------------------------------------------------------- 2,140,000 Chula Vista Community Facilities District Special Tax Rev., (No. 01-1 Area A), 6.10%, 9/1/32 2,153,097 - -------------------------------------------------------------------------------- 2,400,000 Chula Vista Community Facilities District Special Tax Rev., (No. 06-1 Eastlake Woods Area A), 6.20%, 9/1/33 2,401,944 - -------------------------------------------------------------------------------- 7,995,000 Chula Vista Community Facilities District Special Tax Rev., (No. 99-1), 7.625%, 9/1/29 8,724,543 - -------------------------------------------------------------------------------- 70,000 Clayton Improvement Bond Act 1915 Special Assessment, (Oakhurst Assessment District), 8.00%, 9/2/14 72,917 - -------------------------------------------------------------------------------- 15,000 Clayton Improvement Bond Act 1915 Special Assessment, Series 1988 A, (Oakhurst Assessment District), 8.40%, 9/2/10 15,705 - -------------------------------------------------------------------------------- 1,780,000 Clovis Public Financing Auth. Lease Rev., (Corporate Yard), 5.375%, 3/1/20 (AMBAC) 1,866,615 - -------------------------------------------------------------------------------- 600,000 Corcoran COP, 8.75%, 6/1/16 (Acquired 4/28/92, Cost $600,000)(2) 686,040 - -------------------------------------------------------------------------------- 2,050,000 Corona-Norco Unified School District GO, Series 2000 B, 6.03%, 9/1/22 (FSA)(1) 718,259 - -------------------------------------------------------------------------------- 1,750,000 Del Mar Race Track Auth. Rev., 6.20%, 8/15/11 1,883,053 - -------------------------------------------------------------------------------- 1,010,000 Dixie Elementary School District GO, 5.94%, 8/1/24 (FSA)(1) 312,585 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,035,000 Dixie Elementary School District GO, 5.94%, 8/1/25 (FSA)(1) $ 300,926 - -------------------------------------------------------------------------------- 1,150,000 Duarte Unified School District GO, Series 1999 B, 6.08%, 11/1/23 (FSA)(1) 374,118 - -------------------------------------------------------------------------------- 3,545,000 East Bay Municipal Utility District Water Systems Rev., 5.25%, 6/1/18 (MBIA) 3,747,632 - -------------------------------------------------------------------------------- 4,450,000 El Dorado County Special Tax Rev., (Community Facilities District No. 1992-1), 5.60%, 9/1/09 4,746,281 - -------------------------------------------------------------------------------- 2,500,000 El Dorado County Special Tax Rev., (Community Facilities District No. 2001-1 Promontory Specific), 6.30%, 9/1/31 2,561,275 - -------------------------------------------------------------------------------- 1,000,000 El Segundo Unified School District GO, 5.375%, 9/1/20 (FGIC) 1,050,970 - -------------------------------------------------------------------------------- 1,840,000 El Segundo Unified School District GO, 5.375%, 9/1/22 (FGIC) 1,911,852 - -------------------------------------------------------------------------------- 4,225,000 Florin Resource Conservation District COP, Series 1999 A, (Elk Grove Water Works), 6.75%, 3/1/29 5,169,626 - -------------------------------------------------------------------------------- 3,835,000 Folsom Public Financing Auth. Rev., Series 1997 A, 6.875%, 9/2/19 3,975,629 - -------------------------------------------------------------------------------- 2,495,000 Folsom Special Tax Rev., (Community Facilities District No. 7), 5.75%, 9/1/14 2,566,656 - -------------------------------------------------------------------------------- 1,500,000 Folsom Special Tax Rev., (Community Facilities District No. 7), 7.25%, 9/1/21 1,555,005 - -------------------------------------------------------------------------------- 4,250,000 Folsom Special Tax Rev., (Community Facilities District No. 10), 7.00%, 9/1/24 4,512,905 - -------------------------------------------------------------------------------- 6,500,000 Folsom Special Tax Rev., (Community Facilities District No. 14), 6.30%, 9/1/32 6,609,915 - -------------------------------------------------------------------------------- 2,500,000 Fontana Redevelopment Agency Tax Allocation Rev., Series 1994 B, (Jurupa Hills), 7.70%, 1/1/05, Prerefunded at 102% of Par(3) 2,761,000 - -------------------------------------------------------------------------------- 5,000,000 Fullerton Community Facilities District No. 1 Special Tax Rev., 6.375%, 9/1/31 5,152,800 - -------------------------------------------------------------------------------- 3,000,000 Fullerton Community Facilities District No. 1 Special Tax Rev., (Amerige Heights), 6.20%, 9/1/32 3,043,770 - -------------------------------------------------------------------------------- 1,175,000 Gateway Improvement Auth. Rev., Series 1995 A, (Marin City Community Facility), 7.75%, 9/1/05, Prerefunded at 102% of Par(3) 1,346,374 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 7 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,600,000 Glendale Electric Works Rev., 5.875%, 2/1/21 (MBIA) $ 1,763,392 - -------------------------------------------------------------------------------- 2,630,000 Glendale Unified School District GO, Series 1999 C, 6.00%, 9/1/22 (FSA) 2,915,408 - -------------------------------------------------------------------------------- 3,540,000 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/23 3,781,357 - -------------------------------------------------------------------------------- 2,000,000 Highland Special Tax Rev., (Community Facilities District No. 01-1), 6.45%, 9/1/28 2,057,860 - -------------------------------------------------------------------------------- 5,000,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (AMBAC) 5,208,950 - -------------------------------------------------------------------------------- 1,000,000 Laguna Salada Union School District GO, Series 2000 C, 6.12%, 8/1/29 (FGIC)(1) 230,910 - -------------------------------------------------------------------------------- 2,500,000 Lake Elsinore School Financing Auth. Rev., (Horsethief Canyon), 5.625%, 9/1/16 2,591,325 - -------------------------------------------------------------------------------- 1,250,000 Lee Lake Water District Community Facilities No. 1 Special Tax Rev., (Sycamore Creek), 6.00%, 9/1/33 1,210,350 - -------------------------------------------------------------------------------- 2,000,000 Los Angeles Community Facilities District Special Tax Rev., (Cascades Business Park), 6.40%, 9/1/22 2,081,360 - -------------------------------------------------------------------------------- 1,500,000 Manhattan Beach Unified School District GO, Series 1999 C, 5.90%, 9/1/24 (FGIC)(1) 462,075 - -------------------------------------------------------------------------------- 7,225,000 Menlo Park Community Development Agency Multifamily Rev., (Las Pulgas), 5.55%, 6/1/30 (AMBAC)(4) 7,572,305 - -------------------------------------------------------------------------------- 2,480,000 Milpitas Improvement Bond Act 1915 Special Assessment, Series 1996 A, (Local Improvement District 18), 6.75%, 9/2/16 2,630,561 - -------------------------------------------------------------------------------- 5,000,000 Modesto High School District GO, Series 2002 A, 5.92%, 8/1/25 (FGIC)(1) 1,453,750 - -------------------------------------------------------------------------------- 4,000,000 Moreno Valley Unified School District Special Tax Rev., (Community Facilities No. 2002-1), 6.20%, 9/1/32 3,953,280 - -------------------------------------------------------------------------------- 4,100,000 Murrieta Improvement Bond Act 1915 Special Tax Rev., (Community Facilities District No. 2000-1), 6.375%, 9/1/30 4,225,296 - -------------------------------------------------------------------------------- 1,800,000 Northridge Water District COP, (1993 & 2001 Projects), 5.25%, 2/1/22 (AMBAC) 1,842,354 - -------------------------------------------------------------------------------- 2,000,000 Novato Community Facilities District No. 1 Special Tax Rev., (Vintage Oaks), 7.20%, 8/1/15 2,077,480 - -------------------------------------------------------------------------------- 3,000,000 Oceanside Community Facilities District Special Tax Rev., Series 2002 A, (No. 2001-1 Morrow Hills), 6.20%, 9/1/32 3,002,640 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 2,000,000 Orange County Community Facilities District Special Tax Rev., Series 1999 A, (No. 99-1 Ladera Ranch), 6.50%, 8/15/21 $ 2,118,900 - -------------------------------------------------------------------------------- 1,300,000 Orange County Community Facilities District Special Tax Rev., Series 1999 A, (No. 99-1 Ladera Ranch), 6.70%, 8/15/29 1,387,802 - -------------------------------------------------------------------------------- 4,590,000 Orange County Community Facilities District Special Tax Rev., Series 2000 A, (No. 1 Ladera Ranch), 6.25%, 8/15/30 4,682,764 - -------------------------------------------------------------------------------- 2,400,000 Orange County Community Facilities District Special Tax Rev., Series 2002 A, (No. 01-1 Ladera Ranch), 6.00%, 8/15/32 2,398,296 - -------------------------------------------------------------------------------- 7,000,000 Orange County Community Facilities District Special Tax Rev., Series 2003 A, (No. 02-1 Ladera Ranch), 5.55%, 8/15/33 6,656,300 - -------------------------------------------------------------------------------- 3,000,000 Oxnard School District GO, Series 2001 A, 5.75%, 8/1/30 (MBIA) 3,303,000 - -------------------------------------------------------------------------------- 1,150,000 Pacifica COP, (Public Safety Building), 5.80%, 11/1/20 (MBIA) 1,266,254 - -------------------------------------------------------------------------------- 2,765,000 Palomar Pomerado Health Care District COP, (Indian Health Council Inc.), 6.25%, 10/1/29 2,769,313 - -------------------------------------------------------------------------------- 1,000,000 Perris Union High School District GO, Series 2000 A, 6.40%, 9/1/24 (FGIC)(1) 308,680 - -------------------------------------------------------------------------------- 1,000,000 Perris Union High School District GO, Series 2000 A, 6.40%, 3/1/25 (FGIC)(1) 298,280 - -------------------------------------------------------------------------------- 2,900,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development Project), 6.20%, 8/1/25 (AMBAC)(1) 838,883 - -------------------------------------------------------------------------------- 1,750,000 Placer County Water Agency Rev., (Capital Improvement), 5.50%, 7/1/29 (AMBAC) 1,815,643 - -------------------------------------------------------------------------------- 2,640,000 Placer Union High School District GO, Series 2000 A, 6.20%, 8/1/16 (FGIC)(1) 1,400,071 - -------------------------------------------------------------------------------- 1,600,000 Placer Union High School District GO, Series 2000 A, 6.28%, 8/1/18 (FGIC)(1) 742,144 - -------------------------------------------------------------------------------- 2,925,000 Placer Union High School District GO, Series 2000 A, 6.35%, 8/1/21 (FGIC)(1) 1,103,252 - -------------------------------------------------------------------------------- 2,100,000 Placer Union High School District GO, Series 2000 A, 6.37%, 8/1/22 (FGIC)(1) 740,544 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 8 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,525,000 Placer Union High School District GO, Series 2000 A, 6.39%, 8/1/23 (FGIC)(1) $ 1,165,083 - -------------------------------------------------------------------------------- 1,000,000 Placer Union High School District GO, Series 2000 A, 6.40%, 8/1/24 (FGIC)(1) 310,120 - -------------------------------------------------------------------------------- 4,835,000 Pleasant Valley School District-Ventura County GO, Series 2002 A, 5.85%, 8/1/31 (MBIA) 5,477,475 - -------------------------------------------------------------------------------- 5,000,000 Pomona Improvement Bond Act 1915 Special Assessment, (Rio Rancho Assessment District), 7.50%, 9/2/21 5,177,550 - -------------------------------------------------------------------------------- 2,955,000 Poway Community Facilities District Special Tax Rev., (No. 88-1, Parkway Business Center), 6.75%, 8/1/15 3,175,886 - -------------------------------------------------------------------------------- 1,815,000 Redondo Beach Public Financing Auth. Rev., (South Bay Center Redevelopment), 7.125%, 7/1/08 1,929,236 - -------------------------------------------------------------------------------- 1,000,000 Richmond Joint Powers Financing Auth. Rev., Series 1995 A, 5.25%, 5/15/13 1,038,800 - -------------------------------------------------------------------------------- 1,700,000 Richmond Wastewater Rev., 6.18%, 8/1/23 (FGIC)(1) 556,903 - -------------------------------------------------------------------------------- 2,905,000 Richmond Wastewater Rev., 6.20%, 8/1/26 (FGIC)(1) 792,339 - -------------------------------------------------------------------------------- 2,365,000 Riverside County COP, 5.75%, 11/1/31 (MBIA) 2,523,360 - -------------------------------------------------------------------------------- 2,040,000 Riverside County Improvement Bond Act 1915 Special Assessment, (Assessment District No. 168 - Rivercrest), 6.70%, 9/2/26 2,138,328 - -------------------------------------------------------------------------------- 4,765,000 Riverside Unified School District GO, Series 2000 A, (Community Facilities District No. 7), 7.00%, 5/31/30 5,108,223 - -------------------------------------------------------------------------------- 4,315,000 Rohnert Park Finance Auth. Rev., Series 2001 A, (Las Casitas de Sonoma), 6.40%, 4/15/36 4,317,632 - -------------------------------------------------------------------------------- 635,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 5.60%, 9/1/07 679,799 - -------------------------------------------------------------------------------- 645,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 5.70%, 9/1/08 689,376 - -------------------------------------------------------------------------------- 1,500,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 6.30%, 9/1/21 1,539,630 - -------------------------------------------------------------------------------- 3,970,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.25%, 7/1/24 (AMBAC) 4,147,221 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 2,055,000 Sacramento Municipal Utility District Electric Rev., Series 2001 O, 5.25%, 8/15/17 (MBIA) $ 2,183,396 - -------------------------------------------------------------------------------- 5,000,000 Sacramento Power Auth. Rev., (Cogeneration Projects), 6.00%, 7/1/22 5,176,350 - -------------------------------------------------------------------------------- 4,000,000 Sacramento Special Tax Rev., (North Natomas Community Facilities), 6.30%, 9/1/26 4,061,280 - -------------------------------------------------------------------------------- 2,575,000 San Bruno Park School District GO, Series 2000 B, 5.94%, 8/1/24 (FGIC)(1) 796,937 - -------------------------------------------------------------------------------- 2,660,000 San Bruno Park School District GO, Series 2000 B, 5.94%, 8/1/25 (FGIC)(1) 773,395 - -------------------------------------------------------------------------------- 3,970,000 San Diego County Improvement Bond Act 1915 Special Assessment, 6.25%, 9/2/12 4,115,739 - -------------------------------------------------------------------------------- 1,000,000 San Diego Special Tax Rev., Series 1995 B, (Community Facilities District No. 1), 7.10%, 9/1/05, Prerefunded at 102% of Par(3) 1,133,460 - -------------------------------------------------------------------------------- 1,250,000 San Francisco City and County Redevelopment Agency Lease Rev., (George R. Moscone), 7.05%, 7/1/13(1) 780,838 - -------------------------------------------------------------------------------- 1,580,000 San Juan Unified School District GO, 5.94%, 8/1/24 (FGIC)(1) 488,994 - -------------------------------------------------------------------------------- 1,595,000 San Juan Unified School District GO, 5.94%, 8/1/25 (FGIC)(1) 463,746 - -------------------------------------------------------------------------------- 3,005,000 Santa Barbara County Rev., 5.50%, 9/1/22 (AMBAC) 3,171,808 - -------------------------------------------------------------------------------- 1,000,000 Saugus Union School District GO, Series 2002 A, 5.00%, 8/1/19 (FGIC) 1,024,180 - -------------------------------------------------------------------------------- 7,755,000 Shasta Lake Public Finance Auth. Rev., (Electrical Enterprise), 6.25%, 4/1/21 7,866,206 - -------------------------------------------------------------------------------- 2,160,000 Soledad Special Assessment, (Diamond Ridge Assessment District No. 02-01), 6.75%, 9/2/33 2,158,056 - -------------------------------------------------------------------------------- 500,000 Southern California Public Power Auth. Rev., (Pooled Project), 6.75%, 7/1/10 (FSA) 597,370 - -------------------------------------------------------------------------------- 2,400,000 Southern California Public Power Auth. Rev., (Transmission), 6.35%, 7/1/14 (MBIA)(1) 1,443,648 - -------------------------------------------------------------------------------- 1,250,000 Southern California Public Power Auth. Rev., (Transmission), 6.35%, 7/1/15 (MBIA)(1) 705,938 - -------------------------------------------------------------------------------- 1,200,000 Southwestern Community College District GO, 5.625%, 8/1/18 (AMBAC) 1,304,628 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 9 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 Stockton Community Facilities District Special Tax Rev., (Brookside Estates No. 90-2), 6.20%, 8/1/15 $ 1,041,800 - -------------------------------------------------------------------------------- 4,195,000 Stockton Community Facilities District Special Tax Rev., (Spanos Park West No. 2001-1), 6.375%, 9/1/32 4,297,945 - -------------------------------------------------------------------------------- 5,000,000 Sunnyvale Special Tax Rev., (Community Facilities District No. 1), 7.75%, 8/1/32 5,002,450 - -------------------------------------------------------------------------------- 2,690,000 Tahoe-Truckee Unified School District GO, Series 1999 A, (Improvement District No. 2), 6.19%, 8/1/22 (FGIC)(1) 947,714 - -------------------------------------------------------------------------------- 2,220,000 Tahoe-Truckee Unified School District GO, Series 1999 A, (Improvement District No. 2), 6.19%, 8/1/23 (FGIC)(1) 733,044 - -------------------------------------------------------------------------------- 1,770,000 Tehama Community COP, (Social Services Building), 7.00%, 10/3/05, Prerefunded at 102% of Par(3) 2,010,685 - -------------------------------------------------------------------------------- 2,000,000 Tustin Unified School District Special Tax Rev., (Community Facilities District No. 97-1), 6.375%, 9/1/08 2,379,860 - -------------------------------------------------------------------------------- 1,500,000 University of California Rev., Series 2003 A, 5.00%, 5/15/23 (AMBAC)(5) 1,502,745 - -------------------------------------------------------------------------------- 4,000,000 Vallejo Hiddenbrooke Improvement District No. 1 Rev., 6.50%, 9/1/31 4,092,200 - -------------------------------------------------------------------------------- 2,000,000 West Contra Costa Unified School District COP, 7.125%, 1/1/24 2,067,220 - -------------------------------------------------------------------------------- 3,235,000 West Sacramento Special Tax Rev., (Community Facilities District No. 10), 6.75%, 9/1/26 3,412,828 - -------------------------------------------------------------------------------- 1,000,000 West Sacramento Special Tax Rev., (Community Facilities District No. 10), 6.20%, 9/1/29 1,014,660 - -------------------------------------------------------------------------------- 2,895,000 Yuba City Unified School District GO, 6.05%, 9/1/24 (FGIC)(1) 891,805 - -------------------------------------------------------------------------------- 1,500,000 Yuba City Unified School District GO, 6.05%, 3/1/25 (FGIC)(1) 446,490 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $322,296,920) 332,959,870 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 0.6% CALIFORNIA -- 0.6% - -------------------------------------------------------------------------------- $ 2,050,000 Orange County Sanitation Districts COP, Series 2000 B, VRDN, 0.75%, 9/2/03 (SBBPA: Dexia Public Finance Bank SA) $ 2,050,000 (Cost $2,050,000) - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $324,346,920) $335,009,870 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance Inc. GO = General Obligation MBIA = MBIA Insurance Corp. 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, 2003. (1) Security is a zero-coupon municipal bond. The rate indicated is the yield to maturity at purchase. Zero-coupon securities are issued at a substantial discount from their value at maturity. (2) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at August 31, 2003, was $17,774,852, which represented 5.3% of net assets. (3) Escrowed to maturity in U.S. government securities or state and local government securities. (4) Security, or a portion thereof, has been segregated for a when-issued security. (5) When-issued security. See Notes to Financial Statements. - ----- 10 Statement of Assets and Liabilities AUGUST 31, 2003 - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $324,346,920) $335,009,870 - -------------------------------------------------------------- Receivable for capital shares sold 182,779 - -------------------------------------------------------------- Interest receivable 6,566,854 - -------------------------------------------------------------------------------- 341,759,503 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 1,397,695 - -------------------------------------------------------------- Payable for investments purchased 1,496,160 - -------------------------------------------------------------- Accrued management fees 152,861 - -------------------------------------------------------------- Distribution fees payable 1,286 - -------------------------------------------------------------- Service fees payable 860 - -------------------------------------------------------------- Dividends payable 359,238 - -------------------------------------------------------------------------------- 3,408,100 - -------------------------------------------------------------------------------- NET ASSETS $338,351,403 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $331,930,604 - -------------------------------------------------------------- Undistributed net investment income 4,239 - -------------------------------------------------------------- Accumulated net realized loss on investment transactions (4,246,390) - -------------------------------------------------------------- Net unrealized appreciation on investments 10,662,950 - -------------------------------------------------------------------------------- $338,351,403 ================================================================================ INVESTOR CLASS - -------------------------------------------------------------------------------- Net assets $334,031,871 - -------------------------------------------------------------- Shares outstanding 34,605,439 - -------------------------------------------------------------- Net asset value per share $9.65 - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- Net assets $1,286,404 - -------------------------------------------------------------- Shares outstanding 133,271 - -------------------------------------------------------------- Net asset value per share $9.65 - -------------------------------------------------------------- Maximum offering price (net asset value divided by 0.955) $10.10 - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- Net assets $352,085 - -------------------------------------------------------------- Shares outstanding 36,476 - -------------------------------------------------------------- Net asset value per share $9.65 - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- Net assets $2,681,043 - -------------------------------------------------------------- Shares outstanding 277,756 - -------------------------------------------------------------- Net asset value per share $9.65 - -------------------------------------------------------------------------------- See Notes to Financial Statements. ----- 11 Statement of Operations YEAR ENDED AUGUST 31, 2003 - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - -------------------------------------------------------------- Interest $20,999,652 - -------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------- Management fees 1,926,233 - -------------------------------------------------------------- Distribution fees: - -------------------------------------------------------------- B Class 597 - -------------------------------------------------------------- C Class 3,625 - -------------------------------------------------------------- Service fees: - -------------------------------------------------------------- B Class 199 - -------------------------------------------------------------- C Class 1,813 - -------------------------------------------------------------- Service and distribution fees -- A Class 827 - -------------------------------------------------------------- Trustees' fees and expenses 16,681 - -------------------------------------------------------------- Other expenses 3,186 - -------------------------------------------------------------------------------- 1,953,161 - -------------------------------------------------------------------------------- Amount waived (5) - -------------------------------------------------------------------------------- 1,953,156 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 19,046,496 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------- Net realized gain on investment transactions 2,432,147 - --------------------------------------------------------------- Change in net unrealized appreciation on investments (8,884,940) - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS (6,452,793) - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,593,703 ================================================================================ See Notes to Financial Statements. - ----- 12 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2003 AND AUGUST 31, 2002 - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2003 2002 - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income $19,046,496 $18,080,695 - ---------------------------------------------- Net realized gain 2,432,147 1,439,977 - ---------------------------------------------- Change in net unrealized appreciation (8,884,940) 1,034,733 - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 12,593,703 20,555,405 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income: - ---------------------------------------------- Investor Class (19,035,177) (18,160,179) - ---------------------------------------------- A Class (16,544) -- - ---------------------------------------------- B Class (3,397) -- - ---------------------------------------------- C Class (32,656) -- - -------------------------------------------------------------------------------- Decrease in net assets from distributions (19,087,774) (18,160,179) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (28,215,080) 34,264,933 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (34,709,151) 36,660,159 NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 373,060,554 336,400,395 - -------------------------------------------------------------------------------- End of period $338,351,403 $373,060,554 ================================================================================ Undistributed net investment income $4,239 $41,278 ================================================================================ See Notes to Financial Statements. ----- 13 Notes to Financial Statements AUGUST 31, 2003 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century California Tax-Free and Municipal Funds (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. California High-Yield Municipal Fund (the fund) is one fund in a series issued by the trust. The fund is non-diversified under the 1940 Act. The fund's investment objective is to seek high current income that is exempt from federal and California income taxes. The fund does this by investing a portion of its assets in lower-rated and unrated municipal securities. The fund concentrates its 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 is a summary of the fund's significant accounting policies. MULTIPLE CLASS -- The fund is authorized to issue the Investor Class, the A Class, the B Class and the C Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and shareholder servicing and distribution expenses and arrangements. All shares of the fund represent an equal pro rata interest in the assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets. Sale of the A Class, B Class and C Class commenced on January 31, 2003, at which time the Investor Class was no longer available to new investors. SECURITY VALUATIONS -- 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. WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities transactions on a when-issued or forward commitment basis. Under these arrangements, the securities' prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price. INCOME TAX STATUS -- It is the fund's policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under 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 paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. (continued) - ----- 14 Notes to Financial Statements AUGUST 31, 2003 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee per class. The Agreement provides that all expenses of the fund, except brokerage commissions, taxes, portfolio insurance, interest, fees and expenses of those trustees who are not considered "interested persons" as defined in the 1940 Act (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid monthly in arrears. 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 the rates for the Complex Fee range from 0.2900% to 0.3100%. For the year ended August 31, 2003, the effective annual management fee for the Investor, A, B and C Classes was 0.53%. DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class and C Class (collectively, the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the B Class and C Class will pay American Century Investment Services, Inc. (ACIS) the following annual distribution and service fees: - -------------------------------------------------------------------------------- B C - -------------------------------------------------------------------------------- Distribution Fee 0.75% 0.50% - -------------------------------------------------------------------------------- Service Fee 0.25% 0.25% - -------------------------------------------------------------------------------- The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The fees are computed daily and paid monthly in arrears based on each class's average daily closing net assets during the previous month. The distribution fee provides compensation for expenses incurred in connection with distributing shares of the classes including, but not limited to, payments to brokers, dealers, and financial institutions that have entered into sales agreements with respect to shares of the fund. The service fee provides compensation for individual shareholder services rendered by broker/dealers or other independent financial intermediaries. All or a portion of the fees may have been voluntarily waived during the year ended August 31, 2003. For the period ended August 31, 2003, the A Class, B Class, and C Class waived $1, $2, and $2, respectively, of distribution and service fees. Fees incurred under the plans during the year ended August 31, 2003, are detailed in the Statement of Operations. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust's investment manager, ACIM, the distributor of the trust, ACIS, and the trust's transfer agent, American Century Services Corporation. The fund has a bank line of credit agreement with J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities, excluding short-term investments, for the year ended August 31, 2003, were $107,333,451 and $132,683,557, respectively. (continued) ----- 15 Notes to Financial Statements AUGUST 31, 2003 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the fund were as follows (unlimited number of shares authorized): - -------------------------------------------------------------------------------- SHARES AMOUNT - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 2003 Sold 7,026,194 $69,272,601 - --------------------------------------------- Issued in reinvestment of distributions 1,437,328 14,172,893 - --------------------------------------------- Redeemed (11,772,299) (116,092,877) - -------------------------------------------------------------------------------- Net decrease (3,308,777) $(32,647,383) ================================================================================ YEAR ENDED AUGUST 31, 2002 Sold 10,731,130 $103,553,313 - --------------------------------------------- Issued in reinvestment of distributions 1,378,268 13,310,165 - --------------------------------------------- Redeemed (8,552,702) (82,598,545) - -------------------------------------------------------------------------------- Net increase 3,556,696 $34,264,933 ================================================================================ A CLASS - -------------------------------------------------------------------------------- PERIOD ENDED AUGUST 31, 2003(1) Sold 133,401 $1,318,703 - --------------------------------------------- Issued in reinvestment of distributions 1,608 15,777 - --------------------------------------------- Redeemed (1,738) (17,032) - -------------------------------------------------------------------------------- Net increase 133,271 $1,317,448 ================================================================================ B CLASS - -------------------------------------------------------------------------------- PERIOD ENDED AUGUST 31, 2003(1) Sold 36,897 $366,089 - --------------------------------------------- Issued in reinvestment of distributions 203 1,990 - --------------------------------------------- Redeemed (624) (6,028) - -------------------------------------------------------------------------------- Net increase 36,476 $362,051 ================================================================================ C CLASS - -------------------------------------------------------------------------------- PERIOD ENDED AUGUST 31, 2003(1) Sold 436,711 $4,343,178 - --------------------------------------------- Issued in reinvestment of distributions 1,971 19,390 - --------------------------------------------- Redeemed (160,926) (1,609,764) - -------------------------------------------------------------------------------- Net increase 277,756 $2,752,804 ================================================================================ (1) January 31, 2003 (commencement of sale) through August 31, 2003. 5. BANK LINE OF CREDIT The fund, along with certain other funds managed by ACIM, has a $620,000,000 unsecured bank line of credit agreement with JPM, which was renewed from $650,000,000 effective December 17, 2002. The fund may borrow money for temporary or emergency purposes to fund shareholder redemptions. Borrowings under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund did not borrow from the line during the year ended August 31, 2003. (continued) - ----- 16 Notes to Financial Statements AUGUST 31, 2003 6. FEDERAL TAX INFORMATION The tax character of distributions paid during the years August 31, 2003 and August 31, 2002 were as follows: - -------------------------------------------------------------------------------- 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $19,087,774 $18,160,179 - -------------------------------------------------------------------------------- Long-term capital gains -- -- - -------------------------------------------------------------------------------- The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences 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. As of August 31, 2003, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: - -------------------------------------------------------------------------------- COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST - -------------------------------------------------------------------------------- Federal tax cost of investments $324,346,920 ================================================================================ Gross tax appreciation of investments $12,074,099 - ----------------------------------------------------------- Gross tax depreciation of investments (1,411,149) - -------------------------------------------------------------------------------- Net tax appreciation of investments $10,662,950 ================================================================================ Undistributed ordinary income $4,239 - ----------------------------------------------------------- Accumulated long-term gains -- - ----------------------------------------------------------- Accumulated capital losses $(4,246,390) - ----------------------------------------------------------- Capital loss deferral -- - -------------------------------------------------------------------------------- The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire in 2008 through 2009. The capital loss deferrals represent net capital losses incurred in the ten-month period ended August 31, 2003. The fund has elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. 7. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The fund hereby designates $19,046,430 of exempt interest dividends for the fiscal year ended August 31, 2003. ----- 17 California High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Years Ended August 31 - -------------------------------------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.84 $9.79 $9.44 $9.36 $9.93 - -------------------------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------- Net Investment Income 0.52 0.52 0.52 0.52 0.49 - ------------------------------------- Net Realized and Unrealized Gain (Loss) (0.19) 0.05 0.35 0.08 (0.46) - -------------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.33 0.57 0.87 0.60 0.03 - -------------------------------------------------------------------------------------------------------------- Distributions - ------------------------------------- From Net Investment Income (0.52) (0.52) (0.52) (0.52) (0.49) - ------------------------------------- From Net Realized Gains -- -- -- -- (0.11) - -------------------------------------------------------------------------------------------------------------- Total Distributions (0.52) (0.52) (0.52) (0.52) (0.60) - -------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $9.65 $9.84 $9.79 $9.44 $9.36 ============================================================================================================== TOTAL RETURN(1) 3.35% 6.07% 9.50% 6.70% 0.26% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.54% 0.54% 0.54% 0.54% 0.54% - ------------------------------------- Ratio of Net Investment Income to Average Net Assets 5.24% 5.37% 5.45% 5.64% 5.08% - ------------------------------------- Portfolio Turnover Rate 30% 32% 47% 52% 59% - ------------------------------------- Net Assets, End of Period (in thousands) $334,032 $373,061 $336,400 $318,197 $341,968 - -------------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. See Notes to Financial Statements. - ----- 18 California High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Period Indicated - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------------- Net Investment Income 0.29 - ---------------------------------------------------------- Net Realized and Unrealized Loss (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.15 - -------------------------------------------------------------------------------- Distributions - ---------------------------------------------------------- From Net Investment Income (0.29) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $9.65 ================================================================================ TOTAL RETURN(2) 1.48% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.78%(3) - ---------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 5.04%(3) - ---------------------------------------------------------- Portfolio Turnover Rate 30%(4) - ---------------------------------------------------------- Net Assets, End of Period (in thousands) $1,286 - -------------------------------------------------------------------------------- (1) January 31, 2003 (commencement of sale) through August 31, 2003. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (3) Annualized. (4) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended August 31, 2003. See Notes to Financial Statements. ----- 19 California High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Period Indicated - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------------- Net Investment Income 0.25 - ---------------------------------------------------------- Net Realized and Unrealized Loss (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.11 - -------------------------------------------------------------------------------- Distributions - ---------------------------------------------------------- From Net Investment Income (0.25) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $9.65 ================================================================================ TOTAL RETURN(2) 1.05% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.53%(3) - ---------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.43%(3) - ---------------------------------------------------------- Portfolio Turnover Rate 30%(4) - ---------------------------------------------------------- Net Assets, End of Period (in thousands) $352 - -------------------------------------------------------------------------------- (1) January 31, 2003 (commencement of sale) through August 31, 2003. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (3) Annualized. (4) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended August 31, 2003. See Notes to Financial Statements. - ----- 20 California High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Period Indicated - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------------- Net Investment Income 0.26 - ---------------------------------------------------------- Net Realized and Unrealized Loss (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.12 - -------------------------------------------------------------------------------- Distributions - ---------------------------------------------------------- From Net Investment Income (0.26) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $9.65 ================================================================================ TOTAL RETURN(2) 1.22% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.28%(3) - ---------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.59%(3) - ---------------------------------------------------------- Portfolio Turnover Rate 30%(4) - ---------------------------------------------------------- Net Assets, End of Period (in thousands) $2,681 - -------------------------------------------------------------------------------- (1) January 31, 2003 (commencement of sale) through August 31, 2003. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (3) Annualized. (4) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended August 31, 2003. See Notes to Financial Statements. ----- 21 Report of Independent Auditors To the Trustees of the American Century California Tax-Free and Municipal Funds and Shareholders of the California High-Yield Municipal Fund. In our opinion, the accompanying statement of assets and liabilities, including the schedule 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 (one of the five funds in the American Century California Tax-Free and Municipal Funds, hereafter referred to as the "Fund") at August 31, 2003, the results of its operations for the year then ended, the changes in net assets and its financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Kansas City, Missouri October 8, 2003 - ----- 22 Management The individuals listed below serve as trustees or officers of the fund. Each trustee serves until his or her successor is duly elected and qualified or until he or she retires. Mandatory retirement age for independent trustees is 75. Those listed as interested trustees are "interested" primarily by virtue of their engagement as officers of American Century Companies, Inc. (ACC) or its wholly-owned subsidiaries, including the fund's investment advisor, American Century Investment Management, Inc. (ACIM); the fund's principal underwriter, American Century Investment Services, Inc. (ACIS); and the fund's transfer agent, American Century Services Corporation (ACSC). The other trustees (more than two-thirds of the total number) are independent; that is, they are not employees or officers of, and have no financial interest in, ACC or any of its wholly-owned subsidiaries, including ACIM, ACIS, and ACSC. All persons named as officers of the fund also serve in similar capacities for other funds advised by ACIM. Only officers with policy-making functions are listed. No officer is compensated for his or her service as an officer of the fund. The listed officers are interested persons of the fund and are appointed or re-appointed on an annual basis. INDEPENDENT TRUSTEES - -------------------------------------------------------------------------------- ALBERT EISENSTAT (73) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: General Partner, Discovery Ventures (Venture capital firm, 1996 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Independent Director, Sungard Data Systems (1991 to present); Independent Director, Business Objects S/A (1994 to present) - -------------------------------------------------------------------------------- RONALD J. GILSON (56) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Mark and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present); Counsel, Marron, Reid & Sheehy (a San Francisco law firm, 1984 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- KATHRYN A. HALL (45) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Investment Officer, Offit Hall Capital Management, LLC (April 2002 to present); President and Managing Director, Laurel Management Company, L.L.C. (1996 to April 2002) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Princeton University Investment Company (1997 to present); Director, Stanford Management Company (2001 to present); Director, UCSF Foundation (2000 to present); Director, San Francisco Day School (1999 to present) - -------------------------------------------------------------------------------- MYRON S. SCHOLES (62) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 22 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Partner, Oak Hill Capital Management (1999 to present); Principal, Long-Term Capital Management (investment advisor, 1993 to January 1999); Frank E. Buck Professor of Finance, Stanford Graduate School of Business (1981 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Smith Breeden Family of Funds (1992 to present) - -------------------------------------------------------------------------------- (continued) ----- 23 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- KENNETH E. SCOTT (74) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 31 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Ralph M. Parsons Professor of Law and Business, Stanford Law School (1972 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- JOHN B. SHOVEN (56) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1977 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to present); Director, Watson Wyatt Worldwide (2002 to present); Director, Palmsource Inc. (2002 to present) - -------------------------------------------------------------------------------- JEANNE D. WOHLERS (58) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 18 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Director and Partner, Windy Hill Productions, LP (educational software, 1994 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Indus International (software solutions, January 1999 to present); Director, Quintus Corporation (automation solutions, 1995 to present) - -------------------------------------------------------------------------------- INTERESTED TRUSTEE - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to present); President, ACIM (September 2002 to present); President, ACIS (July 2003 to present); Chief Operating Officer, ACC (June 1996 to September 2000); Also serves as: Executive Vice President, ACSC, and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ----- 24 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: See entry under "Interested Trustees." - -------------------------------------------------------------------------------- ROBERT T. JACKSON (57) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Executive Vice President LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC (August 1997 to present); Chief Financial Officer, ACC (May 1995 to October 2002); President, ACSC (January 1999 to present); Executive Vice President, ACC (May 1995 to present); Also serves as: Executive Vice President and Chief Financial Officer, ACIM, ACIS, and other ACC subsidiaries - -------------------------------------------------------------------------------- MARYANNE ROEPKE, CPA (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Accounting Officer LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Assistant Treasurer, ACSC - -------------------------------------------------------------------------------- DAVID C. TUCKER (45) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present) - -------------------------------------------------------------------------------- ROBERT LEACH (37) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- C. JEAN WADE (39) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- JON ZINDEL (36) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Tax Officer LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC (April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries (April 1999 to present); President, American Century Employee Benefit Services, Inc. (January 2000 to December 2000); Treasurer, American Century Ventures, Inc. (December 1999 to January 2001) - -------------------------------------------------------------------------------- The SAI has additional information about the fund's trustees and is available without charge upon request by calling 1-800-345-2021. ----- 25 Share Class Information Four classes of shares are authorized for sale by the fund: Investor Class, A Class, B Class, and C Class. The total expense ratios of A, B, and C Class shares are higher than those of Investor Class shares. ON JANUARY 31, 2003, INVESTOR CLASS SHARES BECAME UNAVAILABLE TO NEW INVESTORS. INVESTOR CLASS shares are available for purchase BY EXISTING SHAREHOLDERS in two ways: 1) directly from American Century without any commissions or other fees; or 2) through a broker-dealer, which may require payment of a transaction fee to the broker. A CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as investment advisors, banks, broker-dealers, and insurance companies. A Class shares are sold at their offering price, which is net asset value plus an initial sales charge that ranges from 4.50% to 0.00% for fixed-income funds and 5.75% to 0.00% for equity funds, depending on the amount invested. The initial sales charge is deducted from the purchase amount before it is invested. A Class shares may be subject to a contingent deferred sales charge (CDSC). There is no CDSC on shares acquired through reinvestment of dividends or capital gains. The prospectus contains information regarding reductions and waivers of sales charges for A Class shares. A Class shares also are subject to a 0.25% annual Rule 12b-1 service and distribution fee. B CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as investment advisors, banks, broker-dealers, and insurance companies. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. There is no CDSC on shares acquired through reinvestment of dividends or capital gains. B Class shares also are subject to a 1.00% annual Rule 12b-1 service and distribution fee. B Class shares automatically convert to A Class shares (with lower expenses) eight years after their purchase date. C CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as investment advisors, banks, broker-dealers, and insurance companies. C Class shares redeemed within 12 months of purchase are subject to a CDSC of 1.00%. There is no CDSC on shares acquired through reinvestment of dividends or capital gains. C Class shares also are subject to a Rule 12b-1 service and distribution fee of 1.00% for stock funds and 0.75% for bond funds. All classes of shares represent a pro rata interest in the fund and generally have the same rights and preferences. - ----- 26 Index Definition and Proxy Voting Guidelines INDEX DEFINITION The following index is used to illustrate investment market, sector, or style performance or to serve as a fund performance comparison. It is not an investment product available for purchase. The Lehman Brothers Municipal Bond Index is a market-value-weighted index designed for the long-term tax-exempt bond market. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's manager, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the manager uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's Web site at www.americancentury.com and on the Securities and Exchange Commission's Web site at www.sec.gov. ----- 27 Notes - ----- 28 [inside back cover - blank] [back cover] CONTACT US WWW.AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR RELATIONS: 1-800-345-2021 or 816-531-5575 INVESTORS USING ADVISORS: 1-800-378-9878 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 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 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. 0310 American Century Investment Services, Inc. SH-ANN-36003N (c)2003 American Century Services Corporation
ITEM 2. CODE OF ETHICS. (a) The registrant has adopted a Code of Ethics for Senior Financial Officers that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. (b) No response required. (c) None. (d) None. (e) Not applicable. (f) A copy of the registrant's Code of Ethics for Senior Financial Officers is filed as an exhibit to this annual report on Form N-CSR pursuant to Item 10(a). ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The registrant's board has determined that the registrant has at least one audit committee finanical expert serving on its audit committee. (a)(2) Albert Eisenstat is the registrant's designated audit committee finanical expert. He is "independent" as defined in Item 3 of Form N-CSR. (a)(3) Not applicable. (b) No response required. (c) No response required. (d) No response required. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable prior to annual filings for fiscal years ending after December 15, 2003. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a) Registrant's Code of Ethics for Senior Financial Officers, which is the subject of the disclosure required by Item 2 of Form N-CSR, is filed and attached hereto as EX-99.CODE ETH. (b) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are filed and attached hereto as Exhibit 99.302CERT. (c) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Rule 30a-2(b) under the Investment Company Act of 1940, Rule 15d-14(b) under the Securities Exchange Act of 1934, and Section 1350 of Chapter 63 of Title 18 of the United States Code, is furnished and attached hereto as Exhibit 99.906CERT.SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: American Century California Tax-Free and Municipal Funds By: /s/ William M. Lyons ----------------------------------------------------------- Name: William M. Lyons Title: President Date: October 29, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William M. Lyons ----------------------------------------------------------- Name: William M. Lyons Title: President (principal executive officer) Date: October 29, 2003 By: /s/ Maryanne L. Roepke ----------------------------------------------------------- Name: Maryanne L. Roepke Title: Sr. Vice President, Treasurer and Chief Accounting Officer (principal financial officer) Date: October 29, 2003