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 64111 - ------------------------------------------------------------------------------- (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, 2004 ------------------------------------------------------ Date of reporting period: August 31, 2004 ------------------------------------------------------
[front cover] AUGUST 31, 2004 American Century Investments Annual Report California Tax-Free Money Market Fund California Limited-Term Tax-Free Fund California Intermediate-Term Tax-Free Fund California Long-Term Tax-Free Fund [american century logo and text logo (reg.tm)] [inside front cover] Table of Contents Our Message to You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 CALIFORNIA TAX-FREE MONEY MARKET Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Portfolio Composition by Credit Rating . . . . . . . . . . . . . . . . . . 2 Portfolio Composition by Maturity . . . . . . . . . . . . . . . . . . . . .2 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 CALIFORNIA LIMITED-TERM TAX-FREE Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Portfolio at a Glance and Yields . . . . . . . . . . . . . . . . . . . . .11 Portfolio Composition by Credit Rating and Top Five Sectors . . . . . . . 12 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . .13 CALIFORNIA INTERMEDIATE-TERM TAX-FREE Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Portfolio at a Glance and Yields . . . . . . . . . . . . . . . . . . . . .19 Portfolio Composition by Credit Rating and Top Five Sectors . . . . . . . 20 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . .21 CALIFORNIA LONG-TERM TAX-FREE Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Portfolio at a Glance and Yields 28 Portfolio Composition by Credit Rating and Top Five Sectors . . . . . . . 29 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . .35 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . .37 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . 39 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .41 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Report of Independent Registered Public Accounting Firm . . . . . . . . . . .50 OTHER INFORMATION Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55 The opinions expressed in each of the Portfolio Commentaries 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. To help you monitor your investment, we are pleased to provide the annual report for the California Tax-Free Money Market fund and the California Limited-, Intermediate-, and Long-Term Tax-Free funds for the fiscal year ended August 31, 2004. You'll find details about your fund's return and holdings as well as data and analysis that provide insight into the market conditions affecting the fund's performance. Through our Web site, americancentury.com, 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. We also have many resources available in the Education & Planning section of our site to help you with your investment strategy. Your next shareholder report for these funds will be the semiannual report dated February 28, 2005, available in approximately six months. We remain committed to our guiding belief that the ultimate measure of our performance is our customers' success. Thank you for investing with us. 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, 2004 ------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- CALIFORNIA TAX-FREE MONEY MARKET 0.58% 1.70% 2.38% 3.24% 11/9/83 - -------------------------------------------------------------------------------- LIPPER CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS AVERAGE RETURNS 0.47% 1.54% 2.24% 3.35%(1) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 8/31/04(2) 20 of 64 9 of 48 8 of 36 2 of 2(1) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 9/30/04(2) 17 of 63 9 of 48 8 of 35 2 of 2(1) -- - -------------------------------------------------------------------------------- (1) Since 11/30/83, the date nearest the fund'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 8/31/04 2/29/04 - -------------------------------------------------------------------------------- A-1+ 78% 78% - -------------------------------------------------------------------------------- A-1 22% 22% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY MATURITY - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/04 2/29/04 - -------------------------------------------------------------------------------- 1-30 days 87% 84% - -------------------------------------------------------------------------------- 31-90 days -- 5% - -------------------------------------------------------------------------------- 91-180 days -- 9% - -------------------------------------------------------------------------------- More than 180 days 13% 2% - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2004 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 0.85% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 0.85% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 1.25% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 1.30% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 1.40% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 1.44% - -------------------------------------------------------------------------------- *The tax brackets indicated are for combined state and federal income tax. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 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 PORTFOLIO MANAGER: TODD PARDULA PERFORMANCE SUMMARY For the fiscal year ended August 31, 2004, California Tax-Free Money Market outperformed the average return of the 64 California tax-exempt money market funds tracked by Lipper Inc. The fund also outpaced its Lipper peer group average over the five- and 10-year periods ended August 31 despite avoiding the generally higher-yielding securities that are subject to the federal alternative minimum tax. (See the previous page for additional performance information.) ECONOMIC AND MARKET REVIEW Economic growth strengthened early in the one-year period. The U.S. economy, as measured by gross domestic product (GDP), expanded at a 6.1% annual rate in the second half of 2003--its strongest six months since 1984. Job growth, which was essentially flat in 2003, finally began to pick up steam in the spring of 2004, and retail sales also surged. As a result, the Federal Reserve raised short-term interest rates for the first time in more than four years. The Fed increased its federal funds rate target twice, on June 30 and August 10, boosting it from 1% (a 46-year low) to 1.5%. In general, money market rates tracked the Fed's actions--the fund's yield rose from 0.39% to 0.85% during the period. The past year was an eventful one for the state of California. Governor Gray Davis was recalled by California voters in October 2003 and replaced by Arnold Schwarzenegger, who inherited the enormous fiscal problems that gave California the lowest credit rating of any state in the nation. However, the state was able to raise more than $11 billion in a voter-approved bond issue in the spring of 2004, helping ease California's most immediate financial crunch. Although the state still has work to do to get its fiscal house in order, the progress made so far earned California a credit rating upgrade from the major rating agencies. PORTFOLIO STRATEGY Throughout the fiscal year, we continued to invest a majority of the portfolio's assets in short-term variable-rate demand notes (also known as floating-rate notes, or "floaters"). For most of the one-year period, 75-80% of the portfolio was invested in floaters, though this percentage rose to 85% toward the end of the period. The fund's weighted average maturity began the fiscal year at around 35 days, but we purchased some longer-term municipal money market securities in September and October that we believed offered attractive yields. These purchases extended the average maturity out to about 45 days. Over the next six months, however, we allowed the average maturity to gradually shorten, reaching 12 days in late April as the portfolio's longer-term securities moved closer to maturity. We extended the portfolio's average maturity back out to about 45 days in June, purchasing one-year notes at a time when many municipalities were issuing these securities to finance seasonal cash-flow needs for the upcoming fiscal year. The fund's average maturity remained around 45 days through the end of the fiscal year. We will continue to pursue the fund's investment objective by investing in high-quality short-term municipal securities with income exempt from federal and California income tax. - ------ 3 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 99.7% CALIFORNIA -- 99.7% - -------------------------------------------------------------------------------- $ 9,995,000 ABN AMRO Leasetops Certificates Trust COP, Series 2002-1, VRDN, 1.51%, 9/1/04 (FSA) (SBBPA: ABN AMRO Bank N.V.) (Acquired 8/28/02, Cost $9,995,000)(1) $ 9,995,000 - -------------------------------------------------------------------------------- 11,585,202 ABN AMRO Leasetops Certificates Trust Rev., Series 2003-1, VRDN, 1.51%, 9/1/04 (AMBAC) (SBBPA: ABN AMRO Bank N.V.) (Acquired 1/29/03, Cost $11,585,202)(1) 11,585,202 - -------------------------------------------------------------------------------- 2,070,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 1997 D, VRDN, 1.35%, 9/2/04 (LOC: Bank of Nova Scotia) 2,070,000 - -------------------------------------------------------------------------------- 3,870,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 1999 G, (Capital Improvements Financing Projects), VRDN, 1.45%, 9/2/04 (AMBAC) (LOC: Dexia Credit Local) 3,870,000 - -------------------------------------------------------------------------------- 740,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 2000 I, VRDN, 1.35%, 9/2/04 (AMBAC) (LOC: KBC Bank N.V.) 740,000 - -------------------------------------------------------------------------------- 1,550,000 Alvord Unified School District Financing Corporation COP, VRDN, 1.36%, 9/2/04 (LOC: KBC Bank N.V.) 1,550,000 - -------------------------------------------------------------------------------- 5,140,000 Apple Valley COP, (Public Facilities Financing), VRDN, 1.30%, 9/2/04 (LOC: California State Teacher's Retirement) 5,140,000 - -------------------------------------------------------------------------------- 4,800,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., (Jackson Labs), VRDN, 1.29%, 9/2/04 (LOC: Fleet National Bank) 4,800,000 - -------------------------------------------------------------------------------- 1,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., (Point Loma Nazarene University), VRDN, 1.41%, 9/2/04 (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, 1.35%, 9/2/04 (LOC: BNP Paribas) 2,000,000 - -------------------------------------------------------------------------------- 8,000,000 Auburn Union School District COP, VRDN, 1.32%, 9/2/04 (FSA) (LOC: Dexia Credit Local) 8,000,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 2,300,000 Barstow Multifamily Housing Rev., (Desert Vista Apartments), VRDN, 1.33%, 9/1/04 (LOC: FHLB) $ 2,300,000 - -------------------------------------------------------------------------------- 3,690,000 Bay Area Governments Association Rev., Series 2001 A, (BART SFO Extension- FTA Capital Grant), 5.00%, 6/15/05 (AMBAC) 3,789,949 - -------------------------------------------------------------------------------- 1,955,000 Berkeley Rev., (YMCA), VRDN, 1.30%, 9/2/04 (LOC: BNP Paribas) 1,955,000 - -------------------------------------------------------------------------------- 15,000,000 California Communities Development Auth. Rev., Series 2002 A, (Biola University), VRDN, 1.41%, 9/2/04 (LOC: Allied Irish Bank plc) 15,000,000 - -------------------------------------------------------------------------------- 5,000,000 California Community College Financing Auth. Rev., Series 2004 A, 3.00%, 6/30/05 (FSA) 5,057,413 - -------------------------------------------------------------------------------- 3,295,000 California Department of Water Resources Rev., (Power Supply - 748), VRDN, 1.39%, 9/2/04 (LOC: Merrill Lynch & Co.) (Acquired 2/27/03, Cost $3,295,000)(1) 3,295,000 - -------------------------------------------------------------------------------- 1,050,000 California Department of Water Resources Rev., Series 2002 B2, VRDN, 1.40%, 9/1/04 (LOC: BNP Paribas) 1,050,000 - -------------------------------------------------------------------------------- 300,000 California Department of Water Resources Rev., Series 2002 B5, VRDN, 1.32%, 9/1/04 (LOC: Bayerische Landesbank, Westdeutsche Landesbank AG) 300,000 - -------------------------------------------------------------------------------- 4,000,000 California Department of Water Resources Rev., Series 2002 C4, VRDN, 1.32%, 9/2/04 (LOC: JPMorgan Chase Bank, California State Teacher's Retirement) 4,000,000 - -------------------------------------------------------------------------------- 5,000,000 California Department of Water Resources Rev., Series 2002 C6, VRDN, 1.32%, 9/2/04 (AMBAC) (SBBPA: Landesbank Baden-Wuerttemberg) 5,000,000 - -------------------------------------------------------------------------------- 30,000,000 California Department of Water Resources Rev., Series 2002 C7, VRDN, 1.33%, 9/2/04 (FSA) (LOC: Dexia Credit Local) 30,000,000 - -------------------------------------------------------------------------------- 10,000,000 California Department of Water Resources Rev., Series 2002 C12, VRDN, 1.30%, 9/2/04 (LOC: Landesbank Hessen-Thuringen Girozentrale) 10,000,000 - -------------------------------------------------------------------------------- 18,000,000 California Department of Water Resources Rev., Series 2002 C14, VRDN, 1.33%, 9/2/04 (LOC: Westdeutsche Landesbank AG) 18,000,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 4 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 6,000,000 California Department of Water Resources Rev., Series 2002 C16, VRDN, 1.32%, 9/2/04 (LOC: Bank of New York) $ 6,000,000 - -------------------------------------------------------------------------------- 6,000,000 California Department of Water Resources Rev., Series 2002 C17, VRDN, 1.30%, 9/2/04 (LOC: Bank of New York) 6,000,000 - -------------------------------------------------------------------------------- 6,000,000 California Department of Water Resources Rev., Series 2002 C18, VRDN, 1.34%, 9/2/04 (LOC: Bank of New York) 6,000,000 - -------------------------------------------------------------------------------- 3,200,000 California Economic Development Financing Auth. Rev., (Volk Enterprises Inc.), VRDN, 1.35%, 9/2/04 (LOC: Bank One N.A.) (Acquired 3/8/04, Cost $3,200,000)(1) 3,200,000 - -------------------------------------------------------------------------------- 1,600,000 California Economic Recovery Rev., Series 2004 C1, VRDN, 1.40%, 9/1/04 (SBBPA: Landesbank Baden-Wuerttemberg) 1,600,000 - -------------------------------------------------------------------------------- 3,500,000 California Economic Recovery Rev., Series 2004 C3, VRDN, 1.32%, 9/1/04 (SBBPA: Landesbank Hessen-Thuringen Girozentrale) 3,500,000 - -------------------------------------------------------------------------------- 3,000,000 California Economic Recovery Rev., Series 2004 C12, VRDN, 1.30%, 9/1/04 (XLCA) (SBBPA: Depfa Bank plc) 3,000,000 - -------------------------------------------------------------------------------- 2,075,000 California Economic Recovery Rev., Series 2004 L20J, VRDN, 1.37%, 9/1/04 (LIQ FAC: Lehman Liquidity Company LLC) (Acquired 5/13/04, Cost $2,075,000)(1) 2,075,000 - -------------------------------------------------------------------------------- 10,500,000 California Educational Facilities Auth. Rev., (Chapman University), VRDN, 1.43%, 9/1/04 (LOC: Allied Irish Bank plc) 10,500,000 - -------------------------------------------------------------------------------- 3,860,000 California Educational Facilities Auth. Rev., Series 2002 A, (Art Center Design College), VRDN, 1.41%, 9/2/04 (LOC: Allied Irish Bank plc) 3,860,000 - -------------------------------------------------------------------------------- 7,405,000 California Educational Facilities Auth. Rev., Series 2002 B, (Art Center Design College), VRDN, 1.41%, 9/2/04 (LOC: Allied Irish Bank plc) 7,405,000 - -------------------------------------------------------------------------------- 10,000,000 California GO, (PT 1210), VRDN, 1.33%, 9/2/04 (MBIA) (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 12/2/03-12/5/03, Cost $10,000,000)(1) 10,000,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,100,000 California GO, Series 2003 B4, VRDN, 1.32%, 9/1/04 (LOC: BNP Paribas, Bank of New York) $ 1,100,000 - -------------------------------------------------------------------------------- 5,000,000 California GO, Series 2003 C3, VRDN, 1.32%, 9/2/04 (LOC: Landesbank Hessen-Thuringen Girozentrale, Bank of America N.A., Bank of Nova Scotia) 5,000,000 - -------------------------------------------------------------------------------- 14,900,000 California GO, Series 2003 C4, VRDN, 1.32%, 9/2/04 (LOC: Landesbank Hessen-Thuringen Girozentrale, Bank of America N.A., Bank of Nova Scotia) 14,900,000 - -------------------------------------------------------------------------------- 5,800,000 California Health Facilities Financing Auth. Rev., (Southern California Presbyterian), VRDN, 1.34%, 9/1/04 (MBIA) (SBBPA: Bank of America N.A.) 5,800,000 - -------------------------------------------------------------------------------- 13,395,000 California Housing Finance Agency Rev., Series 2001 F, (Multifamily Housing III), VRDN, 1.35%, 9/1/04 (SBBPA: FNMA) 13,395,000 - -------------------------------------------------------------------------------- 10,100,000 California Housing Finance Agency Rev., Series 2002 B, (Multifamily Housing III), VRDN, 1.35%, 9/2/04 (SBBPA: FNMA) 10,100,000 - -------------------------------------------------------------------------------- 4,000,000 California Infrastructure & Economic Development Bank Rev., (Academy of Motion Picture Arts and Sciences Obligated Group), VRDN, 1.31%, 9/2/04 (AMBAC) (LOC: JPMorgan Chase Bank) 4,000,000 - -------------------------------------------------------------------------------- 2,830,000 California Infrastructure & Economic Development Bank Rev., (Rural Community Assistance), VRDN, 1.35%, 9/2/04 (LOC: Bank of the West) 2,830,000 - -------------------------------------------------------------------------------- 4,000,000 California Infrastructure & Economic Development Bank Rev., Series 2003 A, VRDN, 1.34%, 9/1/04 (LOC: Wells Fargo Bank, N.A.) 4,000,000 - -------------------------------------------------------------------------------- 15,000,000 California School Cash Reserve Program Auth. Rev., Series 2004 A, 3.00%, 7/6/05 (AMBAC) 15,174,294 - -------------------------------------------------------------------------------- 6,000,000 California State University Channel Islands Financing Auth. Rev., (Rental Housing), VRDN, 1.60%, 8/1/05 (LOC: Citibank N.A.) 6,000,000 - -------------------------------------------------------------------------------- 7,690,000 California Statewide Communities Development Auth. Rev., (The Painted Turtle), VRDN, 1.35%, 9/2/04 (LOC: Allied Irish Bank plc) 7,690,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 5 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $22,100,000 California Statewide Communities Development Auth. Rev., Series 2003 A, VRDN, 1.36%, 9/1/04 (CRP: Kaiser Permanente) $ 22,100,000 - -------------------------------------------------------------------------------- 9,500,000 California Statewide Communities Development Auth. Rev., Series 2004 M, VRDN, 1.36%, 9/1/04 (CRP: Kaiser Permanente) 9,500,000 - -------------------------------------------------------------------------------- 2,200,000 California Statewide Communities Development Auth. Special Tax Rev., (Senior Living Facility), VRDN, 1.31%, 9/2/04 (LOC: Bank of New York) 2,200,000 - -------------------------------------------------------------------------------- 5,605,000 California Statewide Communities Development Auth. Special Tax Rev., VRDN, 1.39%, 9/2/04 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 8/6/01-3/13/03, Cost $5,605,000)(1) 5,605,000 - -------------------------------------------------------------------------------- 5,000,000 California GO, (PA 1164), VRDN, 1.52%, 9/2/04 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 7/10/03, Cost $5,000,000)(1) 5,000,000 - -------------------------------------------------------------------------------- 4,300,000 City of Fremont COP, (Building & Equipment Financing), VRDN, 1.35%, 9/2/04 (LOC: KBC Bank N.V.) 4,300,000 - -------------------------------------------------------------------------------- 10,000,000 City of Whittier Rev., (Whittier College), VRDN, 1.41%, 9/2/04 (RADIAN) (SBBPA: Bank of New York) 10,000,000 - -------------------------------------------------------------------------------- 2,000,000 Davis Special Tax Rev., (Community Facilities District No. 1999-2), VRDN, 1.32%, 9/2/04 (LOC: Wells Fargo Bank, N.A.) 2,000,000 - -------------------------------------------------------------------------------- 4,000,000 Diamond Bar Public Financing Auth. Lease Rev., Series 2002 A, (Community/Senior Center), VRDN, 1.38%, 9/1/04 (LOC: California State Teacher's Retirement) 4,000,000 - -------------------------------------------------------------------------------- 3,155,000 El Monte COP, Series 2003 A, (Community Improvement), VRDN, 1.30%, 9/2/04 (LOC: California State Teacher's Retirement) 3,155,000 - -------------------------------------------------------------------------------- 6,440,000 Fresno Unified School District GO, (PT 1626), VRDN, 1.33%, 9/2/04 (MBIA) (SBBPA: Westdeutsche Landesbank AG) 6,440,000 - -------------------------------------------------------------------------------- 1,745,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PT 2338), VRDN, 1.43%, 9/2/04 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 8/20/04, Cost $1,745,000)(1) 1,745,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 6,875,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PA 1206), VRDN, 1.43%, 9/2/04 (LOC: Merrill Lynch Capital Services, Inc.) $ 6,875,000 - -------------------------------------------------------------------------------- 6,745,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PA 1214), VRDN, 1.43%, 9/2/04 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 10/24/03-10/29/03, Cost $6,745,000)(1) 6,745,000 - -------------------------------------------------------------------------------- 3,530,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PA 1236), VRDN, 1.43%, 9/2/04 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 1/15/04, Cost $3,530,000)(1) 3,530,000 - -------------------------------------------------------------------------------- 2,735,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PA 1237), VRDN, 1.43%, 9/2/04 (LOC: Merrill Lynch Capital Services, Inc.) 2,735,000 - -------------------------------------------------------------------------------- 5,500,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PA 1240), VRDN, 1.43%, 9/2/04 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 2/12/04, Cost $5,500,000)(1) 5,500,000 - -------------------------------------------------------------------------------- 23,800,000 Inland Valley Development Agency Tax Allocation Rev., VRDN, 1.40%, 9/1/04 (LOC: California State Teacher's Retirement) 23,800,000 - -------------------------------------------------------------------------------- 13,861,332 Koch Certificates Trust Rev., Series 1999-2, VRDN, 1.37%, 9/2/04 (AMBAC) (MBIA) (SBBPA: State Street Bank & Trust Co.) (Acquired 2/11/00- 4/12/00, Cost $13,861,332)(1) 13,861,332 - -------------------------------------------------------------------------------- 3,100,000 Los Angeles Community Redevelopment Agency Rev., (Skyline at Southpark), VRDN, 1.35%, 9/1/04 (LOC: Westdeutsche Landesbank AG) 3,100,000 - -------------------------------------------------------------------------------- 4,970,000 Los Angeles GO, VRDN, 1.33%, 9/2/04 (MBIA) (SBBPA: Merrill Lynch Capital Services, Inc.) 4,970,000 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles Water & Power Rev., Subseries 2002 A8, VRDN, 1.32%, 9/2/04 (SBBPA: JPMorgan Chase Bank, Westdeutsche Landesbank AG, Bayerische Landesbank, BNP Paribas, Dexia Credit Local) 3,000,000 - -------------------------------------------------------------------------------- 4,400,000 National City Community Development Commission Tax Allocation Rev., Series 2001 B, VRDN, 1.33%, 9/2/04 (AMBAC) (SBBPA: Bank of Nova Scotia) 4,400,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 6 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,750,000 Orange County Rev., (Heritage Point Apartments), VRDN, 1.30%, 9/1/04 (LOC: Allied Irish Bank plc) $ 1,750,000 - -------------------------------------------------------------------------------- 10,000,000 Peninsula Corridor Joint Powers Board Grant Anticipation Notes Rev., Series 2003 C, 1.45%, 9/3/04 10,000,173 - -------------------------------------------------------------------------------- 7,200,000 Peninsula Corridor Joint Powers Board Grant Anticipation Notes Rev., Series 2004 A, 1.76%, 5/3/05 7,219,451 - -------------------------------------------------------------------------------- 2,000,000 Pomona (City of) COP, VRDN, 1.30%, 9/1/04 (LOC: HSH Nordbank AG) 2,000,000 - -------------------------------------------------------------------------------- 2,300,000 Redwood City COP, (City Hall), VRDN, 1.35%, 9/2/04 (LOC: KBC Bank N.V.) 2,300,000 - -------------------------------------------------------------------------------- 2,145,000 Riverside County Community Facilities District Special Tax Rev., (No. 89-1), VRDN, 1.35%, 9/2/04 (LOC: KBC Bank N.V.) 2,145,000 - -------------------------------------------------------------------------------- 2,695,000 San Bernardino County COP, VRDN, 1.33%, 9/2/04 (MBIA) (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 11/29/02, Cost $2,695,000)(1) 2,695,000 - -------------------------------------------------------------------------------- 30,000,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1990 A, (Highland Hills), 1.625%, 5/1/05 (GIC: FHLB) (Acquired 4/23/04, Cost $30,081,000)(1) 30,054,000 - -------------------------------------------------------------------------------- 4,330,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1993 A, (Rialto Heritage), VRDN, 1.39%, 9/2/04 (LOC: FHLB) 4,330,000 - -------------------------------------------------------------------------------- 1,985,000 San Bernardino County Rev., (Gold West Phase 2), VRDN, 1.35%, 9/2/04 (LOC: FHLB) 1,985,000 - -------------------------------------------------------------------------------- 10,000,000 San Diego County & School District Tax & Rev. Anticipation Notes, Series 2004 A, 3.25%, 7/25/05 10,146,392 - -------------------------------------------------------------------------------- 7,560,000 San Francisco City & County Redevelopment Agency Community Facilities District No. 4 Rev., VRDN, 1.35%, 9/2/04 (LOC: Bank of America N.A.) 7,560,000 - -------------------------------------------------------------------------------- 3,600,000 San Francisco City & County Redevelopment Agency Rev., (South Harbor), VRDN, 1.32%, 9/2/04 (LOC: Dexia Credit Local) 3,600,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 4,700,000 San Jose Multifamily Housing Rev., (Foxchase), VRDN, 1.37%, 9/2/04 (FGIC) $ 4,700,000 - -------------------------------------------------------------------------------- 2,660,000 San Jose Multifamily Housing Rev., (Timberwood), VRDN, 1.35%, 9/1/04 (LOC: Wells Fargo & Company) 2,660,000 - -------------------------------------------------------------------------------- 6,590,000 Sanger Public Financing Auth. Rev., Series 2002 A, (Utility System Financing), VRDN, 1.30%, 9/1/04 (LOC: California State Teacher's Retirement) 6,590,000 - -------------------------------------------------------------------------------- 15,000,000 Santa Clara County-El Camino District Hospital Facilities Auth. ACES Lease Rev., Series 1985 A, (Valley Medical Center), VRDN, 1.35%, 9/7/04 (LOC: State Street Bank & Trust Co.) 15,000,000 - -------------------------------------------------------------------------------- 6,750,000 Temecula Public Financing Auth. Special Tax Rev., Series 2002 A, (Harveston), VRDN, 1.35%, 9/2/04 (LOC: Bank of America N.A.) 6,750,000 - -------------------------------------------------------------------------------- 1,300,000 Triunfo Sanitation District Rev., VRDN, 1.40%, 9/1/04 (LOC: BNP Paribas) 1,300,000 - -------------------------------------------------------------------------------- 6,550,000 Vallejo COP, VRDN, 1.38%, 9/2/04 (LOC: California State Teacher's Retirement) 6,550,000 - -------------------------------------------------------------------------------- 1,215,000 Vallejo COP, VRDN, 1.45%, 9/2/04 (LOC: KBC Bank N.V.) 1,215,000 - -------------------------------------------------------------------------------- 5,500,000 West Covina Redevelopment Agency Lease Rev., (Lakes Public Parking), VRDN, 1.43%, 9/1/04 (LOC: Allied Irish Bank plc) 5,500,000 - -------------------------------------------------------------------------------- 3,400,000 Westminster COP, Series 1998 A, (Civic Center), VRDN, 1.35%, 9/2/04 (AMBAC) (SBBPA: Wachovia Bank N.A.) 3,400,000 - -------------------------------------------------------------------------------- 1,600,000 Westminster Redevelopment Agency Tax Allocation Rev., (Commercial Project No. 1), VRDN, 1.35%, 9/2/04 (AMBAC) (SBBPA: Landesbank Hessen-Thuringen Girozentrale) 1,600,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 99.7% 599,238,206 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 0.3% 1,643,898 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $600,882,104 ================================================================================ See Notes to Financial Statements. (continued) - ------ 7 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2004 NOTES TO SCHEDULE OF INVESTMENTS ACES = Adjustable Convertible Extendable Securities AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation CRP = Corporate Guarantee FGIC = Financial Guaranty Insurance Co. FHLB = Federal Home Loan Bank FNMA = Federal National Mortgage Association FSA = Financial Security Assurance, Inc. GIC = Guaranteed Investment Contract GO = General Obligation LIQ FAC = Liquidity Facilities LOC = Letter of Credit MBIA = MBIA Insurance Corporation RADIAN = Radian Asset Assurance Inc. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective August 31, 2004. XLCA = XL Capital Ltd. (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, 2004, was $114,885,534, which represented 19.1% of net assets. Restricted securities considered illiquid represent 5.0% of net assets. See Notes to Financial Statements. - ------ 8 California Limited-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2004 ------------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- CALIFORNIA LIMITED- TERM TAX-FREE 2.75% 4.37% 4.41% 4.44% 6/1/92 - -------------------------------------------------------------------------------- LEHMAN BROTHERS 3-YEAR MUNICIPAL BOND INDEX 2.83% 4.86% 4.92% 4.97%(1) -- - -------------------------------------------------------------------------------- LIPPER CALIFORNIA SHORT-INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS 3.29% 4.21% 4.49% 4.52%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 8/31/04(3) 11 of 13 6 of 10 3 of 5 2 of 2(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 9/30/04(3) 11 of 14 6 of 10 4 of 6 2 of 2(2) -- - -------------------------------------------------------------------------------- (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. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 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. - ------ 9 California Limited-Term Tax-Free - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made August 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ----------------------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ----------------------------------------------------------------------------------------------- California Limited-Term Tax-Free 5.33% 3.87% 5.42% 5.40% 2.26% 5.44% 6.94% 4.91% 1.87% 2.75% - ----------------------------------------------------------------------------------------------- Lehman Brothers 3-Year Municipal Bond Index 6.66% 3.95% 5.65% 5.76% 2.92% 4.72% 8.05% 5.71% 3.06% 2.83% - ----------------------------------------------------------------------------------------------- Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 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. - ------ 10 California Limited-Term Tax-Free - Portfolio Commentary PORTFOLIO MANAGER: ROBERT MILLER RETURN SUMMARY & PERSPECTIVE California Limited-Term Tax-Free (Cal Limited-Term) returned 2.75% for the fiscal year ended August 31, 2004, outpacing its return for the prior fiscal year. By comparison, the 13 funds in Lipper's California Short/Intermediate Municipal Debt Funds category averaged a total return of 3.29% for the 12 months. (Please see page 9 for additional details.) From a longer-term perspective, Cal Limited-Term remained fairly competitive. However, peer-compared performance for the just-ended fiscal year fell below where we were aiming. We discuss that result in the Portfolio Positioning & Strategies section later on in this commentary. YIELD SUMMARY & PERSPECTIVE Cal Limited-Term seeks safety of principal and high current income that is exempt from federal and California income tax. Along those lines, the fund's 30-day SEC yield finished out the fiscal year at 1.92%. (Please see the accompanying yields table.) Although the 30-day SEC yield finished almost unchanged from the start of the 12 months, it was noticeably higher than at the end of February, when the yield was 1.45%. That disparity helps to illustrate what was essentially two very different periods for shorter-term municipal bonds: the first half of the fiscal year, when bonds generally rallied and yields fell amid expectations for interest rates to remain on hold for the foreseeable future, and the second half, during which short-term interest rates rose and bond prices edged lower. ECONOMIC & MARKET PERSPECTIVE U.S. bond prices rose and yields fell for the fiscal year as economic growth slowed and inflation spiked, then settled down. After growing at a 7.4% annual rate in the third quarter of 2003, U.S. economic expansion slowed to a 3.3% rate in the second quarter of 2004 as higher energy prices reduced consumer spending and threatened corporate profits. Inflation became a concern as the monthly change in the "core" consumer price index (CPI minus energy and food prices) rose 0.4% in March 2004, the highest since November 2001. That, plus spikes in job growth and retail sales, helped trigger a bond selloff in April PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/04 8/31/03 - -------------------------------------------------------------------------------- Weighted Average Maturity 4.1 yrs 3.6 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 2.9 yrs 3.0 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2004 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 1.92% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 2.82% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 2.94% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 3.16% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 3.26% - -------------------------------------------------------------------------------- *The tax brackets indicated are for combined state and federal income tax. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. (continued) - ------ 11 California Limited-Term Tax-Free - Portfolio Commentary and May of 2004 and helped motivate the Federal Reserve (the Fed) to start raising its overnight interest rate target to combat potential future inflation. But core inflation returned to a mild 0.1% monthly rate during the summer of 2004 and job growth decelerated as the economy hit what the Fed described as a "soft patch." That helped produce a fiscal-year-ending bond rally that--when matched with gains from the beginning of the period--more than offset the April-May losses. For the fiscal year, tax-exempt municipal securities generally outperformed taxable securities -- the broad Lehman Brothers Municipal Bond Index returned 7.11% compared with 6.13% for the Lehman Brothers U.S. Aggregate Index. Municipals benefited from declining issuance (less supply) and continued improvement in state economic growth, which meant higher tax revenues. PORTFOLIO POSITIONING & STRATEGIES In addition to high current income, Cal Limited-Term is conservatively managed to seek safety of principal. Along those lines, we established what we believed to be a fairly low sensitivity to interest rates and a bond portfolio structure that we expected to perform well in a rising-rate environment. However, municipal bond prices held up surprisingly well, especially during the first half of the fiscal year. In fact, Cal Limited-Term's total return for the first six months was slightly higher than its return for the fiscal year as a whole. Had the portfolio been less conservatively positioned, those first-half gains might have been higher and boosted the fund's relative performance for the year as a whole. The fund's second-half return was narrowly negative, providing us with a comparatively limited opportunity to overcome first-half performance. Looking ahead, we remain committed to pursuing the fund's investment objective by investing in municipal securities with income payments exempt from federal and California income tax. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/04 2/29/04 - -------------------------------------------------------------------------------- AAA 62% 72% - -------------------------------------------------------------------------------- AA 6% 5% - -------------------------------------------------------------------------------- A 24% 12% - -------------------------------------------------------------------------------- BBB 8% 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, 2004 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- General Obligation 32% - -------------------------------------------------------------------------------- Certificate of Participation/Leases 19% - -------------------------------------------------------------------------------- Electric Revenue 11% - -------------------------------------------------------------------------------- Sales Tax Revenue 6% - -------------------------------------------------------------------------------- Hospital Revenue 5% - -------------------------------------------------------------------------------- - ------ 12 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.2% CALIFORNIA -- 77.2% - -------------------------------------------------------------------------------- $ 2,335,000 Alameda Unified School District GO, 5.50%, 7/1/05 (FSA) $ 2,414,323 - -------------------------------------------------------------------------------- 2,595,000 Alameda Unified School District GO, 5.50%, 7/1/07 (FSA) 2,854,837 - -------------------------------------------------------------------------------- 2,740,000 Alameda Unified School District GO, 5.50%, 7/1/08 (FSA) 3,065,731 - -------------------------------------------------------------------------------- 890,000 Alameda Unified School District GO, 5.50%, 7/1/09 (FSA) 1,006,270 - -------------------------------------------------------------------------------- 1,545,000 Alameda Unified School District GO, 5.50%, 7/1/10 (FSA) 1,757,762 - -------------------------------------------------------------------------------- 1,520,000 Association of Bay Area Governments Finance Auth. Rev., Series 2003 A, (Odd Fellows Home), 4.00%, 11/15/07 (California Mortgage Insurance) 1,590,969 - -------------------------------------------------------------------------------- 1,000,000 California Community College Financing Auth. Rev., Series 2004 A, 3.00%, 6/30/05 (FSA) 1,013,000 - -------------------------------------------------------------------------------- 2,000,000 California Department of Water Resources Rev., Series 2002 A, 3.00%, 5/1/06 (MBIA) 2,044,920 - -------------------------------------------------------------------------------- 3,000,000 California Department of Water Resources Rev., Series 2002 A, 5.50%, 5/1/08 3,306,480 - -------------------------------------------------------------------------------- 2,000,000 California Economic Recovery Rev., Series 2004 A, 5.00%, 1/1/09 2,198,460 - -------------------------------------------------------------------------------- 1,250,000 California Economic Recovery Rev., Series 2004 A, 5.00%, 7/1/10 (MBIA) 1,390,250 - -------------------------------------------------------------------------------- 465,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 5.75%, 4/1/05 476,746 - -------------------------------------------------------------------------------- 1,000,000 California GO, 6.35%, 11/1/04 (FGIC) 1,008,240 - -------------------------------------------------------------------------------- 1,615,000 California GO, 9.00%, 11/1/04 1,635,010 - -------------------------------------------------------------------------------- 4,275,000 California GO, 6.50%, 2/1/08 (AMBAC) 4,871,448 - -------------------------------------------------------------------------------- 2,500,000 California GO, 4.50%, 10/1/08 (FSA) 2,709,600 - -------------------------------------------------------------------------------- 2,500,000 California GO, 5.00%, 12/1/09 (AMBAC) 2,776,750 - -------------------------------------------------------------------------------- 3,000,000 California GO, 5.00%, 3/1/10 (XLCA) 3,298,140 - -------------------------------------------------------------------------------- 1,000,000 California GO, 5.50%, 3/1/11 (XLCA) 1,129,760 - -------------------------------------------------------------------------------- 725,000 California Mobilehome Park Financing Auth. Rev., Series 2000 A, (Union City Tropics), 4.80%, 8/15/06 (ACA) 745,909 - -------------------------------------------------------------------------------- 500,000 California Public Works Board Lease Rev., Series 1993 A, (Various University of California Projects), 5.50%, 6/1/10 557,850 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 6,190,000 California Public Works Board Lease Rev., Series 2004 A, (Department of Mental Health - Coalinga), 5.00%, 6/1/06 $ 6,500,056 - -------------------------------------------------------------------------------- 1,125,000 California State University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.00%, 7/1/05 1,152,821 - -------------------------------------------------------------------------------- 1,000,000 California State University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.00%, 7/1/06 1,046,570 - -------------------------------------------------------------------------------- 1,000,000 California State University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.00%, 7/1/12 1,052,530 - -------------------------------------------------------------------------------- 345,000 California Statewide Communities Development Auth. Special Tax Rev., Series 2001 B, (Pooled Financing Program), 3.00%, 10/1/04 (FSA) 345,490 - -------------------------------------------------------------------------------- 1,130,000 Carson Redevelopment Agency Residential Mortgage COP, (Area No. 1), 5.50%, 10/1/11 (MBIA) 1,291,986 - -------------------------------------------------------------------------------- 895,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.00%, 2/1/07 931,248 - -------------------------------------------------------------------------------- 895,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.125%, 2/1/08 939,920 - -------------------------------------------------------------------------------- 1,245,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.125%, 2/1/09 1,313,624 - -------------------------------------------------------------------------------- 675,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.25%, 2/1/10 717,019 - -------------------------------------------------------------------------------- 860,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.25%, 2/1/11 912,924 - -------------------------------------------------------------------------------- 1,390,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.25%, 2/1/13 1,395,046 - -------------------------------------------------------------------------------- 1,070,000 Chaffey Community College District GO, Series 2002 A, 4.25%, 7/1/11 (FSA) 1,142,150 - -------------------------------------------------------------------------------- 310,000 Coachella Valley Improvement Bond Act 1915 Recreation & Park District Special Tax Rev., (District 1), 4.875%, 9/2/07 (MBIA) 336,521 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 13 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,200,000 California State University Channel Islands Financing Auth. Rev., Series 2004 A, (Rental Housing & Town Center), 2.50%, 8/1/07 (LOC: Citibank N.A.) $ 4,245,486 - -------------------------------------------------------------------------------- 6,000,000 East Bay-Delta Housing & Finance Agency Rev., Series 2001 A, (Pass Thru Lease Purchase Program), 4.25%, 6/1/05 (MBIA) 6,128,819 - -------------------------------------------------------------------------------- 1,190,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/09 (AMBAC) 1,340,273 - -------------------------------------------------------------------------------- 1,755,000 Industry Urban Development Agency Rev., 4.50%, 5/1/11 (MBIA) 1,821,690 - -------------------------------------------------------------------------------- 750,000 Long Beach Bond Finance Auth. GO, Series 2002 A, (North Long Beach Redevelopment), 5.00%, 8/1/10 (AMBAC) 832,680 - -------------------------------------------------------------------------------- 2,315,000 Long Beach Bond Finance Auth. GO, Series 2002 A, (North Long Beach Redevelopment), 5.00%, 8/1/11 (AMBAC) 2,571,664 - -------------------------------------------------------------------------------- 500,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 4.75%, 7/1/07 (ACA) 526,225 - -------------------------------------------------------------------------------- 615,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 4.875%, 7/1/08 (ACA) 651,857 - -------------------------------------------------------------------------------- 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) 513,475 - -------------------------------------------------------------------------------- 2,100,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, (Proposal A), 5.25%, 7/1/11 (FSA) 2,369,829 - -------------------------------------------------------------------------------- 2,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2003 A, (Proposal C), 5.00%, 7/1/06 (MBIA) 2,124,020 - -------------------------------------------------------------------------------- 1,360,000 Los Angeles County Public Works Financing Auth. Lease Rev., Series 1996 A, 6.00%, 9/1/04 (MBIA) 1,360,000 - -------------------------------------------------------------------------------- 3,130,000 Los Angeles Department of Water & Power Rev., Series 2001 AA1, (Power Systems), 5.25%, 7/1/10 (MBIA) 3,517,525 - -------------------------------------------------------------------------------- 575,000 Lynwood Public Financing Auth. Rev., (Public Capital Improvement), 4.125%, 9/1/12 (AMBAC) 605,015 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 520,000 Mountain View COP, (Capital Projects), 4.00%, 8/1/05 $ 531,939 - -------------------------------------------------------------------------------- 750,000 Mountain View COP, (Capital Projects), 4.00%, 8/1/06 782,933 - -------------------------------------------------------------------------------- 1,600,000 Napa Valley Community College District GO, Series 2003 A, 2.50%, 8/1/06 (MBIA) 1,627,920 - -------------------------------------------------------------------------------- 1,330,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.00%, 10/1/06 (AMBAC) 1,420,719 - -------------------------------------------------------------------------------- 3,000,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.25%, 10/1/08 (AMBAC) 3,336,180 - -------------------------------------------------------------------------------- 1,225,000 Oceanside COP, Series 2003 A, 5.00%, 4/1/11 (AMBAC) 1,353,772 - -------------------------------------------------------------------------------- 3,500,000 Orange County Recovery COP, Series 1996 A, 6.00%, 7/1/07 (MBIA) 3,893,400 - -------------------------------------------------------------------------------- 1,230,000 Orange County Refunding Recovery Rev., Series 1995 A, 6.00%, 6/1/08 (MBIA) 1,394,500 - -------------------------------------------------------------------------------- 2,295,000 Pacific Housing & Finance Agency Lease Rev., Series 1999 A, (Pass Thru Obligation- Lease Purchase), 4.625%, 12/1/04 (MBIA) 2,307,416 - -------------------------------------------------------------------------------- 1,800,000 Poway Unified School District Special Tax Rev., (Community Facilities District No. 1), 5.00%, 10/1/07 (MBIA) 1,966,590 - -------------------------------------------------------------------------------- 585,000 Rancho Water District Financing Auth. Rev., Series 2001 A, 5.00%, 8/1/07 (FSA) 636,521 - -------------------------------------------------------------------------------- 1,650,000 Riverside Sewer Rev., 7.00%, 8/1/07 (FGIC) 1,885,505 - -------------------------------------------------------------------------------- 3,800,000 Sacramento County Sanitation District Auth. Rev., Series 2000 A, 5.10%, 12/1/09 4,231,262 - -------------------------------------------------------------------------------- 2,585,000 Sacramento Municipal Utility District Electric Rev., Series 2002 Q, 5.00%, 8/15/09 (FSA) 2,865,473 - -------------------------------------------------------------------------------- 1,350,000 Sacramento Municipal Utility District Electric Rev., Series 2003 S, 6.00%, 11/15/05 (FSA) 1,423,116 - -------------------------------------------------------------------------------- 3,000,000 Sacramento Municipal Utility District Electric Rev., Series 2003 S, 5.00%, 11/15/11 (MBIA) 3,351,660 - -------------------------------------------------------------------------------- 2,000,000 San Bernardino County Transportation Auth. Rev., Series 2001 A, 5.00%, 3/1/05 (AMBAC) 2,036,300 - -------------------------------------------------------------------------------- 1,075,000 San Buenaventura COP, Series 2002 B, 3.50%, 1/1/05 (AMBAC) 1,082,439 - -------------------------------------------------------------------------------- 1,115,000 San Buenaventura COP, Series 2002 B, 3.50%, 1/1/06 (AMBAC) 1,143,198 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 14 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,270,000 San Diego County COP, 5.00%, 10/1/05 $ 1,314,437 - -------------------------------------------------------------------------------- 3,500,000 San Diego Unified School District Tax & Rev. Anticipation Notes, 3.00%, 7/25/05 3,546,900 - -------------------------------------------------------------------------------- 1,050,000 San Francisco Port Commission Rev., 3.00%, 7/1/07 (XLCA) 1,080,965 - -------------------------------------------------------------------------------- 1,200,000 Santa Ana COP, Series 2003 A, 3.00%, 6/1/06 (AMBAC) 1,228,404 - -------------------------------------------------------------------------------- 1,000,000 Santa Barbara Redevelopment Agency Tax Allocation Rev., Series 2003 A, (Central City), 2.00%, 3/1/06 (AMBAC) 1,006,570 - -------------------------------------------------------------------------------- 2,000,000 Santa Clara County Financing Auth. Lease Rev., Series 2000 B, (Multiple Facilities), 5.50%, 5/15/07 (AMBAC) 2,189,500 - -------------------------------------------------------------------------------- 5,000,000 Santa Clara County Financing Auth. Rev., (Measure B Transportation Improvement Program), 4.00%, 8/1/06 5,185,900 - -------------------------------------------------------------------------------- 5,000,000 Santa Clara Valley Transportation Auth. Sales Tax Rev., Series 2003 A, 4.00%, 10/2/06 (AMBAC) 5,226,700 - -------------------------------------------------------------------------------- 970,000 Santa Margarita-Dana Point Auth. Rev., Series 1994 A, (Improvement Districts 1, 2, 2A, 8), 7.25%, 8/1/10 (MBIA) 1,191,170 - -------------------------------------------------------------------------------- 1,250,000 South Orange County Public Financing Auth. Special Tax Rev., Series 1994 C, (Foothill Area), 7.50%, 8/15/07 (FGIC) 1,445,200 - -------------------------------------------------------------------------------- 2,000,000 South Orange County Public Financing Auth. Special Tax Rev., Series 2003 A, (Senior Lien), 5.00%, 9/1/12 (MBIA) 2,220,280 - -------------------------------------------------------------------------------- 1,500,000 Southern California Public Power Auth. Rev., Series 2002 A, (San Juan Unit 3), 4.00%, 1/1/05 (FSA) 1,513,020 - -------------------------------------------------------------------------------- 1,240,000 Stockton Health Facilities Rev., Series 1997 A, (Dameron Hospital Association), 5.00%, 12/1/05 1,276,816 - -------------------------------------------------------------------------------- 1,165,000 Stockton Health Facilities Rev., Series 1997 A, (Dameron Hospital Association), 5.20%, 12/1/07 1,241,704 - -------------------------------------------------------------------------------- 265,000 Tehachapi COP, (Installment Sale), 4.80%, 11/1/04 (FSA) 266,505 - -------------------------------------------------------------------------------- 1,385,000 Truckee-Donner Public Utility District COP, Series 2003 A, 3.50%, 1/1/06 (ACA) 1,405,761 - -------------------------------------------------------------------------------- 2,175,000 Turlock Irrigation District Rev., Series 2003 A, 5.00%, 1/1/13 (MBIA) 2,409,791 - -------------------------------------------------------------------------------- 1,325,000 Upland COP, (San Antonio Community Hospital), 5.75%, 1/1/07 1,396,497 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,060,000 Woodland Finance Auth. Lease Rev., 3.00%, 3/1/05 (XLCA) $ 3,082,093 - -------------------------------------------------------------------------------- 3,250,000 Woodland Finance Auth. Lease Rev., 3.00%, 3/1/06 (XLCA) 3,312,075 - -------------------------------------------------------------------------------- 1,375,000 Woodland Finance Auth. Lease Rev., 3.00%, 3/1/07 (XLCA) 1,408,193 - -------------------------------------------------------------------------------- 169,758,242 - -------------------------------------------------------------------------------- GUAM -- 2.5% - -------------------------------------------------------------------------------- 5,000,000 Guam Government Limited Obligation Rev., Series 2001 A, 5.00%, 12/1/09 (FSA) 5,545,750 - -------------------------------------------------------------------------------- NORTHERN MARIANA ISLES -- 1.9% - -------------------------------------------------------------------------------- 1,425,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.00%, 6/1/06 (ACA) 1,489,353 - -------------------------------------------------------------------------------- 1,075,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/07 (ACA) 1,154,066 - -------------------------------------------------------------------------------- 1,430,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.75%, 6/1/10 (ACA) 1,584,640 - -------------------------------------------------------------------------------- 4,228,059 - -------------------------------------------------------------------------------- PUERTO RICO -- 14.8% - -------------------------------------------------------------------------------- 1,500,000 Childrens Trust Fund Tobacco Settlement Rev., 5.00%, 7/1/08(1) 1,641,675 - -------------------------------------------------------------------------------- 2,000,000 Puerto Rico Commonwealth GO, 5.00%, 7/1/05 (FGIC) 2,060,500 - -------------------------------------------------------------------------------- 2,835,000 Puerto Rico Commonwealth GO, Series 2003 A, 4.00%, 7/1/05 2,893,203 - -------------------------------------------------------------------------------- 205,000 Puerto Rico Commonwealth GO, Series 2003 A, 4.00%, 7/1/06(1) 213,831 - -------------------------------------------------------------------------------- 1,260,000 Puerto Rico Commonwealth GO, Series 2003 A, 4.00%, 7/1/06 1,308,586 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/08 (FSA) 1,090,240 - -------------------------------------------------------------------------------- 11,790,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/08 12,737,326 - -------------------------------------------------------------------------------- 3,000,000 Puerto Rico Electric Power Auth. Rev., 5.00%, 7/1/06 3,169,499 - -------------------------------------------------------------------------------- 2,460,000 Puerto Rico Electric Power Auth. Rev., 5.00%, 7/1/08 2,679,629 - -------------------------------------------------------------------------------- 1,500,000 Puerto Rico Electric Power Auth. Rev., Series 1999 FF, 5.25%, 7/1/09 (MBIA) 1,681,200 - -------------------------------------------------------------------------------- 1,315,000 Puerto Rico Municipal Finance Agency Rev., Series 2002 A, 4.50%, 8/1/10 (FSA) 1,434,363 - -------------------------------------------------------------------------------- 1,500,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.50%, 7/1/10 1,690,695 - -------------------------------------------------------------------------------- 32,600,747 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 15 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 1.8% - -------------------------------------------------------------------------------- $ 1,275,000 Virgin Islands Public Finance Auth. Rev., (Gross Receipts Taxes), 4.00%, 10/1/05 $ 1,302,311 - -------------------------------------------------------------------------------- 1,000,000 Virgin Islands Public Finance Auth. Rev., (Gross Receipts Taxes), 4.00%, 10/1/06 1,032,720 - -------------------------------------------------------------------------------- 1,500,000 Virgin Islands Public Finance Auth. Rev., Series 1998 C, (Senior Lien Fund), 5.50%, 10/1/07 1,621,335 - -------------------------------------------------------------------------------- 3,956,366 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $209,568,408) 216,089,164 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 0.4% CALIFORNIA -- 0.4% - -------------------------------------------------------------------------------- 350,000 California Economic Recovery Rev., Series 2004 C1, VRDN, 1.40%, 9/1/04 (SBBPA: Landesbank Baden-Wuerttemburg) 350,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 300,000 California State Department of Water Resources Rev., Series 2002 B5, VRDN, 1.32%, 9/1/04 (LOC: Bayerische Landesbank, Westdeutsche Landesbank AG) $ 300,000 - -------------------------------------------------------------------------------- 200,000 Irvine Improvement Bond Act 1915 Special Assessment, (District No. 93-14), VRDN, 1.32%, 9/1/04 (LOC: Bank of America N.A.) 200,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $850,000) 850,000 - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS -- 0.3% 670,000 Federated California Municipal Cash Trust (Cost $670,000) 670,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 98.9% (Cost $211,088,408) 217,609,164 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.1% 2,340,302 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $219,949,466 ================================================================================ 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 Corporation SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective August 31, 2004. XLCA = XL Capital Ltd. (1) Escrowed to maturity in U.S. government securities or state and local government securities. See Notes to Financial Statements. - ------ 16 California Intermediate-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2004 ------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE-TERM TAX-FREE 5.13% 5.55% 5.46% 6.31% 11/9/83 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 4.58% 5.79% 5.65% 6.91%(1) -- - -------------------------------------------------------------------------------- LIPPER CALIFORNIA INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS 4.98% 5.38% 5.34% 6.31%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 8/31/04(3) 22 of 44 9 of 24 6 of 13 1 of 1(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 9/30/04(3) 26 of 44 8 of 25 6 of 13 1 of 1(2) -- - -------------------------------------------------------------------------------- (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. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 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. - ------ 17 California Intermediate-Term Tax-Free - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made August 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ---------------------------------------------------------------------------------------------------- California Intermediate-Term Tax-Free 7.09% 4.79% 7.39% 7.00% 0.74% 6.95% 8.22% 5.63% 1.91% 5.13% - ---------------------------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 8.12% 3.80% 6.68% 6.81% 2.21% 5.33% 8.99% 6.56% 3.57% 4.58% - ---------------------------------------------------------------------------------------------------- Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 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. - ------ 18 California Intermediate-Term Tax-Free - Portfolio Commentary PORTFOLIO MANAGER: ROBERT MILLER RETURN SUMMARY & PERSPECTIVE California Intermediate-Term Tax-Free (Cal Intermediate-Term) returned 5.13% for the fiscal year ended August 31, 2004, reflecting a moderately upbeat performance by municipal bonds. By comparison, the average return of Cal Intermediate-Term's 44-fund Lipper peer group was 4.98%. (Please see page 17 for additional details.) From a longer-term perspective, Cal Intermediate-Term also outperformed the peer group's average annual total returns for the five- and 10-year periods ended August 31, 2004. In addition, lower-than-average expenses continued to lend a helping hand. As of August 31, 2004, the fund's annual expense ratio was 50 basis points (0.50%) compared with the Lipper group average of 90 basis points. All else being equal, lower expenses typically translate into higher yields and returns. YIELD SUMMARY & PERSPECTIVE Cal Intermediate-Term seeks safety of principal and high current income that is exempt from federal and California income tax. Along those lines, the fund's 30-day SEC yield finished out the fiscal year at 2.64%, down from 2.95% at the end of August 2003. The accompanying yields table translates the fund's 30-day SEC yield as of August 31, 2004, into its higher, tax-equivalent versions. ECONOMIC & MARKET PERSPECTIVE U.S. bond prices rose and yields fell for the fiscal year as economic growth slowed and inflation spiked, then settled down. After growing at a 7.4% annual rate in the third quarter of 2003, U.S. economic expansion slowed to a 3.3% rate in the second quarter of 2004 as higher energy prices reduced consumer spending and threatened corporate profits. Inflation became a concern as the monthly change in the "core" consumer price index (CPI minus energy and food prices) rose 0.4% in March 2004, the highest since November 2001. That, plus spikes in job growth and retail sales, helped trigger a bond selloff in April and May of 2004 and helped motivate the Federal Reserve (the Fed) to start PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/04 8/31/03 - -------------------------------------------------------------------------------- Weighted Average Maturity 7.8 yrs 8.1 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 4.6 yrs 4.9 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2004 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 2.64% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 3.88% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 4.04% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 4.34% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 4.48% - -------------------------------------------------------------------------------- *The tax brackets indicated are for combined state and federal income tax. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. (continued) - ------ 19 California Intermediate-Term Tax-Free - Portfolio Commentary raising its overnight interest rate target to combat potential future inflation. But core inflation returned to a mild 0.1% monthly rate during the summer of 2004 and job growth decelerated as the economy hit what the Fed described as a "soft patch." That helped produce a fiscal-year-ending bond rally that--when matched with gains from the beginning of the period--more than offset the April-May losses. For the fiscal year, tax-exempt municipal securities generally outperformed taxable securities -- the broad Lehman Brothers Municipal Bond Index returned 7.11% compared with 6.13% for the Lehman Brothers U.S. Aggregate Index. Municipals benefited from declining issuance (less supply) and continued improvement in state economic growth, which meant higher tax revenues. PORTFOLIO POSITIONING & STRATEGIES In addition to seeking high current income, Cal Intermediate-Term seeks safety of principal. We continued to invest the portfolio in quality municipal securities to help accomplish that objective, focusing primarily on triple-A or double-A bonds, which represented 83% of the portfolio at the end of August. We also remained on the lookout for what we believed were attractively valued investment-grade securities with lower credit ratings and compelling credit stories. In addition, we reduced Cal Intermediate-Term's duration (a widely used gauge of interest rate sensitivity) from 4.9 years as of the end of August 2003, to 4.6 years as of the end of August 2004. That strategy was chosen in anticipation of higher interest rates as the economy improved and inflation became a more pressing concern, but didn't pay off as well as we'd hoped due to the bond market's performance. As those strategies hopefully help to illustrate, we remain committed to pursuing the fund's investment objective by investing in municipal securities with income payments exempt from federal and California income tax. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/04 2/29/04 - -------------------------------------------------------------------------------- AAA 74% 76% - -------------------------------------------------------------------------------- AA 9% 9% - -------------------------------------------------------------------------------- A 12% 8% - -------------------------------------------------------------------------------- BBB 5% 7% - -------------------------------------------------------------------------------- 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, 2004 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- General Obligation 24% - -------------------------------------------------------------------------------- Certificate of Participation/Leases 20% - -------------------------------------------------------------------------------- Electric Revenue 14% - -------------------------------------------------------------------------------- Water and Sewer Revenue 9% - -------------------------------------------------------------------------------- Sales Tax Revenue 8% - -------------------------------------------------------------------------------- - ------ 20 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.5% CALIFORNIA -- 85.6% - -------------------------------------------------------------------------------- $ 1,000,000 Adelanto Public Financing Auth. GO, (Community Correctional Facility), 4.00%, 4/1/05 $ 1,013,787 - -------------------------------------------------------------------------------- 4,845,000 Alameda County COP, (Santa Rita Jail), 5.375%, 6/1/09 (MBIA) 5,247,716 - -------------------------------------------------------------------------------- 1,385,000 Alameda County COP, Series 2001 A, 5.375%, 12/1/15 (MBIA) 1,537,682 - -------------------------------------------------------------------------------- 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) 1,713,020 - -------------------------------------------------------------------------------- 1,085,000 California Department of Water Resources Rev., Series 1998 U, 5.125%, 12/1/08, Prerefunded at 101% of Par(1) 1,221,102 - -------------------------------------------------------------------------------- 1,500,000 California Department of Water Resources Rev., Series 2001 W, (Central Valley Project), 5.50%, 12/1/17 1,692,600 - -------------------------------------------------------------------------------- 2,645,000 California Department of Water Resources Rev., Series 2002 A, 5.50%, 5/1/08 2,915,213 - -------------------------------------------------------------------------------- 3,750,000 California Department of Water Resources Rev., Series 2002 A, 5.50%, 5/1/12 4,243,575 - -------------------------------------------------------------------------------- 7,000,000 California Department of Water Resources Rev., Series 2002 A, 5.375%, 5/1/17 (XLCA) 7,752,290 - -------------------------------------------------------------------------------- 4,000,000 California Educational Facilities Auth. Rev., (Golden Gate University), 5.50%, 10/1/18 4,140,720 - -------------------------------------------------------------------------------- 1,095,000 California Educational Facilities Auth. Rev., (Scripps College), 5.25%, 8/1/16 1,174,563 - -------------------------------------------------------------------------------- 1,315,000 California Educational Facilities Auth. Rev., (Southwestern University), 5.00%, 11/1/15 1,404,354 - -------------------------------------------------------------------------------- 430,000 California Educational Facilities Auth. Rev., (Southwestern University), 5.00%, 11/1/18 450,670 - -------------------------------------------------------------------------------- 1,605,000 California Educational Facilities Auth. Rev., Series 2000 B, (Pooled College & University Projects), 6.625%, 6/1/20 1,774,905 - -------------------------------------------------------------------------------- 5,000,000 California GO, 7.50%, 10/1/07 (MBIA) 5,817,400 - -------------------------------------------------------------------------------- 1,985,000 California GO, 8.00%, 11/1/07 (FGIC) 2,171,173 - -------------------------------------------------------------------------------- 4,480,000 California GO, 6.00%, 10/1/09 (AMBAC) 5,169,651 - -------------------------------------------------------------------------------- 3,350,000 California GO, 5.75%, 4/1/10 (AMBAC) 3,832,300 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 5,000,000 California GO, 5.50%, 4/1/12 (MBIA) $ 5,699,400 - -------------------------------------------------------------------------------- 10,000,000 California GO, 5.25%, 10/1/14 (FGIC) 11,095,599 - -------------------------------------------------------------------------------- 5,000,000 California GO, Series 2004 A, 5.25%, 1/1/10 5,583,100 - -------------------------------------------------------------------------------- 4,000,000 California GO, Series 2004 A, 5.00%, 7/1/12 (MBIA) 4,460,000 - -------------------------------------------------------------------------------- 2,000,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Kaiser Permanente), 5.25%, 6/1/11 (FSA) 2,210,100 - -------------------------------------------------------------------------------- 1,000,000 California Infrastructure & Economic Development Bank Rev., Series 2000 A, (Scripps Research Institute), 5.625%, 7/1/20 1,099,630 - -------------------------------------------------------------------------------- 1,075,000 California Mobilehome Park Financing Auth. Rev., Series 2000 A, (Union City Tropics), 5.375%, 8/15/14 (ACA) 1,137,296 - -------------------------------------------------------------------------------- 3,000,000 California Public Works Board Lease Rev., Series 1992 A, (Secretary of State), 6.20%, 12/1/05 (AMBAC) 3,173,100 - -------------------------------------------------------------------------------- 2,375,000 California Public Works Board Lease Rev., Series 1993 A, (Various University of California Projects), 5.50%, 6/1/14 2,689,260 - -------------------------------------------------------------------------------- 3,000,000 California Public Works Board Lease Rev., Series 1994 A, (Various University of California Projects), 6.15%, 11/1/04 3,082,650 - -------------------------------------------------------------------------------- 3,100,000 California State University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.25%, 7/1/12 3,294,432 - -------------------------------------------------------------------------------- 1,250,000 California State University System Rev., Series 2002 A, 5.375%, 11/1/18 (AMBAC) 1,391,875 - -------------------------------------------------------------------------------- 8,000,000 California Statewide Communities Development Auth. COP, (California Lutheran Homes), 5.375%, 11/15/06 (California Mortgage Insurance)(1) 8,612,080 - -------------------------------------------------------------------------------- 3,230,000 California Statewide Communities Development Auth. Rev., Series 2000 B, (Brentwood School), 5.75%, 10/1/20 (FSA) 3,590,694 - -------------------------------------------------------------------------------- 1,695,000 California Statewide Communities Development Auth. Rev., Series 2002 B, 5.20%, 10/1/18 (FSA) 1,856,178 - -------------------------------------------------------------------------------- 2,545,000 Capistrano Unified Public Financing Auth. Special Tax Rev., Series 1996 A, (First Lien), 6.00%, 9/1/06 (AMBAC) 2,761,452 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 21 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,100,000 Castaic Lake Water Agency Rev., Series 2001 A, 5.375%, 8/1/17 (MBIA) $ 2,295,048 - -------------------------------------------------------------------------------- 2,075,000 Chabot Las Positas Community College District COP, 5.50%, 12/1/10 (FSA) 2,309,122 - -------------------------------------------------------------------------------- 3,000,000 Chino Ontario Upland Water Facilities Auth. COP, Series 1997 A, (Agua de Lejos), 5.20%, 10/1/15 (FGIC) 3,270,000 - -------------------------------------------------------------------------------- 5,435,000 Contra Costa Transportation Auth. Sales Tax Rev., Series 1993 A, 6.00%, 3/1/05 (FGIC) 5,558,701 - -------------------------------------------------------------------------------- 1,220,000 Coronado Community Development Agency Tax Allocation Rev., 6.00%, 9/1/08 (FSA) 1,339,694 - -------------------------------------------------------------------------------- 2,300,000 Eastern Municipal Water District COP, Series 2001 A, 5.25%, 7/1/13 (FGIC) 2,566,317 - -------------------------------------------------------------------------------- 4,000,000 El Cajon Redevelopment Agency COP, 5.20%, 10/1/15 (AMBAC) 4,207,640 - -------------------------------------------------------------------------------- 1,095,000 El Segundo Unified School District GO, 5.375%, 9/1/16 (FGIC) 1,258,757 - -------------------------------------------------------------------------------- 1,020,000 El Segundo Unified School District GO, 5.375%, 9/1/17 (FGIC) 1,172,541 - -------------------------------------------------------------------------------- 1,000,000 Folsom Cordova Unified School District No. 2 Facilities Improvement GO, Series 2002 A, 5.375%, 10/1/15 (MBIA) 1,112,210 - -------------------------------------------------------------------------------- 1,225,000 Folsom Cordova Unified School District No. 2 Facilities Improvement GO, Series 2002 A, 5.375%, 10/1/16 (MBIA) 1,358,415 - -------------------------------------------------------------------------------- 1,225,000 Folsom Public Financing Auth. Rev., (City Hall & Community Center), 5.25%, 10/1/14 (FSA) 1,370,273 - -------------------------------------------------------------------------------- 1,290,000 Folsom Public Financing Auth. Rev., (City Hall & Community Center), 5.25%, 10/1/15 (FSA) 1,428,752 - -------------------------------------------------------------------------------- 500,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.25%, 9/1/04 500,000 - -------------------------------------------------------------------------------- 1,635,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.25%, 9/1/06 1,711,404 - -------------------------------------------------------------------------------- 2,615,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.25%, 9/1/08 2,766,696 - -------------------------------------------------------------------------------- 2,760,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.40%, 9/1/09 2,901,892 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 2,550,000 Fremont Union High School District GO, Series 2000 B, 5.25%, 9/1/16 $ 2,800,487 - -------------------------------------------------------------------------------- 2,810,000 Fresno Special Tax Rev., (Community Facilities District No. 3), 4.75%, 9/1/05 (LOC: Rabobank International) 2,827,478 - -------------------------------------------------------------------------------- 7,350,000 Imperial Irrigation District COP, (Electrical System), 6.50%, 11/1/07 (MBIA-IBC) 8,186,945 - -------------------------------------------------------------------------------- 1,675,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/16 (AMBAC) 1,869,602 - -------------------------------------------------------------------------------- 2,715,000 Irvine Unified School District Special Tax Rev., (Community Facilities District No. 86-1), 5.50%, 11/1/10 (AMBAC) 3,026,709 - -------------------------------------------------------------------------------- 2,030,000 Long Beach Bond Finance Auth. Lease Rev., (Plaza Parking Facility), 5.25%, 11/1/16 2,171,633 - -------------------------------------------------------------------------------- 4,000,000 Los Angeles Capital Asset Lease Rev., 5.875%, 12/1/05 (AMBAC) 4,215,560 - -------------------------------------------------------------------------------- 1,030,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 5.30%, 7/1/13 (ACA) 1,086,619 - -------------------------------------------------------------------------------- 1,155,000 Los Angeles Convention and Exhibition Center Auth. Lease Rev., Series 1993 A, 6.00%, 8/15/10 (MBIA-IBC) 1,343,357 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1997 A, (Proposal A), 5.25%, 7/2/12 (MBIA) 3,264,660 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, (Proposal A), 5.25%, 7/1/13 (FSA) 3,365,610 - -------------------------------------------------------------------------------- 6,680,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, (Proposal A), 5.25%, 7/1/16 (FSA) 7,324,219 - -------------------------------------------------------------------------------- 3,765,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1992 A, (Proposition C), 6.40%, 7/1/06 4,074,219 - -------------------------------------------------------------------------------- 3,500,000 Los Angeles Unified School District GO, 5.50%, 7/1/12 (MBIA) 4,019,715 - -------------------------------------------------------------------------------- 3,115,000 Los Angeles Unified School District GO, Series 1999 C, 5.50%, 7/1/09, Prerefunded at 101% of Par (MBIA)(1) 3,572,375 - -------------------------------------------------------------------------------- 8,000,000 Los Angeles Unified School District GO, Series 2000 D, 5.625%, 7/1/10, Prerefunded at 100% of Par (FGIC)(1) 9,233,759 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 22 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 5,000,000 Los Angeles Unified School District GO, Series 2002 E, 5.00%, 7/1/11 (MBIA) $ 5,566,100 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles Unified School District GO, Series 2003 F, (Election of 1997), 5.00%, 7/1/16 (FSA) 3,266,670 - -------------------------------------------------------------------------------- 1,390,000 Los Gatos Joint Union High School District GO, Series 2002 C, 5.375%, 6/1/17 (FSA) 1,545,583 - -------------------------------------------------------------------------------- 3,000,000 Metropolitan Water District of Southern California Rev., Series 1992 B, 8.00%, 7/1/08 3,633,090 - -------------------------------------------------------------------------------- 2,920,000 Metropolitan Water District of Southern California Rev., Series 2001 A, 5.125%, 7/1/09 3,247,828 - -------------------------------------------------------------------------------- 1,520,000 Mojave Unified School District No. 1 Facilities Improvement GO, 5.25%, 8/1/20 (FGIC) 1,641,904 - -------------------------------------------------------------------------------- 1,100,000 Mojave Water Agency Improvement District GO, (Morongo Basin), 5.40%, 9/1/08 (FGIC) 1,194,820 - -------------------------------------------------------------------------------- 1,485,000 Mountain View COP, (Capital Projects), 5.25%, 8/1/18 1,623,595 - -------------------------------------------------------------------------------- 4,000,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.25%, 10/1/07 (AMBAC) 4,393,720 - -------------------------------------------------------------------------------- 1,310,000 Oceanside COP, Series 2003 A, 5.00%, 4/1/12 (AMBAC) 1,448,847 - -------------------------------------------------------------------------------- 1,000,000 Ontario Redevelopment Financing Auth. Local Agency Rev., Series 1995 A, 5.80%, 9/2/06 (FSA) 1,013,550 - -------------------------------------------------------------------------------- 2,210,000 Orange County Local Transportation Auth. Sales Tax Rev., Series 1997 A, 5.70%, 2/15/08 (AMBAC) 2,468,261 - -------------------------------------------------------------------------------- 1,805,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/15 (AMBAC) 2,014,759 - -------------------------------------------------------------------------------- 1,000,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/16 (AMBAC) 1,112,640 - -------------------------------------------------------------------------------- 3,030,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/17 (AMBAC) 3,356,210 - -------------------------------------------------------------------------------- 6,220,000 Orange County Recovery COP, Series 1996 A, 6.00%, 7/1/07 (MBIA) 6,919,128 - -------------------------------------------------------------------------------- 1,830,000 Pomona Public Financing Auth. Rev., Series 2001 AD, (Merged Redevelopment), 4.75%, 2/1/13 (MBIA) 1,958,448 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,060,000 Redding Joint Powers Financing Auth. Electric System Rev., Series 1996 A, 6.25%, 6/1/07 (MBIA) $ 1,181,275 - -------------------------------------------------------------------------------- 1,010,000 Richmond Joint Powers Financing Auth. Rev., Series 1995 A, 5.30%, 5/15/06 1,028,119 - -------------------------------------------------------------------------------- 8,000,000 Sacramento City Financing Auth. Lease Rev., Series 1993 A, 5.40%, 11/1/20 (AMBAC) 9,173,840 - -------------------------------------------------------------------------------- 5,290,000 Sacramento City Financing Auth. Rev., Series 2002 A, (City Hall & Redevelopment), 5.25%, 12/1/15 (FSA) 5,891,949 - -------------------------------------------------------------------------------- 2,165,000 Sacramento Municipal Utility District Electric Rev., Series 1992 A, 6.25%, 8/15/10 (MBIA) 2,510,014 - -------------------------------------------------------------------------------- 1,890,000 Sacramento Municipal Utility District Electric Rev., Series 1992 C, 5.75%, 11/15/07 (MBIA)(1) 1,906,934 - -------------------------------------------------------------------------------- 3,105,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.70%, 7/1/17 (AMBAC) 3,646,015 - -------------------------------------------------------------------------------- 5,005,000 Sacramento Municipal Utility District Electric Rev., Series 2001 O, 5.25%, 8/15/11 (MBIA) 5,656,201 - -------------------------------------------------------------------------------- 5,000,000 San Bernardino County COP, Series 1995 A, (Medical Center), 5.75%, 8/1/07 (MBIA) 5,535,750 - -------------------------------------------------------------------------------- 1,695,000 San Buenaventura County COP, Series 2002 B, 5.50%, 1/1/15 (AMBAC) 1,898,197 - -------------------------------------------------------------------------------- 1,790,000 San Buenaventura County COP, Series 2002 B, 5.50%, 1/1/16 (AMBAC) 1,999,699 - -------------------------------------------------------------------------------- 2,030,000 San Diego Redevelopment Agency Tax Allocation Rev., (Horton Plaza), 5.70%, 11/1/17 2,182,128 - -------------------------------------------------------------------------------- 2,635,000 San Diego Redevelopment Agency Tax Allocation Rev., (Horton Plaza), 5.80%, 11/1/21 2,818,001 - -------------------------------------------------------------------------------- 1,460,000 San Diego Redevelopment Agency Tax Allocation Rev., (North Park), 5.90%, 9/1/25 1,534,110 - -------------------------------------------------------------------------------- 2,255,000 San Francisco City & County Educational Facilities Unified School District GO, Series 1999 B, 5.50%, 6/15/12 2,495,225 - -------------------------------------------------------------------------------- 2,680,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.25%, 6/1/18 (MBIA) 3,054,396 - -------------------------------------------------------------------------------- 3,350,000 Santa Barbara County GO, 5.375%, 10/1/17 (AMBAC) 3,712,939 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 23 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 Santa Clara Redevelopment Agency Tax Allocation Rev., (Bayshore North), 5.00%, 6/1/15 (MBIA) $ 1,032,130 - -------------------------------------------------------------------------------- 2,075,000 Santa Clara Valley Water District Rev., Series 2000 A, 5.20%, 2/1/13 2,300,138 - -------------------------------------------------------------------------------- 1,120,000 Santa Fe Springs Community Development Commission Rev., Series 2002 A, 5.375%, 9/1/16 (MBIA) 1,239,997 - -------------------------------------------------------------------------------- 1,250,000 Santa Monica-Malibu Unified School District GO, 5.25%, 8/1/13 1,418,113 - -------------------------------------------------------------------------------- 2,000,000 Southern California Public Power Auth. Rev., 6.75%, 7/1/10 (LOC: PNC Bank) 2,359,220 - -------------------------------------------------------------------------------- 5,000,000 Southern California Public Power Auth. Rev., Series 2002 A, (Southern Transmission), 5.25%, 7/1/17 (FSA) 5,523,650 - -------------------------------------------------------------------------------- 3,325,000 Southern California Public Power Auth. Rev., Series 2002 A, (Southern Transmission), 5.25%, 7/1/18 (FSA) 3,652,612 - -------------------------------------------------------------------------------- 1,975,000 Southwestern Community College District GO, 5.625%, 8/1/17 (AMBAC) 2,251,540 - -------------------------------------------------------------------------------- 2,000,000 Stanislaus County COP, 5.50%, 5/1/06 (MBIA) 2,127,120 - -------------------------------------------------------------------------------- 2,770,000 Stockton Community Facilities District GO, (No. 1 Weston Ranch), 5.40%, 9/1/15 2,954,067 - -------------------------------------------------------------------------------- 325,000 Stockton Community Facilities District GO, (No. 1 Weston Ranch), 5.50%, 9/1/16 346,951 - -------------------------------------------------------------------------------- 1,800,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/10 (AMBAC) 2,018,034 - -------------------------------------------------------------------------------- 1,025,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/13 (FSA) 1,141,379 - -------------------------------------------------------------------------------- 1,080,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/14 (FSA) 1,202,569 - -------------------------------------------------------------------------------- 1,135,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/15 (FSA) 1,243,290 - -------------------------------------------------------------------------------- 1,195,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/16 (FSA) 1,309,015 - -------------------------------------------------------------------------------- 500,000 Taft Public Financing Auth. Lease Rev., Series 1997 A, (Community Correctional Facility), 5.50%, 1/1/06 513,610 - -------------------------------------------------------------------------------- 3,000,000 Ventura County Public Financing Auth. COP, 4.75%, 8/15/11 (FSA) 3,205,530 - -------------------------------------------------------------------------------- 3,980,000 Whittier Health Facilities Rev., (Presbyterian Intercommunity), 6.00%, 6/1/06 (MBIA) 4,277,903 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,010,000 Woodland Wastewater System COP, 6.00%, 3/1/06 (AMBAC) $ 1,075,529 - -------------------------------------------------------------------------------- 358,342,318 - -------------------------------------------------------------------------------- GUAM -- 1.1% - -------------------------------------------------------------------------------- 4,000,000 Guam Government GO, Series 2001 A, 5.50%, 12/1/10 (FSA) 4,583,760 - -------------------------------------------------------------------------------- NORTHERN MARIANA ISLES -- 0.8% - -------------------------------------------------------------------------------- 1,485,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/08 (ACA) 1,611,715 - -------------------------------------------------------------------------------- 1,555,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/09 (ACA) 1,699,537 - -------------------------------------------------------------------------------- 3,311,252 - -------------------------------------------------------------------------------- PUERTO RICO -- 10.0% - -------------------------------------------------------------------------------- 5,000,000 Childrens Trust Fund Tobacco Settlement Rev., 5.00%, 7/1/08(1) 5,472,250 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/08 (FSA) 1,090,240 - -------------------------------------------------------------------------------- 10,000,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/08 10,803,499 - -------------------------------------------------------------------------------- 3,000,000 Puerto Rico Commonwealth Infrastructure Financing Auth. Special Tax Rev., Series 1998 A, 5.50%, 7/1/08 (AMBAC) 3,353,130 - -------------------------------------------------------------------------------- 3,700,000 Puerto Rico Electric Power Auth. Rev., Series 2002 II, 5.375%, 7/1/18 (MBIA) 4,133,640 - -------------------------------------------------------------------------------- 2,655,000 Puerto Rico Electric Power Auth. Rev., Series 2002 KK, 5.25%, 7/1/13 (FSA) 3,030,205 - -------------------------------------------------------------------------------- 3,140,000 Puerto Rico Electric Power Auth. Rev., Series 2002 KK, 5.50%, 7/1/14 (FSA) 3,658,508 - -------------------------------------------------------------------------------- 1,450,000 Puerto Rico Municipal Finance Agency GO, Series 1999 B, 6.00%, 8/1/15 (FSA) 1,668,211 - -------------------------------------------------------------------------------- 3,090,000 Puerto Rico Public Buildings Auth. Rev., Series 1995 A, 6.25%, 7/1/09 (AMBAC) 3,598,274 - -------------------------------------------------------------------------------- 4,670,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.25%, 7/1/11 5,216,764 - -------------------------------------------------------------------------------- 42,024,721 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 1.0% - -------------------------------------------------------------------------------- 1,890,000 Virgin Islands Public Finance Auth. Rev., (Gross Receipts Taxes), 4.00%, 10/1/06 1,951,841 - -------------------------------------------------------------------------------- 1,000,000 Virgin Islands Public Finance Auth. Rev., (Gross Receipts Taxes), 4.00%, 10/1/08 (FSA) 1,060,060 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 24 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,050,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, 5.50%, 10/1/13 $ 1,111,782 - -------------------------------------------------------------------------------- 4,123,683 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $385,705,621) 412,385,734 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 0.1% CALIFORNIA -- 0.1% - -------------------------------------------------------------------------------- 400,000 California Department of Water Resources Rev., Series 2002 B6, VRDN, 1.33%, 9/1/04 (LOC: State Street Bank & Trust Co.) (Cost $400,000) 400,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS -- 0.2% 723,000 Federated California Municipal Cash Trust (Cost $723,000) $ 723,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 98.8% (Cost $386,828,621) 413,508,734 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.2% 5,145,835 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $418,654,569 ================================================================================ 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 Corporation MBIA-IBC = MBIA Insured Bond Certificates VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective August 31, 2004. XLCA = XL Capital Ltd. (1) Escrowed to maturity in U.S. government securities or state and local government securities. See Notes to Financial Statements. - ------ 25 California Long-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2004 ------------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- CALIFORNIA LONG- TERM TAX-FREE 6.83% 6.38% 6.26% 7.49% 11/9/83 - -------------------------------------------------------------------------------- LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX 9.24% 7.38% 7.22% 9.17%(1) -- - -------------------------------------------------------------------------------- LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS AVERAGE RETURNS 7.04% 5.65% 5.78% 7.50%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 8/31/04(3) 68 of 128 11 of 98 11 of 61 1 of 1(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 9/30/04(3) 66 of 128 8 of 98 10 of 63 1 of 1(2) -- - -------------------------------------------------------------------------------- (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. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 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. - ------ 26 California Long-Term Tax-Free - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made August 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ---------------------------------------------------------------------------------------------------- California Long- Term Tax-Free 7.21% 6.77% 9.70% 9.25% -1.85% 7.79% 10.55% 5.14% 1.81% 6.83% - ---------------------------------------------------------------------------------------------------- Lehman Brothers Long-Term Municipal Bond Index 9.43% 6.88% 11.24% 10.51% -2.14% 7.34% 12.35% 5.62% 2.62% 9.24% - ---------------------------------------------------------------------------------------------------- Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 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. - ------ 27 California Long-Term Tax-Free - Portfolio Commentary PORTFOLIO MANAGER: DAVE MACEWEN RETURN SUMMARY & PERSPECTIVE California Long-Term Tax-Free (Cal Long-Term) returned 6.83% for the fiscal year ended August 31, 2004, the fund's highest fiscal-year return since 2001, as the U.S. bond market rallied and yields fell. Though the fund outperformed the average return of its Lipper California Municipal Debt Funds peer group for the five- and 10-year periods ended August 31, 2004, it trailed for the fiscal year, which we'll discuss in the Portfolio Positioning & Strategy section on page 29. The fund and its peer group underperformed the Lehman Brothers Long-Term Municipal Bond Index because the index's longer duration (greater price sensitivity to interest rate changes) boosted its return--municipal bonds with longer durations outperformed those with shorter durations during the fiscal year (see pages 26-27 for total return comparisons). YIELD SUMMARY & PERSPECTIVE Our investment objectives are to seek safety of principal and high current income that is exempt from federal and California income tax. As of August 31, 2004, we'd invested approximately 76% of the portfolio in debt securities with maturities of 10 years or longer. These bonds offer higher yields as compensation for their potentially increased exposure to inflation risk. The fund's 30-day SEC yield declined from 3.92% on August 31, 2003 to 3.38% at fiscal year end as the bond market rallied. That still translated to attractive tax-equivalent yields for California investors (see the yield table above). ECONOMIC & MARKET PERSPECTIVE U.S. bond prices rose and yields fell for the fiscal year as economic growth slowed and inflation spiked, then settled down. After growing at a 7.4% annual rate in the third quarter of 2003, U.S. economic expansion slowed to a 3.3% rate in the second quarter of 2004 as higher energy prices reduced consumer spending and threatened corporate profits. Inflation became a concern as the monthly change in the "core" consumer price index (CPI minus energy and food prices) rose 0.4% in March 2004, the highest since November 2001. That, PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/04 8/31/03 - -------------------------------------------------------------------------------- Weighted Average Maturity 14.5 yrs 16.0 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 6.1 yrs 7.0 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2004 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 3.38% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 4.97% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 5.18% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 5.56% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 5.73% - -------------------------------------------------------------------------------- *The tax brackets indicated are for combined state and federal income tax. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. (continued) - ------ 28 California Long-Term Tax-Free - Portfolio Commentary plus spikes in job growth and retail sales, helped trigger a bond selloff in April and May of 2004 and helped motivate the Federal Reserve (the Fed) to start raising its overnight interest rate target to combat potential future inflation. But core inflation returned to a mild 0.1% monthly rate during the summer of 2004 and job growth decelerated as the economy hit what the Fed described as a "soft patch." That helped produce a fiscal-year-ending bond rally that--when matched with gains from the beginning of the period--more than offset the April-May losses. For the fiscal year, tax-exempt municipal securities generally outperformed taxable securities -- the broad Lehman Brothers Municipal Bond Index returned 7.11% compared with 6.13% for the Lehman Brothers U.S. Aggregate Index. Municipals benefited from declining issuance (less supply) and continued improvement in state economic growth, which meant higher tax revenues. PORTFOLIO POSITIONING & STRATEGY When we seek safety of principal, we try to reduce credit risk (the possibility that a bond won't be paid) by buying QUALITY debt securities--bonds either rated independently to be in the top four credit quality categories, or determined by us to be of comparable quality. As of August 31, 2004, the portfolio's weighted average credit quality was AA+, based on holdings that were primarily rated AAA (see the table below) and 71% insured. To maintain principal, we also make adjustments to duration. The table at the bottom of page 28 shows that we shortened duration during the fiscal year. We did that to reduce the portfolio's price volatility in the event of strong economic growth, higher inflation, and rising interest rates. Relative to the broad municipal bond market, the shorter duration helped the portfolio during the second-quarter 2004 selloff but not for the fiscal year as a whole--the fund underperformed as longer-duration portfolios benefited more from the decline in yields and increase in bond prices. We will continue to pursue the fund's investment objective by investing primarily in municipal securities with income exempt from federal and California income tax. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/04 2/29/04 - -------------------------------------------------------------------------------- AAA 69% 75% - -------------------------------------------------------------------------------- AA 12% 8% - -------------------------------------------------------------------------------- A 12% 7% - -------------------------------------------------------------------------------- BBB 7% 10% - -------------------------------------------------------------------------------- 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, 2004 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Certificate of Participation/Leases 24% - -------------------------------------------------------------------------------- General Obligation 14% - -------------------------------------------------------------------------------- Electric Revenue 13% - -------------------------------------------------------------------------------- Tax Allocation Revenue 11% - -------------------------------------------------------------------------------- Water and Sewer Revenue 8% - -------------------------------------------------------------------------------- - ------ 29 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.5% CALIFORNIA -- 95.6% - -------------------------------------------------------------------------------- $ 1,190,000 Alameda Corridor Transportation Auth. Rev., Series 1999 A, 5.125%, 10/1/17 (MBIA) $ 1,293,771 - -------------------------------------------------------------------------------- 2,300,000 Alameda County COP, 6.80%, 6/15/17 (MBIA)(1) 1,289,702 - -------------------------------------------------------------------------------- 5,235,000 Antioch Public Financing Auth. Rev., Series 2002 A, (Municipal Facilities), 5.50%, 1/1/32 (MBIA) 5,504,184 - -------------------------------------------------------------------------------- 4,730,000 Antioch Public Financing Auth. Rev., Series 2002 B, (Municipal Facilities), 5.625%, 1/1/22 (MBIA) 5,244,151 - -------------------------------------------------------------------------------- 6,005,000 Antioch Public Financing Auth. Rev., Series 2002 B, (Municipal Facilities), 5.625%, 1/1/27 (MBIA) 6,381,814 - -------------------------------------------------------------------------------- 1,000,000 Banning COP, (Wastewater System, Refunding & Improvement), 8.00%, 1/1/19 (AMBAC) 1,258,990 - -------------------------------------------------------------------------------- 4,135,000 Bell Community Redevelopment Agency Tax Allocation Rev., (Bell Redevelopment Project Area), 5.625%, 10/1/33 (RADIAN) 4,355,561 - -------------------------------------------------------------------------------- 1,205,000 Berryessa Union School District GO, Series 2001 B, (Election of 1999), 5.375%, 8/1/17 (FSA) 1,328,344 - -------------------------------------------------------------------------------- 1,205,000 Berryessa Union School District GO, Series 2001 B, (Election of 1999), 5.375%, 8/1/18 (FSA) 1,322,945 - -------------------------------------------------------------------------------- 3,500,000 Big Bear Lake Water Rev., 6.00%, 4/1/22 (MBIA) 4,221,420 - -------------------------------------------------------------------------------- 1,000,000 Blythe Redevelopment No. 1 Tax Allocation Rev., 5.80%, 5/1/28 1,031,760 - -------------------------------------------------------------------------------- 9,000,000 California Department of Water Resources Rev., Series 2002 A, 5.375%, 5/1/17 (XLCA) 9,967,229 - -------------------------------------------------------------------------------- 7,790,000 California Department of Water Resources Rev., Series 2002 A, 5.375%, 5/1/22 8,308,736 - -------------------------------------------------------------------------------- 4,000,000 California Educational Facilities Auth. Rev., (Pepperdine University), 5.75%, 9/15/30 4,326,920 - -------------------------------------------------------------------------------- 2,000,000 California Educational Facilities Auth. Rev., (University of Pacific), 5.25%, 11/1/34 2,047,820 - -------------------------------------------------------------------------------- 8,570,000 California Educational Facilities Auth. Rev., (University of Southern California), 5.50%, 10/1/27 9,197,581 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,920,000 California Educational Facilities Auth. Rev., (Western University Health Sciences), 6.00%, 10/1/32 $ 1,990,099 - -------------------------------------------------------------------------------- 3,035,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 6.30%, 4/1/21 3,425,787 - -------------------------------------------------------------------------------- 4,395,000 California GO, 5.00%, 2/1/10 4,823,249 - -------------------------------------------------------------------------------- 3,000,000 California GO, 6.125%, 10/1/11 (AMBAC) 3,541,710 - -------------------------------------------------------------------------------- 6,020,000 California GO, 5.25%, 11/1/19 (RADIAN) 6,510,750 - -------------------------------------------------------------------------------- 5,000,000 California GO, 5.625%, 5/1/20 5,531,550 - -------------------------------------------------------------------------------- 2,965,000 California GO, (Various Purpose), 5.125%, 11/1/24 3,079,064 - -------------------------------------------------------------------------------- 3,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 7.15%, 10/1/09(1) 2,499,240 - -------------------------------------------------------------------------------- 1,135,000 California Health Facilities Financing Auth. Rev., Series 1992 A, 6.75%, 3/1/20 (California Mortgage Insurance) 1,139,268 - -------------------------------------------------------------------------------- 1,290,000 California Health Facilities Financing Auth. Rev., Series 1992 C, (AIDS Healthcare Foundation), 6.25%, 9/1/17 (California Mortgage Insurance) 1,294,051 - -------------------------------------------------------------------------------- 5,165,000 California Health Facilities Financing Auth. Rev., Series 1993 C, (St. Francis Memorial Hospital), 5.875%, 11/1/23(2) 6,135,297 - -------------------------------------------------------------------------------- 835,000 California Housing Finance Agency Single Family Mortgage Rev., Series 1998 C4, 5.65%, 8/1/16 (FHA/VA) 846,957 - -------------------------------------------------------------------------------- 4,000,000 California Public Works Board Lease Rev., Series 1993 A, (Department of Corrections), 5.00%, 12/1/19 (AMBAC) 4,370,680 - -------------------------------------------------------------------------------- 1,000,000 California Public Works Board Lease Rev., Series 1993 B, (Various University of California Projects), 5.25%, 6/1/20 1,100,570 - -------------------------------------------------------------------------------- 18,600,000 California Public Works Board Lease Rev., Series 1993 D, (Department of Corrections), 5.25%, 6/1/15 (FSA)(5) 21,039,761 - -------------------------------------------------------------------------------- 3,135,000 California State Universities and Colleges Rev., 5.75%, 11/1/15 (FGIC) 3,338,650 - -------------------------------------------------------------------------------- 3,925,000 California Statewide Communities Development Auth. Rev. COP, (Gemological Institute), 6.75%, 5/1/10 (Connie Lee)(2) 4,544,287 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 30 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $14,500,000 California Statewide Communities Development Auth. Rev., Series 1998 A, (Sherman Oaks), 5.00%, 8/1/22 (AMBAC) $ 15,486,289 - -------------------------------------------------------------------------------- 5,695,000 Capistrano Unified School District Community Facilities Special Tax Rev., (Refunding Issue 1988-1), 6.50%, 9/1/14 (FSA) 6,308,124 - -------------------------------------------------------------------------------- 1,275,000 Carson Redevelopment Agency Residential Mortgage COP, (Area No. 1), 5.50%, 10/1/16 (MBIA) 1,472,026 - -------------------------------------------------------------------------------- 1,520,000 Castaic Lake Water Agency COP, Series 1994 A, (Water System Improvement), 7.00%, 8/1/12 (MBIA) 1,893,008 - -------------------------------------------------------------------------------- 1,320,000 Coalinga Public Financing Auth. Local Obligation Rev., Series 1998 A, 6.375%, 9/15/21 (AMBAC) 1,655,768 - -------------------------------------------------------------------------------- 13,500,000 Compton Community Redevelopment Agency Tax Allocation Rev., Series 1995 A, 6.50%, 8/1/13 (FSA) 14,351,849 - -------------------------------------------------------------------------------- 2,615,000 Concord Joint Powers Financing Auth. Lease Rev., (Concord Avenue Parking Structure), 5.125%, 3/1/23 2,710,448 - -------------------------------------------------------------------------------- 2,580,000 Concord Joint Powers Financing Auth. Lease Rev., (Police Facilities), 5.25%, 8/1/13 2,897,546 - -------------------------------------------------------------------------------- 2,200,000 Contra Costa Water District Rev., Series 1992 E, 6.25%, 10/1/12 (AMBAC) 2,571,536 - -------------------------------------------------------------------------------- 2,800,000 California State University Channel Islands Financing Auth. Rev., Series 2004 A, (Rental Housing & Town Center), 2.50%, 8/1/44 (LOC: Citibank N.A.) 2,830,324 - -------------------------------------------------------------------------------- 1,580,000 El Segundo Unified School District GO, 5.375%, 9/1/19 (FGIC) 1,816,289 - -------------------------------------------------------------------------------- 2,620,000 Escondido Unified School District COP, 4.75%, 7/1/19 (MBIA) 2,803,217 - -------------------------------------------------------------------------------- 1,975,000 Fresno Sewer Rev., Series 1993 A1, 6.25%, 9/1/14 (AMBAC) 2,409,046 - -------------------------------------------------------------------------------- 1,965,000 Glendale Unified School District GO, Series 2001 D, 5.375%, 9/1/20 (MBIA) 2,162,148 - -------------------------------------------------------------------------------- 9,350,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (AMBAC) 9,948,961 - -------------------------------------------------------------------------------- 1,815,000 Kern High School District GO, 7.15%, 8/1/14 (MBIA)(2) 2,357,994 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,340,000 Kern High School District GO, Series 1992 C, 6.25%, 8/1/13 (MBIA)(2) $ 1,632,978 - -------------------------------------------------------------------------------- 3,630,000 Kern High School District GO, Series 1993 D, 7.00%, 8/1/17 (MBIA)(2) 3,749,935 - -------------------------------------------------------------------------------- 1,335,000 Little Lake City School District GO, Series 2000 A, 6.125%, 7/1/25 (FSA) 1,535,384 - -------------------------------------------------------------------------------- 1,605,000 Long Beach Bond Finance Auth. Lease Rev., (Plaza Parking Facility), 5.25%, 11/1/21 1,683,452 - -------------------------------------------------------------------------------- 2,745,000 Los Angeles Community Redevelopment Agency Housing Rev., Series 1994 A, 6.45%, 7/1/17 (AMBAC) 2,806,763 - -------------------------------------------------------------------------------- 8,500,000 Los Angeles Department of Water & Power Rev., Series 2001 AA3, (Power Systems), 5.25%, 7/1/24 8,855,215 - -------------------------------------------------------------------------------- 8,000,000 Metropolitan Water District of Southern California Rev., 5.75%, 8/10/18 9,433,040 - -------------------------------------------------------------------------------- 1,915,000 Mid-Peninsula Regional Open Space District Financing Auth. Rev., 5.90%, 9/1/14 (AMBAC) 2,087,369 - -------------------------------------------------------------------------------- 5,150,000 Mid-Peninsula Regional Open Space District GO, 7.00%, 9/1/14 5,336,482 - -------------------------------------------------------------------------------- 10,300,000 Modesto, Stockton, Redding Public Power Agency Rev., Series 1989 D, (San Juan), 6.75%, 7/1/20 (MBIA)(2) 12,692,380 - -------------------------------------------------------------------------------- 1,065,000 Mountain View School District Santa Clara County GO, Series 2000 B, 6.125%, 7/1/25 (FSA) 1,221,204 - -------------------------------------------------------------------------------- 1,000,000 New Haven Unified School District GO, 12.00%, 8/1/18 (FSA) 1,805,470 - -------------------------------------------------------------------------------- 1,000,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.50%, 10/1/14 (AMBAC) 1,152,770 - -------------------------------------------------------------------------------- 6,110,000 Oakland Redevelopment Agency Tax Allocation Rev., (Central District), 5.50%, 2/1/14 (AMBAC) 7,027,905 - -------------------------------------------------------------------------------- 1,680,000 Oceanside COP, Series 2003 A, 5.25%, 4/1/17 (AMBAC) 1,842,103 - -------------------------------------------------------------------------------- 3,100,000 Oxnard School District GO, Series 2001 A, 5.75%, 8/1/22 (MBIA) 3,646,747 - -------------------------------------------------------------------------------- 2,825,000 Pasadena COP, (Old Pasadena Parking Facility), 6.25%, 1/1/18 3,340,506 - -------------------------------------------------------------------------------- 2,500,000 Pico Rivera Water Auth. Rev., Series 1999 A, (Water Systems), 5.50%, 5/1/29 (MBIA) 2,789,275 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 31 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,475,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development), 6.20%, 8/1/19 $ 4,752,719 - -------------------------------------------------------------------------------- 5,000,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development), 6.25%, 8/1/26 5,258,900 - -------------------------------------------------------------------------------- 1,130,000 Pomona COP, Series 2002 AE, (Mission Promenade), 5.375%, 10/1/19 (AMBAC) 1,245,543 - -------------------------------------------------------------------------------- 1,000,000 Pomona Unified School District GO, Series 2000 A, 6.55%, 8/1/29 (MBIA) 1,270,730 - -------------------------------------------------------------------------------- 1,000,000 Pomona Unified School District GO, Series 2001 A, 6.15%, 8/1/30 (MBIA) 1,178,020 - -------------------------------------------------------------------------------- 1,110,000 Poway Redevelopment Agency COP, (Paguay Redevelopment), 5.375%, 12/15/20 (AMBAC) 1,209,145 - -------------------------------------------------------------------------------- 585,000 Redlands Unified School District COP, 6.00%, 9/1/12 (FSA) 587,153 - -------------------------------------------------------------------------------- 1,000,000 Redwood City Elementary School District GO, 5.00%, 8/1/16 (FGIC) 1,114,620 - -------------------------------------------------------------------------------- 1,500,000 Sacramento City Financing Auth. Lease Rev., Series 1993 A, 5.40%, 11/1/20 (AMBAC) 1,720,095 - -------------------------------------------------------------------------------- 1,000,000 Sacramento City Financing Auth. Rev., 5.50%, 6/1/20 1,112,980 - -------------------------------------------------------------------------------- 1,915,000 Sacramento City Financing Auth. Rev., 5.60%, 6/1/24 2,098,629 - -------------------------------------------------------------------------------- 10,000,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.25%, 7/1/24 (AMBAC) 11,053,099 - -------------------------------------------------------------------------------- 3,555,000 Sacramento Municipal Utility District Electric Rev., Series 2001 P, 5.25%, 8/15/20 (FSA) 3,860,623 - -------------------------------------------------------------------------------- 5,000,000 Sacramento Power Auth. Rev., (Cogeneration Projects), 6.00%, 7/1/22 5,189,550 - -------------------------------------------------------------------------------- 1,000,000 Saddleback Valley Unified School District Public Financing Auth. Special Tax Rev., Series 1997 A, 6.00%, 9/1/16 (FSA) 1,199,190 - -------------------------------------------------------------------------------- 1,345,000 San Diego Community College District Lease Rev., 6.125%, 12/1/06, Prerefunded at 102% of Par (MBIA)(2) 1,505,875 - -------------------------------------------------------------------------------- 10,400,000 San Diego County COP, 5.625%, 9/1/12 (AMBAC) 11,989,223 - -------------------------------------------------------------------------------- 4,640,000 San Diego County COP, (Burnham Institute), 6.25%, 9/1/29 4,797,992 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,355,000 San Diego Redevelopment Agency Tax Allocation Rev., (Centre City Redevelopment), 5.25%, 9/1/19 (FSA) $ 3,626,822 - -------------------------------------------------------------------------------- 2,600,000 San Diego Redevelopment Agency Tax Allocation Rev., (Centre City Redevelopment), 5.25%, 9/1/20 (FSA) 2,797,444 - -------------------------------------------------------------------------------- 2,000,000 San Francisco City & County Airports Commission Issue 30 International Airport Rev., 5.25%, 5/1/16 (XLCA) 2,202,160 - -------------------------------------------------------------------------------- 2,715,000 San Marcos Public Facilities Auth. Rev., Series 2000 A, (Tax Increment Project Area 3), 6.75%, 10/1/30 2,940,535 - -------------------------------------------------------------------------------- 3,535,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 6.50%, 7/1/15 (MBIA) 4,343,737 - -------------------------------------------------------------------------------- 3,975,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 6.50%, 7/1/16 (MBIA) 4,936,195 - -------------------------------------------------------------------------------- 4,000,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 6.00%, 7/1/19 (MBIA) 4,835,640 - -------------------------------------------------------------------------------- 2,450,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.25%, 6/1/18 (MBIA) 2,792,265 - -------------------------------------------------------------------------------- 3,500,000 Santa Ana Financing Auth. Lease Rev., 6.25%, 7/1/15 (MBIA) 4,236,400 - -------------------------------------------------------------------------------- 3,355,000 Santa Barbara County GO, 5.50%, 10/1/22 (AMBAC) 3,703,115 - -------------------------------------------------------------------------------- 2,000,000 Santa Margarita-Dana Point Auth. Rev., Series 1994 B, (Improvement Districts 3, 3A, 4, 4A), 7.25%, 8/1/14 (MBIA) 2,598,160 - -------------------------------------------------------------------------------- 2,500,000 South Coast Air Quality Management District Building Corp. Rev., (Installment Sale Headquarters), 6.00%, 8/1/11 (AMBAC) 2,926,100 - -------------------------------------------------------------------------------- 2,705,000 South Gate COP, Series 2002 A, 5.50%, 9/1/21 (AMBAC) 3,003,118 - -------------------------------------------------------------------------------- 2,000,000 South Gate Public Financing Auth. Tax Allocation Rev., (Redevelopment Project No. 1), 5.75%, 9/1/22 (XLCA) 2,269,260 - -------------------------------------------------------------------------------- 1,425,000 Southern California Public Power Auth. Rev., 7.00%, 7/1/09 (Pittsburgh National Bank) 1,448,584 - -------------------------------------------------------------------------------- 3,260,000 Southern California Public Power Auth. Rev., 6.00%, 7/1/18 (Pittsburgh National Bank) 3,316,822 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 32 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $ 7,315,000 Southern California Public Power Auth. Rev., (Multiple Projects), 6.75%, 7/1/12 (FSA) $ 8,998,694 - -------------------------------------------------------------------------------- 3,730,000 Southern California Public Power Auth. Rev., (Multiple Projects), 6.75%, 7/1/13 (FSA) 4,605,692 - -------------------------------------------------------------------------------- 5,635,000 Southern California Public Power Auth. Rev., Series 2002 A, (Southern Transmission Project), 5.25%, 7/1/16 (FSA) 6,240,143 - -------------------------------------------------------------------------------- 2,000,000 Southern Orange County Finance Auth. Special Tax Rev., Series 1994 A, 7.00%, 9/1/11 (MBIA) 2,459,860 - -------------------------------------------------------------------------------- 1,525,000 Stanton Redevelopment Agency Tax Allocation Rev., (Community Development), 5.45%, 12/1/17 (AMBAC) 1,561,112 - -------------------------------------------------------------------------------- 2,850,000 Stockton Health Facilities Auth. Rev., Series 1997 A, (Dameron Hospital Association), 5.70%, 12/1/14 2,997,545 - -------------------------------------------------------------------------------- 1,255,000 Sweetwater Auth. Water Rev., 5.50%, 4/1/17 (FSA) 1,396,049 - -------------------------------------------------------------------------------- 1,325,000 Sweetwater Auth. Water Rev., 5.50%, 4/1/18 (FSA) 1,473,917 - -------------------------------------------------------------------------------- 2,000,000 Taft Public Financing Auth. Lease Rev., Series 1997 A, (Community Correctional Facility), 6.05%, 1/1/17 2,133,560 - -------------------------------------------------------------------------------- 2,500,000 Ukiah Electric Rev., 6.25%, 6/1/18 (MBIA) 3,028,375 - -------------------------------------------------------------------------------- 1,000,000 University of California Rev., Series 2004 A, (UCLA Medical Center), 5.50%, 5/15/24 (AMBAC) 1,083,430 - -------------------------------------------------------------------------------- 1,445,000 Walnut Valley Unified School District GO, Series 1992 B, 6.00%, 8/1/10 (AMBAC)(2) 1,699,089 - -------------------------------------------------------------------------------- 3,020,000 Watsonville Insured Hospital Rev., Series 1996 A, (Community Hospital), 6.20%, 7/1/12 (California Mortgage Insurance)(2) 3,522,921 - -------------------------------------------------------------------------------- 4,525,000 Woodland COP, (Wastewater System Reference), 5.75%, 3/1/12 (AMBAC) 5,220,855 - -------------------------------------------------------------------------------- 448,147,134 - -------------------------------------------------------------------------------- PUERTO RICO -- 2.9% - -------------------------------------------------------------------------------- 8,000,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/08 8,642,800 - -------------------------------------------------------------------------------- 4,000,000 Puerto Rico Electric Power Auth. Rev., Series 2002 II, 5.375%, 7/1/17 (XLCA) 4,471,680 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 500,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 D, (Government Facilities), 5.375%, 7/1/12, Prerefunded at 100% of Par(2) $ 572,750 - -------------------------------------------------------------------------------- 13,687,230 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $421,519,369) 461,834,364 - -------------------------------------------------------------------------------- MUNICIPAL DERIVATIVES -- 0.3% CALIFORNIA -- 0.3% - -------------------------------------------------------------------------------- 1,000,000 San Diego County Water Auth. Rev. COP, (Registration Rites), Yield Curve Notes, Inverse Floater, 9.82%, 4/22/09 (FGIC)(3) (Cost $1,031,045) 1,260,160 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 1.3% CALIFORNIA -- 1.3% - -------------------------------------------------------------------------------- 175,000 California Economic Recovery Rev., Series 2004 C1, VRDN, 1.40%, 9/1/04 (SBBPA: Landesbank Baden-Wuerttemberg) 175,000 - -------------------------------------------------------------------------------- 775,000 California GO, Series 2003 A1, VRDN, 1.40%, 9/1/04 (LOC: Westdeutsche Landesbank AG, JPMorgan Chase Bank) 775,000 - -------------------------------------------------------------------------------- 4,300,000 California Statewide Communities Development Auth. Special Tax Rev., (Senior Living Facility), VRDN, 1.31%, 9/2/04 (LOC: Bank of New York) 4,300,000 - -------------------------------------------------------------------------------- 900,000 Los Angeles Water & Power Rev., Subseries 2002 A8, VRDN, 1.32%, 9/2/04 (SBBPA: JPMorgan Chase Bank, Westdeutsche Landesbank AG, Bayerische Landesbank, BNP Paribas, Dexia Credit Local) 900,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $6,150,000) 6,150,000 - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS(4) 44,000 Federated California Municipal Cash Trust (Cost $44,000) 44,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.1% (Cost $428,744,414) 469,288,524 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (0.1)% (398,003) - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $468,890,521 ================================================================================ See Notes to Financial Statements. (continued) - ------ 33 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2004 FUTURES CONTRACTS* Underlying Face Contracts Sold Expiration Date Amount at Value Unrealized Loss - -------------------------------------------------------------------------------- 100 U.S. Treasury 10-Year Note December 2004 $11,231,250 $(65,294) =================================== *FUTURES CONTRACTS typically are based on an index and tend to track the performance of the index or specific securities while remaining very liquid (easy to buy and sell). By selling futures, the fund hedges its investments against price fluctuations. 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 Corporation RADIAN = Radian Asset Assurance, Inc. SBBPA = Standby Bond Purchase Agreement VA = Veteran's Administration VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective August 31, 2004. XLCA = XL Capital Ltd. (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. (4) Category is less than 0.05% of net assets. (5) Security, or a portion thereof, has been segregated for futures contracts. See Notes to Financial Statements. - ------ 34 Shareholder Fee Example Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from March 1, 2004 to August 31, 2004. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century account (i.e., not a financial intermediary or retirement plan account), American Century may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of the fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. (continued) - ------ 35 Shareholder Fee Example Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. SHAREHOLDER FEE EXAMPLES - -------------------------------------------------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE 3/1/04 -- EXPENSE 3/1/04 8/31/04 8/31/04 RATIO* - -------------------------------------------------------------------------------- CALIFORNIA TAX-FREE MONEY MARKET - -------------------------------------------------------------------------------- Actual $1,000 $1,003.00 $2.62 0.52% - -------------------------------------------------------------------------------- Hypothetical $1,000 $1,022.49 $2.65 0.52% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALIFORNIA LIMITED- TERM TAX-FREE - -------------------------------------------------------------------------------- Actual $1,000 $996.60 $2.51 0.50% - -------------------------------------------------------------------------------- Hypothetical $1,000 $1,022.59 $2.55 0.50% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE-TERM TAX-FREE - -------------------------------------------------------------------------------- Actual $1,000 $997.80 $2.51 0.50% - -------------------------------------------------------------------------------- Hypothetical $1,000 $1,022.59 $2.55 0.50% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALIFORNIA LONG- TERM TAX-FREE - -------------------------------------------------------------------------------- Actual $1,000 $998.60 $2.51 0.50% - -------------------------------------------------------------------------------- Hypothetical $1,000 $1,022.59 $2.55 0.50% - -------------------------------------------------------------------------------- *Expenses are equal to the fund's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half year, divided by 366, to reflect the one-half year period. - ------ 36 Statement of Assets and Liabilities AUGUST 31, 2004 - -------------------------------------------------------------------------------------------------------------- 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 $599,238,206, $211,088,408, $386,828,621 and $428,744,414, respectively) $599,238,206 $217,609,164 $413,508,734 $469,288,524 - ----------------------------------- Cash 758,164 866 816 -- - ----------------------------------- Receivable for capital shares sold 655,433 360,574 111,916 9,750 - ----------------------------------- Interest receivable 1,263,339 2,304,823 5,642,107 5,988,279 - ----------------------------------- Prepaid portfolio insurance 47,624 -- -- -- - -------------------------------------------------------------------------------------------------------------- 601,962,766 220,275,427 419,263,573 475,286,553 - -------------------------------------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash -- -- -- 58,078 - ----------------------------------- Payable for investments purchased -- -- -- 5,550,460 - ----------------------------------- Payable for capital shares redeemed 778,583 130,024 86,249 -- - ----------------------------------- Payable for variation margin on futures contracts -- -- -- 42,188 - ----------------------------------- Accrued management fees 251,835 91,970 175,734 194,185 - ----------------------------------- Dividends payable 50,244 103,967 347,021 551,121 - -------------------------------------------------------------------------------------------------------------- 1,080,662 325,961 609,004 6,396,032 - -------------------------------------------------------------------------------------------------------------- NET ASSETS $600,882,104 $219,949,466 $418,654,569 $468,890,521 ============================================================================================================== CAPITAL SHARES - -------------------------------------------------------------------------------------------------------------- Outstanding (unlimited number of shares authorized) 600,885,692 20,539,309 36,679,244 40,126,238 ============================================================================================================== NET ASSET VALUE PER SHARE $1.00 $10.71 $11.41 $11.69 ============================================================================================================== NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------------------------------------- Capital paid in $600,885,692 $214,328,328 $393,024,003 $430,167,942 - ----------------------------------- Undistributed net investment income 1,996 -- -- -- - ----------------------------------- Accumulated net realized loss on investment transactions (5,584) (899,618) (1,049,547) (1,756,237) - ----------------------------------- Net unrealized appreciation on investments -- 6,520,756 26,680,113 40,478,816 - -------------------------------------------------------------------------------------------------------------- $600,882,104 $219,949,466 $418,654,569 $468,890,521 ============================================================================================================== See Notes to Financial Statements. - ------ 37 Statement of Operations YEAR ENDED AUGUST 31, 2004 - -------------------------------------------------------------------------------------------------------------- CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA TAX-FREE LIMITED-TERM INTERMEDIATE- LONG-TERM MONEY MARKET TAX-FREE TERM TAX-FREE TAX-FREE - -------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------------------------------------- INCOME: - ----------------------------------- Interest $6,789,107 $7,136,855 $19,222,250 $23,714,674 - -------------------------------------------------------------------------------------------------------------- EXPENSES: - ----------------------------------- Management fees 3,097,755 1,152,924 2,201,086 2,426,504 - ----------------------------------- Trustees' fees and expenses 24,169 8,900 17,006 18,716 - ----------------------------------- Portfolio insurance 97,200 -- -- -- - ----------------------------------- Other expenses 2,917 771 1,742 1,524 - -------------------------------------------------------------------------------------------------------------- 3,222,041 1,162,595 2,219,834 2,446,744 - -------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 3,567,066 5,974,260 17,002,416 21,267,930 - -------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investment transactions 164,580 (899,680) (776,749) (1,756,223) - ----------------------------------- Change in net unrealized appreciation on investments -- 933,894 5,888,037 12,678,939 - -------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN 164,580 34,214 5,111,288 10,922,716 - -------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,731,646 $6,008,474 $22,113,704 $32,190,646 ============================================================================================================== See Notes to Financial Statements. - ------ 38 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2004 AND AUGUST 31, 2003 - -------------------------------------------------------------------------------------------------------------- CALIFORNIA TAX-FREE CALIFORNIA LIMITED-TERM MONEY MARKET TAX-FREE - -------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2004 2003 2004 2003 - -------------------------------------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------------------------------------- Net investment income $ 3,567,066 $ 4,990,626 $ 5,974,260 $ 6,398,340 - ----------------------------------- Net realized gain (loss) 164,580 (142,175) (899,680) 200,408 - ----------------------------------- Change in net unrealized appreciation -- -- 933,894 (2,577,417) - -------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 3,731,646 4,848,451 6,008,474 4,021,331 - -------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------------------------------------- From net investment income (3,615,059) (4,829,134) (5,974,260) (6,398,340) - ----------------------------------- From net realized gains -- -- (60,656) (405,727) - -------------------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (3,615,059) (4,829,134) (6,034,916) (6,804,067) - -------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------------------------------------- Proceeds from shares sold 568,773,384 400,535,152 68,928,584 103,841,525 - ----------------------------------- Issued in connection with acquisition -- 174,309,752 -- -- - ----------------------------------- Proceeds from reinvestment of distributions 3,017,714 4,059,759 4,484,702 5,160,683 - ----------------------------------- Payments for shares redeemed (592,773,008) (485,364,815) (81,467,813) (83,255,099) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (20,981,910) 93,539,848 (8,054,527) 25,747,109 - -------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (20,865,323) 93,559,165 (8,080,969) 22,964,373 NET ASSETS - -------------------------------------------------------------------------------------------------------------- Beginning of period 621,747,427 528,188,262 228,030,435 205,066,062 - -------------------------------------------------------------------------------------------------------------- End of period $ 600,882,104 $ 621,747,427 $219,949,466 $228,030,435 ============================================================================================================== Undistributed net investment income $1,996 $306,629 -- -- ============================================================================================================== TRANSACTIONS IN SHARES OF THE FUNDS - -------------------------------------------------------------------------------------------------------------- Sold 568,773,384 400,535,152 6,402,252 9,598,820 - ----------------------------------- Issued in connection with acquisition -- 174,461,022 -- -- - ----------------------------------- Issued in reinvestment of distributions 3,017,714 4,059,759 417,385 477,778 - ----------------------------------- Redeemed (592,773,008) (485,364,815) (7,592,192) (7,716,350) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in shares of the funds (20,981,910) 93,691,118 (772,555) 2,360,248 ============================================================================================================== See Notes to Financial Statements. (continued) - ------ 39 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2004 AND AUGUST 31, 2003 - -------------------------------------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE-TERM CALIFORNIA LONG-TERM TAX-FREE TAX-FREE - -------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2004 2003 2004 2003 - -------------------------------------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------------------------------------- Net investment income $ 17,002,416 $ 18,572,028 $ 21,267,930 $ 24,404,243 - ----------------------------------- Net realized gain (loss) (776,749) 353,599 (1,756,223) 3,654,490 - ----------------------------------- Change in net unrealized appreciation 5,888,037 (9,538,543) 12,678,939 (17,666,821) - -------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 22,113,704 9,387,084 32,190,646 10,391,912 - -------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------------------------------------- From net investment income (17,002,416) (18,572,028) (21,411,265) (24,404,243) - ----------------------------------- From net realized gains -- (1,711,879) (174,471) -- - -------------------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (17,002,416) (20,283,907) (21,585,736) (24,404,243) - -------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------------------------------------- Proceeds from shares sold 50,224,370 74,151,881 46,144,755 61,811,816 - ----------------------------------- Issued in connection with acquisition -- -- -- 227,891,347 - ----------------------------------- Proceeds from reinvestment of distributions 12,454,672 15,096,684 14,485,976 16,418,189 - ----------------------------------- Payments for shares redeemed (100,267,211) (104,714,256) (99,510,535) (122,093,954) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (37,588,169) (15,465,691) (38,879,804) 184,027,398 - -------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (32,476,881) (26,362,514) (28,274,894) 170,015,067 NET ASSETS - -------------------------------------------------------------------------------------------------------------- Beginning of period 451,131,450 477,493,964 497,165,415 327,150,348 - -------------------------------------------------------------------------------------------------------------- End of period $ 418,654,569 $ 451,131,450 $468,890,521 $ 497,165,415 ============================================================================================================== Undistributed net investment income -- -- -- $143,335 ============================================================================================================== TRANSACTIONS IN SHARES OF THE FUNDS - -------------------------------------------------------------------------------------------------------------- Sold 4,389,217 6,419,910 3,952,532 5,275,521 - ----------------------------------- Issued in connection with acquisition -- -- -- 19,398,549 - ----------------------------------- Issued in reinvestment of distributions 1,091,123 1,310,096 1,243,981 1,398,001 - ----------------------------------- Redeemed (8,793,299) (9,096,606) (8,557,548) (10,426,334) - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in shares of the funds (3,312,959) (1,366,600) (3,361,035) 15,645,737 ============================================================================================================== See Notes to Financial Statements. - ------ 40 Notes to Financial Statements AUGUST 31, 2004 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 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. Debt securities maturing within 60 days may be valued at cost, plus or minus any amortized discount or premium. If the investment manager, American Century Investment Management, Inc. (ACIM), determines that the current market price of a security in a non-money market fund is not readily available, the investment manager may determine its fair value in accordance with procedures adopted by the Board of Trustees if such fair value determination would materially impact a fund's net asset value. Valuations may not be readily available if, for example: an event occurred after the close of the exchange on which a portfolio security principally trades (but before the close of the New York Stock Exchange) that was likely to have changed the value of the security; a security has been declared in default; trading in a security has been halted during the trading day; or the demand for the security (as reflected by its trading volume) is insufficient for quoted prices to be reliable. 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. 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. INCOME TAX STATUS -- It is each fund's policy to distribute substantially 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. 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. (continued) - ------ 41 Notes to Financial Statements AUGUST 31, 2004 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with ACIM, under which ACIM provides the funds with investment advisory and management services in exchange for a single, unified management fee (the fee). The Agreement provides that all expenses of the funds, except brokerage commissions, taxes, portfolio insurance (money market funds only), 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 and accrued daily based on the daily net assets of each fund and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the funds and certain other accounts managed by the investment manager that are in the same broad investment category as each of the funds and (2) a Complex Fee based on the daily 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 0.2500% to 0.3100%. For the year ended August 31, 2004, the effective annual management fee was 0.50% for Tax-Free Money Market, Limited-Term, Intermediate-Term, and Long-Term. MONEY MARKET INSURANCE -- Tax-Free Money Market, along with other money market funds managed by ACIM, have 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 equal to 0.018% to MBIA based on participating money market funds' market value at January 31, 2004. The premiums 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 JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Investment transactions in municipal obligations, excluding short-term investments, for the year ended August 31, 2004, were as follows: - -------------------------------------------------------------------------------- INTERMEDIATE- LIMITED-TERM TERM LONG-TERM - -------------------------------------------------------------------------------- Cost of purchases $117,403,698 $85,341,240 $85,067,264 - -------------------------------------------------------------------------------- Proceeds from sales $129,527,766 $123,693,885 $122,471,916 - -------------------------------------------------------------------------------- All investment transactions for Tax-Free Money Market were considered short-term during the year ended August 31, 2004. (continued) - ------ 42 Notes to Financial Statements AUGUST 31, 2004 4. BANK LINE OF CREDIT Limited-Term, Intermediate-Term, and Long-Term, along with certain other funds managed by ACIM, have a $650,000,000 unsecured bank line of credit agreement with JPMCB. 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, 2004. 5. RISK FACTORS 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. Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. 6. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended August 31, 2004 and August 31, 2003 were as follows: - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET LIMITED-TERM - -------------------------------------------------------------------------------- 2004 2003 2004 2003 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $3,615,059 $4,829,134 $5,974,260 $6,495,231 - -------------------------------------------------------------------------------- Long-term capital gains -- -- $60,656 $308,836 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTERMEDIATE-TERM LONG-TERM - -------------------------------------------------------------------------------- 2004 2003 2004 2003 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $17,002,416 $19,586,780 $21,411,265 $24,404,243 - -------------------------------------------------------------------------------- Long-term capital gains -- $697,127 $174,471 -- - -------------------------------------------------------------------------------- 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 on the financial statements. (continued) - ------ 43 Notes to Financial Statements AUGUST 31, 2004 6. FEDERAL TAX INFORMATION (CONTINUED) As of August 31, 2004, 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 $599,238,206 $211,088,408 $386,828,621 $428,744,414 ============================================================================================ Gross tax appreciation of investments -- $6,562,279 $26,681,551 $40,596,781 - ------------------------------ Gross tax depreciation of investments -- (41,523) (1,438) (52,671) - -------------------------------------------------------------------------------------------- Net tax appreciation of investments -- $6,520,756 $26,680,113 $40,544,110 ============================================================================================ Undistributed ordinary income $1,996 -- -- -- - ------------------------------ Accumulated capital losses $(5,581) -- $(205,608) $(1,223,452) - ------------------------------ Capital loss deferral $(3) $(899,618) $(843,939) $(598,079) - -------------------------------------------------------------------------------------------- The cost of investments for federal income tax purposes was the same as the cost for financial statement 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 as follows: - -------------------------------------------------------------------------------- 2005 2006 2007 2008 2009 2012 - -------------------------------------------------------------------------------- Tax-Free Money Market $(743) $(506) $(35) $(4,297) -- -- - -------------------------------------------------------------------------------- Limited-Term -- -- -- -- -- -- - -------------------------------------------------------------------------------- Intermediate-Term -- -- -- -- -- $(205,608) - -------------------------------------------------------------------------------- Long-Term -- -- -- -- -- $(1,223,452) - -------------------------------------------------------------------------------- The capital loss deferrals represent net capital losses incurred in the ten-month period ended August 31, 2004. The funds have elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. (continued) - ------ 44 Notes to Financial Statements AUGUST 31, 2004 7. 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 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. 8. 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, 2004, as follows: - -------------------------------------------------------------------------------- TAX-FREE INTERMEDIATE- MONEY MARKET LIMITED-TERM TERM LONG-TERM - -------------------------------------------------------------------------------- Exempt interest dividends $3,713,724 $5,970,931 $17,011,585 $21,461,201 - -------------------------------------------------------------------------------- Long-term capital gains -- $56,567 -- $172,195 - -------------------------------------------------------------------------------- - ------ 45 California Tax-Free Money Market - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 - -------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------- 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 0.01 0.03 0.03 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.01) (0.01) (0.01) (0.03) (0.03) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 ================================================================================ TOTAL RETURN(1) 0.58% 0.73% 1.24% 2.86% 3.11% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.52% 0.51% 0.51% 0.50% 0.49% - ------------------------- Ratio of Net Investment Income to Average Net Assets 0.57% 0.76% 1.24% 2.84% 3.07% - ------------------------- Net Assets, End of Period (in thousands) $600,882 $621,747 $528,188 $551,722 $640,476 - -------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ------ 46 California Limited-Term Tax-Free - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 - -------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.70 $10.82 $10.69 $10.40 $10.27 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.28 0.30 0.35 0.42 0.41 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.01 (0.10) 0.16 0.29 0.13 - -------------------------------------------------------------------------------- Total From Investment Operations 0.29 0.20 0.51 0.71 0.54 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.28) (0.30) (0.35) (0.42) (0.41) - ------------------------- From Net Realized Gains --(1) (0.02) (0.03) -- -- - -------------------------------------------------------------------------------- Total Distributions (0.28) (0.32) (0.38) (0.42) (0.41) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.71 $10.70 $10.82 $10.69 $10.40 ================================================================================ TOTAL RETURN(2) 2.75% 1.87% 4.91% 6.94% 5.44% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.50% 0.51% 0.51% 0.51% 0.51% - ------------------------- Ratio of Net Investment Income to Average Net Assets 2.59% 2.78% 3.30% 3.97% 4.05% - ------------------------- Portfolio Turnover Rate 55% 34% 50% 63% 97% - ------------------------- Net Assets, End of Period (in thousands) $219,949 $228,030 $205,066 $163,929 $142,205 - -------------------------------------------------------------------------------- (1) Per-share amount was less than $0.005. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ------ 47 California Intermediate-Term Tax-Free - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 - -------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.28 $11.55 $11.47 $11.08 $10.85 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.44 0.45 0.47 0.50 0.50 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.13 (0.23) 0.15 0.39 0.23 - -------------------------------------------------------------------------------- Total From Investment Operations 0.57 0.22 0.62 0.89 0.73 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.44) (0.45) (0.47) (0.50) (0.50) - ------------------------- From Net Realized Gains -- (0.04) (0.07) -- -- - -------------------------------------------------------------------------------- Total Distributions (0.44) (0.49) (0.54) (0.50) (0.50) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.41 $11.28 $11.55 $11.47 $11.08 ================================================================================ TOTAL RETURN(1) 5.13% 1.91% 5.63% 8.22% 6.95% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.50% 0.51% 0.51% 0.51% 0.51% - ------------------------- Ratio of Net Investment Income to Average Net Assets 3.87% 3.89% 4.13% 4.45% 4.64% - ------------------------- Portfolio Turnover Rate 20% 25% 41% 94% 73% - ------------------------- Net Assets, End of Period (in thousands) $418,655 $451,131 $477,494 $449,975 $444,571 - -------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ------ 48 California Long-Term Tax-Free - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 - --------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.43 $11.75 $11.70 $11.11 $10.86 - --------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.51 0.53 0.53 0.55 0.56 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.26 (0.32) 0.05 0.59 0.25 - --------------------------------------------------------------------------------- Total From Investment Operations 0.77 0.21 0.58 1.14 0.81 - --------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.51) (0.53) (0.53) (0.55) (0.56) - ------------------------- From Net Realized Gains --(1) -- -- -- -- - --------------------------------------------------------------------------------- Total Distributions (0.51) (0.53) (0.53) (0.55) (0.56) - --------------------------------------------------------------------------------- Net Asset Value, End of Period $11.69 $11.43 $11.75 $11.70 $11.11 ================================================================================= TOTAL RETURN(2) 6.83% 1.81% 5.14% 10.55% 7.79% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.50% 0.51% 0.51% 0.51% 0.51% - ------------------------- Ratio of Net Investment Income to Average Net Assets 4.39% 4.54% 4.58% 4.87% 5.24% - ------------------------- Portfolio Turnover Rate 19% 23% 43% 31% 24% - ------------------------- Net Assets, End of Period (in thousands) $468,891 $497,165 $327,150 $331,090 $303,480 - --------------------------------------------------------------------------------- (1) Per-share amount was less than $0.005. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ------ 49 Report of Independent Registered Public Accounting Firm To the Trustees of the American Century California Tax-Free and Municipal Funds and Shareholders of the California Tax-Free Money Market Fund, California Limited-Term Tax-Free Fund, California Intermediate-Term Tax-Free Fund, and 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, 2004, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, 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 the standards of the Public Company Accounting Oversight Board (United States), 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, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Kansas City, Missouri October 14, 2004 - ------ 50 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. Effective March 2004, mandatory retirement age for independent trustees is 73. However, the mandatory retirement age may be extended for a period not to exceed two years with the approval of the remaining independent trustees. The independent trustees have extended the mandatory retirement age of Mr. Eisenstat to 75. Mr. Scott may serve until age 77 based on an extension granted under retirement guidelines in effect prior to March 2004. 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 three-fourths 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. The trustees serve in this capacity for eight registered investment companies in the American Century family of funds. All persons named as officers of the funds also serve in similar capacities for the other 13 investment companies advised by ACIM, unless otherwise noted. 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, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1930 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 9 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, General Partner, Discovery Ventures (Venture capital firm, 1996 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Independent Director, Sungard Data Systems (1991 to present); Independent Director, Business Objects S/A (1994 to present); Independent Director, Commercial Metals (1983 to 2001) - -------------------------------------------------------------------------------- RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Lead Trustee LENGTH OF TIME SERVED (YEARS): 9 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: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ------ 51 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- KATHRYN A. HALL, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1957 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 3 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: 33 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, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1941 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 24 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Partner, Oak Hill Capital Management (1999 to present); Frank E. Buck Professor of Finance, Stanford Graduate School of Business (1981 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Smith Breeden Family of Funds (1992 to present) - -------------------------------------------------------------------------------- KENNETH E. SCOTT, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1928 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 33 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: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- JOHN B. SHOVEN, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1947 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1977 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 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, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1945 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 20 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Director and Partner, Windy Hill Productions, LP (educational software, 1994 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 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, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board LENGTH OF TIME SERVED (YEARS): 7 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: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ------ 52 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: President LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: See entry under "Interested Trustee." - -------------------------------------------------------------------------------- ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Executive Vice President LENGTH OF TIME SERVED (YEARS): 4 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; and Treasurer, ACIM - -------------------------------------------------------------------------------- MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1956 POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Accounting Officer LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998 to present) and Assistant Treasurer, ACSC (September 1985 to present) - -------------------------------------------------------------------------------- DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1958 POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General Counsel, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present); Vice President and General Counsel, ACC (June 1998 to present) - -------------------------------------------------------------------------------- ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1966 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 8 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC (June 1997 to present) - -------------------------------------------------------------------------------- C. JEAN WADE, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1964 POSITION(S) HELD WITH FUND: Controller(1) LENGTH OF TIME SERVED (YEARS): 8 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC (June 1997 to present) - -------------------------------------------------------------------------------- JON ZINDEL, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1967 POSITION(S) HELD WITH FUND: Tax Officer LENGTH OF TIME SERVED (YEARS): 7 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); Treasurer, American Century Employee Benefit Services, Inc. (December 2000 to December 2003) - -------------------------------------------------------------------------------- (1) Ms. Wade serves in a similar capacity for seven other investment companies advised by ACIM. The SAI has additional information about the funds' trustees and is available without charge upon request by calling 1-800-345-2021. - ------ 53 Additional Information 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 americancentury.com and on the Securities and Exchange Commission's Web site at sec.gov. Information regarding how the investment manager voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The funds will file their complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q for periods ending on or after July 9, 2004. The funds' Forms N-Q are available on the SEC's Web site at sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make their schedule of portfolio holdings for the most recent quarter of its fiscal year available on its Web site at americancentury.com and, upon request, by calling 1-800-345-2021. RISK FACTORS 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. Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. Index Definitions 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 U.S. AGGREGATE INDEX represents securities that are taxable, registered with the Securities and Exchange Commission, and U.S. dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset backed securities. 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. - ------ 54 Notes - ------ 55 Notes - ------ 56 [inside back cover - blank] [back cover] CONTACT US 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. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Services Corporation. 0410 American Century Investment Services, Inc. SH-ANN-39953N (c)2004 American Century Services Corporation
[front cover] AUGUST 31, 2004 American Century Investments Annual Report California High-Yield Municipal Fund [american century logo and text logo (reg.tm)] [inside front cover] Table of Contents Our Message to You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CALIFORNIA HIGH-YIELD MUNICIPAL Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Portfolio at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Portfolio Composition by Credit Rating . . . . . . . . . . . . . . . . . . .7 Top Five Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 14 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .16 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 17 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Report of Independent Registered Public Accounting Firm . . . . . . . . . . . 26 OTHER INFORMATION Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 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. To help you monitor your investment, we are pleased to provide the annual report for the California High-Yield Municipal fund for the fiscal year ended August 31, 2004. You'll find details about your fund's return and holdings as well as data and analysis that provide insight into the market conditions affecting the fund's performance. Through our Web site, americancentury.com, 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. We also have many resources available in the Education & Planning section of our site to help you with your investment strategy. Your next shareholder report for this fund will be the semiannual report dated February 28, 2005, available in approximately six months. We remain committed to our guiding belief that the ultimate measure of our performance is our customers' success. Thank you for investing with us. 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, 2004 ----------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 8.48% 6.80% 6.90% 6.49% 12/30/86 - -------------------------------------------------------------------------------- LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX 9.24% 7.38% 7.22% 7.76%(1) -- - -------------------------------------------------------------------------------- LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS AVERAGE RETURNS 7.04% 5.65% 5.78% 6.35%(1) -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 8/31/04(2) 15 of 128 2 of 98 1 of 61 10 of 27(1) -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 9/30/04(2) 8 of 128 2 of 98 1 of 63 10 of 27(1) -- - -------------------------------------------------------------------------------- A Class 1/31/03 No sales charge* 8.21% -- -- 6.09%(3) With sales charge* 3.38% -- -- 3.06%(3) - -------------------------------------------------------------------------------- B Class 1/31/03 No sales charge* 7.40% -- -- 5.31%(3) With sales charge* 3.40% -- -- 2.84%(3) - -------------------------------------------------------------------------------- C Class 7.49% -- -- 5.48%(3) 1/31/03 - -------------------------------------------------------------------------------- *Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a maximum 4.50% initial sales charge for fixed income funds and may be subject to a maximum CDSC of 1.00%. 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. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. Please see the Share Class Information pages 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 Investor Class 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 A, B, and C Class shares, respectively. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. In addition, the lower-rated securities in which the fund invests are subject to greater credit risk, default risk, and liquidity risk. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 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. - ------ 2 California High-Yield Municipal - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made August 31, 1994
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - ---------------------------------------------------------------------------------------------------- Investor Class 7.09% 8.02% 10.61% 9.35% 0.26% 6.70% 9.50% 6.07% 3.35% 8.48% - ---------------------------------------------------------------------------------------------------- Lehman Brothers Long-Term Municipal Bond Index 9.43% 6.88% 11.24% 10.51% -2.14% 7.34% 12.35% 5.62% 2.62% 9.24% - ---------------------------------------------------------------------------------------------------- Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. In addition, the lower-rated securities in which the fund invests are subject to greater credit risk, default risk, and liquidity risk. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. 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. - ------ 3 Shareholder Fee Example Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from March 1, 2004 to August 31, 2004. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century account (i.e., not a financial intermediary or retirement plan account), American Century may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of the fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. (continued) - ------ 4 Shareholder Fee Example Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. CALIFORNIA HIGH-YIELD MUNICIPAL SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE 3/1/04 - EXPENSE 3/1/04 8/31/04 8/31/04 RATIO* - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,015.70 $2.69 0.53% - -------------------------------------------------------------------------------- A Class $1,000 $1,014.40 $3.95 0.78% - -------------------------------------------------------------------------------- B Class $1,000 $1,010.60 $7.73 1.53% - -------------------------------------------------------------------------------- C Class $1,000 $1,010.60 $7.73 1.53% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.44 $2.70 0.53% - -------------------------------------------------------------------------------- A Class $1,000 $1,021.17 $3.97 0.78% - -------------------------------------------------------------------------------- B Class $1,000 $1,017.35 $7.79 1.53% - -------------------------------------------------------------------------------- C Class $1,000 $1,017.35 $7.79 1.53% - -------------------------------------------------------------------------------- *Expenses are equal to the fund's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 184, the number of days in the most recent fiscal half year, divided by 366, to reflect the one-half year period. - ------ 5 California High-Yield Municipal - Portfolio Commentary PORTFOLIO MANAGER: STEVEN PERMUT RETURN SUMMARY & PERSPECTIVE California High-Yield Municipal (Cal High-Yield) returned 8.48%* for the fiscal year ended August 31, 2004, the fund's highest fiscal-year return since 2001 and significantly above its average annual return since inception (see pages 2-3). The fund performed well as the U.S. bond market rallied and yields fell. Investors in Cal High-Yield benefited from above-average absolute AND comparative returns for the fiscal year--the fund continued to rank highly among California municipal debt funds (see page 2). Fund and peer group returns lagged those of the Lehman Brothers Long-Term Municipal Bond Index because the index's longer duration (greater price sensitivity to interest rate changes) boosted its return. YIELD SUMMARY & PERSPECTIVE Our investment objective is to seek high current income that is exempt from federal and California income tax. As of August 31, 2004, we'd invested 56% of the portfolio in below-investment-grade debt (either rated below BBB or unrated but determined by us to be of equivalent quality). These bonds offer higher yields as compensation for their perceived risk, which produces more income and helps reduce the portfolio's price sensitivity to interest rate changes. The fund's 30-day SEC yield declined from 5.09% on August 31, 2003 to 4.58% at fiscal year end as the bond market rallied. That still translated to attractive tax-equivalent yields for California investors (see the yield table above). ECONOMIC & MARKET PERSPECTIVE U.S. bond prices rose and yields fell for the fiscal year as economic growth slowed and inflation spiked, then settled down. After growing at a 7.4% annual rate in the third quarter of 2003, U.S. economic expansion slowed to a 3.3% rate in the second quarter of 2004 as higher energy prices reduced consumer spending and threatened corporate profits. Inflation became a concern as the monthly change in the "core" consumer price index (CPI minus energy and food prices) rose 0.4% in March 2004, the highest since November 2001. That, plus spikes in job growth and retail sales, helped trigger a bond selloff in April PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/04 8/31/03 - -------------------------------------------------------------------------------- Weighted Average Maturity 20.9 yrs 21.7 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 6.3 yrs 7.6 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2004 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 4.58% - -------------------------------------------------------------------------------- A Class 4.13% - -------------------------------------------------------------------------------- B Class 3.58% - -------------------------------------------------------------------------------- C Class 3.58% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 31.98% Tax Bracket 6.73% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 7.01% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 7.54% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 7.77% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are for combined state and federal income tax. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. *All fund returns and yields referenced in this commentary are for Investor Class shares. (continued) - ------ 6 California High-Yield Municipal - Portfolio Commentary and May of 2004 and helped motivate the Federal Reserve (the Fed) to start raising its overnight interest rate target to combat potential future inflation. But core inflation returned to a mild 0.1% monthly rate during the summer of 2004 and job growth decelerated as the economy hit what the Fed described as a "soft patch." That helped produce a fiscal-year-ending bond rally that--when matched with gains from the beginning of the period--more than offset the April-May losses. For the fiscal year, tax-exempt municipal securities generally outperformed taxable securities--the broad Lehman Brothers Municipal Bond Index returned 7.11% compared with 6.13% for the Lehman Brothers U.S. Aggregate Index. Municipals benefited from declining issuance (less supply) and continued improvement in state economic growth, which meant higher tax revenues. PORTFOLIO POSITIONING & STRATEGY We use a consistent and disciplined approach (discussed below and in the Yield Summary) with the portfolio that we believe has been key to the fund's success over the last 10 years. In addition, given expectations of improving economic conditions and higher interest rates in the longer term, we reduced the portfolio's price sensitivity to interest rate changes (see the table at the bottom of page 6). We continued to employ techniques designed to realize capital appreciation as well as income, including investments in land-based bonds, which represented the portfolio's largest sector position at the beginning, middle, and end (see the table above) of the fiscal year. Land-based bonds have potential for price appreciation as economic conditions improve and/or the projects are developed and their finances solidify. We also focused on the foundations of our approach--thorough credit reviews and careful security selection. Though past performance is no guarantee of future results, we believe our process reduces the risks of potential downgrades and defaults inherent to the high-yield sector; there have been no defaults in the portfolio since the fund's inception. We will continue to pursue the fund's investment objective by investing primarily in municipal securities with income exempt from federal and California income tax. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/04 2/29/04 - -------------------------------------------------------------------------------- AAA 32% 29% - -------------------------------------------------------------------------------- AA 2% -- - -------------------------------------------------------------------------------- BBB 10% 9% - -------------------------------------------------------------------------------- BB 1% 1% - -------------------------------------------------------------------------------- Unrated 55% 61% - -------------------------------------------------------------------------------- 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, 2004 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Land Based 42% - -------------------------------------------------------------------------------- General Obligation 13% - -------------------------------------------------------------------------------- Certificate of Participation/Leases 8% - -------------------------------------------------------------------------------- Electric Revenue 7% - -------------------------------------------------------------------------------- Tax Allocation Revenue 5% - -------------------------------------------------------------------------------- - ------ 7 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.0% CALIFORNIA -- 98.0% - -------------------------------------------------------------------------------- $1,000,000 ABC Unified School District GO, Series 2000 B, 6.14%, 8/1/21 (FGIC)(1) $ 438,440 - -------------------------------------------------------------------------------- 2,000,000 Alameda Public Financing Auth. Local Agency Rev., Series 1996 A, (Community Facility District No. 1), 7.00%, 8/1/19 2,149,340 - -------------------------------------------------------------------------------- 2,325,000 Alhambra City Elementary School District GO, Series 2004 B, (Election of 1999), 5.00%, 9/1/26 (FGIC) 2,390,408 - -------------------------------------------------------------------------------- 1,200,000 Anaheim Public Financing Auth. Rev., Series 1997 A, 6.00%, 9/1/24 (FSA) 1,430,784 - -------------------------------------------------------------------------------- 920,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Eskaton Gold River Lodge), 6.375%, 11/15/15 962,532 - -------------------------------------------------------------------------------- 3,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Eskaton Gold River Lodge), 6.375%, 11/15/28 3,036,510 - -------------------------------------------------------------------------------- 2,500,000 Beaumont Financing Auth. Rev., Series 2003 A, 6.875%, 9/1/27 2,661,250 - -------------------------------------------------------------------------------- 1,190,000 Berryessa Unified School District GO, Series 2000 A, 6.18%, 8/1/21 (FSA)(1) 521,994 - -------------------------------------------------------------------------------- 1,220,000 Berryessa Unified School District GO, Series 2000 A, 6.05%, 8/1/22 (FSA)(1) 502,640 - -------------------------------------------------------------------------------- 1,000,000 Berryessa Unified School District GO, Series 2000 A, 6.06%, 8/1/23 (FSA)(1) 386,500 - -------------------------------------------------------------------------------- 1,000,000 Cabrillo Unified School District GO, Series 1996 A, 5.95%, 8/1/17 (AMBAC)(1) 558,920 - -------------------------------------------------------------------------------- 2,000,000 Cabrillo Unified School District GO, Series 1996 A, 5.95%, 8/1/18 (AMBAC)(1) 1,054,160 - -------------------------------------------------------------------------------- 1,815,000 Calaveras Unified School District GO, 5.89%, 8/1/23 (FSA)(1) 700,717 - -------------------------------------------------------------------------------- 1,880,000 Calaveras Unified School District GO, 5.90%, 8/1/24 (FSA)(1) 678,248 - -------------------------------------------------------------------------------- 1,950,000 Calaveras Unified School District GO, 5.91%, 8/1/25 (FSA)(1) 657,579 - -------------------------------------------------------------------------------- 1,505,000 California Educational Facilities Auth. Rev., (Western University Health Sciences), 6.00%, 10/1/21 1,583,049 - -------------------------------------------------------------------------------- 4,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 7.15%, 10/1/12 (AMBAC)(1) 2,930,080 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $2,500,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Kaiser Permanente), 5.50%, 6/1/22 (FSA)(2) $ 2,752,150 - -------------------------------------------------------------------------------- 4,410,000 California Mobilehome Park Financing Auth. Rev., Series 2000 B, (Union City Tropics), 7.30%, 8/15/35 4,633,234 - -------------------------------------------------------------------------------- 1,905,000 California Mobilehome Park Financing Auth. Rev., Series 2001 B, (Rancho Vallecitos - San Marcos), 6.75%, 11/15/36 1,934,070 - -------------------------------------------------------------------------------- 6,345,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B (Palomar Estates E&W), 7.00%, 9/15/36(3) 6,596,388 - -------------------------------------------------------------------------------- 2,000,000 California Public Works Board Lease Rev., Series 1993 D, (Department of Corrections), 5.25%, 6/1/15 (FSA) 2,262,340 - -------------------------------------------------------------------------------- 1,435,000 California State and Local Government Financing Auth. Rev., Series 1997 B, (Marin Valley Mobile Country), 7.50%, 10/1/24 1,498,370 - -------------------------------------------------------------------------------- 2,985,000 California Statewide Communities Development Auth. COP, (Sonoma County Indian Health), 6.40%, 9/1/29 3,048,521 - -------------------------------------------------------------------------------- 2,000,000 California Statewide Communities Development Auth. COP, (Windward School), 6.90%, 9/1/23 2,045,320 - -------------------------------------------------------------------------------- 2,000,000 California Statewide Communities Development Auth. Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/31 2,132,180 - -------------------------------------------------------------------------------- 4,630,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 6.00%, 7/1/26 4,805,384 - -------------------------------------------------------------------------------- 2,500,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 6.00%, 7/1/31 2,558,475 - -------------------------------------------------------------------------------- 2,455,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 7.00%, 7/1/31 2,476,359 - -------------------------------------------------------------------------------- 4,070,000 Capistrano Unified School District Community Facilities Special Tax Rev., (No. 90-2 Talega), 6.00%, 9/1/32 4,159,337 - -------------------------------------------------------------------------------- 4,250,000 Capistrano Unified School District Community Facilities Special Tax Rev., (No. 90-2 Talega), 6.00%, 9/1/33 4,340,313 - -------------------------------------------------------------------------------- 1,000,000 Carmel Unified School District GO, 5.50%, 8/1/25 (MBIA) 1,067,950 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 8 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $1,075,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.00%, 8/1/23 (MBIA)(1) $ 411,972 - -------------------------------------------------------------------------------- 1,075,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.00%, 8/1/24 (MBIA)(1) 383,334 - -------------------------------------------------------------------------------- 1,085,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.05%, 8/1/25 (MBIA)(1) 360,708 - -------------------------------------------------------------------------------- 1,085,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.05%, 8/1/26 (MBIA)(1) 335,688 - -------------------------------------------------------------------------------- 1,700,000 Chino Valley Unified School District COP, Series 2001 A, 5.375%, 9/1/20 (FSA) 1,849,940 - -------------------------------------------------------------------------------- 2,140,000 Chula Vista Community Facilities District Special Tax Rev., (No. 01-1 Area A), 6.10%, 9/1/32 2,212,011 - -------------------------------------------------------------------------------- 3,600,000 Chula Vista Community Facilities District Special Tax Rev., (No. 06-1 Eastlake Woods Area A), 6.20%, 9/1/33 3,771,540 - -------------------------------------------------------------------------------- 7,995,000 Chula Vista Community Facilities District Special Tax Rev., (No. 99-1), 7.625%, 9/1/29 8,520,910 - -------------------------------------------------------------------------------- 2,000,000 City of Lincoln Community Facilities District No. 2003-1 Special Tax Rev., 6.00%, 9/1/34 2,033,000 - -------------------------------------------------------------------------------- 60,000 Clayton Improvement Bond Act 1915 Special Assessment, (Oakhurst Assessment District), 8.00%, 9/2/14 61,811 - -------------------------------------------------------------------------------- 5,000 Clayton Improvement Bond Act 1915 Special Assessment, Series 1988 A, (Oakhurst Assessment District), 8.40%, 9/2/10 5,249 - -------------------------------------------------------------------------------- 1,780,000 Clovis Public Financing Auth. Lease Rev., (Corporate Yard), 5.375%, 3/1/20 (AMBAC) 1,921,492 - -------------------------------------------------------------------------------- 570,000 Corcoran COP, 8.75%, 6/1/16 (Acquired 4/28/92, Cost $570,000)(4) 668,696 - -------------------------------------------------------------------------------- 2,050,000 Corona-Norco Unified School District GO, Series 2000 B, 6.03%, 9/1/22 (FSA)(1) 840,521 - -------------------------------------------------------------------------------- 1,750,000 Del Mar Race Track Auth. Rev., 6.20%, 8/15/11 1,872,850 - -------------------------------------------------------------------------------- 1,010,000 Dixie Elementary School District GO, 5.94%, 8/1/24 (FSA)(1) 364,378 - -------------------------------------------------------------------------------- 1,035,000 Dixie Elementary School District GO, 5.94%, 8/1/25 (FSA)(1) 349,023 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,150,000 Duarte Unified School District GO, Series 1999 B, 6.08%, 11/1/23 (FSA)(1) $ 438,438 - -------------------------------------------------------------------------------- 4,450,000 El Dorado County Special Tax Rev., (Community Facilities District No. 1992-1), 5.60%, 9/1/09 4,822,821 - -------------------------------------------------------------------------------- 2,500,000 El Dorado County Special Tax Rev., (Community Facilities District No. 2001-1 Promontory Specific), 6.30%, 9/1/31 2,595,375 - -------------------------------------------------------------------------------- 1,000,000 El Segundo Unified School District GO, 5.375%, 9/1/20 (FGIC) 1,149,550 - -------------------------------------------------------------------------------- 4,225,000 Florin Resource Conservation District COP, Series 1999 A, (Elk Grove Water Works), 6.75%, 9/1/09, Prerefunded at 102% of Par(2) 5,142,712 - -------------------------------------------------------------------------------- 3,825,000 Folsom Public Financing Auth. Rev., Series 1997 A, 6.875%, 9/2/19 3,975,514 - -------------------------------------------------------------------------------- 1,500,000 Folsom Special Tax Rev., (Community Facilities District No. 7), 7.25%, 9/1/04, Prerefunded at 102% of Par(2) 1,530,000 - -------------------------------------------------------------------------------- 2,495,000 Folsom Special Tax Rev., (Community Facilities District No. 7), 5.75%, 9/1/14 2,655,628 - -------------------------------------------------------------------------------- 4,250,000 Folsom Special Tax Rev., (Community Facilities District No. 10), 7.00%, 9/1/24 4,571,853 - -------------------------------------------------------------------------------- 6,500,000 Folsom Special Tax Rev., (Community Facilities District No. 14), 6.30%, 9/1/32 6,747,974 - -------------------------------------------------------------------------------- 2,500,000 Fontana Redevelopment Agency Tax Allocation Rev., Series 1994 B, (Jurupa Hills), 7.70%, 1/1/05, Prerefunded at 102% of Par(2) 2,602,725 - -------------------------------------------------------------------------------- 5,000,000 Fullerton Unified School District Community Facilities District No. 1 Special Tax Rev., 6.375%, 9/1/31 5,427,749 - -------------------------------------------------------------------------------- 3,000,000 Fullerton Community Facilities District No. 1 Special Tax Rev., (Amerige Heights), 6.20%, 9/1/32 3,083,490 - -------------------------------------------------------------------------------- 1,170,000 Gateway Improvement Auth. Rev., Series 1995 A, (Marin City Community Facility), 7.75%, 9/1/05, Prerefunded at 102% of Par(2) 1,267,777 - -------------------------------------------------------------------------------- 1,600,000 Glendale Electric Works Rev., 5.875%, 2/1/21 (MBIA) 1,811,920 - -------------------------------------------------------------------------------- 2,630,000 Glendale Unified School District GO, Series 1999 C, 6.00%, 9/1/22 (FSA) 2,982,762 - -------------------------------------------------------------------------------- 3,460,000 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/23 3,703,999 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 9 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $2,000,000 Highland Special Tax Rev., (Community Facilities District No. 01-1), 6.45%, 9/1/28 $ 2,075,440 - -------------------------------------------------------------------------------- 5,000,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (AMBAC) 5,320,300 - -------------------------------------------------------------------------------- 2,000,000 Indio Redevelopment Agency Tax Allocation Rev., Series 2004 B, (Sub-Merged Project Area), 6.50%, 8/15/34 2,052,220 - -------------------------------------------------------------------------------- 1,000,000 Laguna Salada Union School District GO, Series 2000 C, 6.12%, 8/1/29 (FGIC)(1) 262,220 - -------------------------------------------------------------------------------- 2,500,000 Lake Elsinore School Financing Auth. Rev., (Horsethief Canyon), 5.625%, 9/1/16 2,637,875 - -------------------------------------------------------------------------------- 2,000,000 Los Angeles Community Facilities District Special Tax Rev., (Cascades Business Park), 6.40%, 9/1/22 2,098,860 - -------------------------------------------------------------------------------- 4,000,000 Los Angeles Unified School District GO, Series 2003 A, 5.00%, 1/1/28 (MBIA) 4,104,600 - -------------------------------------------------------------------------------- 1,500,000 Manhattan Beach Unified School District GO, Series 1999 C, 5.90%, 9/1/24 (FGIC)(1) 538,845 - -------------------------------------------------------------------------------- 7,225,000 Menlo Park Community Development Agency Multifamily Rev., (Las Pulgas), 5.55%, 6/1/30 (AMBAC)(3) 7,738,624 - -------------------------------------------------------------------------------- 2,410,000 Milpitas Improvement Bond Act 1915 Special Assessment, Series 1996 A, (Local Improvement District 18), 6.75%, 9/2/16 2,531,826 - -------------------------------------------------------------------------------- 5,000,000 Modesto High School District GO, Series 2002 A, 5.92%, 8/1/25 (FGIC)(1) 1,686,100 - -------------------------------------------------------------------------------- 4,000,000 Moreno Valley Unified School District Special Tax Rev., (Community Facilities No. 2002-1), 6.20%, 9/1/32 4,132,080 - -------------------------------------------------------------------------------- 1,920,000 Murrieta Community Facilities District No. 2 Special Tax Rev., Series 2004 A, (The Oaks Improvement Area), 6.00%, 9/1/34 1,956,845 - -------------------------------------------------------------------------------- 4,100,000 Murrieta Special Tax Rev., (Community Facilities District No. 2000-1), 6.375%, 9/1/30 4,282,491 - -------------------------------------------------------------------------------- 3,500,000 Oceanside Community Development Commission Tax Allocation Rev., (Downtown Redevelopment), 5.70%, 9/1/25 3,610,565 - -------------------------------------------------------------------------------- 3,000,000 Oceanside Community Facilities District Special Tax Rev., Series 2002 A, (No. 2001-1 Morrow Hills Development), 6.20%, 9/1/32 3,080,910 - -------------------------------------------------------------------------------- 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 $ 2,184,100 - -------------------------------------------------------------------------------- 1,300,000 Orange County Community Facilities District Special Tax Rev., Series 1999 A, (No. 99-1 Ladera Ranch), 6.70%, 8/15/29 1,449,487 - -------------------------------------------------------------------------------- 4,590,000 Orange County Community Facilities District Special Tax Rev., Series 2000 A, (No. 01-1 Ladera Ranch), 6.25%, 8/15/30 4,744,454 - -------------------------------------------------------------------------------- 2,400,000 Orange County Community Facilities District Special Tax Rev., Series 2002 A, (No. 01-1 Ladera Ranch), 6.00%, 8/15/32 2,463,624 - -------------------------------------------------------------------------------- 3,000,000 Oxnard School District GO, Series 2001 A, 5.75%, 8/1/30 (MBIA) 3,405,900 - -------------------------------------------------------------------------------- 1,150,000 Pacifica COP, (Public Safety Building), 5.80%, 11/1/20 (MBIA) 1,302,260 - -------------------------------------------------------------------------------- 5,000,000 Palmdale Water District COP, 5.00%, 10/1/34 (FGIC)(5) 5,074,200 - -------------------------------------------------------------------------------- 2,725,000 Palomar Pomerado Health Care District COP, (Indian Health Council Inc.), 6.25%, 10/1/29 2,794,433 - -------------------------------------------------------------------------------- 500,000 Perris Public Financing Auth. Special Tax Rev., Series 2003 A, 6.25%, 9/1/33 517,495 - -------------------------------------------------------------------------------- 3,000,000 Perris Public Financing Auth. Special Tax Rev., Series 2004 A, 6.125%, 9/1/34 3,049,710 - -------------------------------------------------------------------------------- 1,000,000 Perris Union High School District GO, Series 2000 A, 6.40%, 9/1/24 (FGIC)(1) 359,930 - -------------------------------------------------------------------------------- 1,000,000 Perris Union High School District GO, Series 2000 A, 6.40%, 3/1/25 (FGIC)(1) 345,290 - -------------------------------------------------------------------------------- 2,900,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development), 6.20%, 8/1/25 (AMBAC)(1) 973,182 - -------------------------------------------------------------------------------- 1,750,000 Placer County Water Agency Rev., (Capital Improvement), 5.50%, 7/1/29 (AMBAC) 1,864,765 - -------------------------------------------------------------------------------- 2,640,000 Placer Union High School District GO, Series 2000 A, 6.20%, 8/1/16 (FGIC)(1) 1,562,695 - -------------------------------------------------------------------------------- 1,600,000 Placer Union High School District GO, Series 2000 A, 6.28%, 8/1/18 (FGIC)(1) 844,480 - -------------------------------------------------------------------------------- 2,925,000 Placer Union High School District GO, Series 2000 A, 6.35%, 8/1/21 (FGIC)(1) 1,284,338 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 10 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $2,100,000 Placer Union High School District GO, Series 2000 A, 6.37%, 8/1/22 (FGIC)(1) $ 866,103 - -------------------------------------------------------------------------------- 3,525,000 Placer Union High School District GO, Series 2000 A, 6.39%, 8/1/23 (FGIC)(1) 1,363,400 - -------------------------------------------------------------------------------- 1,000,000 Placer Union High School District GO, Series 2000 A, 6.40%, 8/1/24 (FGIC)(1) 361,470 - -------------------------------------------------------------------------------- 4,835,000 Pleasant Valley School District-Ventura County GO, Series 2002 A, 5.85%, 8/1/31 (MBIA) 5,719,611 - -------------------------------------------------------------------------------- 4,910,000 Pomona Improvement Bond Act 1915 Special Assessment, (Rio Rancho Assessment District), 7.50%, 9/2/21 5,082,587 - -------------------------------------------------------------------------------- 1,815,000 Redondo Beach Public Financing Auth. Rev., (South Bay Center Redevelopment), 7.125%, 7/1/26 1,913,337 - -------------------------------------------------------------------------------- 1,000,000 Richmond Joint Powers Financing Auth. Rev., Series 1995 A, 5.25%, 5/15/13 995,020 - -------------------------------------------------------------------------------- 1,700,000 Richmond Wastewater Rev., 6.18%, 8/1/23 (FGIC)(1) 651,984 - -------------------------------------------------------------------------------- 2,905,000 Richmond Wastewater Rev., 6.20%, 8/1/26 (FGIC)(1) 899,940 - -------------------------------------------------------------------------------- 2,365,000 Riverside County COP, 5.75%, 11/1/31 (MBIA) 2,626,191 - -------------------------------------------------------------------------------- 2,040,000 Riverside County Improvement Bond Act 1915 Special Assessment, (Assessment District No. 168 - Rivercrest), 6.70%, 9/2/26 2,164,522 - -------------------------------------------------------------------------------- 4,765,000 Riverside Unified School District Special Tax Rev., Series 2000 A, (Community Facilities District No. 7), 7.00%, 9/1/30 5,432,576 - -------------------------------------------------------------------------------- 4,315,000 Rohnert Park Finance Auth. Rev., Series 2001 A, (Las Casitas de Sonoma), 6.40%, 4/15/36 4,451,440 - -------------------------------------------------------------------------------- 635,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 5.60%, 9/1/07 676,637 - -------------------------------------------------------------------------------- 645,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 5.70%, 9/1/08 694,284 - -------------------------------------------------------------------------------- 1,500,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 6.30%, 9/1/21 1,567,080 - -------------------------------------------------------------------------------- 3,970,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.25%, 7/1/24 (AMBAC) 4,388,081 - -------------------------------------------------------------------------------- 5,000,000 Sacramento Power Auth. Rev., (Cogeneration Projects), 6.00%, 7/1/22 5,189,550 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $4,000,000 Sacramento Special Tax Rev., (North Natomas Community Facilities), 6.30%, 9/1/26 $ 4,137,400 - -------------------------------------------------------------------------------- 2,575,000 San Bruno Park School District GO, Series 2000 B, 5.94%, 8/1/24 (FGIC)(1) 928,983 - -------------------------------------------------------------------------------- 2,660,000 San Bruno Park School District GO, Series 2000 B, 5.94%, 8/1/25 (FGIC)(1) 897,005 - -------------------------------------------------------------------------------- 3,970,000 San Diego County Improvement Bond Act 1915 Special Assessment, 6.25%, 9/2/12 4,127,609 - -------------------------------------------------------------------------------- 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(2) 1,077,340 - -------------------------------------------------------------------------------- 1,250,000 San Francisco City and County Redevelopment Agency Lease Rev., (George R. Moscone), 7.05%, 7/1/13(1) 855,450 - -------------------------------------------------------------------------------- 1,580,000 San Juan California Unified School District GO, 5.94%, 8/1/24 (FGIC)(1) 570,017 - -------------------------------------------------------------------------------- 1,595,000 San Juan California Unified School District GO, 5.94%, 8/1/25 (FGIC)(1) 537,866 - -------------------------------------------------------------------------------- 5,000,000 San Marcos Public Facilities Auth. Special Tax Rev., Series 2004 A, 5.00%, 9/1/34 (FGIC)(5) 5,073,900 - -------------------------------------------------------------------------------- 3,005,000 Santa Barbara County Rev., 5.50%, 9/1/22 (AMBAC) 3,314,455 - -------------------------------------------------------------------------------- 7,755,000 Shasta Lake Public Finance Auth. Rev., (Electrical Enterprise), 6.25%, 4/1/21 8,168,806 - -------------------------------------------------------------------------------- 2,160,000 Soledad Special Assessment, (Diamond Ridge Assessment District No. 02-01), 6.75%, 9/2/33 2,266,834 - -------------------------------------------------------------------------------- 500,000 Southern California Public Power Auth. Rev., (Pooled Project), 6.75%, 7/1/10 (FSA) 599,480 - -------------------------------------------------------------------------------- 2,400,000 Southern California Public Power Auth. Rev., (Transmission), 6.35%, 7/1/14 (MBIA)(1) 1,594,800 - -------------------------------------------------------------------------------- 1,250,000 Southern California Public Power Auth. Rev., (Transmission), 6.35%, 7/1/15 (MBIA)(1) 783,813 - -------------------------------------------------------------------------------- 1,200,000 Southwestern Community College District GO, 5.625%, 8/1/18 (AMBAC) 1,366,752 - -------------------------------------------------------------------------------- 1,000,000 Stockton Community Facilities District Special Tax Rev., (Brookside Estates No. 90-2), 6.20%, 8/1/15 1,045,950 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 11 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2004 Principal Amount Value - -------------------------------------------------------------------------------- $4,195,000 Stockton Community Facilities District Special Tax Rev., (Spanos Park West No. 2001-1), 6.375%, 9/1/32 $ 4,361,583 - -------------------------------------------------------------------------------- 5,000,000 Sunnyvale Special Tax Rev., (Community Facilities District No. 1), 7.75%, 8/1/32 5,040,350 - -------------------------------------------------------------------------------- 2,690,000 Tahoe-Truckee Unified School District GO, Series 1999 A, (Improvement District No. 2), 6.19%, 8/1/22 (FGIC)(1) 1,108,468 - -------------------------------------------------------------------------------- 2,220,000 Tahoe-Truckee Unified School District GO, Series 1999 A, (Improvement District No. 2), 6.19%, 8/1/23 (FGIC)(1) 857,875 - -------------------------------------------------------------------------------- 1,720,000 Tehama Community COP, (Social Services Building), 7.00%, 10/1/05, Prerefunded at 102% of Par(2) 1,859,509 - -------------------------------------------------------------------------------- 2,000,000 Tustin Unified School District Special Tax Rev., (Community Facilities District No. 97-1), 6.375%, 9/1/08, Prerefunded at 102% of Par(2) 2,355,120 - -------------------------------------------------------------------------------- 1,500,000 University of California Rev., Series 2003 A, 5.00%, 5/15/23 (AMBAC) 1,567,170 - -------------------------------------------------------------------------------- 3,650,000 Vallejo Hiddenbrooke Improvement District No. 1 Rev., 6.50%, 9/1/31 3,723,000 - -------------------------------------------------------------------------------- 2,000,000 West Contra Costa Unified School District COP, 7.125%, 1/1/24 2,043,780 - -------------------------------------------------------------------------------- 3,235,000 West Sacramento Special Tax Rev., (Community Facilities District No. 10), 6.75%, 9/1/26 3,448,057 - -------------------------------------------------------------------------------- 1,000,000 West Sacramento Special Tax Rev., (Community Facilities District No. 10), 6.20%, 9/1/29 1,026,150 - -------------------------------------------------------------------------------- 2,000,000 Yuba City Redevelopment Agency Tax Allocation Rev., 6.00%, 9/1/31 2,039,920 - -------------------------------------------------------------------------------- 2,895,000 Yuba City Unified School District GO, 6.05%, 9/1/24 (FGIC)(1) 1,039,972 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,500,000 Yuba City Unified School District GO, 6.05%, 3/1/25 (FGIC)(1) $ 516,900 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $325,366,952) 345,135,223 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 3.1% CALIFORNIA -- 3.1% - -------------------------------------------------------------------------------- 2,625,000 California Department of Water Resources Rev., Series 2002 B2, VRDN, 1.40%, 9/1/04 (LOC: BNP Paribas) 2,625,000 - -------------------------------------------------------------------------------- 1,100,000 California Department of Water Resources Rev., Series 2002 B6, VRDN, 1.33%, 9/1/04 (LOC: State Street Bank & Trust Co.) 1,100,000 - -------------------------------------------------------------------------------- 5,650,000 California Economic Recovery Rev., Series 2004 C1, VRDN, 1.40%, 9/1/04 (SBBPA: Landesbank Baden-Wuerttemberg) 5,650,000 - -------------------------------------------------------------------------------- 1,500,000 California Economic Recovery Rev., Series 2004 C3, VRDN, 1.32%, 9/1/04 (SBBPA: Landesbank Hessen Thuringen-Girozentrale) 1,500,000 - -------------------------------------------------------------------------------- 200,000 Los Angeles Convention & Exhibit Center Auth. Rev., Series 2003 E, VRDN, 1.32%, 9/1/04 (AMBAC) 200,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $11,075,000) 11,075,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 101.1% (Cost $336,441,952) 356,210,223 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (1.1)% (3,994,794) - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $352,215,429 ================================================================================ See Notes to Financial Statements. (continued) - ------ 12 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2004 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 LOC = Letter of Credit MBIA = MBIA Insurance Corporation SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective August 31, 2004. (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) Security, or a portion thereof, has been segregated for a when-issued security. (4) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at August 31, 2004, was $668,696, which represented 0.2% of net assets. (5) When-issued security. See Notes to Financial Statements. - ------ 13 Statement of Assets and Liabilities AUGUST 31, 2004 - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $336,441,952) $356,210,223 - ---------------------------------------------------------- Cash 17,361 - ---------------------------------------------------------- Receivable for capital shares sold 92,430 - ---------------------------------------------------------- Interest receivable 6,477,920 - -------------------------------------------------------------------------------- 362,797,934 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Payable for investments purchased 10,027,350 - ---------------------------------------------------------- Accrued management fees 152,368 - ---------------------------------------------------------- Distribution fees payable 5,169 - ---------------------------------------------------------- Service fees and service and distribution fees (A Class) payable 3,929 - ---------------------------------------------------------- Dividends payable 393,689 - -------------------------------------------------------------------------------- 10,582,505 - -------------------------------------------------------------------------------- NET ASSETS $352,215,429 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $336,124,764 - ---------------------------------------------------------- Accumulated net realized loss on investment transactions (3,677,606) - ---------------------------------------------------------- Net unrealized appreciation on investments 19,768,271 - -------------------------------------------------------------------------------- $352,215,429 ================================================================================ INVESTOR CLASS - -------------------------------------------------------------------------------- Net assets $332,433,657 - ---------------------------------------------------------- Shares outstanding 33,466,862 - ---------------------------------------------------------- Net asset value per share $9.93 - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- Net assets $11,499,278 - ---------------------------------------------------------- Shares outstanding 1,157,658 - ---------------------------------------------------------- Net asset value per share $9.93 - ---------------------------------------------------------- Maximum offering price (net asset value divided by 0.955) $10.40 - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- Net assets $866,027 - ---------------------------------------------------------- Shares outstanding 87,185 - ---------------------------------------------------------- Net asset value per share $9.93 - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- Net assets $7,416,467 - ---------------------------------------------------------- Shares outstanding 746,639 - ---------------------------------------------------------- Net asset value per share $9.93 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 14 Statement of Operations YEAR ENDED AUGUST 31, 2004 - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ---------------------------------------------------------- Interest $20,082,404 - -------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------- Management fees 1,828,107 - ---------------------------------------------------------- Distribution fees: - ---------------------------------------------------------- B Class 5,346 - ---------------------------------------------------------- C Class 32,911 - ---------------------------------------------------------- Service fees: - ---------------------------------------------------------- B Class 1,782 - ---------------------------------------------------------- C Class 11,750 - ---------------------------------------------------------- Service and distribution fees -- A Class 12,696 - ---------------------------------------------------------- Trustees' fees and expenses 13,223 - ---------------------------------------------------------- Other expenses 1,299 - -------------------------------------------------------------------------------- 1,907,114 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 18,175,290 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN - -------------------------------------------------------------------------------- Net realized gain on investment transactions 568,784 - ---------------------------------------------------------- Change in net unrealized appreciation on investments 9,105,321 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN 9,674,105 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $27,849,395 ================================================================================ See Notes to Financial Statements. - ------ 15 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2004 AND AUGUST 31, 2003 - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2004 2003 - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income $ 18,175,290 $ 19,046,496 - ------------------------------------------ Net realized gain 568,784 2,432,147 - ------------------------------------------ Change in net unrealized appreciation 9,105,321 (8,884,940) - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 27,849,395 12,593,703 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income: - ------------------------------------------ Investor Class (17,689,637) (19,035,177) - ------------------------------------------ A Class (255,359) (16,544) - ------------------------------------------ B Class (30,554) (3,397) - ------------------------------------------ C Class (203,979) (32,656) - -------------------------------------------------------------------------------- Decrease in net assets from distributions (18,179,529) (19,087,774) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ------------------------------------------ Net increase (decrease) in net assets from capital share transactions 4,194,160 (28,215,080) - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 13,864,026 (34,709,151) NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 338,351,403 373,060,554 - -------------------------------------------------------------------------------- End of period $352,215,429 $338,351,403 ================================================================================ Undistributed net investment income -- $4,239 ================================================================================ See Notes to Financial Statements. - ------ 16 Notes to Financial Statements AUGUST 31, 2004 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 pursues this objective by investing a portion of its assets in lower-rated and unrated municipal securities. 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. Debt securities maturing within 60 days may be valued at cost, plus or minus any amortized discount or premium. If the investment manager, American Century Investment Management, Inc. (ACIM), determines that the current market price of a security owned by a non-money market fund is not readily available, the investment manager may determine its fair value in accordance with procedures adopted by the Board of Trustees if such fair value determination would materially impact a fund's net asset value. Valuations may not be readily available if, for example: an event occurred after the close of the exchange on which a portfolio security principally trades (but before the close of the New York Stock Exchange) that was likely to have changed the value of the security; a security has been declared in default; trading in a security has been halted during the trading day; or the demand for the security (as reflected by its trading volume) is insufficient for quoted prices to be reliable. 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 substantially 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) - ------ 17 Notes to Financial Statements AUGUST 31, 2004 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with ACIM, under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The Agreement provides that all expenses of the fund, except brokerage commissions, taxes, 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 and accrued daily based on the daily net assets of the fund and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the funds and certain other accounts managed by the investment manager that are in the same broad investment category as the fund and (2) a Complex Fee based on the daily 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 0.2500% to 0.3100%. For the year ended August 31, 2004, 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% 0.75% - -------------------------------------------------------------------------------- Service Fee 0.25% 0.25% - -------------------------------------------------------------------------------- Effective January 2, 2004, the distribution fee for the C Class increased from 0.50% to 0.75%. This increase was approved by shareholders on November 21, 2003. The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The fees are computed and accrued daily and paid monthly in arrears based on each class's 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. Fees incurred under the plans during the year ended August 31, 2004, 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 JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned subsidiary of 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, 2004, were $66,756,239 and $65,720,652, respectively. (continued) - ------ 18 Notes to Financial Statements AUGUST 31, 2004 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, 2004 Sold 4,131,134 $ 40,715,901 - ---------------------------------------- Issued in reinvestment of distributions 1,323,770 13,039,500 - ---------------------------------------- Redeemed (6,593,481) (64,790,005) - -------------------------------------------------------------------------------- Net decrease (1,138,577) $(11,034,604) ================================================================================ 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) ================================================================================ A CLASS - -------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 2004 Sold 1,074,803 $10,557,050 - ---------------------------------------- Issued in reinvestment of distributions 18,526 182,173 - ---------------------------------------- Redeemed (68,942) (676,060) - -------------------------------------------------------------------------------- Net increase 1,024,387 $10,063,163 ================================================================================ 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 - -------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 2004 Sold 54,328 $538,038 - ---------------------------------------- Issued in reinvestment of distributions 1,538 15,148 - ---------------------------------------- Redeemed (5,157) (50,626) - -------------------------------------------------------------------------------- Net increase 50,709 $502,560 ================================================================================ 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 ================================================================================ (1) January 31, 2003 (commencement of sale) through August 31, 2003. (continued) - ------ 19 Notes to Financial Statements AUGUST 31, 2004 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - -------------------------------------------------------------------------------- SHARES AMOUNT - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 2004 Sold 569,104 $ 5,642,468 - ---------------------------------------- Issued in reinvestment of distributions 8,192 80,529 - ---------------------------------------- Redeemed (108,413) (1,059,956) - -------------------------------------------------------------------------------- Net increase 468,883 $ 4,663,041 ================================================================================ 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 $650,000,000 unsecured bank line of credit agreement with JPMCB. 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, 2004. 6. RISK FACTORS 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 fund invests primarily in lower-rated debt securities, which are subject to substantial risks including price volatility, liquidity risk, and default risk. Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. 7. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended August 31, 2004 and August 31, 2003 were as follows: - -------------------------------------------------------------------------------- 2004 2003 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $18,179,529 $19,087,774 - -------------------------------------------------------------------------------- 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 on the financial statements. (continued) - ------ 20 Notes to Financial Statements AUGUST 31, 2004 7. FEDERAL TAX INFORMATION (CONTINUED) As of August 31, 2004, 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 $336,441,952 ================================================================================ Gross tax appreciation of investments $19,859,000 - -------------------------------------------------------- Gross tax depreciation of investments (90,729) - -------------------------------------------------------------------------------- Net tax appreciation of investments $19,768,271 ================================================================================ Undistributed ordinary income -- - -------------------------------------------------------- Accumulated capital losses $(3,677,606) - -------------------------------------------------------- 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. Capital loss carryovers of $727,045 and $2,950,561 expire in 2008 and 2009, respectively. 8. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The fund hereby designates $18,145,079 of exempt interest dividends for the fiscal year ended August 31, 2004. - ------ 21 California High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.65 $9.84 $9.79 $9.44 $9.36 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.52 0.52 0.52 0.52 0.52 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.28 (0.19) 0.05 0.35 0.08 - -------------------------------------------------------------------------------- Total From Investment Operations 0.80 0.33 0.57 0.87 0.60 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.52) (0.52) (0.52) (0.52) (0.52) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $9.93 $9.65 $9.84 $9.79 $9.44 ================================================================================ TOTAL RETURN(1) 8.48% 3.35% 6.07% 9.50% 6.70% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.53% 0.54% 0.54% 0.54% 0.54% - ------------------------- Ratio of Net Investment Income to Average Net Assets 5.30% 5.24% 5.37% 5.45% 5.64% - ------------------------- Portfolio Turnover Rate 19% 30% 32% 47% 52% - ------------------------- Net Assets, End of Period (in thousands) $332,434 $334,032 $373,061 $336,400 $318,197 - -------------------------------------------------------------------------------- (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. - ------ 22 California High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2004 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.65 $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------- Net Investment Income 0.50 0.29 - ------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.28 (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.78 0.15 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------- From Net Investment Income (0.50) (0.29) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $9.93 $9.65 ================================================================================ TOTAL RETURN(2) 8.21% 1.48% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.78% 0.78%(3) - ------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 5.05% 5.04%(3) - ------------------------------------------------- Portfolio Turnover Rate 19% 30%(4) - ------------------------------------------------- Net Assets, End of Period (in thousands) $11,499 $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. - ------ 23 California High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2004 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.65 $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------- Net Investment Income 0.42 0.25 - ------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.28 (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.70 0.11 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------- From Net Investment Income (0.42) (0.25) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $9.93 $9.65 ================================================================================ TOTAL RETURN(2) 7.40% 1.05% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.53% 1.53%(3) - ------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.30% 4.43%(3) - ------------------------------------------------- Portfolio Turnover Rate 19% 30%(4) - ------------------------------------------------- Net Assets, End of Period (in thousands) $866 $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. - ------ 24 California High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2004 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.65 $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------- Net Investment Income 0.43 0.26 - ------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.28 (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.71 0.12 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------- From Net Investment Income (0.43) (0.26) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $9.93 $9.65 ================================================================================ TOTAL RETURN(2) 7.49% 1.22% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.48% 1.28%(3) - ------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.35% 4.59%(3) - ------------------------------------------------- Portfolio Turnover Rate 19% 30%(4) - ------------------------------------------------- Net Assets, End of Period (in thousands) $7,416 $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. - ------ 25 Report of Independent Registered Public Accounting Firm 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, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, 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 the standards of the Public Company Accounting Oversight Board (United States), 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, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Kansas City, Missouri October 14, 2004 - ------ 26 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. Effective March 2004, mandatory retirement age for independent trustees is 73. However, the mandatory retirement age may be extended for a period not to exceed two years with the approval of the remaining independent trustees. The independent trustees have extended the mandatory retirement age of Mr. Eisenstat to 75. Mr. Scott may serve until age 77 based on an extension granted under retirement guidelines in effect prior to March 2004. 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 three-fourths 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. The trustees serve in this capacity for eight registered investment companies in the American Century family of funds. All persons named as officers of the fund also serve in similar capacities for the other 13 investment companies advised by ACIM, unless otherwise noted. 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, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1930 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 9 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, General Partner, Discovery Ventures (Venture capital firm, 1996 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Independent Director, Sungard Data Systems (1991 to present); Independent Director, Business Objects S/A (1994 to present); Independent Director, Commercial Metals (1983 to 2001) - -------------------------------------------------------------------------------- RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Lead Trustee LENGTH OF TIME SERVED (YEARS): 9 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: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ------ 27 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- KATHRYN A. HALL, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1957 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 3 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: 33 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, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1941 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 24 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Partner, Oak Hill Capital Management (1999 to present); Frank E. Buck Professor of Finance, Stanford Graduate School of Business (1981 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Smith Breeden Family of Funds (1992 to present) - -------------------------------------------------------------------------------- KENNETH E. SCOTT, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1928 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 33 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: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- JOHN B. SHOVEN, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1947 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1977 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 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, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1945 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 20 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Retired, Director and Partner, Windy Hill Productions, LP (educational software, 1994 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 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, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board LENGTH OF TIME SERVED (YEARS): 7 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: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ------ 28 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: President LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: See entry under "Interested Trustee." - -------------------------------------------------------------------------------- ROBERT T. JACKSON, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Executive Vice President LENGTH OF TIME SERVED (YEARS): 4 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; and Treasurer, ACIM - -------------------------------------------------------------------------------- MARYANNE ROEPKE, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1956 POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Accounting Officer LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President (April 1998 to present) and Assistant Treasurer, ACSC (September 1985 to present) - -------------------------------------------------------------------------------- DAVID C. TUCKER, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1958 POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and General Counsel, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present); Vice President and General Counsel, ACC (June 1998 to present) - -------------------------------------------------------------------------------- ROBERT LEACH, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1966 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 8 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC (June 1997 to present) - -------------------------------------------------------------------------------- C. JEAN WADE, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1964 POSITION(S) HELD WITH FUND: Controller(1) LENGTH OF TIME SERVED (YEARS): 8 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC (June 1997 to present) - -------------------------------------------------------------------------------- JON ZINDEL, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1967 POSITION(S) HELD WITH FUND: Tax Officer LENGTH OF TIME SERVED (YEARS): 7 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); Treasurer, American Century Employee Benefit Services, Inc. (December 2000 to December 2003) - -------------------------------------------------------------------------------- (1) Ms. Wade serves in a similar capacity for seven other investment companies advised by ACIM. The SAI has additional information about the fund's trustees and is available without charge upon request by calling 1-800-345-2021. - ------ 29 Share Class Information Four classes of shares are authorized for sale by the fund: Investor Class, A Class, Class B, and C Class. The total expense ratios of A, B, and C Class shares are higher than that 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 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, 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 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 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%. All classes of shares represent a pro rata interest in the fund and generally have the same rights and preferences. - ------ 30 Additional Information 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 americancentury.com and on the Securities and Exchange Commission's Web site at sec.gov. Information regarding how the investment manager voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The fund will file its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q for the periods ending on or after July 9, 2004. The fund's Form N-Q is available on the SEC's Web site at sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The fund also makes its schedule of portfolio holdings for the most recent quarter of its fiscal year available on its Web site at americancentury.com and, upon request, by calling 1-800-345-2021. RISK FACTORS 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 fund invests primarily in lower-rated debt securities, which are subject to substantial risks including price volatility, liquidity risk, and default risk. Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. - ------ 31 Index Definitions 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 U.S. AGGREGATE INDEX represents securities that are taxable, registered with the Securities and Exchange Commission, and U.S. dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset backed securities. - ------ 32 [inside back cover - blank] [back cover] CONTACT US 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. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Services Corporation. 0410 American Century Investment Services, Inc. SH-ANN-39954N (c)2004 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. The registrant's Code of Ethics for Senior Financial Officers was filed as Exhibit 10(a) to American Century Mutual Fund, Inc.'s Annual Certified Shareholder Report on Form N-CSR, File No. 811-0816, on December 23, 2003, and is incorporated herein by reference. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The registrant's board has determined that the registrant has at least one audit committee financial expert serving on its audit committee. (a)(2) Albert Eisenstat is the registrant's designated audit committee financial 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. (a) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were as follows: FY 2003: $84,064 FY 2004: $123,645 (b) Audit-Related Fees. The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item were as follows: For services rendered to the registrant: FY 2003: $0 FY 2004: $0 Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2003: $0 FY 2004: $0 (c) Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were as follows: For services rendered to the registrant: FY 2003: $14,400 FY 2004: $28,380 These services included review of federal and state income tax forms and federal excise tax forms. Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2003: $0 FY 2004: $0 (d) All Other Fees. The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were as follows: For services rendered to the registrant: FY 2003: $0 FY 2004: $0 Fees required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X (relating to certain engagements for non-audit services with the registrant's investment adviser and its affiliates): FY 2003: $0 FY 2004: $0 (e)(1) In accordance with paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X, before the accountant is engaged by the registrant to render audit or non-audit services, the engagement is approved by the registrant's audit committee. Pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, the registrant's audit committee also pre-approves its accountant's engagements for non-audit services with the registrant's investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, if the engagement relates directly to the operations and financial reporting of the registrant. (e)(2) All services described in each of paragraphs (b) through (d) of this Item were pre-approved before the engagement by the registrant's audit committee pursuant to paragraph (c)(7)(i)(A) of Rule 2-01 of Regulation S-X. Consequently, none of such services were required to be approved by the audit committee pursuant to paragraph (c)(7)(i)(C). (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than 50%. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were as follows: FY 2003: $125,850 FY 2004: $28,380 (h) The registrant's investment adviser and accountant have notified the registrant's audit committee of all non-audit services that were rendered by the registrant's accountant to the registrant's investment adviser, its parent company, and any entity controlled by, or under common control with the investment adviser that provides services to the registrant, which services were not required to be pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X. The notification provided to the registrant's audit committee included sufficient details regarding such services to allow the registrant's audit committee to consider the continuing independence of its principal accountant. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. The schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant does not currently have in place procedures by which shareholders may recommend nominees to the registrant's board. ITEM 10. 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 11. EXHIBITS. (a)(1) Registrant's Code of Ethics for Senior Financial Officers, which is the subject of the disclosure required by Item 2 of Form N-CSR, was filed as Exhibit 10(a) to American Century Mutual Fund, Inc.'s Certified Shareholder Report on Form N-CSR, File No. 811-3706, on December 23, 2003. (a)(2) 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. (a)(3) Not applicable. (b) A certification by the registrant's chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 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: November 4, 2004 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: November 4, 2004 By: /s/ Maryanne L. Roepke -------------------------------------------- Name: Maryanne L. Roepke Title: Sr. Vice President, Treasurer, and Chief Accounting Officer (principal financial officer) Date: November 4, 2004