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: 08-31 --------------------------------------------------- Date of reporting period: 08-31-2005 --------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. [front cover] American Century Investments ANNUAL REPORT [photo of boy] AUGUST 31, 2005 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 investments logo and text logo] Table of Contents Our Message to You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CALIFORNIA TAX-FREE MONEY MARKET Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Portfolio Composition by Credit Rating and 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Portfolio at a Glance and Yields . . . . . . . . . . . . . . . . . . . . . 29 Portfolio Composition by Credit Rating and Top Five Sectors . . . . . . . .30 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Shareholder Fee Examples . . . . . . . . . . . . . . . . . . . . . . . . . . .36 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 38 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .40 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 42 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Report of Independent Registered Public Accounting Firm . . . . . . . . . . . 50 OTHER INFORMATION Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Approval of Management Agreements . . . . . . . . . . . . . . . . . . . . . . 55 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 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 of James E. Stowers III and James E. Stowers, Jr.] JAMES E. STOWERS III WITH JAMES E. STOWERS, JR. We are pleased to provide you with the annual report for the California Tax-Free Money Market fund and the California Limited-, Intermediate-, and Long-Term Tax-Free funds for the year ended August 31, 2005. The report includes comparative performance figures, portfolio and market commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. 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. Your next shareholder report for these funds will be the semiannual report dated February 28, 2006, available in approximately six months. As always, we deeply appreciate your investment with American Century Investments. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER AMERICAN CENTURY COMPANIES, INC. /s/James E. Stowers III James E. Stowers III CHAIRMAN OF THE BOARD AMERICAN CENTURY COMPANIES, INC. - ------ 1 California Tax-Free Money Market - Performance TOTAL RETURNS AS OF AUGUST 31, 2005 ------------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- CALIFORNIA TAX-FREE MONEY MARKET 1.54% 1.39% 2.20% 3.16% 11/9/83 - -------------------------------------------------------------------------------- LIPPER CALIFORNIA TAX-EXEMPT MONEY MARKET FUNDS AVERAGE RETURNS(1) 1.43% 1.24% 2.06% 3.27%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 8/31/05(1) 21 of 59 8 of 48 7 of 34 2 of 2(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 9/30/05(1) 21 of 59 11 of 49 7 of 34 2 of 2(2) -- - -------------------------------------------------------------------------------- (1) ©2005 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown. This listing might not represent the complete universe of funds tracked by Lipper Inc. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper Inc. - A Reuters Company and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (2) Since 11/30/83, the date nearest the fund's inception for which data are available. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/05 2/28/05 - -------------------------------------------------------------------------------- A-1+ 75% 78% - -------------------------------------------------------------------------------- A-1 25% 22% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY MATURITY - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/05 2/28/05 - -------------------------------------------------------------------------------- 1-30 days 90% 83% - -------------------------------------------------------------------------------- 31-90 days 1% 3% - -------------------------------------------------------------------------------- 91-180 days 1% 12% - -------------------------------------------------------------------------------- More than 180 days 8% 2% - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2005 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 1.98% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 2.00% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 2.91% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 3.03% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 3.26% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 3.36% - -------------------------------------------------------------------------------- *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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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 California Tax-Free Money Market returned 1.54% for the year ended August 31, 2005, outperforming the 1.43% average return of the 59 funds in Lipper's "California Tax-Exempt Money Market Funds" category. The performance data on page 2 show that the fund has generally outpaced its Lipper group average over the long term, ranking in the top 20% of the group for the five-year period ended August 31, 2005, and in the top 25% for the 10-year period ended August 31, 2005. ECONOMIC & MARKET PERSPECTIVE The U.S. economy grew at a moderate but declining rate during the fiscal year as energy prices, inflation, and short-term interest rates rose. The annualized real rate of GDP growth fell from 4.0% in the third quarter of 2004 to 3.3% in the second quarter of 2005, while crude oil futures jumped from $42.12 a barrel to $68.94, a 64% increase. The 12-month percentage change of "core" CPI (excluding food and energy) climbed from 1.7% in August 2004 to 2.1% in August 2005; core CPI was on track in 2005 to average its highest annual growth rate since 2002. Trying to keep inflation from escalating further, the Federal Reserve (the Fed) raised its overnight rate target two full percentage points, in eight quarter-point increments, from 1.50% in August 2004 to 3.50% in August 2005. PORTFOLIO POSITIONING & STRATEGY California Tax-Free Money Market's seven-day current yield rose from 0.85% to 1.98% during the year, with some seasonal ups and downs along the way. Yields rose significantly in April and May as investors drew on money market funds to pay their taxes. Demand for money market securities dried up, and yields were pushed higher. Yields dropped sharply in June and July because of the seasonal technical imbalance in the market. At that time, many securities matured or were called, and coupons were paid, flooding the market with cash and creating strong demand for new securities, which pushed yields lower. In October and November of 2004, we added tax-exempt commercial paper (CP) to the portfolio for the first time in about two years. With a stated maturity of 270 days or less, tax-exempt CP is issued to finance companies' seasonal cash-flow needs or to cover short-term financing in anticipation of longer-term financing. The bulk of the portfolio's holdings was in variable rate demand notes (VRDNs). These short-term, floating-rate municipal notes made up nearly 87% of the portfolio at the end of August, 2005. VRDNs allow us to capture higher yields more quickly as interest rates rise. OUR COMMITMENT We will continue to seek safety of principal and high current income that is exempt from federal and California income taxes. - ------ 3 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 98.1% CALIFORNIA -- 98.1% - -------------------------------------------------------------------------------- $10,012,038 ABN AMRO Leasetops Certificates Trust Rev., Series 2003-1, VRDN, 2.54%, 9/7/05 (Ambac) (SBBPA: ABN AMRO Bank N.V.) (Acquired 1/29/03, Cost $10,012,038)(1) $ 10,012,038 - -------------------------------------------------------------------------------- 5,000,000 ABN AMRO Munitops Certificate Trust GO, VRDN, 2.52%, 9/8/05 (CIFG-TCRS) (SBBPA: ABN AMRO Bank N.V.) 5,000,000 - -------------------------------------------------------------------------------- 10,000,000 ABN AMRO Munitops Certificate Trust Rev., VRDN, 2.62%, 9/1/05 (Ambac) (SBBPA: ABN AMRO Bank N.V.) (Acquired 8/16/05, Cost $10,000,000)(1) 10,000,000 - -------------------------------------------------------------------------------- 4,605,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 1999 H, (Capital Improvements Financing), VRDN, 2.48%, 9/1/05 (Ambac) (SBBPA: Dexia Credit Local) 4,605,000 - -------------------------------------------------------------------------------- 1,865,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 1997 D, VRDN, 2.41%, 9/1/05 (LOC: Bank of Nova Scotia) 1,865,000 - -------------------------------------------------------------------------------- 2,755,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 1999 G, (Capital Improvements Financing Projects), VRDN, 2.48%, 9/1/05 (Ambac) (SBBPA: Dexia Credit Local) 2,755,000 - -------------------------------------------------------------------------------- 640,000 Alameda-Contra Costa Schools Financing Auth. COP, Series 2000 I, VRDN, 2.41%, 9/1/05 (Ambac) (SBBPA: KBC Bank N.V.) 640,000 - -------------------------------------------------------------------------------- 3,660,000 Alvord Unified School District Financing Corporation COP, VRDN, 2.45%, 9/1/05 (LOC: KBC Bank N.V.) 3,660,000 - -------------------------------------------------------------------------------- 4,875,000 Apple Valley COP, (Public Facilities Financing), VRDN, 2.50%, 9/1/05 (LOC: California State Teacher's Retirement) 4,875,000 - -------------------------------------------------------------------------------- 1,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., (Point Loma Nazarene University), VRDN, 2.50%, 9/1/05 (LOC: Allied Irish Bank plc) 1,000,000 - -------------------------------------------------------------------------------- 5,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., (The Thacher School), VRDN, 2.51%, 9/1/05 (SBBPA: Keybank, N.A.) 5,000,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., Series 2002 A, (Hamilin School), VRDN, 2.45%, 9/1/05 (LOC: BNP Paribas) $ 3,000,000 - -------------------------------------------------------------------------------- 6,210,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Episcopal Homes Foundation), VRDN, 2.39%, 9/7/05 (LOC: Wells Fargo Bank, N.A) 6,210,000 - -------------------------------------------------------------------------------- 10,000,000 Auburn Union School District COP, VRDN, 2.45%, 9/1/05 (FSA) (SBBPA: Dexia Credit Local) 10,000,000 - -------------------------------------------------------------------------------- 2,300,000 Barstow Multifamily Housing Rev., (Desert Vista Apartments), VRDN, 2.30%, 9/7/05 (LOC: FHLB) 2,300,000 - -------------------------------------------------------------------------------- 12,500,000 California Community College Financing Auth. Rev., Series 2005 A, 4.00%, 6/30/06 (FSA) 12,639,073 - -------------------------------------------------------------------------------- 3,295,000 California Department of Water Resources Power Supply Rev., (PT 748), VRDN, 2.55%, 9/1/05 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 2/27/03, Cost $3,295,000)(1) 3,295,000 - -------------------------------------------------------------------------------- 4,995,000 California Department of Water Resources Power Supply Rev., (PT 795), VRDN, 2.51%, 9/1/05 (MBIA-IBC) (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 6/1/05, Cost $4,995,000)(1) 4,995,000 - -------------------------------------------------------------------------------- 3,750,000 California Department of Water Resources Power Supply Rev., Series 2002 B2, VRDN, 2.35%, 9/1/05 (LOC: BNP Paribas) 3,750,000 - -------------------------------------------------------------------------------- 6,000,000 California Department of Water Resources Power Supply Rev., Series 2002 C16, VRDN, 2.45%, 9/1/05 (LOC: Bank of New York) 6,000,000 - -------------------------------------------------------------------------------- 20,875,000 California Department of Water Resources Power Supply Rev., Series 2002 C7, VRDN, 2.42%, 9/1/05 (FSA) (SBBPA: Dexia Credit Local) 20,875,000 - -------------------------------------------------------------------------------- 2,900,000 California Economic Development Financing Auth. Rev., (Volk Enterprises Inc.), VRDN, 2.50%, 9/1/05 (LOC: JPMorgan Chase Bank) (Acquired 3/8/04, Cost $2,900,000)(1) 2,900,000 - -------------------------------------------------------------------------------- 150,000 California Economic Recovery Rev., Series 2004 C1, VRDN, 2.35%, 9/1/05 (SBBPA: Landesbank Baden-Wuerttemberg) 150,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 4 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $10,200,000 California Educational Facilities Auth. Rev., (Chapman University), VRDN, 2.45%, 9/7/05 (LOC: Allied Irish Bank plc) $ 10,200,000 - -------------------------------------------------------------------------------- 315,000 California Educational Facilities Auth. Rev., (Mount St. Mary's College), VRDN, 2.43%, 9/7/05 (LOC: Allied Irish Bank plc) 315,000 - -------------------------------------------------------------------------------- 2,150,000 California Educational Facilities Auth. Rev., (Point Loma Nazarene University), VRDN, 2.50%, 9/1/05 (GO of University) (LOC: Allied Irish Bank plc) 2,150,000 - -------------------------------------------------------------------------------- 3,760,000 California Educational Facilities Auth. Rev., Series 2002 A, (Art Center Design College), VRDN, 2.50%, 9/1/05 (LOC: Allied Irish Bank plc) 3,760,000 - -------------------------------------------------------------------------------- 8,205,000 California Educational Facilities Auth. Rev., Series 2002 B, (Art Center Design College), VRDN, 2.50%, 9/1/05 (LOC: Allied Irish Bank plc) 8,205,000 - -------------------------------------------------------------------------------- 5,000,000 California GO, (PA 1164), VRDN, 2.54%, 9/1/05 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 7/10/03, Cost $5,000,000)(1) 5,000,000 - -------------------------------------------------------------------------------- 3,200,000 California GO, (PT 2831), VRDN, 2.51%, 9/1/05 (Ambac) (SBBPA: Dexia Credit Local) (Acquired 7/5/05, Cost $3,200,000)(1) 3,200,000 - -------------------------------------------------------------------------------- 2,300,000 California GO, Series 2003 A1, VRDN, 2.35%, 9/1/05 (LOC: Westdeutsche Landesbank AG and JP Morgan Chase Bank) 2,300,000 - -------------------------------------------------------------------------------- 5,000,000 California GO, Series 2003 C3, VRDN, 2.49%, 9/1/05 (LOC: Landesbank Hessen-Thuringen Girozentrale, Bank of America N.A., Bank of Nova Scotia) 5,000,000 - -------------------------------------------------------------------------------- 11,100,000 California GO, Series 2003 C4, VRDN, 2.46%, 9/1/05 (LOC: Landesbank Hessen-Thuringen Girozentrale, Bank of America N.A., Bank of Nova Scotia) 11,100,000 - -------------------------------------------------------------------------------- 800,000 California GO, Series 2004-3A, (Daily Kindergarten University), VRDN, 2.35%, 9/1/05 (LOC: Citibank N.A., California State Teacher's Retirement) 800,000 - -------------------------------------------------------------------------------- 13,095,000 California Housing Finance Agency Rev., Series 2001 F, (Multifamily Housing III), VRDN, 2.39%, 9/7/05 (SBBPA: FNMA) 13,095,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $11,400,000 California Housing Finance Agency Rev., Series 2002 B, (Multifamily Housing III), VRDN, 2.41%, 9/1/05 (SBBPA: FNMA) $ 11,400,000 - -------------------------------------------------------------------------------- 4,000,000 California Infrastructure & Economic Development Bank Rev., (Academy of Motion Picture Arts and Sciences Obligated Group), VRDN, 2.48%, 9/1/05 (Ambac) (SBBPA: JPMorgan Chase Bank) 4,000,000 - -------------------------------------------------------------------------------- 4,600,000 California Infrastructure & Economic Development Bank Rev., (Humane Society), VRDN, 2.52%, 9/1/05 (LOC: Comercia Bank) 4,600,000 - -------------------------------------------------------------------------------- 2,830,000 California Infrastructure & Economic Development Bank Rev., (Rural Community Assistance), VRDN, 2.52%, 9/1/05 (LOC: Bank of the West) 2,830,000 - -------------------------------------------------------------------------------- 4,000,000 California Infrastructure & Economic Development Bank Rev., Series 2003 A, VRDN, 2.34%, 9/7/05 (LOC: Wells Fargo Bank, N.A.) 4,000,000 - -------------------------------------------------------------------------------- 7,000,000 California Infrastructure & Economic Development Bank, (Salvation Army Western Territory), 2.78%, 2/8/06 (LOC: Bank of America N.A.) (Acquired 8/9/05, Cost $7,000,000)(1) 7,000,000 - -------------------------------------------------------------------------------- 5,465,000 California Public Works Board Rev., Series 2001 (PA 814), VRDN, 2.51%, 9/1/05 (MBIA) (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 5/26/05, Cost $5,465,000)(1) 5,465,000 - -------------------------------------------------------------------------------- 9,250,000 California School Cash Reserve Program Auth. Rev., Series 2005 A, 4.00%, 7/6/06 (Ambac) 9,356,468 - -------------------------------------------------------------------------------- 7,800,000 California Statewide Communities Development Auth. Rev., (Cathedral High School), VRDN, 2.35%, 9/7/05 (LOC: Allied Irish Bank plc) 7,800,000 - -------------------------------------------------------------------------------- 7,690,000 California Statewide Communities Development Auth. Rev., (The Painted Turtle), VRDN, 2.45%, 9/1/05 (LOC: Allied Irish Bank plc) 7,690,000 - -------------------------------------------------------------------------------- 20,000,000 California Statewide Communities Development Auth. Rev., Series 2003 A, VRDN, 2.30%, 9/7/05 (CRP: Kaiser Permanente) 20,000,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 5 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 9,500,000 California Statewide Communities Development Auth. Rev., Series 2004 M, VRDN, 2.30%, 9/7/05 (CRP: Kaiser Permanente) $ 9,500,000 - -------------------------------------------------------------------------------- 7,000,000 California Statewide Communities Development Auth. Rev., Series 2005 A, (Plan Nine Partners), VRDN, 2.42%, 9/1/05 (LOC: Union Bank of California N.A.) 7,000,000 - -------------------------------------------------------------------------------- 5,605,000 California Statewide Communities Development Auth. Special Tax Rev., VRDN, 2.55%, 9/1/05 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 8/6/01-3/13/03, Cost $5,605,000)(1) 5,605,000 - -------------------------------------------------------------------------------- 2,500,000 California Statewide Financing Auth. Rev., VRDN, 2.57%, 9/1/05 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 2/17/05, Cost $2,500,000)(1) 2,500,000 - -------------------------------------------------------------------------------- 2,000,000 City of Davis Special Tax Rev., (Community Facilities District No. 1999-2), VRDN, 2.49%, 9/1/05 (LOC: Wells Fargo Bank, N.A.) 2,000,000 - -------------------------------------------------------------------------------- 4,000,000 City of Fremont COP, (Building & Equipment Financing), VRDN, 2.50%, 9/1/05 (LOC: KBC Bank N.V.) 4,000,000 - -------------------------------------------------------------------------------- 1,000,000 City of Novato Rev., (Nova-Ro III Senior Housing), VRDN, 2.48%, 9/1/05 (LOC: Bank of the West) 1,000,000 - -------------------------------------------------------------------------------- 12,085,000 City of Reedley COP, VRDN, 2.50%, 9/1/05 (LOC: U.S. Bank N.A.) 12,085,000 - -------------------------------------------------------------------------------- 4,700,000 City of San Jose Rev., Series 1985 B, (Foxchase), VRDN, 2.50%, 9/1/05 (LOC: FNMA) 4,700,000 - -------------------------------------------------------------------------------- 2,660,000 City of San Jose Rev., Series 1990 A, (Timberwood), VRDN, 2.39%, 9/7/05 (LOC: Wells Fargo & Company) 2,660,000 - -------------------------------------------------------------------------------- 7,095,000 City of Vallejo COP, VRDN, 2.44%, 9/1/05 (LOC: Union Bank of California N.A.) 7,095,000 - -------------------------------------------------------------------------------- 5,765,000 City of Vallejo COP, VRDN, 2.44%, 9/1/05 (LOC: California State Teacher's Retirement) 5,765,000 - -------------------------------------------------------------------------------- 9,900,000 City of Whittier Rev., (Whittier College), VRDN, 2.54%, 9/1/05 (RADIAN) (SBBPA: Bank of New York) 9,900,000 - -------------------------------------------------------------------------------- 1,075,000 Clovis Unified School District COP, (School Site Acquisition), 3.00%, 11/1/05 (XLCA) 1,076,801 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,900,000 Diamond Bar Public Financing Auth. Lease Rev., Series 2002 A, (Community/Senior Center), VRDN, 2.45%, 9/7/05 (LOC: Union Bank of California) $ 3,900,000 - -------------------------------------------------------------------------------- 3,090,000 Duarte COP, Series 2001 BR, VRDN, 2.36%, 9/7/05 (LOC: California State Teacher's Retirement) 3,090,000 - -------------------------------------------------------------------------------- 3,600,000 East Bay Muni Wastewater, 2.70%, 9/1/05 (SBBPA: JP Morgan Chase Bank and Westdeutsche Landesbank AG) (Acquired 5/2/05, Cost $3,600,000)(1) 3,600,000 - -------------------------------------------------------------------------------- 6,285,000 El Monte COP, Series 2003 A, (Community Improvement), VRDN, 2.50%, 9/1/05 (LOC: California State Teacher's Retirement) 6,285,000 - -------------------------------------------------------------------------------- 6,875,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PA 1206), VRDN, 2.57%, 9/1/05 (LOC: Merrill Lynch Capital Services, Inc.) 6,875,000 - -------------------------------------------------------------------------------- 6,745,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PA 1214), VRDN, 2.57%, 9/1/05 (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, 2.57%, 9/1/05 (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, 2.57%, 9/1/05 (LOC: Merrill Lynch Capital Services, Inc.) 2,735,000 - -------------------------------------------------------------------------------- 5,500,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PA 1240), VRDN, 2.57%, 9/1/05 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 2/12/04, Cost $5,500,000)(1) 5,500,000 - -------------------------------------------------------------------------------- 1,740,000 Golden State Tobacco Securitization Corp. Settlement Rev., (PT 2338), VRDN, 2.57%, 9/1/05 (LOC: Merrill Lynch Capital Services, Inc.) (Acquired 8/20/04, Cost $1,740,000)(1) 1,740,000 - -------------------------------------------------------------------------------- 23,140,000 Inland Valley Development Agency Tax Allocation Rev., VRDN, 2.53%, 9/7/05 (LOC: California State Teacher's Retirement) 23,140,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 6 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $19,588,806 Koch Certificates Trust Rev., Series 1999-2, VRDN, 2.54%, 9/1/05 (Ambac) (MBIA) (SBBPA: State Street Bank & Trust Co.) (Acquired 2/11/00- 12/2/04, Cost $19,588,806)(1) $ 19,588,806 - -------------------------------------------------------------------------------- 1,390,000 Lake Elsinore Recreation Auth. Rev., Series 2000 A, (Public Facilities), VRDN, 2.36%, 9/7/05 (LOC: California State Teacher's Retirement) 1,390,000 - -------------------------------------------------------------------------------- 2,500,000 Los Angeles Convention & Exhibit Center Auth. Rev., Series 2003 E, VRDN, 2.35%, 9/7/05 (Ambac) (SBBPA: Dexia Credit Local) 2,500,000 - -------------------------------------------------------------------------------- 4,955,000 Los Angeles GO, (PT 1476), VRDN, 2.51%, 9/1/05 (MBIA) (SBBPA: Merrill Lynch Capital Services, Inc.) 4,955,000 - -------------------------------------------------------------------------------- 5,400,000 Orange County Local Transportation, 2.75%, 9/1/05 (LOC: Dexia Credit Local) (Acquired 5/9/05, Cost $5,400,000)(1) 5,400,000 - -------------------------------------------------------------------------------- 2,000,000 Peninsula Corridor Joint Powers Board Rev., Series 2004 B, (Grant Anticipation Notes), 2.39%, 10/14/05 2,001,178 - -------------------------------------------------------------------------------- 2,200,000 Redwood City COP, (City Hall), VRDN, 2.45%, 9/1/05 (LOC: KBC Bank N.V.) 2,200,000 - -------------------------------------------------------------------------------- 1,720,000 Riverside County Community Facilities District Special Tax Rev., (No. 89-1), VRDN, 2.45%, 9/1/05 (LOC: KBC Bank N.V.) 1,720,000 - -------------------------------------------------------------------------------- 440,000 Roseville Joint Union High School District COP, VRDN, 3.00%, 9/7/05 (LOC: Union Bank of California N.A.) 440,000 - -------------------------------------------------------------------------------- 4,330,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1993 A, (Rialto Heritage), VRDN, 2.51%, 9/1/05 (LOC: FHLB) 4,330,000 - -------------------------------------------------------------------------------- 12,500,000 San Diego County & School District GO, Series 2005 A, 4.00%, 7/14/06 12,649,670 - -------------------------------------------------------------------------------- 3,750,000 San Diego County COP, (Friends of Chabad), VRDN, 2.50%, 9/1/05 (LOC: Comerica Bank) 3,750,000 - -------------------------------------------------------------------------------- 14,000,000 San Diego Unified School District GO, Series 2005 A, 4.00%, 7/24/06 14,165,558 - -------------------------------------------------------------------------------- 7,560,000 San Francisco City & County Redevelopment Agency Community Facilities District No. 4 Rev., VRDN, 2.45%, 9/1/05 (LOC: Bank of America N.A.) 7,560,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 2,800,000 San Francisco City & County Redevelopment Agency Rev., (South Harbor), VRDN, 2.50%, 9/1/05 (LOC: Dexia Credit Local) $ 2,800,000 - -------------------------------------------------------------------------------- 26,055,000 San Mateo County Housing Auth. Rev., VRDN, 2.57%, 9/1/05 (LOC: FHLMC) 26,055,000 - -------------------------------------------------------------------------------- 18,450,000 Santa Clara County -- El Camino Hospital District Rev., Series 1985 A, (Valley Medical Center), VRDN, 2.43%, 9/6/05 (LOC: State Street Bank & Trust Co.) 18,450,000 - -------------------------------------------------------------------------------- 12,750,000 Santa Clara County -- El Camino Hospital District Rev., Series 1985 B, (Valley Medical Center), VRDN, 2.43%, 9/6/05 (LOC: State Street Bank & Trust Co.) 12,750,000 - -------------------------------------------------------------------------------- 2,580,000 Southern California Logistics Airport Auth.Tax Allocation Rev., (PA 1323), VRDN, 2.53%, 9/1/05 (RADIAN) (SBBPA: Merrill Lynch Services, Inc.) (Acquired 8/11/05, Cost $2,580,000)(1) 2,580,000 - -------------------------------------------------------------------------------- 6,750,000 Temecula Public Financing Auth. Community Facilities District No. 1-2 Special Tax, Series 2002 A, (Harveston), VRDN, 2.45%, 9/1/05 (LOC: Bank of America N.A.) 6,750,000 - -------------------------------------------------------------------------------- 1,300,000 Triunfo County Sanitation District Rev., VRDN, 2.44%, 9/7/05 (LOC: Banque Nationale Paris) 1,300,000 - -------------------------------------------------------------------------------- 2,975,000 Victor Valley Community College District COP, VRDN, 2.53%, 9/1/05 (LOC: BNP Paribas and Union Bank of California N.A.) 2,975,000 - -------------------------------------------------------------------------------- 14,000,000 Victorville Joint Powers Finance Auth. Rev., Series 2005 A, (Cogeneration Facility), VRDN, 2.38%, 9/7/05 (LOC: Fortis Bank SA N.V.) 14,000,000 - -------------------------------------------------------------------------------- 5,275,000 West Covina Redevelopment Agency Rev., (Lakes Public Parking), VRDN, 2.30%, 9/7/05 (LOC: Allied Irish Bank plc) 5,275,000 - -------------------------------------------------------------------------------- 8,700,000 Western Placer Unified School District COP, VRDN, 2.45%, 9/1/05 (LOC: Bank of America N.A.) 8,700,000 - -------------------------------------------------------------------------------- 3,200,000 Westminister COP, Series 1998 A, (Civic Center), VRDN, 2.45%, 9/1/05 (Ambac) (SBBPA: Wachovia Bank, N.A.) 3,200,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 7 California Tax-Free Money Market - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,500,000 Westminster Redevelopment Agency Tax Allocation, VRDN, 2.45%, 9/1/05 (Ambac) (SBBPA: Landesbank Hessen-Thuringen Girozentrale) $ 1,500,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 98.1% 605,804,592 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.9% 11,551,221 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $617,355,813 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS Ambac = Ambac Assurance Corporation CIFG-TCRS = CDC IXIS Financial Guaranty North America-Transferable Custodial Receipts COP = Certificates of Participation CRP = Corporate Guarantee FHLB = Federal Home Loan Bank FHLMC = Federal Home Loan Mortgage Corporation FNMA = Federal National Mortgage Association FSA = Financial Security Assurance, Inc. GO = General Obligation LIQ FAC = Liquidity Facilities LOC = Letter of Credit MBIA = MBIA Insurance Corporation MBIA-IBC = MBIA Insured Bond Certificates 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, 2005. 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, 2005, was $108,655,844, which represented 17.6% of net assets. None of the restricted securities are considered to be illiquid. See Notes to Financial Statements. - ------ 8 California Limited-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2005 ------------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- CALIFORNIA LIMITED- TERM TAX-FREE 1.33% 3.54% 4.00% 4.20% 6/1/92 - -------------------------------------------------------------------------------- LEHMAN BROTHERS 3-YEAR MUNICIPAL BOND INDEX(1) 0.84% 4.07% 4.33% 4.65%(2) -- - -------------------------------------------------------------------------------- LIPPER CALIFORNIA SHORT-INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS(1) 3.06% 3.57% 3.82% 4.27%(3) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 8/31/05(1) 10 of 17 9 of 12 3 of 7 2 of 2(3) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 9/30/05(1) 9 of 17 9 of 12 3 of 7 2 of 2(3) -- - -------------------------------------------------------------------------------- (1) ©2005 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown. This listing might not represent the complete universe of funds tracked by Lipper Inc. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper Inc. - A Reuters Company and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (2) Since 5/31/92, the date nearest the fund's inception for which data are available. (3) Since 6/4/92, the date nearest the fund's inception for which data are available. 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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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. (continued) - ------ 9 California Limited-Term Tax-Free - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made August 31, 1995
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 - ---------------------------------------------------------------------------------------------------- California Limited- Term Tax-Free 3.87% 5.42% 5.40% 2.26% 5.44% 6.94% 4.91% 1.87% 2.75% 1.33% - ---------------------------------------------------------------------------------------------------- Lehman Brothers 3-Year Municipal Bond Index 3.95% 5.65% 5.76% 2.92% 4.72% 8.05% 5.71% 3.06% 2.83% 0.84% - ---------------------------------------------------------------------------------------------------- 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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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 1.33% for the fiscal year ended August 31, 2005. The fund's benchmark and its Lipper peer group also posted positive returns--the Lehman Brothers 3-Year Municipal Bond Index returned 0.84% and the Lipper California Short-Intermediate Municipal Debt Funds average return was 3.06%. (See pages 9 and 10.) We discuss Cal Limited-Term's results and the strategies employed to produce them in the Portfolio Positioning & Strategy section on the next page. YIELD SUMMARY & PERSPECTIVE Our investment objectives are to seek safety of principal and high current income that is exempt from California and federal income taxes. As of August 31, 2005, Cal Limited-Term's 30-day SEC yield was 2.90%, up from 2.36% six months ago thanks to our efforts to boost the portfolio's yield, as well as a backdrop of rising short-term interest rates. That yield increase translated into higher tax-equivalent yields, too. (See the accompanying yields table). ECONOMIC REVIEW The U.S. economy grew at a moderate but declining rate during the fiscal year as energy prices, inflation, and short-term interest rates rose. The annualized real rate of GDP growth declined from 4.0% in the third quarter of 2004 to 3.3% in the second quarter of 2005, while crude oil futures jumped from $42.12 a barrel to $68.94, a 64% increase. The 12-month percentage change of "core" CPI (excluding food and energy) climbed from 1.7% in August 2004 to 2.1% in August 2005; core CPI was on track in 2005 to average its highest annual growth rate since 2002. Attempting to keep inflation from escalating further, the Federal Reserve (the Fed) raised its overnight rate target two full percentage points, in eight quarter-point increments, from 1.50% in August 2004 to 3.50% in August 2005. BROAD BOND MARKET REVIEW Though the Fed raised its short-term interest rate target considerably during the fiscal year, longer-term interest rates and bond yields fell and bond prices rose. For example, the 30-year Treasury bond's yield fell from 4.93% to 4.26%, generating a total return of 15.39%, better than the S&P 500 Index and the Dow Jones Industrial Average for the period. Lower longer-maturity yields, PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/05 8/31/04 - -------------------------------------------------------------------------------- Weighted Average Maturity 4.3 yrs 4.1 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 3.1 yrs 2.9 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2005 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 2.90% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 4.26% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 4.44% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 4.77% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 4.92% - -------------------------------------------------------------------------------- *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 combined with higher yields for shorter-maturity securities (which rose with the Fed's rate hikes) created a "flatter" Treasury yield curve and helped longer-maturity/duration notes and bonds generally outperform shorter-maturity/ duration notes. Hurricane Katrina contributed to a strong bond market rally at the end of August 2005. The resulting storm damage and high energy prices raised concerns about future economic growth. MUNICIPAL MARKET REVIEW The Lehman Brothers Municipal Bond Index returned 5.31% for the fiscal year, outperforming its taxable counterpart, the Lehman Brothers U.S. Aggregate Index. The municipal yield curve also flattened, causing longer-term municipal bonds to outperform shorter-term notes. But the municipal yield curve did not flatten as much as the Treasury curve, making municipal bond yields attractive compared with Treasury yields--as of August 31, 2005, 30-year AAA-rated general obligation municipals yielded more than 30-year Treasurys! Credit quality also affected performance--lower-quality, higher-yielding bonds tended to outperform investment-grade debt. PORTFOLIO POSITIONING & STRATEGY We conservatively increased Cal Limited-Term's duration--a widely used measure of interest rate sensitivity--from 2.7 years six months ago, to 3.1 years by the end of August. The longer duration proved a big help particularly during August, when the after-effects of Hurricane Katrina--the most costly natural disaster in U.S. history--began to cloud the economic outlook. Because we started the last six months on a conservative note, however, the overall results weren't as strong as we would have liked. In addition, we increased Cal Limited-Term's yield--and, correspondingly, shareholders' after-tax income--by adding bonds rated BBB. Although still investment grade, such securities traditionally offer higher yields than their better-credit-quality counterparts. That's important because higher-yielding bonds can potentially cushion the impact of rising interest rates on a portfolio's performance. OUR COMMITMENT We remain committed to seeking safety of principal and high current income by investing at least 80% of the fund's assets in debt securities with interest payments exempt from federal and California income taxes. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/05 2/28/05 - -------------------------------------------------------------------------------- AAA 62% 66% - -------------------------------------------------------------------------------- AA 3% 3% - -------------------------------------------------------------------------------- A 15% 15% - -------------------------------------------------------------------------------- BBB 17% 14% - -------------------------------------------------------------------------------- Not Rated 3% 2% - -------------------------------------------------------------------------------- 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, 2005 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- General Obligation (GO) 34% - -------------------------------------------------------------------------------- Hospital Revenue 10% - -------------------------------------------------------------------------------- Electric Revenue 10% - -------------------------------------------------------------------------------- Certificate of Participation (COPs)/Leases 9% - -------------------------------------------------------------------------------- Industrial Development Revenue 8% - -------------------------------------------------------------------------------- - ------ 12 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 96.4% CALIFORNIA -- 75.2% - -------------------------------------------------------------------------------- $ 2,595,000 Alameda Unified School District GO, 5.50%, 7/1/07 (FSA) $ 2,719,496 - -------------------------------------------------------------------------------- 2,740,000 Alameda Unified School District GO, 5.50%, 7/1/08 (FSA) 2,931,936 - -------------------------------------------------------------------------------- 890,000 Alameda Unified School District GO, 5.50%, 7/1/09 (FSA) 970,474 - -------------------------------------------------------------------------------- 1,545,000 Alameda Unified School District GO, 5.50%, 7/1/10 (FSA) 1,711,273 - -------------------------------------------------------------------------------- 1,520,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations Rev., Series 2003 A, (Odd Fellows Home), 4.00%, 11/15/07 (California Mortgage Insurance) 1,544,670 - -------------------------------------------------------------------------------- 3,000,000 California Department of Water Resources Power Supply Rev., Series 2002 A, 5.50%, 5/1/08 3,177,869 - -------------------------------------------------------------------------------- 1,250,000 California Economic Recovery Rev., Series 2004 A, 5.00%, 7/1/10 (MBIA) 1,354,338 - -------------------------------------------------------------------------------- 4,275,000 California GO, 6.50%, 2/1/08 (Ambac)(1) 4,622,001 - -------------------------------------------------------------------------------- 2,500,000 California GO, 4.50%, 10/1/08 (FSA) 2,611,475 - -------------------------------------------------------------------------------- 5,000,000 California GO, 6.10%, 10/1/09(1) 5,542,849 - -------------------------------------------------------------------------------- 2,500,000 California GO, 5.00%, 12/1/09 (Ambac) 2,690,974 - -------------------------------------------------------------------------------- 3,000,000 California GO, 5.00%, 3/1/10 (XLCA) 3,221,399 - -------------------------------------------------------------------------------- 1,000,000 California GO, 5.50%, 3/1/11 (XLCA) 1,107,070 - -------------------------------------------------------------------------------- 1,000,000 California Health Facilities Financing Auth. Rev., (Cedars-Sinai Medical Center), 5.00%, 11/15/15 1,082,020 - -------------------------------------------------------------------------------- 2,000,000 California Health Facilities Financing Auth. Rev., (Cedars-Sinai Medical Center), 5.00%, 11/15/16 2,154,820 - -------------------------------------------------------------------------------- 1,325,000 California Infrastructure & Economic Development Bank Rev., Series 2005 A, (Energy Efficiency Master Trust), 5.00%, 3/1/15 1,468,074 - -------------------------------------------------------------------------------- 370,000 California Mobilehome Park Financing Auth. Rev., Series 2000 A, (Union City Tropics), 4.80%, 8/15/06 (ACA) 373,078 - -------------------------------------------------------------------------------- 500,000 California Public Works Board Lease Rev., Series 1993 A, (Various University of California Projects), 5.50%, 6/1/10 545,095 - -------------------------------------------------------------------------------- 2,000,000 California Public Works Board Rev., Series 2005 A, (Department General Services - Butterfield), 5.00%, 6/1/09 2,118,760 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,450,000 California Public Works Board Rev., Series 2005 A, (Department General Services - Butterfield), 5.00%, 6/1/15 $ 1,586,010 - -------------------------------------------------------------------------------- 1,000,000 California State University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.00%, 7/1/06(2) 1,017,920 - -------------------------------------------------------------------------------- 1,000,000 California State University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.00%, 7/1/12(2) 1,097,740 - -------------------------------------------------------------------------------- 1,750,000 California Statewide Communities Development Auth. Rev., Series 2005 G, (Daughters of Charity Health), 5.25%, 7/1/13 1,899,450 - -------------------------------------------------------------------------------- 1,130,000 Carson Redevelopment Agency Residential Mortgage COP, (Area No. 1), 5.50%, 10/1/11 (MBIA) 1,266,640 - -------------------------------------------------------------------------------- 895,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.00%, 2/1/07 908,881 - -------------------------------------------------------------------------------- 895,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.125%, 2/1/08 918,091 - -------------------------------------------------------------------------------- 1,245,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.125%, 2/1/09 1,285,251 - -------------------------------------------------------------------------------- 675,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.25%, 2/1/10 703,607 - -------------------------------------------------------------------------------- 860,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.25%, 2/1/11 898,313 - -------------------------------------------------------------------------------- 1,270,000 Central California Joint Powers Health Financing Auth. COP, (Community Hospitals), 5.25%, 2/1/13 1,271,003 - -------------------------------------------------------------------------------- 1,070,000 Chaffey Community College District GO, Series 2002 A, 4.25%, 7/1/11 (FSA) 1,129,021 - -------------------------------------------------------------------------------- 310,000 Coachella Valley Improvement Bond Act 1915 Recreation & Park District Special Tax Rev., (District 1), 4.875%, 9/2/07 (MBIA) 322,081 - -------------------------------------------------------------------------------- 500,000 Del Mar Race Track Auth. Rev., 5.00%, 8/15/08(3) 521,090 - -------------------------------------------------------------------------------- 1,415,000 Del Mar Race Track Auth. Rev., 5.00%, 8/15/10(3) 1,498,556 - -------------------------------------------------------------------------------- 1,910,000 Elk Grove Finance Auth. Special Tax Rev., 5.00%, 9/1/12 (Ambac)(3) 2,099,568 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 13 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 Elk Grove Finance Auth. Special Tax Rev., 5.00%, 9/1/13 (Ambac)(3) $ 1,103,730 - -------------------------------------------------------------------------------- 1,190,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/09 (Ambac) 1,293,542 - -------------------------------------------------------------------------------- 1,755,000 Industry Urban Development Agency Rev., 4.50%, 5/1/11 (MBIA) 1,798,033 - -------------------------------------------------------------------------------- 105,000 Lancaster Financing Auth. Rev., (Projects No. 5 & 6), 2.40%, 2/1/06 104,554 - -------------------------------------------------------------------------------- 105,000 Lancaster Financing Auth. Rev., (Projects No. 5 & 6), 3.00%, 2/1/08 103,378 - -------------------------------------------------------------------------------- 110,000 Lancaster Financing Auth. Rev., (Projects No. 5 & 6), 3.80%, 2/1/10 108,620 - -------------------------------------------------------------------------------- 120,000 Lancaster Financing Auth. Rev., (Projects No. 5 & 6), 4.00%, 2/1/11 119,102 - -------------------------------------------------------------------------------- 125,000 Lancaster Financing Auth. Rev., (Projects No. 5 & 6), 4.30%, 2/1/13 124,736 - -------------------------------------------------------------------------------- 750,000 Long Beach Bond Finance Auth. GO, Series 2002 A, (North Long Beach Redevelopment), 5.00%, 8/1/10 (Ambac) 812,295 - -------------------------------------------------------------------------------- 2,315,000 Long Beach Bond Finance Auth. GO, Series 2002 A, (North Long Beach Redevelopment), 5.00%, 8/1/11 (Ambac) 2,527,494 - -------------------------------------------------------------------------------- 5,000,000 Los Angeles Community College District GO, Series 2005 A, (Election 2001), 5.00%, 8/1/16 (FSA)(1) 5,555,049 - -------------------------------------------------------------------------------- 500,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 4.75%, 7/1/07 (ACA) 512,550 - -------------------------------------------------------------------------------- 615,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 4.875%, 7/1/08 (ACA) 639,871 - -------------------------------------------------------------------------------- 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) 500,000 - -------------------------------------------------------------------------------- 2,100,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, (Proposal A), 5.25%, 7/1/11 (FSA) 2,326,737 - -------------------------------------------------------------------------------- 3,130,000 Los Angeles Department of Water & Power Rev., Series 2001 AA1, (Power Systems), 5.25%, 7/1/10 (MBIA) 3,427,568 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 575,000 Lynwood Public Financing Auth. COP, 4.125%, 9/1/12 (Ambac) $ 600,956 - -------------------------------------------------------------------------------- 1,330,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.00%, 10/1/06 (Ambac) 1,361,481 - -------------------------------------------------------------------------------- 3,000,000 Oakland Joint Powers Financing Auth. Rev., (Convention Centers), 5.25%, 10/1/08 (Ambac) 3,199,589 - -------------------------------------------------------------------------------- 1,225,000 Oceanside COP, Series 2003 A, 5.00%, 4/1/11 (Ambac) 1,331,342 - -------------------------------------------------------------------------------- 650,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1- Ladera Ranch), 3.50%, 8/15/10 642,558 - -------------------------------------------------------------------------------- 760,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1- Ladera Ranch), 3.80%, 8/15/11 754,665 - -------------------------------------------------------------------------------- 825,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1- Ladera Ranch), 3.90%, 8/15/12 821,758 - -------------------------------------------------------------------------------- 700,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1- Ladera Ranch), 4.10%, 8/15/13 700,413 - -------------------------------------------------------------------------------- 1,135,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1- Ladera Ranch), 4.25%, 8/15/14 1,137,259 - -------------------------------------------------------------------------------- 1,230,000 Orange County Refunding Recovery Rev., Series 1995 A, 6.00%, 6/1/08 (MBIA) 1,330,430 - -------------------------------------------------------------------------------- 275,000 Orange County Special Assessment, 4.30%, 9/2/14 275,754 - -------------------------------------------------------------------------------- 325,000 Orange County Special Assessment, 4.45%, 9/2/15 325,338 - -------------------------------------------------------------------------------- 250,000 Orange County Special Assessment, 4.55%, 9/2/16 249,420 - -------------------------------------------------------------------------------- 140,000 Placentia COP, (Improvement), 3.125%, 7/1/07 137,680 - -------------------------------------------------------------------------------- 165,000 Placentia COP, (Improvement), 3.40%, 7/1/08 162,327 - -------------------------------------------------------------------------------- 170,000 Placentia COP, (Improvement), 3.65%, 7/1/09 167,637 - -------------------------------------------------------------------------------- 145,000 Placentia COP, (Improvement), 3.90%, 7/1/10 143,427 - -------------------------------------------------------------------------------- 1,800,000 Poway Unified School District Special Tax Rev., (Community Facilities District No. 1), 5.00%, 10/1/07 (MBIA) 1,879,002 - -------------------------------------------------------------------------------- 585,000 Rancho Water District Financing Auth. Rev., Series 2001 A, 5.00%, 8/1/07 (FSA) 608,488 - -------------------------------------------------------------------------------- 1,650,000 Riverside Sewer Rev., 7.00%, 8/1/07 (FGIC) 1,775,120 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 14 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,800,000 Sacramento County Sanitation District Auth. Rev., Series 2000 A, 5.10%, 12/1/09 $ 4,094,309 - -------------------------------------------------------------------------------- 2,585,000 Sacramento Municipal Utility District Electric Rev., Series 2002 Q, 5.00%, 8/15/09 (FSA) 2,773,937 - -------------------------------------------------------------------------------- 3,000,000 Sacramento Municipal Utility District Electric Rev., Series 2003 S, 5.00%, 11/15/11 (MBIA) 3,296,819 - -------------------------------------------------------------------------------- 2,000,000 Santa Clara County Financing Auth. Lease Rev., Series 2000 B, (Multiple Facilities), 5.50%, 5/15/07 (Ambac) 2,088,040 - -------------------------------------------------------------------------------- 1,210,000 Shasta Lake Public Finance Auth. Rev., 3.75%, 4/1/09 1,216,837 - -------------------------------------------------------------------------------- 1,000,000 Shasta Lake Public Finance Auth. Rev., 4.00%, 4/1/12 1,010,650 - -------------------------------------------------------------------------------- 1,530,000 Shasta Lake Public Finance Auth. Rev., 4.50%, 4/1/15 1,563,431 - -------------------------------------------------------------------------------- 1,250,000 South Orange County Public Financing Auth. Special Tax Rev., Series 1994 C, (Foothill Area), 7.50%, 8/15/07 (FGIC) 1,356,663 - -------------------------------------------------------------------------------- 2,000,000 South Orange County Public Financing Auth. Special Tax Rev., Series 2003 A, (Senior Lien), 5.00%, 9/1/12 (MBIA) 2,193,280 - -------------------------------------------------------------------------------- 825,000 South Tahoe Joint Powers Financing Auth. Rev., Series 2005 A, 5.00%, 10/1/05 (Ambac) 826,543 - -------------------------------------------------------------------------------- 1,080,000 South Tahoe Joint Powers Financing Auth. Rev., Series 2005 A, 5.00%, 10/1/13 (Ambac) 1,192,774 - -------------------------------------------------------------------------------- 1,195,000 South Tahoe Joint Powers Financing Auth. Rev., Series 2005 A, 5.00%, 10/1/15 (Ambac) 1,330,035 - -------------------------------------------------------------------------------- 1,240,000 Stockton Health Facilities Rev., Series 1997 A, (Dameron Hospital Association), 5.00%, 12/1/05 1,245,456 - -------------------------------------------------------------------------------- 1,165,000 Stockton Health Facilities Rev., Series 1997 A, (Dameron Hospital Association), 5.20%, 12/1/07 1,209,736 - -------------------------------------------------------------------------------- 705,000 Turlock COP, (Emanuel Medical Center Inc.), 3.50%, 10/15/06 704,662 - -------------------------------------------------------------------------------- 730,000 Turlock COP, (Emanuel Medical Center Inc.), 3.75%, 10/15/07 731,869 - -------------------------------------------------------------------------------- 755,000 Turlock COP, (Emanuel Medical Center Inc.), 4.00%, 10/15/08 761,508 - -------------------------------------------------------------------------------- 785,000 Turlock COP, (Emanuel Medical Center Inc.), 4.25%, 10/15/09 798,573 - -------------------------------------------------------------------------------- 820,000 Turlock COP, (Emanuel Medical Center Inc.), 4.50%, 10/15/10 843,878 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 895,000 Turlock COP, (Emanuel Medical Center Inc.), 5.00%, 10/15/12 $ 947,000 - -------------------------------------------------------------------------------- 985,000 Turlock COP, (Emanuel Medical Center Inc.), 5.00%, 10/15/14 1,040,180 - -------------------------------------------------------------------------------- 2,175,000 Turlock Irrigation District Rev., Series 2003 A, 5.00%, 1/1/13 (MBIA) 2,395,393 - -------------------------------------------------------------------------------- 1,325,000 Upland COP, (San Antonio Community Hospital), 5.75%, 1/1/07 1,355,343 - -------------------------------------------------------------------------------- 1,000,000 Val Verde Unified School District COP, 5.00%, 1/1/14 (FGIC) 1,110,240 - -------------------------------------------------------------------------------- 1,145,000 Val Verde Unified School District COP, 5.25%, 1/1/16 (FGIC) 1,296,003 - -------------------------------------------------------------------------------- 136,415,955 - -------------------------------------------------------------------------------- GUAM -- 3.0% - -------------------------------------------------------------------------------- 5,000,000 Guam Government Limited Obligation Rev., Series 2001 A, 5.00%, 12/1/09 (FSA)(1) 5,372,850 - -------------------------------------------------------------------------------- NORTHERN MARIANA ISLANDS -- 2.2% - -------------------------------------------------------------------------------- 1,425,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.00%, 6/1/06 (ACA) 1,441,473 - -------------------------------------------------------------------------------- 1,075,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/07 (ACA) 1,109,798 - -------------------------------------------------------------------------------- 1,430,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.75%, 6/1/10 (ACA) 1,545,658 - -------------------------------------------------------------------------------- 4,096,929 - -------------------------------------------------------------------------------- PUERTO RICO -- 14.5% - -------------------------------------------------------------------------------- 1,500,000 Children's Trust Fund Tobacco Settlement Rev., 5.00%, 7/1/08(2) 1,582,305 - -------------------------------------------------------------------------------- 7,342,000 Government Development Bank of Puerto Rico Rev., 3.50%, 1/20/06 (Acquired 8/18/05, Cost $7,342,000)(4) 7,346,993 - -------------------------------------------------------------------------------- 8,000,000 Government Development Bank of Puerto Rico Rev., 3.35%, 1/24/06 (Acquired 7/28/05, Cost $8,000,000)(4) 8,000,719 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2004 A, 5.00%, 7/1/12 1,071,880 - -------------------------------------------------------------------------------- 1,500,000 Puerto Rico Electric Power Auth. Rev., Series 1999 FF, 5.25%, 7/1/09 (MBIA) 1,619,880 - -------------------------------------------------------------------------------- 3,550,000 Puerto Rico Highway & Transportation Auth. Rev., Series 2003 AA, 5.00%, 7/1/07 3,668,535 - -------------------------------------------------------------------------------- 1,315,000 Puerto Rico Municipal Finance Agency Rev., Series 2002 A, 4.50%, 8/1/10 (FSA) 1,397,714 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 15 California Limited-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,500,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.50%, 7/1/10 $ 1,639,230 - -------------------------------------------------------------------------------- 26,327,256 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 1.5% - -------------------------------------------------------------------------------- 500,000 Virgin Islands Public Finance Auth. Rev., 5.00%, 10/1/14 542,310 - -------------------------------------------------------------------------------- 500,000 Virgin Islands Public Finance Auth. Rev., 5.25%, 10/1/14 549,390 - -------------------------------------------------------------------------------- 170,000 Virgin Islands Public Finance Auth. Rev., 5.25%, 10/1/15 186,861 - -------------------------------------------------------------------------------- 1,500,000 Virgin Islands Public Finance Auth. Rev., Series 1998 C, (Senior Lien Fund), 5.50%, 10/1/07 1,566,330 - -------------------------------------------------------------------------------- 2,844,891 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $171,065,489) 175,057,881 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 4.1% CALIFORNIA -- 4.1% - -------------------------------------------------------------------------------- 355,000 California Economic Recovery Rev., Series 2004 C1, VRDN, 2.35%, 9/1/05 (SBBPA: Landesbank Baden-Wuerttemberg) 355,000 - -------------------------------------------------------------------------------- Principal Amount/Shares Value - -------------------------------------------------------------------------------- $ 7,000,000 City of Vallejo COP, VRDN, 2.44%, 9/1/05 (LOC: KBC Bank N.V.)(1) $ 7,000,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $7,355,000) 7,355,000 - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS -- 1.6% 2,000,220 American Century California Tax-Free Money Market Fund 2,000,220 - -------------------------------------------------------------------------------- 859,000 Federated California Municipal Cash Trust 859,000 - -------------------------------------------------------------------------------- TOTAL TEMPORARY CASH INVESTMENTS (Cost $2,859,220) 2,859,220 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 102.1% (Cost $181,279,709) 185,272,101 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (2.1)% (3,855,633) - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $181,416,468 ================================================================================ FUTURES CONTRACTS* Expiration Underlying Face Unrealized Contracts Sold Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 56 U.S. Treasury 2-Year Notes December 2005 $11,597,250 $ (43,001) - -------------------------------------------------------------------------------- 60 U.S. Treasury 10-Year Notes December 2005 6,724,688 (67,635) - -------------------------------------------------------------------------------- $18,321,938 $(110,636) ================================= *FUTURES CONTRACTS typically are based on an index or specific securities 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 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, 2005. XLCA = XL Capital Ltd. (1) Security, or a portion thereof, has been segregated for when-issued securities and/or futures contracts. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) When-issued security. (4) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at August 31, 2005, was $15,347,712, which represented 8.5% of net assets. See Notes to Financial Statements. - ------ 16 California Intermediate-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2005 ------------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE-TERM TAX-FREE 3.36% 4.83% 5.08% 6.17% 11/9/83 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 1.96% 5.10% 5.03% 6.68%(1) -- - -------------------------------------------------------------------------------- LIPPER CALIFORNIA INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS(2) 2.73% 4.55% 4.83% 6.18%(3) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 8/31/05(2) 10 of 45 10 of 29 3 of 14 1 of 1(3) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 9/30/05(2) 9 of 46 9 of 29 3 of 15 1 of 1(3) -- - -------------------------------------------------------------------------------- (1) Since 10/31/83, the date nearest the fund's inception for which data are available. (2) ©2005 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown. This listing might not represent the complete universe of funds tracked by Lipper Inc. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper Inc. - A Reuters Company and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (3) Since 11/10/83, the date nearest the fund's inception for which data are available. 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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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. (continued) - ------ 17 California Intermediate-Term Tax-Free - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made August 31, 1995
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 - ---------------------------------------------------------------------------------------------------- California Intermediate-Term Tax-Free 4.79% 7.39% 7.00% 0.74% 6.95% 8.22% 5.63% 1.91% 5.13% 3.36% - ---------------------------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 3.80% 6.68% 6.81% 2.21% 5.33% 8.99% 6.56% 3.57% 4.58% 1.96% - ---------------------------------------------------------------------------------------------------- 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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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 3.36% for the fiscal year ended August 31, 2005. The fund's benchmark and its Lipper peer group also posted positive returns--the Lehman Brothers Municipal 5-Year GO Index returned 1.96% and the Lipper California Intermediate Municipal Debt Funds average return was 2.73%. (See pages 17 and 18.) We discuss Cal Intermediate-Term's results and the strategies employed to produce them in the Portfolio Positioning & Strategy section on the next page. The fund also performed well from a long-term perspective: Cal Intermediate-Term's five- and 10-year returns ranked the fund among the top 35% of its Lipper group. YIELD SUMMARY & PERSPECTIVE Our investment objectives are to seek safety of principal and high current income that is exempt from California and federal income taxes. As of August 31, 2005, Cal Intermediate-Term's 30-day SEC yield was 3.18%, up from 2.82% six months ago thanks to our efforts to boost the portfolio's yield, as well as a backdrop of rising short-term interest rates. That yield increase translated into higher tax-equivalent yields, too. (See the accompanying yields table). ECONOMIC REVIEW The U.S. economy grew at a moderate but declining rate during the fiscal year as energy prices, inflation, and short-term interest rates rose. The annualized real rate of GDP growth declined from 4.0% in the third quarter of 2004 to 3.3% in the second quarter of 2005, while crude oil futures jumped from $42.12 a barrel to $68.94, a 64% increase. The 12-month percentage change of "core" CPI (excluding food and energy) climbed from 1.7% in August 2004 to 2.1% in August 2005; core CPI was on track in 2005 to average its highest annual growth rate since 2002. Attempting to keep inflation from escalating further, the Federal Reserve (the Fed) raised its overnight rate target two full percentage points, in eight quarter-point increments, from 1.50% in August 2004 to 3.50% in August 2005. BROAD BOND MARKET REVIEW Though the Fed raised its short-term interest rate target considerably during the fiscal year, longer-term interest rates and bond yields fell and bond prices rose. For example, the 30-year Treasury bond's yield fell from 4.93% to 4.26%, generating a total return of 15.39%, better than the S&P 500 Index and the PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/05 8/31/04 - -------------------------------------------------------------------------------- Weighted Average Maturity 9.6 yrs 7.8 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 4.7 yrs 4.6 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2005 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 3.18% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 4.68% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 4.87% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 5.23% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 5.39% - -------------------------------------------------------------------------------- *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 Dow Jones Industrial Average for the period. Lower longer-maturity yields, combined with higher yields for shorter-maturity securities (which rose with the Fed's rate hikes) created a "flatter" Treasury yield curve and helped longer-maturity/duration notes and bonds generally outperform shorter-maturity/ duration notes. Hurricane Katrina contributed to a strong bond market rally at the end of August 2005. The resulting storm damage and high energy prices raised concerns about future economic growth. MUNICIPAL MARKET REVIEW The Lehman Brothers Municipal Bond Index returned 5.31% for the fiscal year, outperforming its taxable counterpart, the Lehman Brothers U.S. Aggregate Index. The municipal yield curve also flattened, causing longer-term municipal bonds to outperform shorter-term notes. But the municipal yield curve did not flatten as much as the Treasury curve, making municipal bond yields attractive compared with Treasury yields--as of August 31, 2005, 30-year AAA-rated general obligation municipals yielded more than 30-year Treasurys! Credit quality also affected performance--lower-quality, higher-yielding bonds tended to outperform investment-grade debt. PORTFOLIO POSITIONING & STRATEGY We conservatively increased Cal Intermediate-Term's duration--a widely used measure of interest rate sensitivity--from 4.5 years six months ago, to 4.7 years by the end of August. The longer duration proved a big help particularly during August, when the after-effects of Hurricane Katrina--the most costly natural disaster in U.S. history--began to cloud the economic outlook. In addition, we increased Cal Intermediate-Term's yield--and, correspondingly, shareholders' after-tax income--by adding bonds rated BBB. Although still investment grade, such securities traditionally offer higher yields than their better-credit-quality counterparts. That's important because higher-yielding bonds can potentially cushion the impact of rising interest rates on a portfolio's performance. OUR COMMITMENT We remain committed to seeking safety of principal and high current income. Please note that on January 1, 2006, Cal Intermediate-Term's weighted average maturity restrictions will be removed. Reflecting this change, the fund will be renamed California Tax-Free Bond. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/05 2/28/05 - -------------------------------------------------------------------------------- AAA 72% 74% - -------------------------------------------------------------------------------- AA 6% 6% - -------------------------------------------------------------------------------- A 8% 9% - -------------------------------------------------------------------------------- BBB 12% 9% - -------------------------------------------------------------------------------- Not Rated 2% 2% - -------------------------------------------------------------------------------- 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, 2005 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- General Obligation (GO) 19% - -------------------------------------------------------------------------------- Certificate of Participation (COPs)/Leases 15% - -------------------------------------------------------------------------------- Electric Revenue 13% - -------------------------------------------------------------------------------- Prerefunded 12% - -------------------------------------------------------------------------------- Escrowed to Maturity 7% - -------------------------------------------------------------------------------- - ------ 20 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.5% CALIFORNIA -- 90.6% - -------------------------------------------------------------------------------- $ 4,375,000 Alameda County COP, (Santa Rita Jail), 5.375%, 6/1/09 (MBIA)(1) $ 4,572,041 - -------------------------------------------------------------------------------- 1,385,000 Alameda County COP, Series 2001 A, 5.375%, 12/1/15 (MBIA) 1,544,441 - -------------------------------------------------------------------------------- 2,075,000 Alhambra Unified School District GO, Series 2005 A, (Election of 2004), 5.00%, 8/1/24 (FGIC) 2,249,611 - -------------------------------------------------------------------------------- 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) 1,658,052 - -------------------------------------------------------------------------------- 1,085,000 California Department of Water Resources Central Valley Rev., Series 1998 U, 5.125%, 12/1/08, Prerefunded at 101% of Par(1) 1,168,556 - -------------------------------------------------------------------------------- 3,750,000 California Department of Water Resources Power Supply Rev., Series 2002 A, 5.50%, 5/1/12 4,183,350 - -------------------------------------------------------------------------------- 7,000,000 California Department of Water Resources Power Supply Rev., Series 2002 A, 5.375%, 5/1/17 (XLCA) 7,752,499 - -------------------------------------------------------------------------------- 1,250,000 California Department of Water Resources Rev., 5.50%, 12/1/17 1,397,738 - -------------------------------------------------------------------------------- 1,255,000 California Educational Facilities Auth. Rev., (College Arts), 5.00%, 6/1/26 1,291,508 - -------------------------------------------------------------------------------- 4,000,000 California Educational Facilities Auth. Rev., (Golden Gate University), 5.50%, 10/1/18 4,199,240 - -------------------------------------------------------------------------------- 1,095,000 California Educational Facilities Auth. Rev., (Scripps College), 5.25%, 8/1/16 1,179,293 - -------------------------------------------------------------------------------- 1,430,000 California Educational Facilities Auth. Rev., (Southwestern University), 5.00%, 11/1/18 1,510,509 - -------------------------------------------------------------------------------- 1,605,000 California Educational Facilities Auth. Rev., Series 2000 B, (Pooled College & University Projects), 6.625%, 6/1/20 1,773,124 - -------------------------------------------------------------------------------- 2,500,000 California Educational Facilities Auth. Rev., Series 2004 C, (Lutheran University), 5.00%, 10/1/24 2,612,175 - -------------------------------------------------------------------------------- 2,475,000 California Educational Facilities Auth. Rev., Series 2005 A, (Mills College), 5.00%, 9/1/25 2,584,940 - -------------------------------------------------------------------------------- 2,750,000 California Educational Facilities Auth. Rev., Series 2005 A, (University of Redlands), 5.00%, 10/1/25 2,872,843 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 5,000,000 California GO, 7.50%, 10/1/07 (MBIA) $ 5,455,700 - -------------------------------------------------------------------------------- 1,490,000 California GO, 8.00%, 11/1/07 (FGIC) 1,568,165 - -------------------------------------------------------------------------------- 4,480,000 California GO, 6.00%, 10/1/09 (Ambac) 4,979,117 - -------------------------------------------------------------------------------- 3,350,000 California GO, 5.75%, 4/1/10 (Ambac) 3,720,443 - -------------------------------------------------------------------------------- 5,000,000 California GO, 5.50%, 4/1/12 (MBIA) 5,630,249 - -------------------------------------------------------------------------------- 10,000,000 California GO, 5.25%, 10/1/14 (FGIC) 10,892,199 - -------------------------------------------------------------------------------- 2,000,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Kaiser Permanente), 5.25%, 6/1/11 (FSA) 2,146,720 - -------------------------------------------------------------------------------- 1,000,000 California Infrastructure & Economic Development Bank Rev., Series 2000 A, (Scripps Research Institute), 5.625%, 7/1/20 1,062,510 - -------------------------------------------------------------------------------- 1,075,000 California Mobilehome Park Financing Auth. Rev., Series 2000 A, (Union City Tropics), 5.375%, 8/15/14 (ACA) 1,152,959 - -------------------------------------------------------------------------------- 3,000,000 California Public Works Board Lease Rev., Series 1992 A, (Secretary of State), 6.20%, 12/1/05 (Ambac) 3,025,530 - -------------------------------------------------------------------------------- 2,000,000 California Public Works Board Lease Rev., Series 2005 A, (Department General Services - Butterfield), 5.00%, 6/1/23 2,138,360 - -------------------------------------------------------------------------------- 1,975,000 California Public Works Board Lease Rev., Series 2005 D, (Various University of California Projects), 5.00%, 5/1/30 2,098,556 - -------------------------------------------------------------------------------- 650,000 California Special Districts Association Finance Corp. COP, Series 2005 RR, 5.00%, 8/1/25 (XLCA) 691,529 - -------------------------------------------------------------------------------- 3,100,000 California State University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 5.25%, 7/1/12, Prerefunded at 101% of Par(1) 3,474,573 - -------------------------------------------------------------------------------- 1,500,000 California State University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 6.00%, 7/1/12, Prerefunded at 101% of Par(1) 1,749,360 - -------------------------------------------------------------------------------- 1,250,000 California State University System Rev., Series 2002 A, 5.375%, 11/1/18 (Ambac) 1,392,750 - -------------------------------------------------------------------------------- 8,000,000 California Statewide Communities Development Auth. COP, (California Lutheran Homes), 5.375%, 11/15/06(1) 8,218,639 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 21 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,230,000 California Statewide Communities Development Auth. Rev., Series 2000 B, (Brentwood School), 5.75%, 10/1/20 (FSA) $ 3,466,468 - -------------------------------------------------------------------------------- 1,695,000 California Statewide Communities Development Auth. Rev., Series 2002 B, 5.20%, 10/1/18 (FSA) 1,865,958 - -------------------------------------------------------------------------------- 2,205,000 California Statewide Communities Development Auth. Rev., Series 2005 A, (Daughters of Charity Health), 5.25%, 7/1/24 2,337,807 - -------------------------------------------------------------------------------- 3,000,000 California Statewide Communities Development Auth. Rev., Series 2005 G, (Daughters of Charity Health), 5.00%, 7/1/22 3,126,420 - -------------------------------------------------------------------------------- 1,500,000 California Statewide Communities Development Auth. Rev., Series 2005 H, (Daughters of Charity Health), 5.25%, 7/1/25 1,591,575 - -------------------------------------------------------------------------------- 2,545,000 Capistrano Unified Public Financing Auth. Special Tax Rev., Series 1996 A, (First Lien), 6.00%, 9/1/06 (Ambac) 2,624,709 - -------------------------------------------------------------------------------- 2,100,000 Castaic Lake Water Agency Rev., Series 2001 A, 5.375%, 8/1/17 (MBIA) 2,312,814 - -------------------------------------------------------------------------------- 2,075,000 Chabot Las Positas Community College District COP, 5.50%, 12/1/10 (FSA)(1) 2,244,507 - -------------------------------------------------------------------------------- 3,000,000 Chino Ontario Upland Water Facilities Auth. COP, Series 1997 A, (Agua de Lejos), 5.20%, 10/1/15 (FGIC) 3,190,650 - -------------------------------------------------------------------------------- 1,220,000 Coronado Community Development Agency Tax Allocation Rev., 6.00%, 9/1/08 (FSA) 1,281,488 - -------------------------------------------------------------------------------- 2,300,000 Eastern Municipal Water District COP, Series 2001 A, 5.25%, 7/1/13 (FGIC) 2,530,345 - -------------------------------------------------------------------------------- 1,020,000 El Segundo Unified School District GO, 5.375%, 9/1/12, Prerefunded at 100% of Par (FGIC)(1) 1,151,192 - -------------------------------------------------------------------------------- 1,095,000 El Segundo Unified School District GO, 5.375%, 9/1/12, Prerefunded at 100% of Par (FGIC)(1) 1,235,839 - -------------------------------------------------------------------------------- 1,000,000 Folsom Cordova Unified School District No. 2 Facilities Improvement GO, Series 2002 A, 5.375%, 10/1/15 (MBIA) 1,114,950 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,225,000 Folsom Cordova Unified School District No. 2 Facilities Improvement GO, Series 2002 A, 5.375%, 10/1/16 (MBIA) $ 1,365,103 - -------------------------------------------------------------------------------- 1,225,000 Folsom Public Financing Auth. Rev., (City Hall & Community Center), 5.25%, 10/1/14 (FSA) 1,370,457 - -------------------------------------------------------------------------------- 1,290,000 Folsom Public Financing Auth. Rev., (City Hall & Community Center), 5.25%, 10/1/15 (FSA) 1,436,970 - -------------------------------------------------------------------------------- 2,615,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.25%, 9/1/08 2,681,055 - -------------------------------------------------------------------------------- 2,760,000 Foster City Community Development Agency Single Family Mortgage Rev., 4.40%, 9/1/09 2,836,673 - -------------------------------------------------------------------------------- 1,150,000 Franklin-McKinley School District GO, Series 2005 A, (Election of 2004), 5.00%, 8/1/25 (FGIC) 1,242,851 - -------------------------------------------------------------------------------- 2,550,000 Fremont Union High School District GO, Series 2000 B, 5.25%, 9/1/10, Prerefunded at 100% of Par(1) 2,805,612 - -------------------------------------------------------------------------------- 1,550,000 Fresno Special Tax Rev., (Community Facilities District No. 3), 4.75%, 9/1/05 (LOC: Rabobank International) 1,550,000 - -------------------------------------------------------------------------------- 5,000,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2005 A, 5.00%, 6/1/35 (FGIC) 5,310,850 - -------------------------------------------------------------------------------- 7,350,000 Imperial Irrigation District COP, (Electrical System), 6.50%, 11/1/07 (MBIA-IBC) 7,779,313 - -------------------------------------------------------------------------------- 1,675,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/16 (Ambac) 1,850,624 - -------------------------------------------------------------------------------- 2,715,000 Irvine Unified School District Special Tax Rev., (Community Facilities District No. 86-1), 5.50%, 11/1/10 (Ambac) 2,909,041 - -------------------------------------------------------------------------------- 475,000 Lancaster Financing Auth. Rev., (Projects No. 5 & 6), 5.30%, 2/1/14 490,438 - -------------------------------------------------------------------------------- 500,000 Lancaster Financing Auth. Rev., (Projects No. 5 & 6), 5.40%, 2/1/14 517,575 - -------------------------------------------------------------------------------- 2,030,000 Long Beach Bond Finance Auth. Lease Rev., (Plaza Parking Facility), 5.25%, 11/1/16 2,169,055 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles Capital Asset Lease Rev., 5.875%, 12/1/05 (Ambac) 3,023,160 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 22 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,030,000 Los Angeles Community Redevelopment Agency Parking System Rev., (Cinerama Dome Public Package Project), 5.30%, 7/1/13 (ACA) $ 1,096,064 - -------------------------------------------------------------------------------- 1,155,000 Los Angeles Convention and Exhibition Center Auth. Lease Rev., Series 1993 A, 6.00%, 8/15/10 (MBIA-IBC) 1,302,944 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 1997 A, (Proposal A), 5.25%, 7/2/12 (MBIA) 3,147,540 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, (Proposal A), 5.25%, 7/1/13 (FSA) 3,340,350 - -------------------------------------------------------------------------------- 6,680,000 Los Angeles County Metropolitan Transportation Auth. Sales Tax Rev., Series 2001 B, (Proposal A), 5.25%, 7/1/16 (FSA) 7,364,098 - -------------------------------------------------------------------------------- 3,765,000 Los Angeles County Transportation Commission Sales Tax Rev., Series 1992 A, (Proposition C), 6.40%, 7/1/06 3,870,156 - -------------------------------------------------------------------------------- 3,500,000 Los Angeles Unified School District GO, 5.50%, 7/1/12 (MBIA) 3,964,030 - -------------------------------------------------------------------------------- 3,115,000 Los Angeles Unified School District GO, Series 1999 C, 5.50%, 7/1/09, Prerefunded at 101% of Par (MBIA)(1) 3,426,843 - -------------------------------------------------------------------------------- 8,000,000 Los Angeles Unified School District GO, Series 2000 D, 5.625%, 7/1/10, Prerefunded at 100% of Par (FGIC)(1) 8,913,199 - -------------------------------------------------------------------------------- 5,000,000 Los Angeles Unified School District GO, Series 2002 E, 5.00%, 7/1/11 (MBIA) 5,473,850 - -------------------------------------------------------------------------------- 3,000,000 Los Angeles Unified School District GO, Series 2003 F, (Election of 1997), 5.00%, 7/1/16 (FSA) 3,295,050 - -------------------------------------------------------------------------------- 1,390,000 Los Gatos Joint Union High School District GO, Series 2002 C, 5.375%, 6/1/12, Prerefunded at 101% of Par (FSA)(1) 1,575,051 - -------------------------------------------------------------------------------- 3,000,000 Metropolitan Water District of Southern California Rev., Series 1992 B, 8.00%, 7/1/08(1) 3,405,660 - -------------------------------------------------------------------------------- 2,920,000 Metropolitan Water District of Southern California Rev., Series 2001 A, 5.125%, 7/1/09(1) 3,146,826 - -------------------------------------------------------------------------------- 1,520,000 Mojave Unified School District No. 1 Facilities Improvement GO, 5.25%, 8/1/20 (FGIC) 1,663,549 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,100,000 Mojave Water Agency Improvement District GO, (Morongo Basin), 5.40%, 9/1/08 (FGIC) $ 1,148,873 - -------------------------------------------------------------------------------- 1,485,000 Mountain View COP, (Capital Projects), 5.25%, 8/1/18 1,625,139 - -------------------------------------------------------------------------------- 4,565,000 Oceanside Community Development Commission Rev., (Downtown Redevelopment), 5.20%, 9/1/17 4,786,129 - -------------------------------------------------------------------------------- 1,310,000 Oceanside COP, Series 2003 A, 5.00%, 4/1/12 (Ambac) 1,431,856 - -------------------------------------------------------------------------------- 1,000,000 Ontario Redevelopment Financing Auth. Local Agency Rev., Series 1995 A, 5.80%, 9/2/06 (FSA) 1,002,490 - -------------------------------------------------------------------------------- 1,275,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1- Ladera Ranch), 4.35%, 8/15/15 1,282,561 - -------------------------------------------------------------------------------- 4,805,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1- Ladera Ranch), 5.00%, 8/15/25 4,872,558 - -------------------------------------------------------------------------------- 2,210,000 Orange County Local Transportation Auth. Sales Tax Rev., Series 1997 A, 5.70%, 2/15/08 (Ambac) 2,356,855 - -------------------------------------------------------------------------------- 1,805,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/15 (Ambac) 2,017,033 - -------------------------------------------------------------------------------- 1,000,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/16 (Ambac) 1,116,830 - -------------------------------------------------------------------------------- 3,030,000 Orange County Public Financing Auth. Rev., (Juvenile Justice Center Facility), 5.375%, 6/1/17 (Ambac) 3,382,086 - -------------------------------------------------------------------------------- 1,720,000 Orange County Recovery COP, Series 1996 A, 6.00%, 7/1/07 (MBIA) 1,816,200 - -------------------------------------------------------------------------------- 1,000,000 Placentia COP, (Improvement), 5.45%, 7/1/25 1,001,080 - -------------------------------------------------------------------------------- 1,830,000 Pomona Public Financing Auth. Rev., Series 2001 AD, (Merged Redevelopment), 4.75%, 2/1/13 (MBIA) 1,944,723 - -------------------------------------------------------------------------------- 1,720,000 Poway Redevelopment Agency Tax Allocation Rev., (Paguay), 5.25%, 6/15/26 (Ambac) 1,872,530 - -------------------------------------------------------------------------------- 1,060,000 Redding Joint Powers Financing Auth. Electric System Rev., Series 1996 A, 6.25%, 6/1/07 (MBIA) 1,119,773 - -------------------------------------------------------------------------------- 1,010,000 Richmond Joint Powers Financing Auth. Rev., Series 1995 A, 5.30%, 5/15/06 1,017,484 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 23 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 8,000,000 Sacramento City Financing Auth. Lease Rev., Series 1993 A, 5.40%, 11/1/20 (Ambac)(2) $ 9,358,639 - -------------------------------------------------------------------------------- 4,045,000 Sacramento City Financing Auth. Rev., Series 2002 A, (City Hall), 5.25%, 12/1/12, Prerefunded at 100% of Par (FSA)(1) 4,546,378 - -------------------------------------------------------------------------------- 1,245,000 Sacramento City Financing Auth. Rev., Series 2002 A, (City Hall), 5.25%, 12/1/15 (FSA) 1,386,669 - -------------------------------------------------------------------------------- 1,890,000 Sacramento Municipal Utility District Electric Rev., Series 1992 C, 5.75%, 11/15/07 (MBIA)(1) 1,896,917 - -------------------------------------------------------------------------------- 3,105,000 Sacramento Municipal Utility District Electric Rev., Series 1997 K, 5.70%, 7/1/17 (Ambac) 3,677,562 - -------------------------------------------------------------------------------- 5,005,000 Sacramento Municipal Utility District Electric Rev., Series 2001 O, 5.25%, 8/15/11 (MBIA) 5,553,848 - -------------------------------------------------------------------------------- 5,000,000 San Bernardino County COP, Series 1995 A, (Medical Center), 5.75%, 8/1/07 (MBIA) 5,263,500 - -------------------------------------------------------------------------------- 1,695,000 San Buenaventura County COP, Series 2002 B, 5.50%, 1/1/15 (Ambac) 1,899,078 - -------------------------------------------------------------------------------- 1,790,000 San Buenaventura County COP, Series 2002 B, 5.50%, 1/1/16 (Ambac) 2,004,442 - -------------------------------------------------------------------------------- 2,030,000 San Diego Redevelopment Agency Tax Allocation Rev., (Horton Plaza), 5.70%, 11/1/17 2,172,202 - -------------------------------------------------------------------------------- 2,635,000 San Diego Redevelopment Agency Tax Allocation Rev., (Horton Plaza), 5.80%, 11/1/21 2,833,178 - -------------------------------------------------------------------------------- 1,460,000 San Diego Redevelopment Agency Tax Allocation Rev., (North Park), 5.90%, 9/1/25 1,559,032 - -------------------------------------------------------------------------------- 2,255,000 San Francisco City & County Educational Facilities Unified School District GO, Series 1999 B, 5.50%, 6/15/12 2,397,539 - -------------------------------------------------------------------------------- 2,680,000 San Mateo County Transportation District Sales Tax Rev., Series 1993 A, 5.25%, 6/1/18 (MBIA) 3,082,831 - -------------------------------------------------------------------------------- 1,500,000 San Mateo Union High School District GO, 5.00%, 9/1/24 (FSA) 1,616,550 - -------------------------------------------------------------------------------- 3,350,000 Santa Barbara County GO, 5.375%, 10/1/17 (Ambac) 3,750,359 - -------------------------------------------------------------------------------- 2,075,000 Santa Clara Valley Water District Rev., Series 2000 A, 5.20%, 2/1/13 2,253,824 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,120,000 Santa Fe Springs Community Development Commission Rev., Series 2002 A, 5.375%, 9/1/16 (MBIA) $ 1,232,291 - -------------------------------------------------------------------------------- 1,250,000 Santa Monica-Malibu Unified School District GO, 5.25%, 8/1/13 1,406,700 - -------------------------------------------------------------------------------- 2,400,000 Shasta Lake Public Finance Auth. Rev., 5.00%, 4/1/19 2,490,600 - -------------------------------------------------------------------------------- 2,130,000 Shasta Lake Public Finance Auth. Rev., 5.00%, 4/1/22 2,192,026 - -------------------------------------------------------------------------------- 1,310,000 South Tahoe Joint Powers Financing Auth. Rev., Series 2005 A, 5.00%, 10/1/17 (Ambac) 1,442,349 - -------------------------------------------------------------------------------- 1,445,000 South Tahoe Joint Powers Financing Auth. Rev., Series 2005 A, 5.00%, 10/1/19 (Ambac) 1,579,573 - -------------------------------------------------------------------------------- 2,000,000 Southern California Public Power Auth. Rev., 6.75%, 7/1/10 (GIC: Pittsburgh National Bank) 2,283,260 - -------------------------------------------------------------------------------- 5,000,000 Southern California Public Power Auth. Rev., Series 2002 A, (Southern Transmission), 5.25%, 7/1/17 (FSA) 5,509,900 - -------------------------------------------------------------------------------- 3,325,000 Southern California Public Power Auth. Rev., Series 2002 A, (Southern Transmission), 5.25%, 7/1/18 (FSA) 3,659,861 - -------------------------------------------------------------------------------- 1,975,000 Southwestern Community College District GO, 5.625%, 8/1/11, Prerefunded at 101% of Par (Ambac)(1) 2,251,974 - -------------------------------------------------------------------------------- 2,000,000 Stanislaus County COP, 5.50%, 5/1/06 (MBIA) 2,035,620 - -------------------------------------------------------------------------------- 2,770,000 Stockton Community Facilities District GO, (No. 1 Weston Ranch), 5.40%, 9/1/15 2,952,626 - -------------------------------------------------------------------------------- 325,000 Stockton Community Facilities District GO, (No. 1 Weston Ranch), 5.50%, 9/1/16 346,557 - -------------------------------------------------------------------------------- 1,800,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/10 (Ambac) 1,910,484 - -------------------------------------------------------------------------------- 1,080,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/10, Prerefunded at 101% of Par (FSA)(1) 1,190,041 - -------------------------------------------------------------------------------- 1,135,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/10, Prerefunded at 101% of Par (FSA)(1) 1,250,645 - -------------------------------------------------------------------------------- 1,025,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/10, Prerefunded at 101% of Par (FSA)(1) 1,129,437 - -------------------------------------------------------------------------------- 1,195,000 Sweetwater Auth. Water Rev., 5.25%, 4/1/10, Prerefunded at 101% of Par (FSA)(1) 1,316,759 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 24 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,665,000 Sweetwater Union High School District Special Tax Rev., Series 2005 A, 5.00%, 9/1/25 (FSA) $ 3,928,733 - -------------------------------------------------------------------------------- 260,000 Taft Public Financing Auth. Lease Rev., Series 1997 A, (Community Correctional Facility), 5.50%, 1/1/06 261,654 - -------------------------------------------------------------------------------- 855,000 Turlock COP, (Emanuel Medical Center Inc.), 4.50%, 10/15/11 878,487 - -------------------------------------------------------------------------------- 1,035,000 Turlock COP, (Emanuel Medical Center Inc.), 5.50%, 10/15/15 1,134,319 - -------------------------------------------------------------------------------- 1,090,000 Turlock COP, (Emanuel Medical Center Inc.), 5.50%, 10/15/16 1,189,931 - -------------------------------------------------------------------------------- 1,150,000 Turlock COP, (Emanuel Medical Center Inc.), 5.50%, 10/15/17 1,250,004 - -------------------------------------------------------------------------------- 3,215,000 University Enterprises Inc. Rev., (Refunding Auxiliary Organization), 5.00%, 10/1/35 (FGIC) 3,436,835 - -------------------------------------------------------------------------------- 5,000,000 Vacaville Unified School District GO, (Election 2001), 5.00%, 8/1/30 (MBIA) 5,365,600 - -------------------------------------------------------------------------------- 1,000,000 Val Verde Unified School District COP, 5.25%, 1/1/15, Prerefunded at 100% of Par (FGIC)(1) 1,131,880 - -------------------------------------------------------------------------------- 2,505,000 Val Verde Unified School District COP, 5.25%, 1/1/15, Prerefunded at 100% of Par (FGIC)(1) 2,835,359 - -------------------------------------------------------------------------------- 2,640,000 Val Verde Unified School District COP, 5.25%, 1/1/15, Prerefunded at 100% of Par (FGIC)(1) 2,988,163 - -------------------------------------------------------------------------------- 1,415,000 Val Verde Unified School District COP, 5.25%, 1/1/15, Prerefunded at 100% of Par (FGIC)(1) 1,601,610 - -------------------------------------------------------------------------------- 1,000,000 Val Verde Unified School District COP, 5.25%, 1/1/15, Prerefunded at 100% of Par (FGIC)(1) 1,131,880 - -------------------------------------------------------------------------------- 2,980,000 Val Verde Unified School District COP, 5.25%, 1/1/15, Prerefunded at 100% of Par (FGIC)(1) 3,373,002 - -------------------------------------------------------------------------------- 1,100,000 Val Verde Unified School District COP, Series 2005 B, (Construction), 5.00%, 1/1/30 (FGIC) 1,168,618 - -------------------------------------------------------------------------------- 1,250,000 Val Verde Unified School District COP, Series 2005 B, (Construction), 5.00%, 1/1/35 (FGIC) 1,326,988 - -------------------------------------------------------------------------------- 3,000,000 Ventura County Public Financing Auth. COP, 4.75%, 8/15/11 (FSA) 3,159,810 - -------------------------------------------------------------------------------- 2,010,000 Western Riverside County Trust & Wastewater Finance Auth. Rev., Series 2005 A, 5.00%, 9/1/25 2,141,896 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,980,000 Whittier Health Facilities Rev., (Presbyterian Intercommunity), 6.00%, 6/1/06 (MBIA) $ 4,071,819 - -------------------------------------------------------------------------------- 520,000 Woodland Wastewater System COP, 6.00%, 3/1/06 (Ambac) 528,185 - -------------------------------------------------------------------------------- 394,478,212 - -------------------------------------------------------------------------------- NORTHERN MARIANA ISLANDS -- 0.7% - -------------------------------------------------------------------------------- 1,485,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/08 (ACA) 1,555,849 - -------------------------------------------------------------------------------- 1,555,000 Northern Mariana Islands Commonwealth GO, Series 2000 A, 5.50%, 6/1/09 (ACA) 1,647,492 - -------------------------------------------------------------------------------- 3,203,341 - -------------------------------------------------------------------------------- PUERTO RICO -- 6.7% - -------------------------------------------------------------------------------- 5,000,000 Children's Trust Fund Tobacco Settlement Rev., 5.00%, 7/1/08(1) 5,274,351 - -------------------------------------------------------------------------------- 3,000,000 Puerto Rico Commonwealth Infrastructure Financing Auth. Special Tax Rev., Series 1998 A, 5.50%, 7/1/08 (Ambac) 3,206,760 - -------------------------------------------------------------------------------- 3,700,000 Puerto Rico Electric Power Auth. Rev., Series 2002 II, 5.375%, 7/1/18 (MBIA) 4,148,588 - -------------------------------------------------------------------------------- 2,655,000 Puerto Rico Electric Power Auth. Rev., Series 2002 KK, 5.25%, 7/1/13 (FSA) 2,995,026 - -------------------------------------------------------------------------------- 3,140,000 Puerto Rico Electric Power Auth. Rev., Series 2002 KK, 5.50%, 7/1/14 (FSA) 3,627,673 - -------------------------------------------------------------------------------- 1,450,000 Puerto Rico Municipal Finance Agency GO, Series 1999 B, 6.00%, 8/1/15 (FSA) 1,616,895 - -------------------------------------------------------------------------------- 3,090,000 Puerto Rico Public Buildings Auth. Rev., Series 1995 A, 6.25%, 7/1/09 (Ambac) 3,445,597 - -------------------------------------------------------------------------------- 4,670,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.25%, 7/1/11 5,100,200 - -------------------------------------------------------------------------------- 29,415,090 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 0.5% - -------------------------------------------------------------------------------- 500,000 Virgin Islands Public Finance Auth. Rev., 5.25%, 10/1/22 540,660 - -------------------------------------------------------------------------------- 500,000 Virgin Islands Public Finance Auth. Rev., 5.25%, 10/1/23 539,485 - -------------------------------------------------------------------------------- 1,050,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, 5.50%, 10/1/13 1,106,711 - -------------------------------------------------------------------------------- 2,186,856 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $406,829,414) 429,283,499 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 25 California Intermediate-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 0.1% CALIFORNIA -- 0.1% - -------------------------------------------------------------------------------- $ 250,000 California Department of Water Resources Power Supply Rev., Series 2002 B2, VRDN, 2.35%, 9/1/05 (LOC: BNP Paribas) $ 250,000 - -------------------------------------------------------------------------------- 120,000 California Economic Recovery Rev., Series 2004 C1, VRDN, 2.35%, 9/1/05 (SBBPA: Landesbank Baden-Wuerttemberg) 120,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $370,000) 370,000 - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS -- 0.2% 1,082,000 Federated California Municipal Cash Trust (Cost $1,082,000) $ 1,082,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 98.8% (Cost $408,281,414) 430,735,499 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.2% 5,151,214 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $435,886,713 ================================================================================ FUTURES CONTRACTS* Expiration Underlying Face Unrealized Contracts Sold Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 80 U.S. Treasury 10-Year Notes December 2005 $8,966,250 $(90,204) ================================= *FUTURES CONTRACTS typically are based on an index or specific securities 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 ACA = American Capital Access Ambac = Ambac Assurance Corporationn COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance, Inc. GIC = Guaranteed Investment Contract GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corporation MBIA-IBC = MBIA Insured Bond Certificates SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective August 31, 2005. XLCA = XL Capital Ltd. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated for futures contracts. See Notes to Financial Statements. - ------ 26 California Long-Term Tax-Free - Performance TOTAL RETURNS AS OF AUGUST 31, 2005 ------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- CALIFORNIA LONG-TERM TAX-FREE 5.38% 5.90% 6.07% 7.39% 11/9/83 - -------------------------------------------------------------------------------- LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX 10.52% 8.01% 7.33% 9.23%(1) -- - -------------------------------------------------------------------------------- LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS AVERAGE RETURNS(2) 5.88% 5.51% 5.65% 7.40%(3) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 8/31/05(2) 77 of 127 29 of 103 13 of 68 1 of 1(3) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 9/30/05(2) 82 of 123 28 of 99 16 of 67 1 of 1(3) -- - -------------------------------------------------------------------------------- (1) Since 10/31/83, the date nearest the fund's inception for which data are available. (2) ©2005 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown. This listing might not represent the complete universe of funds tracked by Lipper Inc. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper Inc. - A Reuters Company and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (3) Since 11/10/83, the date nearest the fund's inception for which data are available. 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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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. (continued) - ------ 27 California Long-Term Tax-Free - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made August 31, 1995
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 - ---------------------------------------------------------------------------------------------------- California Long-Term Tax-Free 6.77% 9.70% 9.25% -1.85% 7.79% 10.55% 5.14% 1.81% 6.83% 5.38% - ---------------------------------------------------------------------------------------------------- Lehman Brothers Long-Term Municipal Bond Index 6.88% 11.24% 10.51% -2.14% 7.34% 12.35% 5.62% 2.62% 9.24% 10.52% - ---------------------------------------------------------------------------------------------------- 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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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. - ------ 28 California Long-Term Tax-Free - Portfolio Commentary PORTFOLIO MANAGER: DAVE MACEWEN RETURN SUMMARY & PERSPECTIVE California Long-Term Tax-Free (Cal Long-Term) returned 5.38% for the fiscal year ended August 31, 2005. The fund's benchmark and its Lipper peer group also posted positive returns--the Lehman Brothers Long-Term Municipal Bond Index returned 10.52% and the Lipper California Municipal Debt Funds average return was 5.88%. (See pages 27 and 28.) The outperformance of long-term, high-yield municipal securities helps to explain the fund's performance compared with both of those gauges. From a long-term perspective, Cal Long-Term outperformed the average return of its Lipper peer group for the five- and 10-year periods ended August 31, 2005. YIELD SUMMARY & PERSPECTIVE Our investment objectives are to seek safety of principal and high current income that is exempt from California and federal income taxes. As of August 31, 2005, approximately 70% of the portfolio was invested in debt securities with 10-year or longer maturities, which tend to offer higher yields than shorter-term equivalents. In addition, the fund's 30-day SEC yield finished the fiscal year at 3.58%, translating into attractive tax-equivalent yields for California investors. ECONOMIC REVIEW The U.S. economy grew at a moderate but declining rate during the fiscal year as energy prices, inflation, and short-term interest rates rose. The annualized real rate of GDP growth declined from 4.0% in the third quarter of 2004 to 3.3% in the second quarter of 2005, while crude oil futures jumped from $42.12 a barrel to $68.94, a 64% increase. The 12-month percentage change of "core" CPI (excluding food and energy) climbed from 1.7% in August 2004 to 2.1% in August 2005; core CPI was on track in 2005 to average its highest annual growth rate since 2002. Attempting to keep inflation from escalating further, the Federal Reserve (the Fed) raised its overnight rate target two full percentage points, in eight quarter-point increments, from 1.50% in August 2004 to 3.50% in August 2005. BROAD BOND MARKET REVIEW Though the Fed raised its short-term interest rate target considerably during the fiscal year, longer-term interest rates and bond yields fell and bond prices PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/05 8/31/04 - -------------------------------------------------------------------------------- Weighted Average Maturity 17.9 yrs 14.5 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 5.7 yrs 6.1 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2005 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 3.58% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 31.98% Tax Bracket 5.26% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 5.48% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 5.89% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 6.07% - -------------------------------------------------------------------------------- *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) - ------ 29 California Long-Term Tax-Free - Portfolio Commentary rose. For example, the 30-year Treasury bond's yield fell from 4.93% to 4.26%, generating a total return of 15.39%, better than the S&P 500 Index and the Dow Jones Industrial Average for the period. Lower longer-maturity yields, combined with higher yields for shorter-maturity securities (which rose with the Fed's rate hikes) created a "flatter" Treasury yield curve and helped longer-maturity/duration notes and bonds generally outperform shorter-maturity/ duration notes. Hurricane Katrina contributed to a strong bond market rally at the end of August 2005. The resulting storm damage and high energy prices raised concerns about future economic growth. MUNICIPAL MARKET REVIEW The Lehman Brothers Municipal Bond Index returned 5.31% for the fiscal year, outperforming its taxable counterpart, the Lehman Brothers U.S. Aggregate Index. The municipal yield curve also flattened, causing longer-term municipal bonds to outperform shorter-term notes. But the municipal yield curve did not flatten as much as the Treasury curve, making municipal bond yields attractive compared with Treasury yields--as of August 31, 2005, 30-year AAA-rated general obligation municipals yielded more than 30-year Treasurys! Credit quality also affected performance--lower-quality, higher-yielding bonds tended to outperform investment-grade debt. PORTFOLIO POSITIONING & STRATEGY We attempt to reduce credit risk by buying investment-grade bonds and focusing on security selection with the help of our seasoned municipal credit research team. As of August 31, 2005, the portfolio's weighted average credit quality was AA+ with 69% of the portfolio in AAA holdings. Over the last six months, we shortened the fund's duration due to expectations for interest rates and bond yields to rise. We were right on the mark regarding interest rates, but the already discussed economic factors fueled a surprisingly solid performance by fixed-income securities. So the portfolio's conservative stance, as well as its focus on top-rated bonds, proved disadvantageous. OUR COMMITMENT We remain committed to seeking safety of principal and high current income by investing at least 80% of the fund's assets in debt securities with interest payments exempt from federal and California income taxes. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/05 2/28/05 - -------------------------------------------------------------------------------- AAA 69% 72% - -------------------------------------------------------------------------------- AA 8% 10% - -------------------------------------------------------------------------------- A 11% 8% - -------------------------------------------------------------------------------- BBB 10% 10% - -------------------------------------------------------------------------------- Not Rated 2% -- - -------------------------------------------------------------------------------- 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, 2005 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Certificate of Participation (COPs)/Leases 21% - -------------------------------------------------------------------------------- Tax Allocation Revenue 16% - -------------------------------------------------------------------------------- Water and Sewer Revenue 13% - -------------------------------------------------------------------------------- Hospital Revenue 8% - -------------------------------------------------------------------------------- Escrowed to Maturity 8% - -------------------------------------------------------------------------------- - ------ 30 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.8% CALIFORNIA -- 97.8% - -------------------------------------------------------------------------------- $ 1,190,000 Alameda Corridor Transportation Auth. Rev., Series 1999 A, 5.125%, 10/1/17 (MBIA) $ 1,286,747 - -------------------------------------------------------------------------------- 5,235,000 Antioch Public Financing Auth. Rev., Series 2002 A, (Municipal Facilities), 5.50%, 1/1/32 (MBIA) 5,705,522 - -------------------------------------------------------------------------------- 4,730,000 Antioch Public Financing Auth. Rev., Series 2002 B, (Municipal Facilities), 5.625%, 1/1/22 (MBIA) 5,210,048 - -------------------------------------------------------------------------------- 6,005,000 Antioch Public Financing Auth. Rev., Series 2002 B, (Municipal Facilities), 5.625%, 1/1/27 (MBIA) 6,586,945 - -------------------------------------------------------------------------------- 910,000 Banning COP, (Wastewater System, Refunding & Improvement), 8.00%, 1/1/19 (Ambac) 1,120,237 - -------------------------------------------------------------------------------- 4,135,000 Bell Community Redevelopment Agency Tax Allocation Rev., (Bell Redevelopment Project Area), 5.625%, 10/1/33 (RADIAN) 4,499,707 - -------------------------------------------------------------------------------- 5,195,000 Bell GO, (Election 2003), 5.00%, 8/1/34 (MBIA) 5,533,506 - -------------------------------------------------------------------------------- 1,205,000 Berryessa Union School District GO, Series 2001 B, (Election of 1999), 5.375%, 8/1/17 (FSA) 1,339,020 - -------------------------------------------------------------------------------- 1,205,000 Berryessa Union School District GO, Series 2001 B, (Election of 1999), 5.375%, 8/1/18 (FSA) 1,337,646 - -------------------------------------------------------------------------------- 3,500,000 Big Bear Lake Water Rev., 6.00%, 4/1/22 (MBIA) 4,282,425 - -------------------------------------------------------------------------------- 2,000,000 California Department of Water Resources Rev., Series 2005 AC, (System Central Various), 5.00%, 12/1/25 (MBIA) 2,152,440 - -------------------------------------------------------------------------------- 3,625,000 California Department of Water Resources Rev., Series 2005 AC, (System Central Various), 5.00%, 12/1/26 (MBIA) 3,889,698 - -------------------------------------------------------------------------------- 7,000,000 California Educational Facilities Auth. Rev., (Golden Gate University), 5.00%, 10/1/36 7,107,800 - -------------------------------------------------------------------------------- 4,000,000 California Educational Facilities Auth. Rev., (Pepperdine University), 5.75%, 9/15/08, Prerefunded at 101% of Par(1) 4,365,560 - -------------------------------------------------------------------------------- 2,000,000 California Educational Facilities Auth. Rev., (University of Pacific), 5.25%, 11/1/34 2,135,220 - -------------------------------------------------------------------------------- 8,570,000 California Educational Facilities Auth. Rev., (University of Southern California), 5.50%, 10/1/27 9,304,620 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,920,000 California Educational Facilities Auth. Rev., (Western University Health Sciences), 6.00%, 10/1/32 $ 2,068,339 - -------------------------------------------------------------------------------- 3,035,000 California Educational Facilities Auth. Rev., Series 1997 B, (Pooled College & University Projects), 6.30%, 4/1/07, Prerefunded at 102% of Par(1) 3,250,242 - -------------------------------------------------------------------------------- 1,220,000 California Educational Facilities Auth. Rev., Series 2004 C, (Lutheran University), 5.00%, 10/1/29 1,264,567 - -------------------------------------------------------------------------------- 2,320,000 California Educational Facilities Auth. Rev., Series 2005 A, (Mills College), 5.00%, 9/1/34 2,401,618 - -------------------------------------------------------------------------------- 2,000,000 California Educational Facilities Auth. Rev., Series 2005 A, (University of Redlands), 5.00%, 10/1/35 2,069,760 - -------------------------------------------------------------------------------- 3,000,000 California GO, 6.125%, 10/1/11 (Ambac) 3,463,560 - -------------------------------------------------------------------------------- 5,000,000 California Health Facilities Financing Auth. Rev., (Cedars-Sinai Medical Center), 5.00%, 11/15/34 5,177,200 - -------------------------------------------------------------------------------- 3,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 7.15%, 10/1/09(2) 2,578,740 - -------------------------------------------------------------------------------- 240,000 California Health Facilities Financing Auth. Rev., Series 1992 A, 6.75%, 3/1/20 (California Mortgage Insurance) 240,650 - -------------------------------------------------------------------------------- 1,290,000 California Health Facilities Financing Auth. Rev., Series 1992 C, (AIDS Healthcare Foundation), 6.25%, 9/1/17 (California Mortgage Insurance) 1,290,000 - -------------------------------------------------------------------------------- 5,165,000 California Health Facilities Financing Auth. Rev., Series 1993 C, (St. Francis Memorial Hospital), 5.875%, 11/1/23(1) 6,342,258 - -------------------------------------------------------------------------------- 145,000 California Housing Finance Agency Single Family Mortgage Rev., Series 1998 C4, 5.65%, 8/1/16 146,180 - -------------------------------------------------------------------------------- 4,000,000 California Public Works Board Lease Rev., Series 1993 A, (Department of Corrections), 5.00%, 12/1/19 (Ambac) 4,406,280 - -------------------------------------------------------------------------------- 2,400,000 California Public Works Board Lease Rev., Series 2003 C, (Department of Corrections), 5.00%, 6/1/24 2,538,552 - -------------------------------------------------------------------------------- 6,000,000 California Public Works Board Lease Rev., Series 2005 A, (Department of General Services - Butterfield), 5.25%, 6/1/30 6,484,440 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 31 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 3,135,000 California State Universities and Colleges Rev., 5.75%, 11/1/15 (FGIC) $ 3,213,156 - -------------------------------------------------------------------------------- 3,925,000 California Statewide Communities Development Auth. Rev. COP, (Gemological Institute), 6.75%, 5/1/10 (Connie Lee)(1) 4,323,741 - -------------------------------------------------------------------------------- 14,500,000 California Statewide Communities Development Auth. Rev., Series 1998 A, (Sherman Oaks), 5.00%, 8/1/22 (Ambac)(3) 15,894,086 - -------------------------------------------------------------------------------- 2,250,000 California Statewide Communities Development Auth. Rev., Series 2005 A, (Daughters of Charity Health), 5.25%, 7/1/30 2,374,515 - -------------------------------------------------------------------------------- 3,000,000 California Statewide Communities Development Auth. Rev., Series 2005 A, (Daughters of Charity Health), 5.25%, 7/1/35 3,142,500 - -------------------------------------------------------------------------------- 1,000,000 California Statewide Communities Development Auth. Rev., Series 2005 A, (Thomas Jefferson School of Law), 4.875%, 10/1/35(4) 1,007,490 - -------------------------------------------------------------------------------- 6,060,000 Campbell Redevelopment Agency Tax Allocation Rev., Series 2005 A, 5.00%, 10/1/32 (Ambac) 6,438,083 - -------------------------------------------------------------------------------- 5,695,000 Capistrano Unified School District Community Facilities Special Tax Rev., (Refunding Issue 1988-1), 6.50%, 9/1/14 (FSA) 6,009,934 - -------------------------------------------------------------------------------- 1,275,000 Carson Redevelopment Agency Residential Mortgage COP, (Area No. 1), 5.50%, 10/1/16 (MBIA) 1,470,152 - -------------------------------------------------------------------------------- 1,520,000 Castaic Lake Water Agency COP, Series 1994 A, (Water System Improvement), 7.00%, 8/1/12 (MBIA) 1,846,329 - -------------------------------------------------------------------------------- 1,320,000 Coalinga Public Financing Auth. Local Obligation Rev., Series 1998 A, 6.375%, 9/15/21 (Ambac) 1,695,778 - -------------------------------------------------------------------------------- 13,500,000 Compton Community Redevelopment Agency Tax Allocation Rev., Series 1995 A, 6.50%, 8/1/13 (FSA)(3) 13,810,229 - -------------------------------------------------------------------------------- 2,615,000 Concord Joint Powers Financing Auth. Lease Rev., (Concord Avenue Parking Structure), 5.125%, 3/1/23 2,770,959 - -------------------------------------------------------------------------------- 2,580,000 Concord Joint Powers Financing Auth. Lease Rev., (Police Facilities), 5.25%, 8/1/13 2,873,165 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 2,200,000 Contra Costa Water District Rev., Series 1992 E, 6.25%, 10/1/12 (Ambac) $ 2,496,670 - -------------------------------------------------------------------------------- 3,590,000 Fontana Redevelopment Agency Tax Allocation Rev., (Sierra Corridor), 5.50%, 9/1/34 3,782,639 - -------------------------------------------------------------------------------- 1,975,000 Fresno Sewer Rev., Series 1993 A1, 6.25%, 9/1/14 (Ambac) 2,388,170 - -------------------------------------------------------------------------------- 7,000,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2005 A, 5.00%, 6/1/45 7,304,220 - -------------------------------------------------------------------------------- 9,350,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (Ambac)(3) 10,331,843 - -------------------------------------------------------------------------------- 1,815,000 Kern High School District GO, 7.15%, 8/1/14 (MBIA)(1) 2,309,805 - -------------------------------------------------------------------------------- 1,340,000 Kern High School District GO, Series 1992 C, 6.25%, 8/1/13 (MBIA)(1) 1,605,333 - -------------------------------------------------------------------------------- 3,630,000 Kern High School District GO, Series 1993 D, 7.00%, 8/1/17 (MBIA)(1) 3,703,508 - -------------------------------------------------------------------------------- 1,250,000 Lancaster Financing Auth. Rev., (Projects No. 5 & 6), 5.60%, 2/1/34 1,303,138 - -------------------------------------------------------------------------------- 1,335,000 Little Lake City School District GO, Series 2000 A, 6.125%, 7/1/10, Prerefunded at 101% of Par (FSA)(1) 1,531,272 - -------------------------------------------------------------------------------- 2,240,000 Lodi Unified School District COP, Series 2005 A, (Aspire), 5.00%, 8/1/32 (FGIC) 2,371,891 - -------------------------------------------------------------------------------- 1,605,000 Long Beach Bond Finance Auth. Lease Rev., (Plaza Parking Facility), 5.25%, 11/1/21 1,705,024 - -------------------------------------------------------------------------------- 2,545,000 Los Angeles Community Redevelopment Agency Housing Rev., Series 1994 A, 6.45%, 7/1/17 (Ambac) 2,577,220 - -------------------------------------------------------------------------------- 8,500,000 Los Angeles Department of Water & Power Rev., Series 2001 AA3, (Power Systems), 5.25%, 7/1/24 8,643,225 - -------------------------------------------------------------------------------- 12,810,000 Los Angeles Department of Water & Power Rev., Series 2003 A, 5.00%, 7/1/38 (FGIC) 13,385,424 - -------------------------------------------------------------------------------- 10,580,000 Manteca Redevelopment Agency Rev., (Sub Amended Merged Area), 5.00%, 10/1/36 (Ambac) 11,247,174 - -------------------------------------------------------------------------------- 8,000,000 Metropolitan Water District of Southern California Rev., 5.75%, 8/10/18 9,470,240 - -------------------------------------------------------------------------------- 1,915,000 Mid-Peninsula Regional Open Space District Financing Auth. Rev., 5.90%, 9/1/14 (Ambac) 1,998,226 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 32 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,165,000 Mid-Peninsula Regional Open Space District GO, 7.00%, 9/1/14 $ 2,165,000 - -------------------------------------------------------------------------------- 9,925,000 Modesto, Stockton, Redding Public Power Agency Rev., Series 1989 D, (San Juan), 6.75%, 7/1/20 (MBIA)(1) 12,201,397 - -------------------------------------------------------------------------------- 1,065,000 Mountain View School District Santa Clara County GO, Series 2000 B, 6.125%, 7/1/10, Prerefunded at 101% of Par (FSA)(1) 1,219,510 - -------------------------------------------------------------------------------- 1,000,000 New Haven Unified School District GO, 12.00%, 8/1/18 (FSA) 1,809,000 - -------------------------------------------------------------------------------- 6,110,000 Oakland Redevelopment Agency Tax Allocation Rev., (Central District), 5.50%, 2/1/14 (Ambac) 6,829,147 - -------------------------------------------------------------------------------- 1,680,000 Oceanside COP, Series 2003 A, 5.25%, 4/1/17 (Ambac) 1,840,877 - -------------------------------------------------------------------------------- 7,130,000 Ontario COP, (Water System Improvement), 5.00%, 7/1/29 (MBIA) 7,544,253 - -------------------------------------------------------------------------------- 4,650,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1- Ladera Ranch), 5.20%, 8/15/34 4,729,562 - -------------------------------------------------------------------------------- 2,000,000 Orange County Special Assessment, 5.00%, 9/2/28 2,019,600 - -------------------------------------------------------------------------------- 2,000,000 Orange County Special Assessment, 5.10%, 9/2/33 2,021,720 - -------------------------------------------------------------------------------- 3,100,000 Oxnard School District GO, Series 2001 A, 5.75%, 8/1/22 (MBIA) 3,777,164 - -------------------------------------------------------------------------------- 2,695,000 Pasadena COP, (Old Pasadena Parking Facility), 6.25%, 1/1/18 3,148,622 - -------------------------------------------------------------------------------- 2,500,000 Pico Rivera Water Auth. Rev., Series 1999 A, (Water Systems), 5.50%, 5/1/29 (MBIA) 2,971,300 - -------------------------------------------------------------------------------- 4,475,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development), 6.20%, 8/1/07, Prerefunded at 102% of Par(1) 4,833,134 - -------------------------------------------------------------------------------- 5,000,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development), 6.25%, 8/1/07, Prerefunded at 102% of Par(1) 5,404,750 - -------------------------------------------------------------------------------- 1,130,000 Pomona COP, Series 2002 AE, (Mission Promenade), 5.375%, 10/1/19 (Ambac) 1,232,141 - -------------------------------------------------------------------------------- 1,000,000 Pomona Unified School District GO, Series 2000 A, 6.55%, 8/1/29 (MBIA) 1,342,280 - -------------------------------------------------------------------------------- 1,000,000 Pomona Unified School District GO, Series 2001 A, 6.15%, 8/1/30 (MBIA) 1,244,830 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,110,000 Poway Redevelopment Agency COP, (Paguay Redevelopment), 5.375%, 12/15/20 (Ambac) $ 1,222,876 - -------------------------------------------------------------------------------- 585,000 Redlands Unified School District COP, 6.00%, 9/1/12 (FSA) 586,533 - -------------------------------------------------------------------------------- 2,500,000 Riverside County COP, Series 2005 A, (Family Law), 5.00%, 11/1/36 (FGIC) 2,658,650 - -------------------------------------------------------------------------------- 5,000,000 Riverside County Redevelopment Agency Tax Allocation Rev., Series 2004 A, (Housing), 5.00%, 10/1/37 (XLCA) 5,255,350 - -------------------------------------------------------------------------------- 1,580,000 Riverside Redevelopment Agency Rev., Series 2004 A, (Tax Allocation), 5.00%, 8/1/28 (FGIC) 1,676,159 - -------------------------------------------------------------------------------- 1,500,000 Sacramento City Financing Auth. Lease Rev., Series 1993 A, 5.40%, 11/1/20 (Ambac) 1,754,745 - -------------------------------------------------------------------------------- 1,000,000 Sacramento City Financing Auth. Rev., 5.50%, 6/1/10, Prerefunded at 101% of Par(1) 1,115,620 - -------------------------------------------------------------------------------- 1,915,000 Sacramento City Financing Auth. Rev., 5.60%, 6/1/10, Prerefunded at 101% of Par(1) 2,144,819 - -------------------------------------------------------------------------------- 4,000,000 Sacramento County Sanitation District Rev., 5.00%, 8/1/35 (MBIA) 4,285,720 - -------------------------------------------------------------------------------- 1,000,000 Saddleback Valley Unified School District Public Financing Auth. Special Tax Rev., Series 1997 A, 6.00%, 9/1/16 (FSA) 1,198,790 - -------------------------------------------------------------------------------- 1,345,000 San Diego Community College District Lease Rev., 6.125%, 12/1/06, Prerefunded at 102% of Par (MBIA)(1) 1,426,077 - -------------------------------------------------------------------------------- 10,400,000 San Diego County COP, 5.625%, 9/1/12 (Ambac) 11,806,495 - -------------------------------------------------------------------------------- 4,640,000 San Diego County COP, (Burnham Institute), 6.25%, 9/1/29 4,893,762 - -------------------------------------------------------------------------------- 5,185,000 San Francisco City & County Redevelopment Financing Auth. Tax Allocation Rev., (Mission Bay North Project D), 5.00%, 8/1/35 5,287,663 - -------------------------------------------------------------------------------- 1,955,000 San Jose Unified School District GO, Series 2005 B, (Election 2002), 5.00%, 8/1/29 (FGIC) 2,097,950 - -------------------------------------------------------------------------------- 2,715,000 San Marcos Public Facilities Auth. Rev., Series 2000 A, (Tax Increment Project Area 3), 6.75%, 10/1/30 2,969,341 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 33 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,000,000 San Marcos Public Facilities Auth. Tax Allocation Rev., (Project Areas No. 2 & 3 Financing), 5.00%, 8/1/38 (Ambac) $ 2,141,940 - -------------------------------------------------------------------------------- 3,535,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 6.50%, 7/1/15 (MBIA) 4,297,570 - -------------------------------------------------------------------------------- 4,000,000 San Mateo County Joint Powers Auth. Lease Rev., (Capital Projects Program), 6.00%, 7/1/19 (MBIA) 4,869,640 - -------------------------------------------------------------------------------- 3,355,000 Santa Barbara County GO, 5.50%, 10/1/22 (Ambac) 3,760,519 - -------------------------------------------------------------------------------- 2,000,000 Santa Margarita-Dana Point Auth. Rev., Series 1994 B, (Improvement Districts 3, 3A, 4, 4A), 7.25%, 8/1/14 (MBIA) 2,563,580 - -------------------------------------------------------------------------------- 1,285,000 Santa Rosa Redevelopment Agency Tax Allocation Rev., Series 2005 A, 5.00%, 8/1/25 (Ambac) 1,380,039 - -------------------------------------------------------------------------------- 1,150,000 Santa Rosa Redevelopment Agency Tax Allocation Rev., Series 2005 A, 5.00%, 8/1/27 (Ambac) 1,228,281 - -------------------------------------------------------------------------------- 2,470,000 Shasta Lake Public Finance Auth. Rev., 5.00%, 4/1/25 2,526,538 - -------------------------------------------------------------------------------- 2,430,000 Sierra Joint Community College District GO, Series 2005 A, 5.00%, 8/1/29 (FGIC) 2,592,810 - -------------------------------------------------------------------------------- 2,500,000 South Coast Air Quality Management District Building Corp. Rev., (Installment Sale Headquarters), 6.00%, 8/1/11 (Ambac) 2,860,025 - -------------------------------------------------------------------------------- 2,705,000 South Gate COP, Series 2002 A, 5.50%, 9/1/21 (Ambac) 3,055,460 - -------------------------------------------------------------------------------- 2,000,000 South Gate Public Financing Auth. Tax Allocation Rev., (Redevelopment Project No. 1), 5.75%, 9/1/22 (XLCA) 2,288,440 - -------------------------------------------------------------------------------- 2,315,000 South Tahoe Joint Powers Financing Auth. Rev., Series 2005 A, 5.00%, 10/1/28 (Ambac) 2,470,800 - -------------------------------------------------------------------------------- 7,315,000 Southern California Public Power Auth. Rev., (Multiple Projects), 6.75%, 7/1/12 (FSA) 8,800,091 - -------------------------------------------------------------------------------- 3,730,000 Southern California Public Power Auth. Rev., (Multiple Projects), 6.75%, 7/1/13 (FSA) 4,515,650 - -------------------------------------------------------------------------------- 2,000,000 Southern Orange County Finance Auth. Special Tax Rev., Series 1994 A, 7.00%, 9/1/11 (MBIA) 2,392,020 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,450,000 Stanton Redevelopment Agency Tax Allocation Rev., (Community Development), 5.45%, 12/1/17 (Ambac) $ 1,473,635 - -------------------------------------------------------------------------------- 2,850,000 Stockton Health Facilities Auth. Rev., Series 1997 A, (Dameron Hospital Association), 5.70%, 12/1/14 2,998,257 - -------------------------------------------------------------------------------- 1,255,000 Sweetwater Auth. Water Rev., 5.50%, 4/1/10, Prerefunded at 101% of Par (FSA)(1) 1,396,200 - -------------------------------------------------------------------------------- 1,325,000 Sweetwater Auth. Water Rev., 5.50%, 4/1/10, Prerefunded at 101% of Par (FSA)(1) 1,474,076 - -------------------------------------------------------------------------------- 2,000,000 Taft Public Financing Auth. Lease Rev., Series 1997 A, (Community Correctional Facility), 6.05%, 1/1/17 2,077,000 - -------------------------------------------------------------------------------- 2,885,000 Torrance COP, Series 2005 B, (Refinancing & Public Improvement), 5.25%, 6/1/34 (Ambac) 3,132,216 - -------------------------------------------------------------------------------- 1,215,000 Turlock COP, (Emanuel Medical Center Inc.), 5.50%, 10/15/18 1,316,841 - -------------------------------------------------------------------------------- 1,285,000 Turlock COP, (Emanuel Medical Center Inc.), 5.50%, 10/15/19 1,388,687 - -------------------------------------------------------------------------------- 2,500,000 Ukiah Electric Rev., 6.25%, 6/1/18 (MBIA) 2,991,075 - -------------------------------------------------------------------------------- 1,000,000 University of California Rev., Series 2004 A, (UCLA Medical Center), 5.50%, 5/15/24 (Ambac) 1,117,390 - -------------------------------------------------------------------------------- 1,000,000 University of California Rev., Series 2005 F, 4.75%, 5/15/35 (FSA) 1,031,960 - -------------------------------------------------------------------------------- 1,445,000 Walnut Valley Unified School District GO, Series 1992 B, 6.00%, 8/1/10 (Ambac)(1) 1,636,954 - -------------------------------------------------------------------------------- 3,020,000 Watsonville Insured Hospital Rev., Series 1996 A, (Community Hospital), 6.20%, 7/1/12 (California Mortgage Insurance)(1) 3,429,452 - -------------------------------------------------------------------------------- 1,675,000 Western Riverside County Trust & Wastewater Finance Auth. Rev., Series 2005 A, 5.00%, 9/1/35 1,752,837 - -------------------------------------------------------------------------------- 4,525,000 Woodland COP, (Wastewater System Reference), 5.75%, 3/1/12 (Ambac) 5,133,432 - -------------------------------------------------------------------------------- 465,412,918 - -------------------------------------------------------------------------------- PUERTO RICO -- 1.0% - -------------------------------------------------------------------------------- 4,000,000 Puerto Rico Electric Power Auth. Rev., Series 2002 II, 5.375%, 7/1/17 (XLCA) 4,490,160 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $435,348,922) 469,903,078 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 34 California Long-Term Tax-Free - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL DERIVATIVES -- 0.2% CALIFORNIA -- 0.2% - -------------------------------------------------------------------------------- $ 1,000,000 San Diego County Water Auth. Rev. COP, (Registration Rites), Yield Curve Notes, Inverse Floater, 9.01%, 9/1/05 (FGIC)(5) (Cost $1,024,358) $ 1,178,120 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 0.2% CALIFORNIA -- 0.2% - -------------------------------------------------------------------------------- 340,000 California GO, Series 2003 A1, VRDN, 2.35%, 9/1/05 (LOC: Westdeutsche Landesbank AG and JP Morgan Chase Bank) 340,000 - -------------------------------------------------------------------------------- 150,000 California GO, Series 2004-3A, (Daily Kindergarten University), VRDN, 2.35%, 9/1/05 (LOC: Citibank N.A., California State Teacher's Retirement) 150,000 - -------------------------------------------------------------------------------- Principal Amount/Shares Value - -------------------------------------------------------------------------------- $ 500,000 Irvine Improvement Bond Act 1915 Special Assessment, (District No. 93-14), VRDN, 2.26%, 9/1/05 (LOC: Bank of America N.A.) $ 500,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $990,000) 990,000 - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS(6) 76,000 Federated California Municipal Cash Trust (Cost $76,000) 76,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 99.2% (Cost $437,439,280) 472,147,198 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 0.8% 3,806,545 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $475,953,743 ================================================================================ FUTURES CONTRACTS* Expiration Underlying Face Unrealized Contracts Sold Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 300 U.S. Treasury 10-Year Notes December 2005 $33,623,438 $(338,175) ================================= *FUTURES CONTRACTS typically are based on an index or specific securities 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. FSA = Financial Security Assurance, Inc. GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corporation RADIAN = Radian Asset Assurance, Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective August 31, 2005. XLCA = XL Capital Ltd. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) 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. (3) Security, or a portion thereof, has been segregated for a when-issued security and/or futures contract. (4) When-issued security. (5) 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. (6) Category is less than 0.05% of total net assets. See Notes to Financial Statements. - ------ 35 Shareholder Fee Examples (Unaudited) 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, 2005 to August 31, 2005. 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 your 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) - ------ 36 Shareholder Fee Examples (Unaudited) 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 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. - -------------------------------------------------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE 3/1/05 - EXPENSE 3/1/05 8/31/05 8/31/05 RATIO* - -------------------------------------------------------------------------------- CALIFORNIA TAX-FREE MONEY MARKET INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- Actual $1,000 $1,009.50 $2.63 0.52% - -------------------------------------------------------------------------------- Hypothetical $1,000 $1,022.58 $2.65 0.52% - -------------------------------------------------------------------------------- CALIFORNIA LIMITED-TERM TAX-FREE INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- Actual $1,000 $1,010.50 $2.48 0.49% - -------------------------------------------------------------------------------- Hypothetical $1,000 $1,022.74 $2.50 0.49% - -------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE-TERM TAX-FREE INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- Actual $1,000 $1,020.60 $2.50 0.49% - -------------------------------------------------------------------------------- Hypothetical $1,000 $1,022.74 $2.50 0.49% - -------------------------------------------------------------------------------- CALIFORNIA LONG-TERM TAX-FREE INVESTOR CLASS SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- Actual $1,000 $1,027.00 $2.50 0.49% - -------------------------------------------------------------------------------- Hypothetical $1,000 $1,022.74 $2.50 0.49% - -------------------------------------------------------------------------------- *Expenses are equal to the class'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 365, to reflect the one-half year period. - ------ 37 Statement of Assets and Liabilities AUGUST 31, 2005 - ---------------------------------------------------------------------------------------------------- CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA TAX-FREE LIMITED-TERM INTERMEDIATE- LONG-TERM MONEY MARKET TAX-FREE TERM TAX-FREE TAX-FREE - ---------------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------------- Investment securities -- unaffiliated,at value (cost of $605,804,592, $179,279,489, $408,281,414, and $437,439,280, respectively) $605,804,592 $183,271,881 $430,735,499 $472,147,198 - ------------------------------------ Investment securities -- affiliated, at value (cost of --, $2,000,220, - --, and --, respectively) -- 2,000,220 -- -- - ------------------------------------ Cash 697,115 -- -- -- - ------------------------------------ Receivable for investments sold 8,985,000 -- -- -- - ------------------------------------ Receivable for capital shares sold -- 9,329 194,428 26,603 - ------------------------------------ Interest receivable 2,285,744 1,828,044 5,582,627 5,923,743 - ------------------------------------ Prepaid portfolio insurance 44,569 -- -- -- - ---------------------------------------------------------------------------------------------------- 617,817,020 187,109,474 436,512,554 478,097,544 - ---------------------------------------------------------------------------------------------------- LIABILITIES - ---------------------------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash -- 278,748 41,553 238,363 - ------------------------------------ Payable for investments purchased -- 5,172,615 -- 991,400 - ------------------------------------ Payable for variation margin on futures contracts -- 54,500 40,000 150,000 - ------------------------------------ Accrued management fees 260,164 75,748 178,322 195,174 - ------------------------------------ Dividends payable 201,043 111,395 365,966 568,864 - ---------------------------------------------------------------------------------------------------- 461,207 5,693,006 625,841 2,143,801 - ---------------------------------------------------------------------------------------------------- NET ASSETS $617,355,813 $181,416,468 $435,886,713 $475,953,743 ==================================================================================================== CAPITAL SHARES - ---------------------------------------------------------------------------------------------------- Outstanding (unlimited number of shares authorized) 617,419,613 17,222,695 38,483,814 40,398,429 ==================================================================================================== NET ASSET VALUE PER SHARE $1.00 $10.53 $11.33 $11.78 ==================================================================================================== NET ASSETS CONSIST OF: - ---------------------------------------------------------------------------------------------------- Capital paid in $617,419,613 $179,209,713 $413,500,272 $433,457,047 - ------------------------------------ Undistributed net investment income 35,191 -- -- 25,042 - ------------------------------------ Accumulated undistributed net realized gain (loss) on investment transactions (98,991) (1,675,001) 22,560 8,101,911 - ------------------------------------ Net unrealized appreciation (depreciation)on investments -- 3,881,756 22,363,881 34,369,743 - ---------------------------------------------------------------------------------------------------- $617,355,813 $181,416,468 $435,886,713 $475,953,743 ==================================================================================================== See Notes to Financial Statements. - ------ 38 Statement of Operations YEAR ENDED AUGUST 31, 2005 - ---------------------------------------------------------------------------------------------------- CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA TAX-FREE LIMITED-TERM INTERMEDIATE- LONG-TERM MONEY MARKET TAX-FREE TERM TAX-FREE TAX-FREE - ---------------------------------------------------------------------------------------------------- INVESTMENT INCOME - ---------------------------------------------------------------------------------------------------- INCOME: - ------------------------------------ Interest $12,379,317 $ 7,060,798 $19,070,708 $23,022,691 - ---------------------------------------------------------------------------------------------------- EXPENSES: - ------------------------------------ Management fees 2,972,854 984,740 2,065,496 2,300,100 - ------------------------------------ Trustees' fees and expenses 28,397 9,629 19,852 22,162 - ------------------------------------ Portfolio insurance 114,159 -- -- -- - ------------------------------------ Other expenses 26,085 2,119 1,083 1,414 - ---------------------------------------------------------------------------------------------------- 3,141,495 996,488 2,086,431 2,323,676 - ---------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 9,237,822 6,064,310 16,984,277 20,699,015 - ---------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - ---------------------------------------------------------------------------------------------------- Net realized gain (loss) on investment transactions (58,216) (775,383) 1,072,107 9,883,190 - ------------------------------------ Change in net unrealized appreciation on investments -- (2,639,000) (4,316,232) (6,109,073) - ---------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (58,216) (3,414,383) (3,244,125) 3,774,117 - ---------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,179,606 $ 2,649,927 $13,740,152 $24,473,132 ==================================================================================================== See Notes to Financial Statements. - ------ 39 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2005 AND AUGUST 31, 2004 - ---------------------------------------------------------------------------------------------------- CALIFORNIA TAX-FREE CALIFORNIA LIMITED-TERM MONEY MARKET TAX-FREE - ---------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2005 2004 2005 2004 - ---------------------------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------------------------- Net investment income $ 9,237,822 $ 3,567,066 $ 6,064,310 $ 5,974,260 - ------------------------------------ Net realized gain (loss) (58,216) 164,580 (775,383) (899,680) - ------------------------------------ Change in net unrealized appreciation (depreciation) -- -- (2,639,000) 933,894 - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 9,179,606 3,731,646 2,649,927 6,008,474 - ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------------------------- From net investment income (9,239,818) (3,615,059) (6,064,310) (5,974,260) - ------------------------------------ From net realized gain -- -- -- (60,656) - ---------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from distributions (9,239,818) (3,615,059) (6,064,310) (6,034,916) - ---------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ---------------------------------------------------------------------------------------------------- Proceeds from shares sold 396,325,080 568,773,384 37,323,721 68,928,584 - ------------------------------------ Proceeds from reinvestment of distributions 7,618,474 3,017,714 4,769,915 4,484,702 - ------------------------------------ Payments for shares redeemed (387,409,633) (592,773,008) (77,212,251) (81,467,813) - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 16,533,921 (20,981,910) (35,118,615) (8,054,527) - ---------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 16,473,709 (20,865,323) (38,532,998) (8,080,969) NET ASSETS - ---------------------------------------------------------------------------------------------------- Beginning of period 600,882,104 621,747,427 219,949,466 228,030,435 - ---------------------------------------------------------------------------------------------------- End of period $ 617,355,813 $ 600,882,104 $181,416,468 $219,949,466 ==================================================================================================== Undistributed net investment income $35,191 $1,996 -- -- ==================================================================================================== TRANSACTIONS IN SHARES OF THE FUNDS - ---------------------------------------------------------------------------------------------------- Sold 396,325,080 568,773,384 3,516,615 6,402,252 - ------------------------------------ Issued in reinvestment of distributions 7,618,474 3,017,714 450,191 417,385 - ------------------------------------ Redeemed (387,409,633) (592,773,008) (7,283,420) (7,592,192) - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in shares of the funds 16,533,921 (20,981,910) (3,316,614) (772,555) ==================================================================================================== See Notes to Financial Statements. (continued) - ------ 40 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2005 AND AUGUST 31, 2004 - ---------------------------------------------------------------------------------------------------- CALIFORNIA INTERMEDIATE-TERM CALIFORNIA LONG-TERM TAX-FREE TAX-FREE - ---------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2005 2004 2005 2004 - ---------------------------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------------------------- Net investment income $ 16,984,277 $ 17,002,416 $ 20,699,015 $ 21,267,930 - ------------------------------------ Net realized gain (loss) 1,072,107 (776,749) 9,883,190 (1,756,223) - ------------------------------------ Change in net unrealized appreciation (depreciation) (4,316,232) 5,888,037 (6,109,073) 12,678,939 - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 13,740,152 22,113,704 24,473,132 32,190,646 - ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------------------------- From net investment income (16,984,277) (17,002,416) (20,699,015) (21,411,265) - ------------------------------------ From net realized gain -- -- -- (174,471) - ---------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from distributions (16,984,277) (17,002,416) (20,699,015) (21,585,736) - ---------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ---------------------------------------------------------------------------------------------------- Proceeds from shares sold 64,497,591 50,224,370 39,091,188 46,144,755 - ------------------------------------ Proceeds from reinvestment of distributions 12,613,777 12,454,672 13,833,162 14,485,976 - ------------------------------------ Payments for shares redeemed (56,635,099) (100,267,211) (49,635,245) (99,510,535) - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 20,476,269 (37,588,169) 3,289,105 (38,879,804) - ---------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 17,232,144 (32,476,881) 7,063,222 (28,274,894) NET ASSETS - ---------------------------------------------------------------------------------------------------- Beginning of period 418,654,569 451,131,450 468,890,521 497,165,415 - ---------------------------------------------------------------------------------------------------- End of period $435,886,713 $ 418,654,569 $475,953,743 $468,890,521 ==================================================================================================== Undistributed net investment income -- -- $25,042 -- ==================================================================================================== TRANSACTIONS IN SHARES OF THE FUNDS - ---------------------------------------------------------------------------------------------------- Sold 5,691,790 4,389,217 3,331,527 3,952,532 - ------------------------------------ Issued in reinvestment of distributions 1,111,967 1,091,123 1,178,722 1,243,981 - ------------------------------------ Redeemed (4,999,187) (8,793,299) (4,238,058) (8,557,548) - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in shares of the funds 1,804,570 (3,312,959) 272,191 (3,361,035) ==================================================================================================== See Notes to Financial Statements. - ------ 41 Notes to Financial Statements AUGUST 31, 2005 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 funds determine that the market price of a portfolio security is not readily available, or that the valuation methods mentioned above do not reflect the security's fair value, such security is valued at its fair value as determined by, or in accordance with procedures adopted by, the Board of Trustees or its designee if such fair value determination would materially impact a fund's net asset value. Circumstances that may cause the fund to fair value a security include: 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; or trading in a security has been halted during the trading day. 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 the funds' 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. INDEMNIFICATIONS -- Under the trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. (continued) - ------ 42 Notes to Financial Statements AUGUST 31, 2005 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In addition, in the normal course of business, the funds enter into contracts that provide general indemnifications. The funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. The risk of material loss from such claims is considered by management to be remote. 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 American Century Investment Management, Inc. (ACIM) (the investment advisor), 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 advisor that are in the same broad investment category as each fund and (2) a Complex Fee based on the assets of all the funds in the American Century family of funds. 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, 2005, the effective annual management fee was 0.49% for each of the funds. MONEY MARKET INSURANCE -- Effective February 1, 2005, Tax-Free Money Market, along with other money market funds managed by ACIM, have entered into an insurance agreement with Ambac Assurance Corporation (Ambac). Ambac provides limited coverage for certain loss events including issuer defaults as to payment of principal or interest and insolvency of a credit enhancement provider. Tax-Free Money Market pays annual premiums to Ambac, which are amortized daily over one year. Through January 31, 2005, Tax-Free Money Market, along with other money market funds managed by ACIM, had entered into an insurance agreement with MBIA Insurance Corporation. For the year ended August 31, 2005, the annualized ratio of money market insurance expense to average net assets was 0.02%. 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 advisor, ACIM, the distributor of the trust, American Century Investment Services, Inc., and the trust's transfer agent, American Century Services, LLC (formerly 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 custodian of the funds and a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. As of August 31, 2005, Limited-Term had invested $2,000,220 in shares of Tax-Free Money Market. The terms of the transaction were identical to those with nonrelated entities except that, to avoid duplicative investment advisory fees and administrative fees, Limited-Term did not pay ACIM management fees with respect to assets invested in shares of Tax-Free Money Market. (continued) - ------ 43 Notes to Financial Statements AUGUST 31, 2005 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the year ended August 31, 2005, were as follows: - -------------------------------------------------------------------------------- INTERMEDIATE- LIMITED-TERM TERM LONG-TERM - -------------------------------------------------------------------------------- Cost of purchases $145,726,092 $175,181,186 $173,915,982 - -------------------------------------------------------------------------------- Proceeds from sales $184,071,045 $142,375,650 $160,981,322 - -------------------------------------------------------------------------------- All investment transactions for Tax-Free Money Market were considered short-term during the year ended August 31, 2005. 4. BANK LINE OF CREDIT Limited-Term, Intermediate-Term and Long-Term, along with certain other funds managed by ACIM or American Century Global Investment Management, Inc. (ACGIM), have a $575,000,000 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, 2005. 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. CORPORATE EVENT On May 26, 2005, the Trustees approved a name and policy change for Intermediate-Term. Effective January 1, 2006, the fund will be renamed to California Tax-Free Bond Fund and its investment policy will be broadened to allow its portfolio to hold investment-grade securities of all maturity ranges. 7. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended August 31, 2005 and August 31, 2004 were as follows: - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET LIMITED-TERM - -------------------------------------------------------------------------------- 2005 2004 2005 2004 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $9,239,818 $3,615,059 $6,064,310 $5,974,260 - -------------------------------------------------------------------------------- Long-term capital gains -- -- -- $60,656 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INTERMEDIATE-TERM LONG-TERM - -------------------------------------------------------------------------------- 2005 2004 2005 2004 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $16,984,277 $17,002,416 $20,699,015 $21,411,265 - -------------------------------------------------------------------------------- Long-term capital gains -- -- -- $174,471 - -------------------------------------------------------------------------------- (continued) - ------ 44 Notes to Financial Statements AUGUST 31, 2005 7. FEDERAL TAX INFORMATION (CONTINUED) 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. As of August 31, 2005, 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 $605,804,592 $181,279,709 $408,281,414 $437,439,280 ==================================================================================================== Gross tax appreciation of investments -- $4,052,301 $22,476,995 $34,745,538 - ----------------------------------- Gross tax depreciation of investments -- (59,909) (22,910) (37,620) - ---------------------------------------------------------------------------------------------------- Net tax appreciation (depreciation) of investments -- $3,992,392 $22,454,085 $34,707,918 ==================================================================================================== Undistributed ordinary income $35,191 -- -- $25,042 - ----------------------------------- Accumulated long-term gains -- -- -- $7,763,736 - ----------------------------------- Accumulated capital losses -- $(905,690) $(67,644) -- - ----------------------------------- Capital loss deferral $(98,991) $(879,947) -- -- - ---------------------------------------------------------------------------------------------------- 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: - -------------------------------------------------------------------------------- 2012 2013 - -------------------------------------------------------------------------------- Limited-Term -- $(905,690) - -------------------------------------------------------------------------------- Intermediate-Term $(67,644) -- - -------------------------------------------------------------------------------- The capital loss deferrals represent net capital losses incurred in the ten-month period ended August 31, 2005. The funds have elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. 8. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The funds hereby designate exempt interest and capital gain distributions for the fiscal year ended August 31, 2005, as follows: - -------------------------------------------------------------------------------- TAX-FREE INTERMEDIATE- MONEY MARKET LIMITED-TERM TERM LONG-TERM - -------------------------------------------------------------------------------- Exempt interest distributions $9,053,828 $6,056,882 $16,965,331 $20,681,272 - -------------------------------------------------------------------------------- Long-term capital gains $35,191 -- -- -- - -------------------------------------------------------------------------------- - ------ 45 California Tax-Free Money Market - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 - -------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------- 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 0.02 0.01 0.01 0.01 0.03 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.02) (0.01) (0.01) (0.01) (0.03) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 ================================================================================ TOTAL RETURN(1) 1.54% 0.58% 0.73% 1.24% 2.86% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.52% 0.52% 0.51% 0.51% 0.50% - ------------------------- Ratio of Net Investment Income to Average Net Assets 1.53% 0.57% 0.76% 1.24% 2.84% - ------------------------- Net Assets, End of Period (in thousands) $617,356 $600,882 $621,747 $528,188 $551,722 - -------------------------------------------------------------------------------- (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 - -------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.71 $10.70 $10.82 $10.69 $10.40 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.32 0.28 0.30 0.35 0.42 - ------------------------- Net Realized and Unrealized Gain (Loss) (0.18) 0.01 (0.10) 0.16 0.29 - -------------------------------------------------------------------------------- Total From Investment Operations 0.14 0.29 0.20 0.51 0.71 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.32) (0.28) (0.30) (0.35) (0.42) - ------------------------- From Net Realized Gains -- --(1) (0.02) (0.03) -- - -------------------------------------------------------------------------------- Total Distributions (0.32) (0.28) (0.32) (0.38) (0.42) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.53 $10.71 $10.70 $10.82 $10.69 ================================================================================ TOTAL RETURN(2) 1.33% 2.75% 1.87% 4.91% 6.94% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.49% 0.50% 0.51% 0.51% 0.51% - ------------------------- Ratio of Net Investment Income to Average Net Assets 3.01% 2.59% 2.78% 3.30% 3.97% - ------------------------- Portfolio Turnover Rate 78% 55% 34% 50% 63% - ------------------------- Net Assets, End of Period (in thousands) $181,416 $219,949 $228,030 $205,066 $163,929 - -------------------------------------------------------------------------------- (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 - -------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.41 $11.28 $11.55 $11.47 $11.08 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.46 0.44 0.45 0.47 0.50 - ------------------------- Net Realized and Unrealized Gain (Loss) (0.08) 0.13 (0.23) 0.15 0.39 - -------------------------------------------------------------------------------- Total From Investment Operations 0.38 0.57 0.22 0.62 0.89 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.46) (0.44) (0.45) (0.47) (0.50) - ------------------------- From Net Realized Gains -- -- (0.04) (0.07) -- - -------------------------------------------------------------------------------- Total Distributions (0.46) (0.44) (0.49) (0.54) (0.50) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.33 $11.41 $11.28 $11.55 $11.47 ================================================================================ TOTAL RETURN(1) 3.36% 5.13% 1.91% 5.63% 8.22% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.49% 0.50% 0.51% 0.51% 0.51% - ------------------------- Ratio of Net Investment Income to Average Net Assets 4.02% 3.87% 3.89% 4.13% 4.45% - ------------------------- Portfolio Turnover Rate 34% 20% 25% 41% 94% - ------------------------- Net Assets, End of Period (in thousands) $435,887 $418,655 $451,131 $477,494 $449,975 - -------------------------------------------------------------------------------- (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 - -------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.69 $11.43 $11.75 $11.70 $11.11 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.52 0.51 0.53 0.53 0.55 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.09 0.26 (0.32) 0.05 0.59 - -------------------------------------------------------------------------------- Total From Investment Operations 0.61 0.77 0.21 0.58 1.14 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.52) (0.51) (0.53) (0.53) (0.55) - ------------------------- From Net Realized Gains -- --(1) -- -- -- - -------------------------------------------------------------------------------- Total Distributions (0.52) (0.51) (0.53) (0.53) (0.55) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.78 $11.69 $11.43 $11.75 $11.70 ================================================================================ TOTAL RETURN(2) 5.38% 6.83% 1.81% 5.14% 10.55% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.49% 0.50% 0.51% 0.51% 0.51% - ------------------------- Ratio of Net Investment Income to Average Net Assets 4.40% 4.39% 4.54% 4.58% 4.87% - ------------------------- Portfolio Turnover Rate 36% 19% 23% 43% 31% - ------------------------- Net Assets, End of Period (in thousands) $475,954 $468,891 $497,165 $327,150 $331,090 - -------------------------------------------------------------------------------- (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, California Limited-Term Tax-Free Fund, California Intermediate-Term Tax-Free Fund and 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, 2005, 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). Those standards 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, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Kansas City, Missouri October 12, 2005 - ------ 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. 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, direct or indirect, 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, LLC (ACS LLC). The other trustees (more than three-fourths of the total number) are independent; that is, they have never been employees or officers of, and have no financial interest in, ACC or any of its wholly-owned, direct or indirect, subsidiaries, including ACIM, ACIS, and ACS LLC. 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 or American Century Global Investment Management, Inc. (ACGIM), a wholly owned subsidiary of 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 - -------------------------------------------------------------------------------- ANTONIO CANOVA, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1961 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer, Brocade Communications Systems, Inc. (May 2001 to present); Vice President- Administration, Brocade Communications Systems, Inc. (November 2004 to present); Vice President-Finance, Brocade Communications Systems, Inc. (November 2000 to November 2004); Vice President, Chief Financial Officer and Secretary, Wireless Inc. (April 2000 to November 2000) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- JOHN FREIDENRICH, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1937 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member and Manager, Regis Management Company, LLC (April 2004 to present); Partner and Founder, Bay Partners (Venture capital firm, 1976 to present); Partner and Founder, Ware & Freidenrich (1968 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ------ 51 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board 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); Marc and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present); NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- 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: Co-Chief Executive Officer 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: None - -------------------------------------------------------------------------------- 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: Chairman, Oak Hill Platinum Partners, and a Partner, Oak Hill Capital Management (1999 to present); Frank E. Buck Professor of Finance-Emeritus, 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, Chicago Mercantile Exchange (2000 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, Quintus Corporation (automation solutions, 1995 to present) - -------------------------------------------------------------------------------- (continued) - ------ 52 Management INTERESTED TRUSTEE - -------------------------------------------------------------------------------- WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC (September 2000 to present); President, ACC (June 1997 to present); Chief Operating Officer, ACC (June 1996 to September 2000); Also serves as: Chief Executive Officer and President, ACIS, ACGIM, ACIM and other ACC subsidiaries; Executive Vice President, ACS LLC; Director, ACC, ACGIM, ACIM, ACIS, ACS LLC and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- 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); Executive Vice President, ACC (May 1995 to present); Also serves as: Chief Executive Officer, Chief Financial Officer and President, ACS LLC; Chief Financial Officer and Executive Vice President, ACGIM, ACIM, ACIS and other ACC subsidiaries; Treasurer, ACGIM, ACIM and other ACC subsidiaries; Director, ACC and other ACC subsidiaries - -------------------------------------------------------------------------------- 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: Assistant Treasurer, ACC (January 1995 to present); Also serves as: Senior Vice President, ACS LLC; Assistant Treasurer, ACGIM, ACIM, ACIS, ACS LLC and other ACC subsidiaries - -------------------------------------------------------------------------------- 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: Vice President, ACC (February 2001 to present); General Counsel, ACC (June 1998 to present); Also serves as: Senior Vice President and General Counsel, ACGIM, ACIM, ACIS, ACS LLC and ACC subsidiaries - -------------------------------------------------------------------------------- CHARLES C.S. PARK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1967 POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer LENGTH OF TIME SERVED (YEARS): 4 and less than 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACS LLC, ACIM and ACGIM (March 2005 to present); Vice President, ACS LLC (February 2000 to present); Assistant General Counsel, ACS LLC (January 1998 to March 2005) - -------------------------------------------------------------------------------- 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, ACS LLC (February 2000 to present); Controller-Fund Accounting, ACS LLC (June 1997 to present) - -------------------------------------------------------------------------------- (continued) - ------ 53 Management OFFICERS (CONTINUED) - -------------------------------------------------------------------------------- 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, ACS LLC (February 2000 to present); Controller-Fund Accounting, ACS LLC (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, ACC (October 2001 to present); Vice President, Corporate Tax, ACS LLC (April 1998 to present); Also serves as: Vice President, ACGIM, ACIM, ACIS and other ACC subsidiaries - -------------------------------------------------------------------------------- (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. - ------ 54 Approval of Management Agreements for California Tax-Free Money Market, California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and California Long-Term Tax-Free Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated and approved by a majority of a fund's independent directors or trustees (the "Directors") each year. At American Century, this process -- referred to as the "15(c) Process" -- involves at least two board meetings spanning a 30 to 60 day period each year, as well as meetings of the Corporate Governance Committee (comprised solely of independent directors), which coordinates the board's 15(c) Process. In addition to this annual review, the board and its committees oversee and evaluate at quarterly meetings the nature and quality of significant services performed by the advisor on behalf of the funds. At these meetings the board reviews fund performance, provision of shareholder services, audit and compliance information, and a variety of other reports from the advisor concerning fund operations. The board, or committees of the board, also holds special meetings, as needed. ANNUAL CONTRACT REVIEW PROCESS As part of the annual 15(c) Process undertaken during the most recent fiscal half-year, the Directors requested and received extensive data and information compiled by the advisor and certain independent providers of evaluative data (the "15(c) Providers") concerning the California Tax-Free Money Market, California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and California Long-Term Tax-Free (collectively, the "funds") and the services provided to the funds under the management agreement. The information included: * the nature, extent and quality of investment management, shareholder services and other services provided to the funds under the management agreement; * reports on the advisor's activities relating to the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * data comparing the cost of owning the funds to the cost of owning similar funds; * data comparing the funds' performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; * financial data showing the profitability of the funds to the advisor and the overall profitability of the advisor; and * data comparing services provided and charges to clients of the advisor other than the funds. In addition, the board also reviewed information provided by an independent consultant retained by the board in connection with the 15(c) Process. In keeping with its practice, the funds' board held two regularly scheduled meetings and one special meeting to review and discuss the information provided by the advisor and to complete its negotiations with the advisor regarding the renewal of the management agreement, including the setting of the applicable advisory fee. In addition, the independent directors and the (continued) - ------ 55 Approval of Management Agreements for California Tax-Free Money Market, California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and California Long-Term Tax-Free Corporate Governance Committee met to review and discuss the information provided and evaluate the advisor's performance as manager of the funds. Working through the Corporate Governance Committee, the board also retained a consultant to assist it in its evaluation of the profitability of the funds and the advisor, and in formulating the board's fee proposals. The board also had the benefit of the advice of its independent counsel throughout the period. FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, the 15(c) Providers, the board's consultant and its independent counsel, and evaluated such information for each fund for which the board has responsibility. The Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the agreement under the terms ultimately determined by the board to be appropriate, the Directors' decision was based on the following factors. NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management agreement, the advisor is responsible for providing or arranging for all services necessary for the operation of the funds. The board noted that under the management agreement, the advisor provides or arranges at its own expense a wide variety of services including: * fund construction and design * portfolio security selection * initial capitalization/funding * securities trading * custody of fund assets * daily valuation of each fund's portfolio * shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping and communications * legal services * regulatory and portfolio compliance * financial reporting * marketing and distribution The Directors noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry and the changing regulatory environment. In performing their evaluation, the Directors considered information received in connection with the annual review, as well as information provided on an ongoing basis at their regularly scheduled board and committee meetings. INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes, and liquidity. In evaluating investment performance, the board expects the advisor to manage the funds in accordance with their investment objectives and approved strategies. In providing these services, the advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. At each quarterly (continued) - ------ 56 Approval of Management Agreements for California Tax-Free Money Market, California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and California Long-Term Tax-Free meeting the board and the Portfolio Committee review investment performance information for the funds, together with comparative information for appropriate benchmarks and peer groups of funds managed similarly to the funds. Further, the Portfolio Committee reports its assessment to the board. If performance concerns are identified, the Directors discuss with the advisor and its portfolio managers the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. California Tax-Free Money Market's performance was well above the median for its peer group for both one and three year periods. California Limited-Term Tax-Free's performance fell below the median for both the one and three year periods during the past year. The board discussed California Limited-Term Tax-Free's performance with the advisor and was satisfied with the efforts being undertaken by the advisor. California Intermediate-Term Tax-Free's performance was above the median for its peer group for the three year period and near the median for the one year period. California Long-Term Tax-Free's performance was above the median for its peer group for the three year period and below the median during part of the one year period. The board discussed California Long-Term Tax-Free's performance with the advisor and will continue to monitor those efforts and the performance of the funds. SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a comprehensive package of transfer agency, shareholder, and other services. The Quality of Service Committee reviews reports and evaluations of such services at its regular quarterly meetings, including the annual meeting concerning contract review, and reports to the board. The Quality of Service Committee reviews interim reports between regularly scheduled meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the advisor. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor provides detailed information concerning the cost of providing various services to the funds, profitability in managing the funds, overall profitability, and the financial condition of each fund. The Directors have reviewed with the advisor the methodology used to prepare this financial information. This financial information regarding the advisor is considered in order to evaluate the advisor's financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The board has retained a consultant to assist it in this review. (continued) - ------ 57 Approval of Management Agreements for California Tax-Free Money Market, California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and California Long-Term Tax-Free ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the advisor's practices generally meet or exceed industry best practices and that the advisor was not implicated in the industry scandals of 2003 and 2004. ECONOMIES OF SCALE. The Directors review reports provided by the advisor on economies of scale for the complex as a whole and the year-over-year changes in revenue, costs, and profitability. The Directors concluded that economies of scale are difficult to measure with precision, particularly on a fund-by-fund basis. This analysis is also complicated by the additional services and content provided by the advisor and its reinvestment in its ability to provide and expand those services. Accordingly, the Directors also seek to evaluate economies of scale by reviewing other information, such as year-over-year profitability of the advisor generally, the profitability of its management of the funds specifically, the expenses incurred by the advisor in providing various functions to the funds, and the fee breakpoints of competitive funds not managed by the advisor. The Directors believe the advisor is appropriately sharing economies of scale through a competitive fee structure, through breakpoints that reduce fees as the fund complex and the funds increase in size and through reinvestment in its business to provide shareholders additional content and services. In particular, separate breakpoint schedules based on the size of the entire fund complex and on the size of each fund reflect the complexity of assessing economies of scale. COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the funds, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the funds' independent directors (including their independent legal counsel). Under the unified fee structure, the advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The board believes the unified fee structure is a benefit to fund shareholders because it clearly discloses to shareholders the cost of owning fund shares, and, since the unified fee cannot be increased without a vote of fund shareholders, it shifts to the advisor the increased costs of operating the funds and the risk of administrative inefficiencies. Part of the Directors' analysis of fee levels involves comparing each fund's unified fee to the total expense ratio of other funds in each fund's peer group. The unified fee charged to shareholders of each of the funds was in the lowest quartile of the total expense ratios of its peer group. (continued) - ------ 58 Approval of Management Agreements for California Tax-Free Money Market, California Limited-Term Tax-Free, California Intermediate-Term Tax-Free and California Long-Term Tax-Free COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The Directors also requested and received information from the advisor concerning the nature of the services, fees, and profitability of its advisory services to advisory clients other than the fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the fund. The Directors analyzed this information and concluded that the fees charged and services provided to the advisor's other clients did not suggest that the fund's fees were unreasonable by comparison. COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information from the advisor concerning collateral benefits it receives as a result of its relationship with the fund. They concluded that the advisor's primary business is managing mutual funds and it generally does not use the fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Directors noted that the advisor receives proprietary research from broker dealers that execute fund portfolio transactions and concluded that this research is likely to benefit fund shareholders. The Directors also determined that the advisor is able to provide investment management services to clients other than the fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Directors concluded, however, that the assets of those other clients are not significant and that, in any event, the addition of such other assets to the assets of the funds that use substantially the same investment management team and strategy to determine whether breakpoints have been achieved captures for the shareholders a portion of any benefit that exists. CONCLUSIONS OF THE DIRECTORS As a result of this process, the independent directors concluded that the investment management agreement between the funds and the advisor is fair and reasonable in light of the services provided and should be renewed. - ------ 59 Additional Information PROXY VOTING GUIDELINES American Century Investment Management, Inc., the funds' investment advisor, 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 advisor 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 advisor 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 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. 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 complete schedule of portfolio holdings for the most recent quarter of their fiscal year available on their Web site at americancentury.com and, upon request, by calling 1-800-345-2021. - ------ 60 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 DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials but including service-oriented firms. Prepared and published by Dow Jones & Co., it is the oldest and most widely quoted of all the market indicators. The LEHMAN BROTHERS MUNICIPAL BOND INDEX is a market value-weighted index designed for the long-term tax-exempt bond market. The LEHMAN BROTHERS 3-YEAR MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities of 2-4 years. The 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 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. The S&P 500 INDEX is a market value-weighted index of the stocks of 500 publicly traded U.S. companies chosen for market size, liquidity, and industry group representation that are considered to be leading firms in dominant industries. Each stock's weight in the index is proportionate to its market value. Created by Standard & Poor's, it is considered to be a broad measure of U.S. stock market performance. - ------ 61 Notes - ------ 62 Notes - ------ 63 Notes - ------ 64 [inside back cover - blank] [back cover] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE: 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 ADVISOR: 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 Proprietary Holdings, Inc. American Century Investment Services, Inc., Distributor 0510 ©2005 American Century Proprietary Holdings, Inc. SH-ANN-45690N All rights reserved. [front cover] American Century Investments ANNUAL REPORT [photo of boy] AUGUST 31, 2005 California High-Yield Municipal Fund [american century investments logo and text logo] Table of Contents Our Message to You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CALIFORNIA HIGH-YIELD MUNICIPAL Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Portfolio at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Portfolio Composition by Credit Rating . . . . . . . . . . . . . . . . . . .5 Top Five Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Shareholder Fee Example . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 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 Approval of Management Agreement for California High-Yield Municipal . . . . .31 Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 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 of James E. Stowers III and James E. Stowers, Jr.] JAMES E. STOWERS III WITH JAMES E. STOWERS, JR. We are pleased to provide you with the annual report for the California High-Yield Municipal Fund for the year ended August 31, 2005. The report includes comparative performance figures, portfolio and market commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. 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. Your next shareholder report for this fund will be the semiannual report dated February 28, 2006, available in approximately six months. As always, we deeply appreciate your investment with American Century Investments. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER AMERICAN CENTURY COMPANIES, INC. /s/James E. Stowers III James E. Stowers III CHAIRMAN OF THE BOARD AMERICAN CENTURY COMPANIES, INC. - ------ 1 California High-Yield Municipal - Performance TOTAL RETURNS AS OF AUGUST 31, 2005 -------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 9.65% 7.38% 7.15% 6.66% 12/30/86 - -------------------------------------------------------------------------------- LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX 10.52% 8.01% 7.33% 7.90%(1) -- - -------------------------------------------------------------------------------- LIPPER CALIFORNIA MUNICIPAL DEBT FUNDS AVERAGE RETURNS(2) 5.88% 5.51% 5.65% 6.32%(1) -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 8/31/05(2) 4 of 127 2 of 103 1 of 68 4 of 26(1) -- as of 9/30/05(2) 5 of 123 4 of 99 1 of 67 4 of 25(1) -- - -------------------------------------------------------------------------------- A Class No sales charge* 9.38% -- -- 7.35%(3) 1/31/03 With sales charge* 4.44% -- -- 5.46%(3) - -------------------------------------------------------------------------------- B Class No sales charge* 8.57% -- -- 6.56%(3) 1/31/03 With sales charge* 4.57% -- -- 5.50%(3) - -------------------------------------------------------------------------------- C Class 8.56% -- -- 6.66%(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 page for more about the applicable sales charges for each share class. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Since 12/31/86, the date nearest the fund's inception for which data are available. (2) ©2005 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown. This listing might not represent the complete universe of funds tracked by Lipper Inc. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper Inc. - A Reuters Company and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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. (continued) - ------ 2 California High-Yield Municipal - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made August 31, 1995
ONE-YEAR RETURNS OVER 10 YEARS Periods ended August 31 - ---------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 - ---------------------------------------------------------------------------------------------------- Investor Class 8.02% 10.61% 9.35% 0.26% 6.70% 9.50% 6.07% 3.35% 8.48% 9.65% - ---------------------------------------------------------------------------------------------------- Lehman Brothers Long-Term Municipal Bond Index 6.88% 11.24% 10.51% -2.14% 7.34% 12.35% 5.62% 2.62% 9.24% 10.52% - ---------------------------------------------------------------------------------------------------- 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. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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 California High-Yield Municipal - Portfolio Commentary PORTFOLIO MANAGER: STEVEN PERMUT PERFORMANCE SUMMARY California High-Yield Municipal (Cal High-Yield) returned 9.65%* for the fiscal year ended August 31, 2005, its highest fiscal-year performance since 1997. The fund's benchmark, the Lehman Brothers Long-Term Municipal Bond Index, returned 10.52%. Bonds generally posted positive returns despite the Federal Reserve's (the Fed's) short-term interest rate increases. Bond portfolios with comparatively shorter maturities or durations (like Cal High-Yield) generally UNDERperformed those with longer (like the benchmark). But lower-quality, higher-yielding portfolios (like Cal High-Yield) typically OUTperformed investment-grade portfolios, like those in Cal High-Yield's largely investment-grade Lipper group. ECONOMIC REVIEW The U.S. economy grew at a moderate but declining rate during the fiscal year as energy prices, inflation, and short-term interest rates rose. The annualized real rate of GDP growth declined from 4.0% in the third quarter of 2004 to 3.3% in the second quarter of 2005, while crude oil futures jumped during the fiscal year from $42.12 a barrel to $68.94, a 64% increase. Meanwhile, core CPI was on track in 2005 to average its highest annual growth rate since 2002. Attempting to keep inflation under control, the Fed raised its overnight rate target two full percentage points, in eight quarter-point increments, from 1.50% in August 2004 to 3.50% in August 2005. BROAD BOND MARKET REVIEW Despite the Fed's actions, longer-term interest rates and bond yields FELL and bond prices rose. For example, the 30-year Treasury bond's yield fell from 4.93% to 4.26%, generating a total return of 15.39%, better than the S&P 500 Index and the Dow Jones Industrial Average for the period. Lower longer-maturity yields, combined with higher yields for shorter-maturity securities (which rose with the Fed's rate hikes) created a "flatter" Treasury yield curve and helped longer-maturity/duration notes and bonds generally outperform shorter-maturity/ duration notes. Hurricane Katrina contributed to a bond rally at the end of August 2005 as storm damage and high energy prices raised concerns about future economic growth. PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 8/31/05 8/31/04 - -------------------------------------------------------------------------------- Weighted Average Maturity 20.4 yrs 20.9 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 5.9 yrs 6.3 yrs - -------------------------------------------------------------------------------- YIELDS AS OF AUGUST 31, 2005 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 3.94% - -------------------------------------------------------------------------------- A Class 3.53% - -------------------------------------------------------------------------------- B Class 2.94% - -------------------------------------------------------------------------------- C Class 2.96% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 31.98% Tax Bracket 5.79% - -------------------------------------------------------------------------------- 34.70% Tax Bracket 6.03% - -------------------------------------------------------------------------------- 39.23% Tax Bracket 6.48% - -------------------------------------------------------------------------------- 41.05% Tax Bracket 6.68% - -------------------------------------------------------------------------------- (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) - ------ 4 California High-Yield Municipal - Portfolio Commentary MUNICIPAL MARKET REVIEW The Lehman Brothers Municipal Bond Index returned 5.31% for the fiscal year, outperforming its taxable counterpart, the Lehman Brothers U.S. Aggregate Index. The municipal yield curve also flattened, causing long-term municipal bonds to outperform shorter-term notes. But the municipal curve did not flatten as much as the Treasury curve, making municipal bond yields attractive compared with Treasury yields--as of August 31, 2005, 30-year AAA-rated general obligation municipals yielded more than 30-year Treasurys! PORTFOLIO STRATEGY Our investment objective is to seek high current income exempt from federal and California income taxes. As of August 31, 2005, we'd invested 51% 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. The fund's 30-day SEC yield declined from 4.58% on August 31, 2004 to 3.94% on August 31, 2005 as the bond market rallied, but that still translated to attractive tax-equivalent yields for investors (see the yield table on page 4). Our approach to investing and portfolio management continued to focus on thorough credit reviews and careful security selection. Past performance is no guarantee of future results, but our process is designed to reduce credit risk, as evidenced by the absence of defaults in the portfolio since the fund's inception. Our approach includes strategies designed to realize capital appreciation as well as high income, including investments in land-secured bonds, the portfolio's largest sector at the end (see the table above) of the reporting period. Land-secured bonds have price appreciation potential as the economy grows and/or the projects are developed and their finances solidify. OUR COMMITMENT We remain committed to seeking high levels of federal and California tax-exempt current income, as well as capital appreciation, by investing at least 80% of the fund's assets in municipal securities, including securities rated below investment-grade or that are unrated. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 8/31/05 2/28/05 - -------------------------------------------------------------------------------- AAA 35% 34% - -------------------------------------------------------------------------------- AA -- 1% - -------------------------------------------------------------------------------- A 1% -- - -------------------------------------------------------------------------------- BBB 13% 11% - -------------------------------------------------------------------------------- BB 1% 1% - -------------------------------------------------------------------------------- Unrated 50% 53% - -------------------------------------------------------------------------------- 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, 2005 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Land Based 38% - -------------------------------------------------------------------------------- Prerefunded 15% - -------------------------------------------------------------------------------- General Obligation (GO) 11% - -------------------------------------------------------------------------------- Tax Allocation Revenue 10% - -------------------------------------------------------------------------------- Certificate of Participation (COPs)/Leases 8% - -------------------------------------------------------------------------------- - ------ 5 Shareholder Fee Example (Unaudited) 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, 2005 to August 31, 2005. 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 your 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) - ------ 6 Shareholder Fee Example (Unaudited) 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 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. - -------------------------------------------------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE 3/1/05 - EXPENSE 3/1/05 8/31/05 8/31/05 RATIO* - -------------------------------------------------------------------------------- CALIFORNIA HIGH-YIELD MUNICIPAL SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,054.40 $2.69 0.52% - -------------------------------------------------------------------------------- A Class $1,000 $1,053.10 $3.98 0.77% - -------------------------------------------------------------------------------- B Class $1,000 $1,049.20 $7.85 1.52% - -------------------------------------------------------------------------------- C Class $1,000 $1,049.20 $7.85 1.52% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.58 $2.65 0.52% - -------------------------------------------------------------------------------- A Class $1,000 $1,021.32 $3.92 0.77% - -------------------------------------------------------------------------------- B Class $1,000 $1,017.54 $7.73 1.52% - -------------------------------------------------------------------------------- C Class $1,000 $1,017.54 $7.73 1.52% - -------------------------------------------------------------------------------- *Expenses are equal to the class'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 365, to reflect the one-half year period. - ------ 7 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 99.1% CALIFORNIA -- 99.1% - -------------------------------------------------------------------------------- $ 1,000,000 ABC Unified School District GO, Series 2000 B, 6.14%, 8/1/21 (FGIC)(1) $ 500,983 - -------------------------------------------------------------------------------- 2,000,000 Alameda Public Financing Auth. Local Agency Rev., Series 1996 A, (Community Facilities District No. 1), 7.00%, 8/1/19 2,097,720 - -------------------------------------------------------------------------------- 2,325,000 Alhambra City Elementary School District GO, Series 2004 B, (Election of 1999), 5.00%, 9/1/26 (FGIC) 2,491,121 - -------------------------------------------------------------------------------- 1,200,000 Anaheim Public Financing Auth. Rev., Series 1997 A, 6.00%, 9/1/24 (FSA) 1,483,692 - -------------------------------------------------------------------------------- 880,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Eskaton Gold River Lodge), 6.375%, 11/15/15 950,198 - -------------------------------------------------------------------------------- 3,000,000 Association of Bay Area Governments Finance Auth. for Nonprofit Corporations COP, (Eskaton Gold River Lodge), 6.375%, 11/15/28 3,199,830 - -------------------------------------------------------------------------------- 2,500,000 Beaumont Financing Auth. Local Agency Rev., Series 2003 A, 6.875%, 9/1/27 2,855,175 - -------------------------------------------------------------------------------- 2,875,000 Beaumont Financing Auth. Local Agency Rev., Series 2004 D, 5.80%, 9/1/35 3,049,053 - -------------------------------------------------------------------------------- 855,000 Beaumont Financing Auth. Local Agency Special Tax Rev., Series 2005 C, 5.50%, 9/1/29 888,268 - -------------------------------------------------------------------------------- 1,190,000 Berryessa Unified School District GO, Series 2000 A, 6.18%, 8/1/21 (FSA)(1) 596,166 - -------------------------------------------------------------------------------- 1,220,000 Berryessa Unified School District GO, Series 2000 A, 6.05%, 8/1/22 (FSA)(1) 581,367 - -------------------------------------------------------------------------------- 1,000,000 Berryessa Unified School District GO, Series 2000 A, 6.06%, 8/1/23 (FSA)(1) 452,120 - -------------------------------------------------------------------------------- 3,260,000 Brentwood Infrastructure Financing Auth. Special Assessment, Series 2005-1, 5.15%, 9/2/35 3,313,171 - -------------------------------------------------------------------------------- 1,000,000 Cabrillo Unified School District GO, Series 1996 A, 5.95%, 8/1/17 (Ambac)(1) 611,520 - -------------------------------------------------------------------------------- 2,000,000 Cabrillo Unified School District GO, Series 1996 A, 5.95%, 8/1/18 (Ambac)(1) 1,161,760 - -------------------------------------------------------------------------------- 1,815,000 Calaveras Unified School District GO, 5.89%, 8/1/23 (FSA)(1) 820,598 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,880,000 Calaveras Unified School District GO, 5.90%, 8/1/24 (FSA)(1) $ 810,148 - -------------------------------------------------------------------------------- 1,950,000 Calaveras Unified School District GO, 5.91%, 8/1/25 (FSA)(1) 800,612 - -------------------------------------------------------------------------------- 2,885,000 California Communities Development Auth. COP, (Sonoma County Indian Health), 6.40%, 9/1/29 3,006,776 - -------------------------------------------------------------------------------- 2,000,000 California Communities Development Auth. COP, (Windward School), 6.90%, 9/1/23 2,080,060 - -------------------------------------------------------------------------------- 2,000,000 California Communities Development Auth. Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/31 2,482,580 - -------------------------------------------------------------------------------- 1,505,000 California Educational Facilities Auth. Rev., (Western University Health Sciences), 6.00%, 10/1/21 1,640,089 - -------------------------------------------------------------------------------- 4,000,000 California Health Facilities Financing Auth. Rev., Series 1989 A, (Kaiser Permanente), 7.15%, 10/1/12 (Ambac)(1) 3,117,520 - -------------------------------------------------------------------------------- 2,500,000 California Health Facilities Financing Auth. Rev., Series 1998 A, (Kaiser Permanente), 5.50%, 6/1/22 (FSA) 2,682,550 - -------------------------------------------------------------------------------- 4,410,000 California Mobilehome Park Financing Auth. Rev., Series 2000 B, (Union City Tropics), 7.30%, 8/15/35 4,776,118 - -------------------------------------------------------------------------------- 1,905,000 California Mobilehome Park Financing Auth. Rev., Series 2001 B, (Rancho Vallecitos - San Marcos), 6.75%, 11/15/36 2,036,369 - -------------------------------------------------------------------------------- 6,345,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B, (Palomar Estates E&W), 7.00%, 9/15/36 6,933,816 - -------------------------------------------------------------------------------- 2,000,000 California Public Works Board Lease Rev., Series 1993 D, (Department of Corrections), 5.25%, 6/1/15 (FSA) 2,245,420 - -------------------------------------------------------------------------------- 6,000,000 California Public Works Board Lease Rev., Series 2005 A, (Department of General Services - Butterfield), 5.25%, 6/1/30 6,484,440 - -------------------------------------------------------------------------------- 1,405,000 California State and Local Government Financing Auth. Rev., Series 1997 B, (Marin Valley Mobile Country), 7.50%, 10/1/24 1,482,472 - -------------------------------------------------------------------------------- 1,000,000 California Statewide Communities Development Auth. Rev., Series 2005 B, (Thomas Jefferson School of Law), 4.875%, 10/1/31(2) 1,009,170 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 8 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 4,630,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 6.00%, 7/1/12, Prerefunded at 101% of Par(3) $ 5,399,691 - -------------------------------------------------------------------------------- 2,500,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 6.00%, 7/1/12, Prerefunded at 101% of Par(3) 2,915,600 - -------------------------------------------------------------------------------- 2,455,000 California University Fresno Association Inc. Rev., (Auxiliary Organization Event Center), 7.00%, 7/1/12, Prerefunded at 101% of Par(3) 2,983,218 - -------------------------------------------------------------------------------- 4,070,000 Capistrano Unified School District No. 90-2 Talega Community Facilities Special Tax Rev., 6.00%, 9/1/32 4,412,368 - -------------------------------------------------------------------------------- 6,250,000 Capistrano Unified School District No. 90-2 Talega Community Facilities Special Tax Rev., 6.00%, 9/1/33 6,711,188 - -------------------------------------------------------------------------------- 1,000,000 Carmel Unified School District GO, 5.50%, 8/1/25 (MBIA) 1,096,120 - -------------------------------------------------------------------------------- 1,075,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.00%, 8/1/23 (MBIA)(1) 486,029 - -------------------------------------------------------------------------------- 1,075,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.00%, 8/1/24 (MBIA)(1) 463,250 - -------------------------------------------------------------------------------- 1,085,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.05%, 8/1/25 (MBIA)(1) 445,468 - -------------------------------------------------------------------------------- 1,085,000 Cathedral City Public Financing Auth. Rev., Series 2000 A, 6.05%, 8/1/26 (MBIA)(1) 424,257 - -------------------------------------------------------------------------------- 1,700,000 Chino Valley Unified School District COP, Series 2001 A, 5.375%, 9/1/20 (FSA) 1,870,340 - -------------------------------------------------------------------------------- 2,140,000 Chula Vista Community Facilities District No. 01-1 Area A Special Tax Rev., 6.10%, 9/1/10, Prerefunded at 102% of Par(3) 2,443,837 - -------------------------------------------------------------------------------- 3,600,000 Chula Vista Community Facilities District No. 06-1 Eastlake Woods Area A Special Tax Rev., 6.20%, 9/1/33 3,855,528 - -------------------------------------------------------------------------------- 7,715,000 Chula Vista Community Facilities District No. 99-1 Special Tax Rev., 7.625%, 9/1/09, Prerefunded at 102% of Par(3) 9,092,744 - -------------------------------------------------------------------------------- 2,000,000 City of Lincoln Community Facilities District No. 2003-1 Special Tax Rev., 6.00%, 9/1/34 2,127,560 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 1,780,000 Clovis Public Financing Auth. Lease Rev., (Corporate Yard), 5.375%, 3/1/20 (Ambac) $ 1,946,341 - -------------------------------------------------------------------------------- 550,000 Corcoran COP, 8.75%, 6/1/16 (Acquired 4/28/92, Cost $550,000)(4) 647,988 - -------------------------------------------------------------------------------- 1,750,000 Del Mar Race Track Auth. Rev., 6.20%, 8/15/11 1,837,028 - -------------------------------------------------------------------------------- 1,000,000 Del Mar Race Track Auth. Rev., 5.00%, 8/15/25(2) 1,049,160 - -------------------------------------------------------------------------------- 1,150,000 Duarte Unified School District GO, Series 1999 B, 6.08%, 11/1/23 (FSA)(1) 514,211 - -------------------------------------------------------------------------------- 4,450,000 El Dorado County Community Facilities District No. 1992-1 Special Tax Rev., 5.60%, 9/1/09 4,729,905 - -------------------------------------------------------------------------------- 2,500,000 El Dorado County Community Facilities District No. 2001-1 Special Tax Rev., 6.30%, 9/1/31 2,656,100 - -------------------------------------------------------------------------------- 1,000,000 El Segundo Unified School District GO, 5.375%, 9/1/12, Prerefunded at 100% of Par (FGIC)(3) 1,128,620 - -------------------------------------------------------------------------------- 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(3) 4,895,634 - -------------------------------------------------------------------------------- 3,785,000 Folsom Public Financing Auth. Rev., Series 1997 A, 6.875%, 9/2/19 3,913,879 - -------------------------------------------------------------------------------- 2,125,000 Folsom Public Financing Auth. Rev., Series 2005 A, 5.00%, 12/1/34 (FSA) 2,249,716 - -------------------------------------------------------------------------------- 2,495,000 Folsom Special Tax Rev., (Community Facilities District No. 7), 5.75%, 9/1/14 2,645,523 - -------------------------------------------------------------------------------- 4,250,000 Folsom Special Tax Rev., (Community Facilities District No. 10), 7.00%, 9/1/24 4,690,513 - -------------------------------------------------------------------------------- 6,500,000 Folsom Special Tax Rev., (Community Facilities District No. 14), 6.30%, 9/1/32 7,086,300 - -------------------------------------------------------------------------------- 3,000,000 Foothill-De Anza Community College District GO, 6.16%, 8/1/21 (MBIA)(1) 1,502,940 - -------------------------------------------------------------------------------- 3,000,000 Fullerton Community Facilities District No. 1 Special Tax Rev., (Amerige Heights), 6.20%, 9/1/32 3,192,060 - -------------------------------------------------------------------------------- 5,000,000 Fullerton Unified School District Community Facilities District No. 1 Special Tax Rev., 6.375%, 9/1/31 5,502,250 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 9 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,165,000 Gateway Improvement Auth. Rev., Series 1995 A, (Marin City Community Facilities), 7.75%, 9/1/05, Prerefunded at 102% of Par(3) $ 1,188,300 - -------------------------------------------------------------------------------- 1,600,000 Glendale Electric Works Rev., 5.875%, 2/1/21 (MBIA) 1,774,864 - -------------------------------------------------------------------------------- 2,630,000 Glendale Unified School District GO, Series 1999 C, 6.00%, 9/1/22 (FSA) 2,923,403 - -------------------------------------------------------------------------------- 3,920,000 Golden State Tobacco Securitization Corp. Rev., Series 2003 A-1, 6.25%, 6/1/33 4,379,267 - -------------------------------------------------------------------------------- 4,750,000 Golden State Tobacco Securitization Corp. Rev., Series 2003 A-1, 6.75%, 6/1/39 5,480,978 - -------------------------------------------------------------------------------- 3,375,000 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/23 3,619,046 - -------------------------------------------------------------------------------- 2,000,000 Highland Special Tax Rev., (Community Facilities District No. 01-1), 6.45%, 9/1/28 2,100,440 - -------------------------------------------------------------------------------- 5,000,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (Ambac) 5,525,050 - -------------------------------------------------------------------------------- 2,000,000 Indio Redevelopment Agency Tax Allocation Rev., Series 2004 B, (Sub-Merged Project Area), 6.50%, 8/15/34 2,121,740 - -------------------------------------------------------------------------------- 1,000,000 Jurupa Community Services District Special Tax Rev., Series 2005 A, (Community Facilities District No. 11), 5.10%, 9/1/35 1,014,790 - -------------------------------------------------------------------------------- 1,000,000 Laguna Salada Union School District GO, Series 2000 C, 6.12%, 8/1/29 (FGIC)(1) 340,160 - -------------------------------------------------------------------------------- 2,500,000 Lake Elsinore School Financing Auth. Rev., (Horsethief Canyon), 5.625%, 9/1/16 2,647,400 - -------------------------------------------------------------------------------- 1,225,000 Lake Elsinore Special Tax Rev., (Community Facilities District 3-Improvement Area 1), 5.25%, 9/1/35 1,244,086 - -------------------------------------------------------------------------------- 10,770,000 Long Beach Bond Finance Auth. Rev., Series 2005 A1, (Redevelopment, Housing & Gas Utility Financing), 5.00%, 8/1/35 (Ambac)(5) 11,386,474 - -------------------------------------------------------------------------------- 2,000,000 Los Angeles Community Facilities District Special Tax Rev., (Cascades Business Park), 6.40%, 9/1/22 2,103,660 - -------------------------------------------------------------------------------- 1,500,000 Los Angeles Unified School District GO, Series 2003 A, 5.00%, 1/1/28 (MBIA) 1,597,350 - -------------------------------------------------------------------------------- 1,500,000 Manhattan Beach Unified School District GO, Series 1999 C, 5.90%, 9/1/24 (FGIC)(1) 643,995 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 7,225,000 Menlo Park Community Development Agency Multifamily Rev., (Las Pulgas), 5.55%, 6/1/30 (Ambac) $ 7,960,650 - -------------------------------------------------------------------------------- 1,750,000 Mid-Peninsula Regional Open Space District Rev., 5.00%, 9/1/34 (Ambac) 1,854,300 - -------------------------------------------------------------------------------- 2,230,000 Milpitas Improvement Bond Act 1915 Special Assessment, Series 1996 A, (Local Improvement District 18), 6.75%, 9/2/16 2,330,796 - -------------------------------------------------------------------------------- 4,000,000 Moreno Valley Unified School District Special Tax Rev., (Community Facilities No. 2002-1), 6.20%, 9/1/32 4,299,200 - -------------------------------------------------------------------------------- 1,920,000 Murrieta Community Facilities District No. 2 Special Tax Rev., Series 2004 A, (The Oaks Improvement Area), 6.00%, 9/1/34 2,061,389 - -------------------------------------------------------------------------------- 4,100,000 Murrieta Community Facilities District No. 2000-1 Special Tax Rev., 6.375%, 9/1/30 4,491,509 - -------------------------------------------------------------------------------- 3,500,000 Oceanside Community Development Commission Tax Allocation Rev., (Downtown Redevelopment), 5.70%, 9/1/25 3,689,385 - -------------------------------------------------------------------------------- 1,000,000 Oceanside Community Facilities District Special Tax Rev., (No. 2001-1 Morrow Hills Development), 5.50%, 9/1/29 1,040,660 - -------------------------------------------------------------------------------- 3,000,000 Oceanside Community Facilities District Special Tax Rev., Series 2002 A, (No. 2001-1 Morrow Hills Development), 6.20%, 9/1/32 3,234,780 - -------------------------------------------------------------------------------- 2,000,000 Orange County Community Facilities District Special Tax Rev., Series 1999 A, (No. 99-1 Ladera Ranch), 6.50%, 8/15/21 2,262,220 - -------------------------------------------------------------------------------- 2,200,000 Orange County Community Facilities District Special Tax Rev., Series 1999 A, (No. 99-1 Ladera Ranch), 6.70%, 8/15/29 2,509,012 - -------------------------------------------------------------------------------- 4,590,000 Orange County Community Facilities District Special Tax Rev., Series 2000 A, (No. 01-1 Ladera Ranch), 6.25%, 8/15/30 4,914,467 - -------------------------------------------------------------------------------- 2,400,000 Orange County Community Facilities District Special Tax Rev., Series 2002 A, (No. 01-1 Ladera Ranch), 6.00%, 8/15/32 2,574,744 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 10 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 2,300,000 Orange County Community Facilities District Special Tax Rev., Series 2005 A, (No. 04-1 Ladera Ranch), 5.20%, 8/15/34 $ 2,339,353 - -------------------------------------------------------------------------------- 3,000,000 Oxnard School District GO, Series 2001 A, 5.75%, 8/1/30 (MBIA) 3,606,990 - -------------------------------------------------------------------------------- 1,150,000 Pacifica COP, (Public Safety Building), 5.80%, 11/1/20 (MBIA) 1,281,077 - -------------------------------------------------------------------------------- 10,000,000 Palmdale Water District COP, 5.00%, 10/1/34 (FGIC) 10,600,199 - -------------------------------------------------------------------------------- 2,680,000 Palomar Pomerado Health Care District COP, (Indian Health Council Inc.), 6.25%, 10/1/29 2,858,836 - -------------------------------------------------------------------------------- 5,000,000 Palomar Pomerado Health GO, Series 2005 A, (Election of 2004), 5.00%, 8/1/34 (Ambac) 5,326,150 - -------------------------------------------------------------------------------- 500,000 Perris Community Facilities District Special Tax Rev., (No. 1-2-Avalon), 5.10%, 9/1/28 505,360 - -------------------------------------------------------------------------------- 550,000 Perris Community Facilities District Special Tax Rev., (No. 1-2-Avalon), 5.15%, 9/1/32 555,962 - -------------------------------------------------------------------------------- 3,000,000 Perris Public Financing Auth. Special Tax Rev., Series 2004 A, 6.125%, 9/1/34 3,278,400 - -------------------------------------------------------------------------------- 1,000,000 Perris Union High School District GO, Series 2000 A, 6.40%, 9/1/24 (FGIC)(1) 429,330 - -------------------------------------------------------------------------------- 1,000,000 Perris Union High School District GO, Series 2000 A, 6.40%, 3/1/25 (FGIC)(1) 417,490 - -------------------------------------------------------------------------------- 2,900,000 Pittsburg Redevelopment Agency Tax Allocation Rev., (Los Medanos Community Development), 6.20%, 8/1/25 (Ambac)(1) 1,181,402 - -------------------------------------------------------------------------------- 1,000,000 Placentia COP, (Improvement), 5.60%, 7/1/30 1,001,300 - -------------------------------------------------------------------------------- 1,750,000 Placer County Water Agency Rev., (Capital Improvement), 5.50%, 7/1/09, Prerefunded at 101% of Par (Ambac)(3) 1,925,193 - -------------------------------------------------------------------------------- 2,640,000 Placer Union High School District GO, Series 2000 A, 6.20%, 8/1/16 (FGIC)(1) 1,695,065 - -------------------------------------------------------------------------------- 1,600,000 Placer Union High School District GO, Series 2000 A, 6.28%, 8/1/18 (FGIC)(1) 929,648 - -------------------------------------------------------------------------------- 2,925,000 Placer Union High School District GO, Series 2000 A, 6.35%, 8/1/21 (FGIC)(1) 1,467,209 - -------------------------------------------------------------------------------- 2,100,000 Placer Union High School District GO, Series 2000 A, 6.37%, 8/1/22 (FGIC)(1) 1,002,372 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 3,525,000 Placer Union High School District GO, Series 2000 A, 6.39%, 8/1/23 (FGIC)(1) $ 1,596,508 - -------------------------------------------------------------------------------- 1,000,000 Placer Union High School District GO, Series 2000 A, 6.40%, 8/1/24 (FGIC)(1) 431,730 - -------------------------------------------------------------------------------- 4,835,000 Pleasant Valley School District-Ventura County GO, Series 2002 A, 5.85%, 8/1/31 (MBIA) 6,035,047 - -------------------------------------------------------------------------------- 4,460,000 Pomona Improvement Bond Act 1915 Special Assessment, (Rio Rancho Assessment District), 7.50%, 9/2/06, Prerefunded at 102% of Par(3) 4,736,654 - -------------------------------------------------------------------------------- 1,815,000 Redondo Beach Public Financing Auth. Rev., (South Bay Center Redevelopment), 7.125%, 7/1/08 1,886,801 - -------------------------------------------------------------------------------- 1,000,000 Richmond Joint Powers Financing Auth. Rev., Series 1995 A, 5.25%, 5/15/13 1,027,250 - -------------------------------------------------------------------------------- 1,700,000 Richmond Wastewater Rev., 6.18%, 8/1/23 (FGIC)(1) 768,604 - -------------------------------------------------------------------------------- 2,905,000 Richmond Wastewater Rev., 6.20%, 8/1/26 (FGIC)(1) 1,135,913 - -------------------------------------------------------------------------------- 2,500,000 Riverside County Community Facilities District Special Tax Rev., (No. 4-2-Lake Hills), 5.10%, 9/1/35 2,520,350 - -------------------------------------------------------------------------------- 2,365,000 Riverside County COP, 5.75%, 11/1/31 (MBIA) 2,686,001 - -------------------------------------------------------------------------------- 2,040,000 Riverside County Improvement Bond Act 1915 Special Assessment, (District No. 168- Rivercrest), 6.70%, 9/2/26 2,202,282 - -------------------------------------------------------------------------------- 3,000,000 Riverside County Public Financing Auth. Tax Allocation Rev., Series 2005 A, (Redevelopment), 5.00%, 10/1/35 (XLCA)(2) 3,174,030 - -------------------------------------------------------------------------------- 2,000,000 Riverside County Public Financing Auth. Tax Allocation Rev., Series 2005 A, (Redevelopment), 5.00%, 10/1/37 (XLCA)(2) 2,111,160 - -------------------------------------------------------------------------------- 4,765,000 Riverside Unified School District No. 7 Community Facilities District Special Tax Rev., Series 2000 A, 7.00%, 5/31/30 5,444,346 - -------------------------------------------------------------------------------- 4,315,000 Rohnert Park Finance Auth. Rev., Series 2001 A, (Las Casitas de Sonoma), 6.40%, 4/15/36 4,627,881 - -------------------------------------------------------------------------------- 1,200,000 Roseville Special Tax Rev., (Community Facilities District No.1-Fiddyment), 5.10%, 9/1/36 1,208,316 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 11 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,500,000 Roseville Special Tax Rev., (Community Facilities District No.1-Westpark), 5.20%, 9/1/36 $ 1,524,915 - -------------------------------------------------------------------------------- 635,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 5.60%, 9/1/07 653,396 - -------------------------------------------------------------------------------- 645,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 5.70%, 9/1/08 673,135 - -------------------------------------------------------------------------------- 1,500,000 Sacramento County Special Tax Rev., (Community Facilities District No. 1), 6.30%, 9/1/21 1,564,995 - -------------------------------------------------------------------------------- 3,970,000 Sacramento Municipal Utilities District Electric Rev., Series 1997 K, 5.25%, 7/1/24 (Ambac) 4,613,339 - -------------------------------------------------------------------------------- 5,000,000 Sacramento Power Auth. Rev., (Cogeneration Projects), 6.00%, 7/1/06, Prerefunded at 102% of Par(3) 5,231,150 - -------------------------------------------------------------------------------- 4,000,000 Sacramento Special Tax Rev., (North Natomas Community Facilities), 6.30%, 9/1/26 4,269,040 - -------------------------------------------------------------------------------- 3,970,000 San Diego County Improvement Bond Act 1915 Special Assessment, 6.25%, 9/2/12 4,129,038 - -------------------------------------------------------------------------------- 1,000,000 San Diego Special Tax Rev., Series 1995 B, (Community Facilities District No. 1), 7.10%, 9/1/05, Prerefunded at 102% of Par(3) 1,020,000 - -------------------------------------------------------------------------------- 1,250,000 San Francisco City and County Redevelopment Agency Lease Rev., (George R. Moscone), 7.05%, 7/1/13(1) 906,088 - -------------------------------------------------------------------------------- 2,165,000 San Jose Redevelopment Agency Tax Allocation Rev., Series 2005 A, (Merged Area), 5.00%, 8/1/23 (FGIC) 2,349,025 - -------------------------------------------------------------------------------- 1,500,000 San Marcos Public Facilities Auth. Special Tax Rev., (Area 3-A), 5.00%, 10/1/34 (Ambac) 1,576,665 - -------------------------------------------------------------------------------- 2,790,000 San Marcos Public Facilities Auth. Special Tax Rev., Series 2004 A, 5.45%, 9/1/24 2,826,410 - -------------------------------------------------------------------------------- 5,000,000 San Marcos Public Facilities Auth. Special Tax Rev., Series 2004 A, 5.00%, 9/1/34 (FGIC) 5,298,000 - -------------------------------------------------------------------------------- 3,005,000 Santa Barbara County Rev., 5.50%, 9/1/22 (Ambac) 3,365,059 - -------------------------------------------------------------------------------- 7,755,000 Shasta Lake Public Finance Auth. Rev., (Electrical Enterprise), 6.25%, 4/1/13, Prerefunded at 102% of Par(3) 9,315,305 - -------------------------------------------------------------------------------- 2,160,000 Soledad Special Assessment, (Diamond Ridge Assessment District No. 02-01), 6.75%, 9/2/33 2,402,741 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 500,000 Southern California Public Power Auth. Rev., (Pooled Project), 6.75%, 7/1/10 (FSA) $ 579,240 - -------------------------------------------------------------------------------- 2,400,000 Southern California Public Power Auth. Rev., (Transmission), 6.35%, 7/1/14 (MBIA)(1) 1,712,160 - -------------------------------------------------------------------------------- 1,250,000 Southern California Public Power Auth. Rev., (Transmission), 6.35%, 7/1/15 (MBIA)(1) 847,600 - -------------------------------------------------------------------------------- 1,200,000 Southwestern Community College District GO, 5.625%, 8/1/11, Prerefunded at 101% of Par (Ambac)(3) 1,368,288 - -------------------------------------------------------------------------------- 4,195,000 Stockton Community Facilities District Special Tax Rev., (Spanos Park West No. 2001-1), 6.375%, 9/1/32 4,517,889 - -------------------------------------------------------------------------------- 5,000,000 Sunnyvale Special Tax Rev., (Community Facilities District No. 1), 7.75%, 8/1/32 5,406,800 - -------------------------------------------------------------------------------- 2,690,000 Tahoe-Truckee Unified School District GO, Series 1999 A, (Improvement District No. 2), 6.19%, 8/1/22 (FGIC)(1) 1,281,866 - -------------------------------------------------------------------------------- 2,220,000 Tahoe-Truckee Unified School District GO, Series 1999 A, (Improvement District No. 2), 6.19%, 8/1/23 (FGIC)(1) 1,003,706 - -------------------------------------------------------------------------------- 1,665,000 Tehama Community COP, (Social Services Building), 7.00%, 10/1/05, Prerefunded at 102% of Par(3) 1,704,177 - -------------------------------------------------------------------------------- 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(3) 2,232,420 - -------------------------------------------------------------------------------- 1,500,000 University of California Rev., Series 2003 A, 5.00%, 5/15/23 (Ambac) 1,623,450 - -------------------------------------------------------------------------------- 2,500,000 Val Verde Unified School District Special Tax Rev., 5.40%, 9/1/30 2,599,725 - -------------------------------------------------------------------------------- 2,600,000 Val Verde Unified School District Special Tax Rev., 5.45%, 9/1/36 2,698,670 - -------------------------------------------------------------------------------- 2,500,000 West Basin Municipal Water District COP, Series 2003 A, 5.00%, 8/1/30 (MBIA) 2,636,025 - -------------------------------------------------------------------------------- 2,000,000 West Contra Costa Unified School District COP, 7.125%, 1/1/24 2,025,240 - -------------------------------------------------------------------------------- 500,000 West Sacramento Special Tax Rev., 5.125%, 9/1/25 510,595 - -------------------------------------------------------------------------------- 1,740,000 West Sacramento Special Tax Rev., 5.30%, 9/1/35 1,777,253 - -------------------------------------------------------------------------------- 3,235,000 West Sacramento Special Tax Rev., (Community Facilities District No. 10), 6.75%, 9/1/26 3,504,540 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 12 California High-Yield Municipal - Schedule of Investments AUGUST 31, 2005 Principal Amount Value - -------------------------------------------------------------------------------- $ 1,000,000 West Sacramento Special Tax Rev., (Community Facilities District No. 10), 6.20%, 9/1/29 $ 1,060,900 - -------------------------------------------------------------------------------- 2,000,000 Yuba City Redevelopment Agency Tax Allocation Rev., 6.00%, 9/1/31 2,133,820 - -------------------------------------------------------------------------------- 2,895,000 Yuba City Unified School District GO, 6.05%, 9/1/24 (FGIC)(1) 1,240,623 - -------------------------------------------------------------------------------- 1,500,000 Yuba City Unified School District GO, 6.05%, 3/1/25 (FGIC)(1) 625,035 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $397,348,607) 431,672,895 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 0.6% CALIFORNIA -- 0.6% - -------------------------------------------------------------------------------- 1,400,000 California Department of Water Resources Power Supply Rev., Series 2002 B6, VRDN, 2.20%, 9/1/05 (LOC: State Street Bank & Trust Co.) 1,400,000 - -------------------------------------------------------------------------------- 450,000 California Economic Recovery Rev., Series 2004 C1, VRDN, 2.35%, 9/1/05 (SBBPA: Landesbank Baden-Wuerttemberg) 450,000 - -------------------------------------------------------------------------------- 300,000 California State Department of Water Resources Rev., Series 2002 B5, VRDN, 2.26%, 9/1/05 (LOC: Bayerische Landesbank, Westdeutsche Landesbank AG) 300,000 - -------------------------------------------------------------------------------- 400,000 Irvine Improvement Bond Act 1915 Special Assessment, (District No. 93-14), VRDN, 2.26%, 9/1/05 (LOC: Bank of America N.A.) 400,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $2,550,000) 2,550,000 - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS -- 0.3% 1,388,000 Federated California Municipal Cash Trust (Cost $1,388,000) $ 1,388,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $401,286,607) 435,610,895 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES(6) 187,685 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $435,798,580 ================================================================================ 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, 2005. 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) When-issued security. (3) Escrowed to maturity in U.S. government securities or state and local government securities. (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, 2005, was $647,988, which represented 0.1% of total net assets. (5) Security, or a portion thereof, has been segregated for a when-issued security. (6) Category is less than 0.05% of total net assets. See Notes to Financial Statements. - ------ 13 Statement of Assets and Liabilities AUGUST 31, 2005 - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $401,286,607) $435,610,895 - ------------------------------------------------------------ Cash 67,368 - ------------------------------------------------------------ Receivable for capital shares sold 259,722 - ------------------------------------------------------------ Interest receivable 7,786,016 - -------------------------------------------------------------------------------- 443,724,001 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Payable for investments purchased 7,244,580 - ------------------------------------------------------------ Accrued management fees 187,650 - ------------------------------------------------------------ Distribution fees payable 11,152 - ------------------------------------------------------------ Service fees (and distribution fees -- A Class) payable 11,774 - ------------------------------------------------------------ Dividends payable 470,265 - -------------------------------------------------------------------------------- 7,925,421 - -------------------------------------------------------------------------------- NET ASSETS $435,798,580 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $403,381,733 - ------------------------------------------------------------ Accumulated net realized gain (loss) on investment transactions (1,907,441) - ------------------------------------------------------------ Net unrealized appreciation (depreciation) on investments 34,324,288 - -------------------------------------------------------------------------------- $435,798,580 ================================================================================ INVESTOR CLASS - -------------------------------------------------------------------------------- Net assets $377,533,585 - ------------------------------------------------------------ Shares outstanding 36,442,346 - ------------------------------------------------------------ Net asset value per share $10.36 - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- Net assets $39,608,057 - ------------------------------------------------------------ Shares outstanding 3,823,261 - ------------------------------------------------------------ Net asset value per share $10.36 - ------------------------------------------------------------ Maximum offering price (net asset value divided by 0.955) $10.85 - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- Net assets $1,158,344 - ------------------------------------------------------------ Shares outstanding 111,812 - ------------------------------------------------------------ Net asset value per share $10.36 - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- Net assets $17,498,594 - ------------------------------------------------------------ Shares outstanding 1,689,094 - ------------------------------------------------------------ Net asset value per share $10.36 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 14 Statement of Operations YEAR ENDED AUGUST 31, 2005 - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ------------------------------------------------------------- Interest $21,053,945 - -------------------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------ Management fees 1,980,281 - ------------------------------------------------------------ Distribution fees: - ------------------------------------------------------------ B Class 7,405 - ------------------------------------------------------------ C Class 82,261 - ------------------------------------------------------------ Service fees: - ------------------------------------------------------------ B Class 2,468 - ------------------------------------------------------------ C Class 27,420 - ------------------------------------------------------------ Service and distribution fees -- A Class 52,244 - ------------------------------------------------------------ Trustees' fees and expenses 17,595 - ------------------------------------------------------------ Other expenses 1,676 - -------------------------------------------------------------------------------- 2,171,350 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 18,882,595 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------- Net realized gain (loss) on investment transactions 1,770,165 - ----------------------------------------------------------- Change in net unrealized appreciation (depreciation) on investments 14,556,017 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) 16,326,182 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $35,208,777 ================================================================================ See Notes to Financial Statements. - ------ 15 Statement of Changes in Net Assets YEARS ENDED AUGUST 31, 2005 AND AUGUST 31, 2004 - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS 2005 2004 - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income $ 18,882,595 $ 18,175,290 - ------------------------------------------ Net realized gain (loss) 1,770,165 568,784 - ------------------------------------------ Change in net unrealized appreciation (depreciation) 14,556,017 9,105,321 - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 35,208,777 27,849,395 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income: - ------------------------------------------ Investor Class (17,425,141) (17,689,637) - ------------------------------------------ A Class (983,796) (255,359) - ------------------------------------------ B Class (39,343) (30,554) - ------------------------------------------ C Class (434,315) (203,979) - -------------------------------------------------------------------------------- Decrease in net assets from distributions (18,882,595) (18,179,529) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 67,256,969 4,194,160 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 83,583,151 13,864,026 NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 352,215,429 338,351,403 - -------------------------------------------------------------------------------- End of period $435,798,580 $352,215,429 ================================================================================ See Notes to Financial Statements. - ------ 16 Notes to Financial Statements AUGUST 31, 2005 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. SECURITY VALUATIONS -- Debt securities maturing in greater than 60 days 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 fund determines that the market price of a portfolio security is not readily available, or that the valuation methods mentioned above do not reflect the security's fair value, such security is valued at its fair value as determined by, or in accordance with procedures adopted by, the Board of Trustees or its designee if such fair value determination would materially impact a fund's net asset value. Circumstances that may cause the fund to fair value a security include: 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; or trading in a security has been halted during the trading day. 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. INDEMNIFICATIONS -- Under the trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business, the fund enters into contracts that provide general indemnifications. The fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. The risk of material loss from such claims is considered by management to be remote. 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, 2005 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM) (the investment advisor), 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 specific class of shares 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 fund and certain other accounts managed by the investment advisor that are in the same broad investment category as the fund and (2) a Complex Fee based on the assets of all the funds in the American Century family of funds. 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, 2005, the effective annual management fee for the Investor, A, B and C Classes was 0.52%. 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% - -------------------------------------------------------------------------------- Service Fee 0.25% - -------------------------------------------------------------------------------- The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The fees are computed and accrued daily based on each class's daily net assets and paid monthly in arrears. 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, 2005, 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 advisor, ACIM, the distributor of the trust, ACIS, and the trust's transfer agent, American Century Services, LLC (formerly American Century Services Corporation). The fund has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the fund and a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the year ended August 31, 2005, were as follows: - -------------------------------------------------------------------------------- Cost of purchases $117,426,300 - -------------------------------------------------------------------------------- Proceeds from sales $48,616,176 - -------------------------------------------------------------------------------- (continued) - ------ 18 Notes to Financial Statements AUGUST 31, 2005 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, 2005 - ----------------------------------------- Sold 5,223,497 $ 52,921,371 - ----------------------------------------- Issued in reinvestment of distributions 1,274,569 12,921,094 - ----------------------------------------- Redeemed (3,522,582) (35,580,703) - -------------------------------------------------------------------------------- Net increase (decrease) 2,975,484 $ 30,261,762 ================================================================================ 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 increase (decrease) (1,138,577) $(11,034,604) ================================================================================ A CLASS - -------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 2005 - ----------------------------------------- Sold 3,047,060 $31,021,215 - ----------------------------------------- Issued in reinvestment of distributions 67,666 689,449 - ----------------------------------------- Redeemed (449,123) (4,554,585) - -------------------------------------------------------------------------------- Net increase (decrease) 2,665,603 $27,156,079 ================================================================================ 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 (decrease) 1,024,387 $10,063,163 ================================================================================ B CLASS - -------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 2005 - ----------------------------------------- Sold 33,039 $ 333,373 - ----------------------------------------- Issued in reinvestment of distributions 1,834 18,630 - ----------------------------------------- Redeemed (10,246) (103,264) - -------------------------------------------------------------------------------- Net increase (decrease) 24,627 $ 248,739 ================================================================================ 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 (decrease) 50,709 $502,560 ================================================================================ (continued) - ------ 19 Notes to Financial Statements AUGUST 31, 2005 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - -------------------------------------------------------------------------------- SHARES AMOUNT - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- YEAR ENDED AUGUST 31, 2005 - ----------------------------------------- Sold 1,094,937 $11,131,724 - ----------------------------------------- Issued in reinvestment of distributions 18,991 193,083 - ----------------------------------------- Redeemed (171,473) (1,734,418) - -------------------------------------------------------------------------------- Net increase (decrease) 942,455 $ 9,590,389 ================================================================================ 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 (decrease) 468,883 $ 4,663,041 ================================================================================ 5. BANK LINE OF CREDIT The fund, along with certain other funds managed by ACIM or American Century Global Investment Management, Inc., has a $575,000,000 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, 2005. 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, 2005 and August 31, 2004 were as follows: - -------------------------------------------------------------------------------- 2005 2004 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $18,882,595 $18,179,529 - -------------------------------------------------------------------------------- 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, 2005 7. FEDERAL TAX INFORMATION (CONTINUED) As of August 31, 2005, 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 $401,286,607 ================================================================================ Gross tax appreciation of investments $34,324,288 - ---------------------------------------------------- Gross tax depreciation of investments -- - -------------------------------------------------------------------------------- Net tax appreciation (depreciation) of investments $34,324,288 ================================================================================ Undistributed ordinary income -- - ---------------------------------------------------- Accumulated capital losses $(1,907,441) - ---------------------------------------------------- Capital loss deferral -- - -------------------------------------------------------------------------------- The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire in 2009. 8. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The fund hereby designates $18,806,019 of exempt interest distributions for the fiscal year ended August 31, 2005. - ------ 21 California High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED AUGUST 31 - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.93 $9.65 $9.84 $9.79 $9.44 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------- Net Investment Income 0.51 0.52 0.52 0.52 0.52 - ---------------------------- Net Realized and Unrealized Gain (Loss) 0.43 0.28 (0.19) 0.05 0.35 - -------------------------------------------------------------------------------- Total From Investment Operations 0.94 0.80 0.33 0.57 0.87 - -------------------------------------------------------------------------------- Distributions - -------------------------- From Net Investment Income (0.51) (0.52) (0.52) (0.52) (0.52) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.36 $9.93 $9.65 $9.84 $9.79 ================================================================================ TOTAL RETURN(1) 9.65% 8.48% 3.35% 6.07% 9.50% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.52% 0.53% 0.54% 0.54% 0.54% - -------------------------- Ratio of Net Investment Income to Average Net Assets 4.99% 5.30% 5.24% 5.37% 5.45% - -------------------------- Portfolio Turnover Rate 13% 19% 30% 32% 47% - -------------------------- Net Assets, End of Period (in thousands) $377,534 $332,434 $334,032 $373,061 $336,400 - -------------------------------------------------------------------------------- (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 - -------------------------------------------------------------------------------- 2005 2004 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.93 $9.65 $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------- Net Investment Income 0.48 0.50 0.29 - ------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.43 0.28 (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.91 0.78 0.15 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------- From Net Investment Income (0.48) (0.50) (0.29) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.36 $9.93 $9.65 ================================================================================ TOTAL RETURN(2) 9.38% 8.21% 1.48% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.77% 0.78% 0.78%(3) - ------------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.74% 5.05% 5.04%(3) - ------------------------------------------- Portfolio Turnover Rate 13% 19% 30%(4) - ------------------------------------------- Net Assets, End of Period (in thousands) $39,608 $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 - -------------------------------------------------------------------------------- 2005 2004 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.93 $9.65 $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------- Net Investment Income 0.40 0.42 0.25 - ------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.43 0.28 (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.83 0.70 0.11 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------- From Net Investment Income (0.40) (0.42) (0.25) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.36 $9.93 $9.65 ================================================================================ TOTAL RETURN(2) 8.57% 7.40% 1.05% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.52% 1.53% 1.53%(3) - ------------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.99% 4.30% 4.43%(3) - ------------------------------------------- Portfolio Turnover Rate 13% 19% 30%(4) - ------------------------------------------- Net Assets, End of Period (in thousands) $1,158 $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 - -------------------------------------------------------------------------------- 2005 2004 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.93 $9.65 $9.79 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------- Net Investment Income 0.40 0.43 0.26 - ------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.43 0.28 (0.14) - -------------------------------------------------------------------------------- Total From Investment Operations 0.83 0.71 0.12 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------- From Net Investment Income (0.40) (0.43) (0.26) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.36 $9.93 $9.65 ================================================================================ TOTAL RETURN(2) 8.56% 7.49% 1.22% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.52% 1.48% 1.28%(3) - ------------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.99% 4.35% 4.59%(3) - ------------------------------------------- Portfolio Turnover Rate 13% 19% 30%(4) - ------------------------------------------- Net Assets, End of Period (in thousands) $17,499 $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, 2005, 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). Those standards 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, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Kansas City, Missouri October 12, 2005 - ------ 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. 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, direct or indirect, 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, LLC (ACS LLC). The other trustees (more than three-fourths of the total number) are independent; that is, they have never been employees or officers of, and have no financial interest in, ACC or any of its wholly-owned, direct or indirect, subsidiaries, including ACIM, ACIS, and ACS LLC. 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 or American Century Global Investment Management, Inc. (ACGIM), a wholly owned subsidiary of 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 - -------------------------------------------------------------------------------- ANTONIO CANOVA, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1961 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Financial Officer, Brocade Communications Systems, Inc. (May 2001 to present); Vice President- Administration, Brocade Communications Systems, Inc. (November 2004 to present); Vice President-Finance, Brocade Communications Systems, Inc. (November 2000 to November 2004); Vice President, Chief Financial Officer and Secretary, Wireless Inc. (April 2000 to November 2000) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- JOHN FREIDENRICH, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1937 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Member and Manager, Regis Management Company, LLC (April 2004 to present); Partner and Founder, Bay Partners (Venture capital firm, 1976 to present); Partner and Founder, Ware & Freidenrich (1968 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ------ 27 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- RONALD J. GILSON, 1665 Charleston Road, Mountain View, CA 94043 YEAR OF BIRTH: 1946 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board 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); Marc and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present); NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- 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: Co-Chief Executive Officer 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: None - -------------------------------------------------------------------------------- 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: Chairman, Oak Hill Platinum Partners, and a Partner, Oak Hill Capital Management (1999 to present); Frank E. Buck Professor of Finance-Emeritus, 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, Chicago Mercantile Exchange (2000 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, Quintus Corporation (automation solutions, 1995 to present) - -------------------------------------------------------------------------------- (continued) - ------ 28 Management INTERESTED TRUSTEE - -------------------------------------------------------------------------------- WILLIAM M. LYONS, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1955 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC (September 2000 to present); President, ACC (June 1997 to present); Chief Operating Officer, ACC (June 1996 to September 2000); Also serves as: Chief Executive Officer and President, ACIS, ACGIM, ACIM and other ACC subsidiaries; Executive Vice President, ACS LLC; Director, ACC, ACGIM, ACIM, ACIS, ACS LLC and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 33 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- 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); Executive Vice President, ACC (May 1995 to present); Also serves as: Chief Executive Officer, Chief Financial Officer and President, ACS LLC; Chief Financial Officer and Executive Vice President, ACGIM, ACIM, ACIS and other ACC subsidiaries; Treasurer, ACGIM, ACIM and other ACC subsidiaries; Director, ACC and other ACC subsidiaries - -------------------------------------------------------------------------------- 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: Assistant Treasurer, ACC (January 1995 to present); Also serves as: Senior Vice President, ACS LLC; Assistant Treasurer, ACGIM, ACIM, ACIS, ACS LLC and other ACC subsidiaries - -------------------------------------------------------------------------------- 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: Vice President, ACC (February 2001 to present); General Counsel, ACC (June 1998 to present); Also serves as: Senior Vice President and General Counsel, ACGIM, ACIM, ACIS, ACS LLC and ACC subsidiaries - -------------------------------------------------------------------------------- CHARLES C.S. PARK, 4500 Main Street, Kansas City, MO 64111 YEAR OF BIRTH: 1967 POSITION(S) HELD WITH FUND: Vice President and Chief Compliance Officer LENGTH OF TIME SERVED (YEARS): 4 and less than 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Compliance Officer, ACS LLC, ACIM and ACGIM (March 2005 to present); Vice President, ACS LLC (February 2000 to present); Assistant General Counsel, ACS LLC (January 1998 to March 2005) - -------------------------------------------------------------------------------- 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, ACS LLC (February 2000 to present); Controller-Fund Accounting, ACS LLC (June 1997 to present) - -------------------------------------------------------------------------------- (continued) - ------ 29 Management OFFICERS (CONTINUED) - -------------------------------------------------------------------------------- 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, ACS LLC (February 2000 to present); Controller-Fund Accounting, ACS LLC (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, ACC (October 2001 to present); Vice President, Corporate Tax, ACS LLC (April 1998 to present); Also serves as: Vice President, ACGIM, ACIM, ACIS and other ACC subsidiaries - -------------------------------------------------------------------------------- (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. - ------ 30 Approval of Management Agreement for California High-Yield Municipal Fund Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated and approved by a majority of a fund's independent directors or trustees (the "Directors") each year. At American Century, this process -- referred to as the "15(c) Process" -- involves at least two board meetings spanning a 30 to 60 day period each year, as well as meetings of the Corporate Governance Committee (comprised solely of independent directors), which coordinates the board's 15(c) Process. In addition to this annual review, the board and its committees oversee and evaluate at quarterly meetings the nature and quality of significant services performed by the advisor on behalf of the fund. At these meetings the board reviews fund performance, provision of shareholder services, audit and compliance information, and a variety of other reports from the advisor concerning fund operations. The board, or committees of the board, also holds special meetings, as needed. ANNUAL CONTRACT REVIEW PROCESS As part of the annual 15(c) Process undertaken during the most recent fiscal half-year, the Directors requested and received extensive data and information compiled by the advisor and certain independent providers of evaluative data (the "15(c) Providers") concerning the California High-Yield Municipal Fund (the "fund") and the services provided to the fund under the management agreement. The information included: * the nature, extent and quality of investment management, shareholder services and other services provided to the fund under the management agreement; * reports on the advisor's activities relating to the wide range of programs and services the advisor provides to the fund and its shareholders on a routine and non-routine basis; * data comparing the cost of owning the fund to the cost of owning a similar fund; * data comparing the fund's performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; * financial data showing the profitability of the fund to the advisor and the overall profitability of the advisor; and * data comparing services provided and charges to clients of the advisor other than the fund. In addition, the board also reviewed information provided by an independent consultant retained by the board in connection with the 15(c) Process. In keeping with its practice, the fund's board held two regularly scheduled meetings and one special meeting to review and discuss the information provided by the advisor and to complete its negotiations with the advisor regarding the renewal of the management agreement, including the setting of the applicable advisory fee. In addition, the independent directors and the (continued) - ------ 31 Approval of Management Agreement for California High-Yield Municipal Fund Corporate Governance Committee met to review and discuss the information provided and evaluate the advisor's performance as manager of the fund. Working through the Corporate Governance Committee, the board also retained a consultant to assist it in its evaluation of the profitability of the fund and the advisor, and in formulating the board's fee proposals. The board also had the benefit of the advice of its independent counsel throughout the period. FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, the 15(c) Providers, the board's consultant and its independent counsel, and evaluated such information for each fund for which the board has responsibility. The Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the agreement under the terms ultimately determined by the board to be appropriate, the Directors' decision was based on the following factors. NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management agreement, the advisor is responsible for providing or arranging for all services necessary for the operation of the fund. The board noted that under the management agreement, the advisor provides or arranges at its own expense a wide variety of services including: * fund construction and design * portfolio security selection * initial capitalization/funding * securities trading * custody of fund assets * daily valuation of the fund's portfolio * shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping and communications * legal services * regulatory and portfolio compliance * financial reporting * marketing and distribution The Directors noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry and the changing regulatory environment. In performing their evaluation, the Directors considered information received in connection with the annual review, as well as information provided on an ongoing basis at their regularly scheduled board and committee meetings. INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes, and liquidity. In evaluating investment performance, the board expects the advisor to manage the fund in accordance with its investment objectives and approved strategies. In providing these services, the advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive infor- (continued) - ------ 32 Approval of Management Agreement for California High-Yield Municipal Fund mation technology, research, training, compliance and other systems to conduct their business. At each quarterly meeting the board and the Portfolio Committee review investment performance information for the fund, together with comparative information for appropriate benchmarks and peer groups of funds managed similarly to the fund. Further, the Portfolio Committee reports its assessment to the board. If performance concerns are identified, the Directors discuss with the advisor and its portfolio managers the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The fund's performance was well above the median for its peer group for both one and three year periods. SHAREHOLDER AND OTHER SERVICES. The advisor provides the fund with a comprehensive package of transfer agency, shareholder, and other services. The Quality of Service Committee reviews reports and evaluations of such services at its regular quarterly meetings, including the annual meeting concerning contract review, and reports to the board. The Quality of Service Committee reviews interim reports between regularly scheduled meetings. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the advisor. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor provides detailed information concerning its cost of providing various services to the fund, its profitability in managing the fund, its overall profitability, and its financial condition. The Directors have reviewed with the advisor the methodology used to prepare this financial information. This financial information regarding the advisor is considered in order to evaluate the advisor's financial condition, its ability to continue to provide services under the management agreement, and the reasonableness of the current management fee. The board has retained a consultant to assist it in this review. ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the advisor's practices generally meet or exceed industry best practices and that the advisor was not implicated in the industry scandals of 2003 and 2004. ECONOMIES OF SCALE. The Directors review reports provided by the advisor on economies of scale for the complex as a whole and the year-over-year changes in revenue, costs, and profitability. The Directors concluded that (continued) - ------ 33 Approval of Management Agreement for California High-Yield Municipal Fund economies of scale are difficult to measure with precision, particularly on a fund-by-fund basis. This analysis is also complicated by the additional services and content provided by the advisor and its reinvestment in its ability to provide and expand those services. Accordingly, the Directors also seek to evaluate economies of scale by reviewing other information, such as year-over-year profitability of the advisor generally, the profitability of its management of the fund specifically, the expenses incurred by the advisor in providing various functions to the fund, and the fee breakpoints of competitive funds not managed by the advisor. The Directors believe the advisor is appropriately sharing economies of scale through a competitive fee structure, through breakpoints that reduce fees as the fund complex and the fund increases in size and through reinvestment in its business to provide shareholders additional content and services. In particular, separate breakpoint schedules based on the size of the entire fund complex and on the size of the fund reflect the complexity of assessing economies of scale. COMPARISON TO OTHER FUNDS' FEES. The fund pays the advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the fund, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the fund's independent directors (including their independent legal counsel). Under the unified fee structure, the advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The board believes the unified fee structure is a benefit to fund shareholders because it clearly discloses to shareholders the cost of owning fund shares, and, since the unified fee cannot be increased without a vote of fund shareholders, it shifts to the advisor the increased costs of operating the fund and the risk of administrative inefficiencies. Part of the Directors' analysis of fee levels involves comparing the fund's unified fee to the total expense ratio of other funds in the fund's peer group. The unified fee charged to shareholders of the fund was in the lowest quartile of the total expense ratios of its peer group. COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The Directors also requested and received information from the advisor concerning the nature of the services, fees, and profitability of its advisory services to advisory clients other than the fund. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the fund. The Directors analyzed this information and concluded that the fees charged and (continued) - ------ 34 Approval of Management Agreement for California High-Yield Municipal Fund services provided to the advisor's other clients did not suggest that the fund's fees were unreasonable by comparison. COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information from the advisor concerning collateral benefits it receives as a result of its relationship with the fund. They concluded that the advisor's primary business is managing mutual funds and it generally does not use the fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Directors noted that the advisor receives proprietary research from broker dealers that execute fund portfolio transactions and concluded that this research is likely to benefit fund shareholders. The Directors also determined that the advisor is able to provide investment management services to clients other than the fund, at least in part, due to its existing infrastructure built to serve the fund complex. The Directors concluded, however, that the assets of those other clients are not significant and that, in any event, the addition of such other assets to the assets of the funds that use substantially the same investment management team and strategy to determine whether breakpoints have been achieved captures for the shareholders a portion of any benefit that exists. CONCLUSIONS OF THE DIRECTORS As a result of this process, the independent directors concluded that the investment management agreement between the fund and the advisor is fair and reasonable in light of the services provided and should be renewed. - ------ 35 Share Class Information Four classes of shares are authorized for sale by the fund: Investor Class, A Class, B Class, and C Class. The total expense ratios of A, B, and C Class shares are higher than that of Investor Class shares. ON JANUARY 30, 2003, INVESTOR CLASS SHARES BECAME UNAVAILABLE TO NEW SELF-DIRECTED RETAIL INVESTORS. INVESTOR CLASS shares are available for purchase in two ways: 1) by existing shareholders, 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% after the sixth year. 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. - ------ 36 Additional Information 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 DOW JONES INDUSTRIAL AVERAGE (DJIA) is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials but including service-oriented firms. Prepared and published by Dow Jones & Co., it is the oldest and most widely quoted of all the market indicators. 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. The S&P 500 INDEX is a market value-weighted index of the stocks of 500 publicly traded U.S. companies chosen for market size, liquidity, and industry group representation that are considered to be leading firms in dominant industries. Each stock's weight in the index is proportionate to its market value. Created by Standard & Poor's, it is considered to be a broad measure of U.S. stock market performance. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's investment advisor, 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 advisor 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 advisor 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 files 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. 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 complete 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. - ------ 37 Notes - ------ 38 Notes - ------ 39 Notes - ------ 40 [inside back cover - blank] [back cover] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE: 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 ADVISOR: 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 Proprietary Holdings, Inc. American Century Investment Services, Inc., Distributor 0510 ©2005 American Century Proprietary Holdings, Inc. SH-ANN-45691N All rights reserved. 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 12(a)(1) to American Century Asset Allocation Portfolios, Inc.'s Annual Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005, 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) Antonio Canova 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 2004: $123,645 FY 2005: $75,604 (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 2004: $0 FY 2005: $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 2004: $0 FY 2005: $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 2004: $28,380 FY 2005: $12,286 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 2004: $0 FY 2005: $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 2004: $0 FY 2005: $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 2004: $0 FY 2005: $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 2004: $28,380 FY 2005: $197,286 (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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the reporting period, there were no material changes to the procedures by which shareholders may recommend nominees to the registrant's board. ITEM 11. 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 second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. 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 12(a)(1) to American Century Asset Allocation Portfolios, Inc.'s Certified Shareholder Report on Form N-CSR, File No. 811-21591, on September 29, 2005. (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: October 28, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William M. Lyons ------------------------------------ Name: William M. Lyons Title: President (principal executive officer) Date: October 28, 2005 By: /s/ Maryanne L. Roepke ------------------------------------ Name: Maryanne L. Roepke Title: Sr. Vice President, Treasurer, and Chief Accounting Officer (principal financial officer) Date: October 28, 2005