[front cover] May 31, 2003 American Century Annual Report [photo] Tax-Free Money Market Tax-Free Bond [american century logo and text logo (reg.sm)] [inside front cover] Table of Contents Our Message to You ........................................................ 1 TAX-FREE MONEY MARKET Performance ............................................................... 2 Portfolio Composition by Credit Rating ................................. 2 Portfolio Composition by Maturity ...................................... 2 Yields ................................................................. 2 Portfolio Commentary ...................................................... 3 Schedule of Investments ................................................... 4 TAX-FREE BOND Performance ............................................................... 7 Portfolio Commentary ...................................................... 8 Yields ................................................................. 8 Portfolio Composition by Credit Rating ................................. 9 Top Five States ........................................................ 9 Schedule of Investments ................................................... 10 FINANCIAL STATEMENTS Statement of Assets and Liabilities ....................................... 20 Statement of Operations ................................................... 21 Statement of Changes in Net Assets ........................................ 22 Notes to Financial Statements ............................................. 23 Financial Highlights ...................................................... 28 Report of Independent Auditors ............................................ 31 OTHER INFORMATION Management ................................................................ 32 Share Class Information ................................................... 35 Index Definition .......................................................... 36 Our Message to You James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the annual report for the American Century Tax-Free Money Market and Tax-Free Bond funds for the fiscal year ended May 31, 2003. The reports include comparative performance figures, commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Also, through our Web site, we provide quarterly commentaries on all American Century portfolios, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. Your next shareholder reports for these funds will be the semiannual reports dated November 30, 2003, available in approximately six months. As always, we deeply appreciate your investment with American Century. Sincerely, /*/James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /*/James E. Stowers III James E. Stowers III Co-Chairman of the Board ----- 1 Tax-Free Money Market - Performance TOTAL RETURNS AS OF MAY 31, 2003 ------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- INCEPTION 1 YEAR 5 YEARS(1) 10 YEARS(1) DATE - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET 1.05% 2.55% 2.75% 7/31/84 - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S TAX-EXEMPT MONEY MARKET FUNDS 0.71% 2.25% 2.56% -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(2) 9 of 128 7 of 105 11 of 77 -- - -------------------------------------------------------------------------------- (1) Fund returns and rankings would have been lower if management fees had not been waived from 8/1/97 to 7/31/98. Beginning on 8/1/98, management fees were phased in at a rate of 0.10% each month until 12/1/98. (2) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- A-1+ 62% 65% - -------------------------------------------------------------------------------- A-1 38% 35% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. PORTFOLIO COMPOSITION BY MATURITY - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- 1-30 days 91% 82% - -------------------------------------------------------------------------------- 31-90 days -- 1% - -------------------------------------------------------------------------------- 91-180 days 4% 8% - -------------------------------------------------------------------------------- More than 180 days 5% 9% - -------------------------------------------------------------------------------- YIELDS AS OF MAY 31, 2003 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 0.85% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 0.86% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS* - -------------------------------------------------------------------------------- 25.0% Tax Bracket 1.13% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 1.18% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 1.27% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 1.31% - -------------------------------------------------------------------------------- *The tax brackets indicated are for federal taxes only. Past performance does not guarantee future results. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Yields will fluctuate, and although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund. The 7-day current yield more closely reflects the current earnings of the fund than the total return. - ----- 2 Tax-Free Money Market - Portfolio Commentary By Alan Kruss, portfolio manager PERFORMANCE SUMMARY During the fiscal year ended May 31, 2003, Tax-Free Money Market outperformed the average return of 128 tax-exempt money market funds tracked by Lipper Inc. The fund's one-year performance, as well as its five-year return as of May 31, ranked in the top 10% of its Lipper group, while the fund's 10-year return ranked in the top 15% of its Lipper category (see the previous page for more performance information). ECONOMIC & MARKET REVIEW U.S. economic growth (as measured by real gross domestic product) decelerated significantly during the fiscal year, falling from a 4% annualized rate in the third quarter of 2002 to 1.4% in the fourth quarter of 2002 and the first quarter of 2003. Against that backdrop and with geopolitical tensions heightening between the U.S. and Iraq, the Federal Reserve (the Fed) cut its federal funds rate target (the Fed's benchmark for overnight interest rates) from 1.75% to 1.25% in early November in an attempt to stimulate the economy. Municipal money market yields generally fell during the fiscal year, tracking the Fed's rate cut. For example, Tax-Free Money Market's 7-day current yield fell from 1.31% on May 31, 2002, to 0.85% on May 31, 2003. PORTFOLIO STRATEGY The portfolio's average weighted average maturity during the fiscal year was approximately 35 days; it started around 39 days and shortened to around 28. We also devoted a significant portion of the portfolio--more than 80%--to short-term floating-rate municipal notes, known as "floaters". Floaters (labeled VRDNs in the portfolio's Schedule of Investments--see page 6) generally offered yields that were competitive with those of one-year municipal securities. By the end of the fiscal year, floaters were offering higher yields than one-year notes. As a result, we increased Tax-Free Money Market's holdings of floaters to roughly 95% of the portfolio by May 31, 2003. SUBSEQUENT EVENT In June 2003, the Fed cut its federal funds rate target by another 25 basis points (0.25%--a basis point equals 0.01%) to 1%. In its statement accompanying the rate cut, the Fed indicated that, while the "upside and downside risks" to the economy were roughly equal, "an unwelcome substantial fall in inflation" was more likely than rising inflation. As of June 30, 2003, Tax-Free Money Market's seven-day current yield (which is net of the fund's 0.51% annual expense ratio) was 0.68%. With almost 70 basis points of yield remaining, even after the June rate cut, we expect to maintain a positive yield on Tax-Free Money Market unless there are significant further rate reductions in the future. Should that happen, American Century will examine all possible ways to maintain a fund yield that is competitive and positive, including the waiver of management fees. ----- 3 Tax-Free Money Market - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 100.0% ALABAMA -- 1.6% - -------------------------------------------------------------------------------- $ 4,295 Brundidge Combined Utilities Rev., Series 2002 A, VRDN, 1.39%, 6/5/03 (LOC: SouthTrust Bank N.A.) $ 4,295 - -------------------------------------------------------------------------------- ARIZONA -- 1.3% - -------------------------------------------------------------------------------- 3,500 Pinal County Industrial Development Auth. Rev., (S & T Dairy LLC), VRDN, 1.45%, 6/5/03 (LOC: Wells Fargo Bank N.A.) 3,500 - -------------------------------------------------------------------------------- CALIFORNIA -- 13.8% - -------------------------------------------------------------------------------- 10,000 California Rev. Anticipation Notes, Series 2002 G, Floater, 1.34%, 6/5/03, resets weekly off the BMA plus 0.15% 10,000 - -------------------------------------------------------------------------------- 3,000 California Rev. Anticipation Notes, Floater, 1.32%, 6/5/03, resets weekly off the 1-month LIBOR 3,000 - -------------------------------------------------------------------------------- 9,165 Roaring Fork Municipal Products LLC Rev., VRDN, 1.59%, 6/5/03 (SBBPA: Bank of New York) (Acquired 9/19/02, Cost $9,165)(1) 9,165 - -------------------------------------------------------------------------------- 2,500 San Bernardino County Housing Auth. Rev., Series 1990 A, (Highland Hills), 1.25%, 5/1/04 (Acquired 4/30/03, Cost $2,500)(1) 2,500 - -------------------------------------------------------------------------------- 12,351 San Bernardino County Housing Auth. Rev., Series 2002 C, VRDN, 1.21%, 6/2/03, Final Maturity 9/1/03 (XLCA) 12,351 - -------------------------------------------------------------------------------- 37,016 - -------------------------------------------------------------------------------- COLORADO -- 6.0% - -------------------------------------------------------------------------------- 3,450 Arvada Water Enterprise Rev., VRDN, 1.30%, 6/2/03 (SBBPA: Dexia Credit Local) (FSA) 3,450 - -------------------------------------------------------------------------------- 5,345 Arvada West Town Center Improvement District GO, VRDN, 1.35%, 6/5/03 (LOC: KeyBank N.A.) 5,345 - -------------------------------------------------------------------------------- 7,500 Colorado Housing & Finance Auth. Rev., (Kroger Co.), VRDN, 1.34%, 6/5/03 (LOC: U.S. Bank Trust N.A.) 7,500 - -------------------------------------------------------------------------------- 16,295 - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA -- 1.3% - -------------------------------------------------------------------------------- 3,500 District of Columbia Rev., (Defenders of Wildlife), VRDN, 1.25%, 6/5/03 (LOC: Bank of America NT & SA) 3,500 - -------------------------------------------------------------------------------- FLORIDA -- 9.5% - -------------------------------------------------------------------------------- 1,200 Broward County Airport Exempt Facility Rev., (Various LearJet Inc. Projects), VRDN, 1.35%, 6/5/03 (LOC: Bank of America N.A.) 1,200 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 2,170 Broward County Health Facilities Auth. Rev., (John Knox Village), VRDN, 1.35%, 6/2/03 (Radian Asset Assurance Inc.) (SBBPA: LaSalle Bank N.A.) $ 2,170 - -------------------------------------------------------------------------------- 4,605 Florida Finance Agency Multifamily Housing Rev., (Country Club), VRDN, 1.34%, 6/5/03 (LOC: Freddie Mac) 4,605 - -------------------------------------------------------------------------------- 4,250 Florida Finance Agency Multifamily Housing Rev., (Woodlands), VRDN, 1.30%, 6/4/03 (LOC: Northern Trust Company) 4,250 - -------------------------------------------------------------------------------- 4,990 Florida Housing Finance Agency, VRDN, 1.39%, 6/5/03 (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 2/3/03-2/10/03, Cost $4,990)(1) 4,990 - -------------------------------------------------------------------------------- 1,980 Harmony Community Development District Rev., VRDN, 1.34%, 6/5/03 (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 1/14/03- 2/3/03, Cost $1,980)(1) 1,980 - -------------------------------------------------------------------------------- 2,700 Miami Health Facilities Auth. Rev., VRDN, 1.34%, 6/5/03 (SBBPA: Westdeutsche Landesbank AG) 2,700 - -------------------------------------------------------------------------------- 3,750 Miami-Dade County Industrial Development Auth. Rev., (Various Gulliver Schools Projects), VRDN, 1.25%, 6/5/03 (LOC: Bank of America N.A.) 3,750 - -------------------------------------------------------------------------------- 25,645 - -------------------------------------------------------------------------------- GEORGIA -- 1.0% - -------------------------------------------------------------------------------- 2,725 Fulton County Development Auth. Industrial Rev., VRDN, 1.40%, 6/15/03 2,725 - -------------------------------------------------------------------------------- IDAHO -- 1.1% - -------------------------------------------------------------------------------- 3,000 Lincoln County Industrial Development Corp. Rev., (Double A Dairy), VRDN, 1.45%, 6/5/03 (LOC: Bank of America N.A.) 3,000 - -------------------------------------------------------------------------------- INDIANA -- 6.2% - -------------------------------------------------------------------------------- 2,800 Jasper County Rev., (Newberry Farms LLC), VRDN, 1.45%, 6/5/03 (LOC: Bank of the West) 2,800 - -------------------------------------------------------------------------------- 1,700 Morgan County Rev., Series 2002 A, VRDN, (Morgan Hospital & Medical Center), 1.32%, 6/5/03 (LOC: Fifth Third Bank) 1,700 - -------------------------------------------------------------------------------- 12,330 Morgan County Rev., Series 2002 B, VRDN, (Morgan Hospital & Medical Center), 1.32%, 6/5/03 (LOC: Fifth Third Bank) 12,330 - -------------------------------------------------------------------------------- 16,830 - -------------------------------------------------------------------------------- KENTUCKY -- 0.7% - -------------------------------------------------------------------------------- 1,000 Murray Industrial Building Rev., (Kroger Co.), VRDN, 1.34%, 6/5/03 (LOC: U.S. Bank N.A.) 1,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 4 Tax-Free Money Market - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,000 Winchester Industrial Building Rev., (Kroger Co.), VRDN, 1.34%, 6/5/03 (LOC: U.S. Bank N.A.) $ 1,000 - -------------------------------------------------------------------------------- 2,000 - -------------------------------------------------------------------------------- LOUISIANA -- 1.0% - -------------------------------------------------------------------------------- 2,800 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Trinity Episcopal School), VRDN, 1.30%, 6/4/03 (LOC: SunTrust Bank) 2,800 - -------------------------------------------------------------------------------- MASSACHUSETTS -- 0.7% - -------------------------------------------------------------------------------- 2,000 Massachusetts Development Finance Agency Rev., (Masonic Nursing Home Inc.), VRDN, 1.31%, 6/4/03 (LOC: Citizens Bank of Massachusetts) 2,000 - -------------------------------------------------------------------------------- MINNESOTA -- 2.7% - -------------------------------------------------------------------------------- 7,440 Dakota County Community Development Agency Rev., (Catholic Finance Corporation), VRDN, 1.30%, 6/4/03 (LOC: U.S. Bank N.A.) 7,440 - -------------------------------------------------------------------------------- MISSOURI -- 2.7% - -------------------------------------------------------------------------------- 7,355 Kansas City Tax Allocation, Series 2003 A, (Chouteau I-35), VRDN, 1.39%, 6/5/03 (MBIA) (SBBPA: JP Morgan Chase Bank) 7,355 - -------------------------------------------------------------------------------- MULTI-STATE -- 8.0% - -------------------------------------------------------------------------------- 17,936 Koch Floating Rate Trust Rev., Series 2000-1, VRDN, 1.44%, 6/5/03 (AMBAC) (SBBPA: State Street Bank & Trust Co.) (Acquired 5/2/00-5/16/03, Cost $17,936)(1)(2) 17,936 - -------------------------------------------------------------------------------- 3,723 Koch Floating Rate Trust Various States Rev., Series 2001-1, VRDN, 1.44%, 6/5/03 (AMBAC) (SBBPA: State Street Bank & Trust Co.) (Acquired 11/4/02-12/30/02, Cost $3,723)(1) 3,723 - -------------------------------------------------------------------------------- 21,659 - -------------------------------------------------------------------------------- NEVADA -- 1.4% - -------------------------------------------------------------------------------- 3,800 Clark County Economic Development Rev., (Lutheran Secondary School Association), VRDN, 1.45%, 6/5/03 (LOC: Allied Irish Banks plc) 3,800 - -------------------------------------------------------------------------------- NEW YORK -- 3.8% - -------------------------------------------------------------------------------- 1,800 City of New York GO, Series 1992 B, VRDN, 1.30%, 6/2/03 (FGIC) 1,800 - -------------------------------------------------------------------------------- 8,500 New York State Thruway Auth. Rev., Series 2003 A, 1.125%, 3/25/04 8,502 - -------------------------------------------------------------------------------- 10,302 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- OHIO -- 3.1% - -------------------------------------------------------------------------------- $ 1,055 Clinton County Hospital Rev., (Ohio Hospital Capital Inc.), VRDN, 1.26%, 6/4/03 (LOC: Fifth Third Bank) $ 1,055 - -------------------------------------------------------------------------------- 2,000 Clinton County Rev., Series 2003 A-1, (H B Magruder Hospital), VRDN, 1.26%, 6/4/03 (LOC: Fifth Third Bank) 2,000 - -------------------------------------------------------------------------------- 5,300 Miami County Hospital Facilities Rev., VRDN, 1.34%, 6/5/03 (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 3/25/02, Cost $5,300)(1) 5,300 - -------------------------------------------------------------------------------- 8,355 - -------------------------------------------------------------------------------- OKLAHOMA -- 3.0% - -------------------------------------------------------------------------------- 5,000 Muskogee Medical Center Auth. Rev., VRDN, 1.25%, 6/5/03 (LOC: Bank of America N.A.) 5,000 - -------------------------------------------------------------------------------- 3,000 Oklahoma Industries Auth. Rev., (American Cancer Society), VRDN, 1.25%, 6/5/03 (LOC: Bank of America N.A.) 3,000 - -------------------------------------------------------------------------------- 8,000 - -------------------------------------------------------------------------------- OREGON -- 4.8% - -------------------------------------------------------------------------------- 13,100 Port of Portland Public Grain Elevator Rev., (Columbia Grain Inc. Project), VRDN, 1.40%, 6/5/03 (LOC: Wachovia Bank, N.A.) 13,100 - -------------------------------------------------------------------------------- SOUTH CAROLINA -- 0.9% - -------------------------------------------------------------------------------- 2,500 South Carolina Jobs-Economic Development Auth. Rev., (Carolina Piedmont Foundation), VRDN, 1.25%, 6/5/03 (LOC: Bank of America N.A.) 2,500 - -------------------------------------------------------------------------------- TENNESSEE -- 8.2% - -------------------------------------------------------------------------------- 7,880 Bradley County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.34%, 6/5/03 (LOC: U.S. Bank N.A.) 7,880 - -------------------------------------------------------------------------------- 4,995 Elizabethton Health & Educational Facilities Board Rev., VRDN, 1.34%, 6/5/03 (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 3/5/01, Cost $4,995)(1) 4,995 - -------------------------------------------------------------------------------- 2,150 Knox County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.34%, 6/5/03 (LOC: U.S. Bank Trust N.A.) 2,150 - -------------------------------------------------------------------------------- 2,500 Morristown Health Educational & Housing Facilities Board Rev., (All Saints Episcopal School), VRDN, 1.25%, 6/4/03 (LOC: SunTrust Bank) 2,500 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 5 Tax-Free Money Market - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 4,800 Shelby County Health Educational & Housing Facilities Board Rev., (Kings Daughter & Sons), VRDN, 1.44%, 6/5/03 (LOC: AmSouth Bank)(3) $ 4,800 - -------------------------------------------------------------------------------- 22,325 - -------------------------------------------------------------------------------- TEXAS -- 10.2% - -------------------------------------------------------------------------------- 5,500 Gulf Coast Industrial Development Auth. Rev., (Petrounited Term Inc.), VRDN, 1.35%, 6/5/03 (LOC: Bank One Texas N.A.) 5,500 - -------------------------------------------------------------------------------- 2,000 Pasadena Independent School District GO, Series 2000 A, 1.35%, 4/1/04 (PSF) (SBBPA: Westdeutsch Landesbank AG) 2,000 - -------------------------------------------------------------------------------- 10,000 Port Arthur Navigation District Rev., (Motiva Enterprises), VRDN, 1.45%, 6/4/03 10,000 - -------------------------------------------------------------------------------- 9,955 Roaring Fork Municipal Products LLC Rev., VRDN, 1.49%, 6/5/03 (SBBPA: Bank of New York) (Acquired 9/19/02, Cost $9,955)(1) 9,955 - -------------------------------------------------------------------------------- 27,455 - -------------------------------------------------------------------------------- VERMONT -- 0.7% - -------------------------------------------------------------------------------- 2,000 Vermont Industrial Development Auth. Rev., (Central Public Service Corp.), VRDN, 1.40%, 6/15/03 (LOC: Citizens Bank of Massachusetts) 2,000 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- VIRGINIA -- 1.3% - -------------------------------------------------------------------------------- $ 3,500 Alexandria Redevelopment & Housing Auth. Rev., VRDN, 1.34%, 6/5/03 (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 7/2/02, Cost $3,500)(1) $ 3,500 - -------------------------------------------------------------------------------- WASHINGTON -- 1.3% - -------------------------------------------------------------------------------- 1,155 Pierce County Economic Development Corporate Rev., (K & M Holdings II), VRDN, 1.30%, 6/4/03 (LOC: Wells Fargo Bank, N.A.) (Acquired 11/17/97, Cost $1,155)(1) 1,155 - -------------------------------------------------------------------------------- 2,500 Washington Housing Finance Commission Nonprofit Rev., (YMCA Columbia/Willamette), VRDN, 1.25%, 6/5/03 (LOC: Wells Fargo Bank, N.A.) 2,500 - -------------------------------------------------------------------------------- 3,655 - -------------------------------------------------------------------------------- WEST VIRGINIA -- 3.7% - -------------------------------------------------------------------------------- 10,000 West Virginia State Hospial Finance Auth. Rev., Series 2002 B-1, (University Hospital), VRDN, 1.39%, 6/4/03 (LOC: Branch Banking & Trust) 10,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% $271,052 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation BMA = Bond Market Association Municipal Swap Index FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance Inc. GO = General Obligation LIBOR = London Interbank Offered Rate LOC = Letter of Credit MBIA = MBIA Insurance Corp. PSF = Permanent School Fund resets = The frequency with which a security's coupon changes, based on current market conditions or an underlying index. The more frequently a security resets, the less risk the investor is taking that the coupon will vary significantly from current market rates. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. If final maturity is indicated, the final maturity is used in calculating the weighted average portfolio maturity. Rate shown is effective May 31, 2003. XLCA = XL Capital Assurance Corp. (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 May 31, 2003, was $62,199 (in thousands), which represented 23.9% of net assets. Restricted securities considered illiquid represent 0.9% of net assets. (2) Security, or a portion thereof, has been segregated for a when-issued security. (3) When-issued security. See Notes to Financial Statements. - ----- 6 Tax-Free Bond - Performance TOTAL RETURNS AS OF MAY 31, 2003 ------------------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------------------------- INVESTOR CLASS 9.31% 6.14% 5.84% 6.07% 3/2/87 - -------------------------------------------------------------------------------------------------- LEHMAN MUNICIPAL 5-YEAR GO INDEX 8.72% 6.10% 5.82% 6.26%(1) -- - -------------------------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S INTERMEDIATE MUNICIPAL DEBT FUNDS 8.86% 5.44% 5.62% 6.26%(2) -- - -------------------------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 50 of 135 10 of 97 14 of 43 8 of 12(2) -- - -------------------------------------------------------------------------------------------------- Institutional Class -- -- -- 3.14%(4) 4/15/03 - -------------------------------------------------------------------------------------------------- (1) Since 2/28/87, the date nearest the Investor Class's inception for which data are available. (2) Since 3/31/87, the date nearest the Investor Class's inception for which data are available. (3) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated. (4) Returns for periods less than one year are not annualized.
GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made May 31, 1993
![](https://capedge.com/proxy/N-CSR/0000746458-03-000016/growthtfbond0503.gif)
ONE-YEAR RETURNS OVER 10 YEARS Periods ended May 31 - ----------------------------------------------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 - ----------------------------------------------------------------------------------------------------------------------- Investor Class 2.72% 7.04% 4.12% 6.29% 7.60% 4.07% 0.44% 10.77% 6.45% 9.31% - ----------------------------------------------------------------------------------------------------------------------- Lehman Municipal 5-Year GO Index 3.10% 6.89% 4.74% 6.08% 6.95% 4.90% 0.65% 10.17% 6.33% 8.72% - ----------------------------------------------------------------------------------------------------------------------- The charts on the performance page give historical return data for the fund. Returns for the index are provided for comparison. The fund's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Unless otherwise indicated, the charts are based on Investor Class shares; performance for other classes will vary due to differences in fee structures. Past performance does not guarantee future results. None of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. ----- 7 Tax-Free Bond - Portfolio Commentary By Kenneth Salinger, portfolio manager PERFORMANCE SUMMARY Tax-Free Bond performed well in both absolute and comparative terms for the fiscal year ended May 31, 2003. The fund's 9.31% one-year return was well above its 6.07% historical annual average return since inception.* It also outpaced the 8.86% average return of 135 Intermediate Municipal Debt Funds tracked by Lipper Inc. and the 8.72% return of the Lehman Brothers Municipal 5-Year General Obligation Index. Tax-Free Bond's five- and 10-year returns for periods ended May 31, 2003, were even better compared with its Lipper peers, earning the fund top 11% and 33% rankings respectively. ECONOMIC & MARKET BACKDROP U.S. economic growth (as measured by real gross domestic product) decelerated significantly during the fiscal year, falling from a 4% annualized rate in the third quarter of 2002 to 1.4% in the fourth quarter of 2002 and the first quarter of 2003. Against that backdrop and with geopolitical tensions heightening between the U.S. and Iraq, the Federal Reserve (the Fed) cut its federal funds rate target (the Fed's benchmark for overnight interest rates) from 1.75% to 1.25% in early November in an attempt to stimulate the economy. But despite the Fed's and the Bush administration's efforts to stimulate growth, the U.S. economy couldn't muster much momentum in the first quarter of 2003 as the nation's attention and resources were diverted by the war with Iraq. The economy's struggles were reflected in the labor market, with the U.S. unemployment rate rising to 6.1% in May. On the bright side, inflation remained well under control: the consumer price index for all urban consumers rose just 2.1% during the year ended May 31. Municipal bonds generally fared well in that environment, with longer maturities typically posting the biggest gains. YIELDS AS OF MAY 31, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 2.35% - -------------------------------------------------------------------------------- Institutional Class 2.52% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.0% Tax Bracket 3.13% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 3.26% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 3.51% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 3.62% - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE (ADR) - -------------------------------------------------------------------------------- Investor Class 3.52% - -------------------------------------------------------------------------------- Institutional Class 3.72% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are for federal taxes only. *All fund returns referenced in this commentary are for Investor Class shares. (continued) - ----- 8 Tax-Free Bond - Portfolio Commentary PORTFOLIO STRATEGY We worked to decrease the price volatility of Tax-Free Bond's portfolio during the last six months of the fiscal year, reducing its duration (a measurement of bond price sensitivity to interest rate changes) from 5.4 years at the end of November to 4.8 years at the end of May. Tax-Free Bond's portfolio remained concentrated in bonds with AAA or AA ratings. But we also picked up some bonds with A or lower ratings over the last six months. So holdings of AAA and AA bonds as a group decreased slightly between November and the end of May, but still represented the vast majority of the portfolio's credit-quality exposure. We also modified the fund's bond maturity structure. One of the biggest shifts over the last six months was an increase in holdings of municipal bonds with durations of two to six years. At the end of November, bonds with those durations represented around 17% of the portfolio. By the end of May, we had increased that allotment to approximately 26%. Overall, we decreased the portfolio's holdings of bonds with durations of two years or less and those with durations of six to nine years to help accomplish that shift. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- AAA 76% 73% - -------------------------------------------------------------------------------- AA 10% 16% - -------------------------------------------------------------------------------- A 10% 9% - -------------------------------------------------------------------------------- BBB 4% 2% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. We adjusted Tax-Free Bond's state holdings as well, something we try to do when we see relatively higher yields/ lower prices in particular markets as a result of higher issuance (increased supply) or other factors. In particular, we increased the portfolio's relative exposure to bonds from Arizona and Illinois, while decreasing exposure to Texas, New York, California, and Washington. TOP FIVE STATES AS OF MAY 31, 2003 - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- New York 9.7% 13.2% - -------------------------------------------------------------------------------- California 9.7% 11.4% - -------------------------------------------------------------------------------- Arizona 9.0% 6.7% - -------------------------------------------------------------------------------- Washington 8.9% 9.7% - -------------------------------------------------------------------------------- Texas 5.5% 9.2% - -------------------------------------------------------------------------------- ----- 9 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 94.3% ALABAMA -- 2.7% - -------------------------------------------------------------------------------- $ 3,365 Alabama 21st Century Auth. Tobacco Settlement Rev., 5.25%, 12/1/09 $ 3,353 - -------------------------------------------------------------------------------- 3,910 Alabama 21st Century Auth. Tobacco Settlement Rev., 5.50%, 12/1/10 3,880 - -------------------------------------------------------------------------------- 1,000 Alabama Board of Education Rev., (Shelton State Community College), 6.00%, 10/1/04, Prerefunded at 102% of Par (MBIA)(3) 1,085 - -------------------------------------------------------------------------------- 865 Alabama Water Pollution Control Auth. Rev., 5.75%, 8/15/18 (AMBAC) 1,003 - -------------------------------------------------------------------------------- 1,000 East Central Industrial Development Auth. Rev., 5.25%, 9/1/13 (AMBAC) 1,129 - -------------------------------------------------------------------------------- 1,875 Helena Utilities Board Water & Sewer Rev., 5.75%, 4/1/20 (MBIA) 2,172 - -------------------------------------------------------------------------------- 1,435 Helena Utilities Board Water & Sewer Rev., 5.75%, 4/1/22 (MBIA) 1,647 - -------------------------------------------------------------------------------- 1,250 Huntsville Health Care Auth. Rev., Series 2002 A, 3.80%, 6/1/06 (MBIA) 1,323 - -------------------------------------------------------------------------------- 1,500 Montgomery Waterworks & Sanitary Sewer Board Rev., Series 2002 A, 5.00%, 9/1/04 (AMBAC) 1,573 - -------------------------------------------------------------------------------- 17,165 - -------------------------------------------------------------------------------- ALASKA -- 0.4% - -------------------------------------------------------------------------------- 1,670 Alaska Energy Auth. Power Rev., Series 2000-4, (Bradley Lake), 5.50%, 7/1/04 (FSA) 1,750 - -------------------------------------------------------------------------------- 1,000 Alaska Energy Auth. Power Rev., Series 2000-4, (Bradley Lake), 5.50%, 7/1/05 (FSA) 1,088 - -------------------------------------------------------------------------------- 2,838 - -------------------------------------------------------------------------------- ARIZONA -- 8.7% - -------------------------------------------------------------------------------- 2,000 Arizona School Facilities Board Rev., (State School Improvement), 5.25%, 7/1/20 2,227 - -------------------------------------------------------------------------------- 1,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/11 1,086 - -------------------------------------------------------------------------------- 1,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/12 1,085 - -------------------------------------------------------------------------------- 3,225 Arizona Tourism & Sports Auth. Rev., Series 2003 A, (Multipurpose Stadium Facilities), 5.375%, 7/1/23 (MBIA) 3,583 - -------------------------------------------------------------------------------- 1,500 Arizona Transportation Board Highway Rev., Series 2002 B, 5.25%, 7/1/19 1,675 - -------------------------------------------------------------------------------- 2,000 Arizona Transportation Board Highway Rev., Series 2002 B, 5.25%, 7/1/20 2,217 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,000 Arizona Transportation Board Highway Rev., Series 2003 A, 5.00%, 7/1/21 $ 1,083 - -------------------------------------------------------------------------------- 2,925 Chandler Water & Sewer Rev., 4.50%, 7/1/06 (FSA) 3,191 - -------------------------------------------------------------------------------- 2,130 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/12 (MBIA) 2,369 - -------------------------------------------------------------------------------- 1,640 Glendale Water & Sewer Rev., 4.80%, 7/1/03 (FGIC) 1,645 - -------------------------------------------------------------------------------- 1,000 Glendale Water & Sewer Rev., 5.00%, 7/1/06 (FGIC) 1,106 - -------------------------------------------------------------------------------- 4,000 Maricopa County Community College District GO, Series 1997 B, 5.00%, 7/1/12 4,409 - -------------------------------------------------------------------------------- 1,155 Maricopa County Unified School District No. 41 GO, (Gilbert), 5.75%, 7/1/11 (FSA) 1,389 - -------------------------------------------------------------------------------- 1,000 Maricopa County Unified School District No. 48 GO, (Scottsdale), 4.00%, 7/1/03 (FSA) 1,003 - -------------------------------------------------------------------------------- 1,950 Maricopa County Unified School District No. 80 GO, Series 2003 A, (Chandler), (Project of 2002), 5.00%, 7/1/17 (FSA) 2,180 - -------------------------------------------------------------------------------- 2,415 Maricopa County Unified School District No. 90 GO, Series 2003 A, (Saddle Mountain), 5.25%, 7/1/11 2,686 - -------------------------------------------------------------------------------- 2,000 Maricopa County Unified School District No. 90 GO, Series 2003 A, (Saddle Mountain), 5.25%, 7/1/12 2,227 - -------------------------------------------------------------------------------- 4,850 Maricopa County Unified School District No. 97 GO, Series 2003 B, (Deer Valley), (School Improvement), 3.75%, 7/1/12 (MBIA) 5,112 - -------------------------------------------------------------------------------- 1,800 Mesa GO, Series 2002 A, 3.95%, 7/1/14 (FGIC) 1,878 - -------------------------------------------------------------------------------- 1,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/20 (MBIA) 1,169 - -------------------------------------------------------------------------------- 2,000 Phoenix Civic Improvement Corp. Rev., Series 2003 A, 5.00%, 7/1/21 (MBIA) 2,162 - -------------------------------------------------------------------------------- 2,000 Pima County Unified School District No. 1 GO, Series 1993 E, (Tucson), 5.25%, 7/1/08 (FGIC) 2,105 - -------------------------------------------------------------------------------- 1,200 Pima County Unified School District No. 40 Rev., Series 2002 A, (Indian Oasis-Baboquivari), 4.60%, 7/1/13 (MBIA) 1,332 - -------------------------------------------------------------------------------- 1,500 Salt River Project Agricultural Improvement and Power District Electrical System Rev., Series 2001 A, 5.00%, 1/1/05 1,591 - -------------------------------------------------------------------------------- 705 South Tucson Municipal Property Corp. Rev., 5.25%, 6/1/18 725 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 10 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 3,085 South Tucson Municipal Property Corp. Rev., 5.50%, 6/1/24 $ 3,176 - -------------------------------------------------------------------------------- 54,411 - -------------------------------------------------------------------------------- ARKANSAS -- 0.9% - -------------------------------------------------------------------------------- 2,000 Fort Smith Sales and Use Tax, Series 2001 A, 4.375%, 12/1/11 2,209 - -------------------------------------------------------------------------------- 1,250 Sebastian County Health Facilities Board Hospital Rev., Series 2001 A, (Sparks Regional Medical Center), 4.00%, 11/1/03 1,263 - -------------------------------------------------------------------------------- 1,300 Sebastian County Health Facilities Board Hospital Rev., Series 2001 A, (Sparks Regional Medical Center), 4.00%, 11/1/04 1,338 - -------------------------------------------------------------------------------- 905 Sebastian County Health Facilities Board Hospital Rev., Series 2001 B, (Sparks Regional Medical Center), 4.00%, 11/1/04 932 - -------------------------------------------------------------------------------- 5,742 - -------------------------------------------------------------------------------- CALIFORNIA -- 8.4% - -------------------------------------------------------------------------------- 1,405 Aromas-San Juan Unified School District GO, Series 2002 A, 5.62%, 8/1/25 (FGIC)(1) 481 - -------------------------------------------------------------------------------- 1,545 Aromas-San Juan Unified School District GO, Series 2002 A, 5.64%, 7/1/27 (FGIC)(1) 477 - -------------------------------------------------------------------------------- 2,245 Calaveras Unified School District GO, 5.88%, 8/1/26 (FSA)(1) 727 - -------------------------------------------------------------------------------- 2,875 Calaveras Unified School District GO, 5.89%, 5/1/27 (FSA)(1) 897 - -------------------------------------------------------------------------------- 11,375 California Public Works Board Lease Rev., (Department of General Services - Capital East End - A), 5.00%, 12/1/12 (AMBAC)(2) 13,128 - -------------------------------------------------------------------------------- 1,000 California Public Works Board Lease Rev., Series 1994 A, (Various California State University Projects), 6.20%, 10/1/08 1,076 - -------------------------------------------------------------------------------- 1,100 California Public Works Board Lease Rev., Series 1994 A, (Various University of California Projects), 6.15%, 11/1/04 1,193 - -------------------------------------------------------------------------------- 1,000 California Statewide Communities Development Auth. Rev., Series 2002 E, (Kaiser Permanente), 4.70%, 6/1/09 1,081 - -------------------------------------------------------------------------------- 1,615 Campbell COP, (Civic Center), 5.83%, 10/1/31 (AMBAC)(1) 398 - -------------------------------------------------------------------------------- 1,615 Campbell COP, (Civic Center), 5.83%, 10/1/32 (AMBAC)(1) 377 - -------------------------------------------------------------------------------- 1,355 Clovis Unified School District GO, Series 2002 B, (Election 2001), 5.16%, 8/1/23 (FGIC)(1) 520 - -------------------------------------------------------------------------------- 3,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (AMBAC) 3,307 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,500 Los Angeles Community Redevelopment Agency Tax Allocation, Series 1993 H, (Bunker Hill), 6.50%, 12/1/14 (FSA) $ 1,568 - -------------------------------------------------------------------------------- 2,045 Los Angeles Department of Water & Power Rev., Series 2003 B, 4.00%, 7/1/15 (MBIA) 2,127 - -------------------------------------------------------------------------------- 2,000 Los Angeles Unified School District GO, Series 2003 A, 5.00%, 7/1/13 (MBIA) 2,326 - -------------------------------------------------------------------------------- 1,245 Palmdale Civic Auth. Rev., Series 2003 A, (Redevelopment Project No. 1), 5.00%, 7/1/22 (MBIA) 1,345 - -------------------------------------------------------------------------------- 2,070 Pleasant Valley School District Ventura County GO, Series 2002 A, 5.85%, 2/1/24 (MBIA) 2,560 - -------------------------------------------------------------------------------- 5,000 Riverside County Asset Leasing Corp. Rev., Series 2003 A, (Hospital), 3.00%, 6/1/08 (MBIA) 5,171 - -------------------------------------------------------------------------------- 825 Rocklin Unified School District Community Facilities Special Tax, (Capital Appreciation #1), 6.10%, 9/1/24 (AMBAC)(1) 298 - -------------------------------------------------------------------------------- 5,610 Rocklin Unified School District GO, 5.64%, 8/1/23 (FGIC)(1) 2,153 - -------------------------------------------------------------------------------- 2,145 San Francisco Uptown Parking Corporation Rev., (Union Square), 5.50%, 7/1/15 (MBIA) 2,455 - -------------------------------------------------------------------------------- 1,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/20 (MBIA) 1,156 - -------------------------------------------------------------------------------- 2,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/31 (MBIA) 2,259 - -------------------------------------------------------------------------------- 1,000 San Mateo Union High School District GO, Series 2002 B, (Election of 2000), 5.68%, 9/1/25 (FGIC)(1) 341 - -------------------------------------------------------------------------------- 5,435 University of California Rev., Series 2002 O, (Multiple Purpose Projects), 4.50%, 9/1/15 (FGIC) 5,825 - -------------------------------------------------------------------------------- 53,246 - -------------------------------------------------------------------------------- COLORADO -- 3.0% - -------------------------------------------------------------------------------- 1,100 Arapahoe County Water & Wastewater Public Improvement District GO, Series 2002 B, 5.75%, 12/1/17 (MBIA) 1,308 - -------------------------------------------------------------------------------- 500 Colorado Water Resources & Power Development Auth. Clean Water Rev., Series 2000 A, 6.25%, 9/1/16 602 - -------------------------------------------------------------------------------- 1,615 Denver City & County Excise Rev., Series 2001 A, (Convention Center), 4.25%, 9/1/03 (FSA) 1,628 - -------------------------------------------------------------------------------- 2,835 Douglas County School District No. RE-1 GO, (Douglas & Elbert Counties Building), Series 2002 B, 5.75%, 12/15/17 (FSA/State Aid Withholding) 3,375 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 11 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,990 Superior Metropolitan District No. 1 Water & Sewer Rev., Series 2000 A, (Refunding & Improvement), 5.45%, 12/1/04 (LOC: Banque Nationale de Paris SA) $ 2,081 - -------------------------------------------------------------------------------- 3,955 Superior Metropolitan District No. 1 Water & Sewer Rev., Series 2000 B, 5.45%, 12/1/20 (LOC: Allied Irish Bank plc) 4,135 - -------------------------------------------------------------------------------- 5,000 University of Colorado Regents COP, 6.00%, 12/1/22 (MBIA-IBC) 5,931 - -------------------------------------------------------------------------------- 19,060 - -------------------------------------------------------------------------------- CONNECTICUT -- 1.2% - -------------------------------------------------------------------------------- 1,880 Connecticut Development Auth. Rev., Series 1994 A, 6.375%, 10/15/24 2,039 - -------------------------------------------------------------------------------- 3,000 Connecticut State Health & Educational Facilities Auth. Rev., Series 2003 E, (Connecticut State University System), 4.00%, 11/1/08 (FGIC) 3,286 - -------------------------------------------------------------------------------- 2,215 New Haven Air Rights Package Facility Rev., 5.00%, 12/1/10 (AMBAC) 2,549 - -------------------------------------------------------------------------------- 7,874 - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA -- 1.4% - -------------------------------------------------------------------------------- 1,385 District of Columbia GO, Series 1999 B, 5.50%, 6/1/09 (FSA) 1,614 - -------------------------------------------------------------------------------- 1,155 District of Columbia Rev., (Gonzaga College High School), 5.20%, 7/1/12 (FSA) 1,307 - -------------------------------------------------------------------------------- 6,415 District of Columbia Tobacco Settlement Financing Corporation Rev., 6.25%, 5/15/24 6,103 - -------------------------------------------------------------------------------- 9,024 - -------------------------------------------------------------------------------- FLORIDA -- 1.2% - -------------------------------------------------------------------------------- 1,000 Florida Turnpike Auth. Rev., Series 1993 A, (Department of Transportation), 5.00%, 7/1/16, Prerefunded at 101% of Par (FGIC)(3) 1,013 - -------------------------------------------------------------------------------- 1,465 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 3.60%, 11/15/05 1,508 - -------------------------------------------------------------------------------- 1,500 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 4.00%, 11/15/06 1,567 - -------------------------------------------------------------------------------- 1,000 Orlando Utilities Commission Water & Electric Rev., Series 1989 D, 6.75%, 10/1/17 1,311 - -------------------------------------------------------------------------------- 1,920 Port St. Lucie Rev., 5.00%, 9/1/21 (MBIA) 2,093 - -------------------------------------------------------------------------------- 7,492 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- GEORGIA -- 0.8% - ------------------------------------------------------------------------------- $ 255 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/09 (MBIA-IBC)(3) $ 311 - -------------------------------------------------------------------------------- 635 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC) 775 - -------------------------------------------------------------------------------- 110 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC)(3) 137 - -------------------------------------------------------------------------------- 1,510 La Grange Water & Sewer Rev., 2.60%, 1/1/05 (AMBAC) 1,544 - -------------------------------------------------------------------------------- 2,030 La Grange Water & Sewer Rev., 3.00%, 1/1/06 (AMBAC) 2,111 - -------------------------------------------------------------------------------- 4,878 - -------------------------------------------------------------------------------- HAWAII -- 0.1% - -------------------------------------------------------------------------------- 500 Maui County GO, Series 2000 A, 6.50%, 3/1/10 Prerefunded at 101% of Par (FGIC)(3) 624 - -------------------------------------------------------------------------------- IDAHO -- 0.2% - -------------------------------------------------------------------------------- 1,325 Blaine County School District No. 61 GO, (Hailey), 5.00%, 7/30/10 (School Board Guarantee) 1,520 - -------------------------------------------------------------------------------- ILLINOIS -- 4.4% - -------------------------------------------------------------------------------- 1,400 Chicago GO, (Equipment Notes), 5.60%, 1/1/05 (AMBAC) 1,497 - -------------------------------------------------------------------------------- 1,300 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 4.80%, 1/1/05 1,348 - -------------------------------------------------------------------------------- 4,000 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 5.00%, 1/1/12 (MBIA-IBC) 4,496 - -------------------------------------------------------------------------------- 1,000 Du Page Airport Auth. Rev., Series 2002 A, 3.00%, 2/1/04 (FGIC) 1,013 - -------------------------------------------------------------------------------- 2,170 Du Page Airport Auth. Rev., Series 2002 A, 3.00%, 2/1/06 (FGIC) 2,254 - -------------------------------------------------------------------------------- 2,000 Illinois Dedicated Tax Rev., (Civic Center), 6.25%, 12/15/20 (AMBAC) 2,540 - -------------------------------------------------------------------------------- 595 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.00%, 5/15/08 647 - -------------------------------------------------------------------------------- 655 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.125%, 5/15/10 713 - -------------------------------------------------------------------------------- 400 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.75%, 5/15/16 437 - -------------------------------------------------------------------------------- 1,140 Illinois Health Facilities Auth. Rev., Series 1992 C, (Evangelical Hospital), 6.75%, 4/15/12(3) 1,426 - -------------------------------------------------------------------------------- 1,100 Illinois Health Facilities Auth. Rev., Series 2002 A, (Lake Forest Hospital), 5.00%, 7/1/05 1,170 - -------------------------------------------------------------------------------- 1,000 Illinois Regional Transportation Auth. Rev., Series 1990 A, 7.20%, 11/1/20 (AMBAC) 1,403 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 12 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 2,000 Illinois State University Rev., (Auxiliary Facilities System), 5.00%, 4/1/13 (FSA) $ 2,302 - -------------------------------------------------------------------------------- 2,000 Metropolitan Pier & Exposition Auth. Rev., 5.375%, 6/1/13 (FGIC) 2,366 - -------------------------------------------------------------------------------- 1,105 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/17 (MBIA) 1,331 - -------------------------------------------------------------------------------- 1,220 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/18 (MBIA) 1,464 - -------------------------------------------------------------------------------- 1,000 University of Illinois COP, (Utility Infrastructure), 5.75%, 8/15/08 (MBIA) 1,168 - -------------------------------------------------------------------------------- 27,575 - -------------------------------------------------------------------------------- INDIANA -- 2.0% - -------------------------------------------------------------------------------- 1,010 Hamilton County Public Building Corp. Rev., (First Mortgage), 3.50%, 1/20/04 (AMBAC) 1,026 - -------------------------------------------------------------------------------- 1,005 Hamilton County Public Building Corp. Rev., (First Mortgage), 4.00%, 1/20/05 (AMBAC) 1,051 - -------------------------------------------------------------------------------- 1,900 Indiana Health Facilities Financing Auth. Hospital Rev., (Holy Cross Health System Corp.), 5.375%, 12/2/12 (MBIA) 2,118 - -------------------------------------------------------------------------------- 1,000 Indiana Municipal Power Agency Rev., Series 2003 B, 4.00%, 1/1/05 (MBIA) 1,044 - -------------------------------------------------------------------------------- 220 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15(3) 283 - -------------------------------------------------------------------------------- 780 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15 1,040 - -------------------------------------------------------------------------------- 1,000 Ivy Technical State College Student Fee Rev., Series 2002 G, 3.00%, 7/1/03 (AMBAC) 1,002 - -------------------------------------------------------------------------------- 1,500 Mount Vernon of Hancock County Multi-School Building Corp. Rev., Series 2001 B, (First Mortgage), 5.75%, 7/15/15 (AMBAC) 1,775 - -------------------------------------------------------------------------------- 1,650 Valparaiso Middle Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/11, Prerefunded at 100% of Par (FGIC)(3) 1,997 - -------------------------------------------------------------------------------- 1,000 Zionsville Community Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/15 (FGIC/State Aid Withholding) 1,173 - -------------------------------------------------------------------------------- 12,509 - -------------------------------------------------------------------------------- KANSAS -- 0.6% - -------------------------------------------------------------------------------- 325 Kansas City Utility System Rev., 6.375%, 9/1/04, Prerefunded at 102% of Par (FGIC)(3) 353 - -------------------------------------------------------------------------------- 675 Kansas City Utility System Rev., 6.375%, 9/1/23 (FGIC) 729 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,280 Wichita Hospital Facilities Rev., Series 2001 III, 5.25%, 11/15/13 $ 1,422 - -------------------------------------------------------------------------------- 1,195 Wichita Hospital Facilities Rev., Series 2001 III, 5.50%, 11/15/16 1,316 - -------------------------------------------------------------------------------- 3,820 - -------------------------------------------------------------------------------- LOUISIANA -- 1.0% - -------------------------------------------------------------------------------- 2,000 Louisiana Public Facilities Auth. Rev., (University Hospital Facilities), 3.00%, 10/15/04 (FGIC) 2,050 - -------------------------------------------------------------------------------- 3,800 Louisiana Public Facilities Auth. Rev., (University Hospital Facilities), 3.00%, 10/15/05 (FGIC) 3,951 - -------------------------------------------------------------------------------- 6,001 - -------------------------------------------------------------------------------- MASSACHUSETTS -- 3.5% - -------------------------------------------------------------------------------- 2,000 Massachusetts GO, Series 2002 E, (Consolidated Loan), 5.00%, 1/1/05 2,116 - -------------------------------------------------------------------------------- 5,000 Massachusetts GO, Series 2003 C, 5.00%, 12/1/06 (XLCA) 5,571 - -------------------------------------------------------------------------------- 10,000 Massachusetts GO, Series 2003 C, 5.00%, 12/1/07 (XLCA) 11,281 - -------------------------------------------------------------------------------- 1,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 1992 F, 6.25%, 7/1/12 (AMBAC) 1,209 - -------------------------------------------------------------------------------- 1,690 Massachusetts Housing Finance Agency Rev., Series 1993 H, 6.75%, 11/15/12 (FNMA) 1,744 - -------------------------------------------------------------------------------- 21,921 - -------------------------------------------------------------------------------- MICHIGAN -- 2.3% - -------------------------------------------------------------------------------- 1,485 Grand Valley State University Rev., 5.75%, 12/1/15 (FGIC) 1,748 - -------------------------------------------------------------------------------- 1,000 Michigan Hospital Finance Auth. Rev., Series 1999 A, (Ascension Health Credit), 5.25%, 11/15/05 (MBIA) 1,089 - -------------------------------------------------------------------------------- 2,440 Michigan State Building Auth. Rev., (State Police Communications System), 2.50%, 10/1/05 2,511 - -------------------------------------------------------------------------------- 2,010 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/11 (FGIC) 2,300 - -------------------------------------------------------------------------------- 1,205 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/12 (FGIC) 1,382 - -------------------------------------------------------------------------------- 2,215 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/13 (FGIC) 2,589 - -------------------------------------------------------------------------------- 2,335 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/14 (FGIC) 2,716 - -------------------------------------------------------------------------------- 14,335 - -------------------------------------------------------------------------------- MINNESOTA -- 0.5% - -------------------------------------------------------------------------------- 2,325 Minneapolis Health Care Systems Rev., Series 2002 B, (Fairview Health Services), 4.00%, 5/15/04 (MBIA) 2,389 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 13 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,000 Minnesota Housing Finance Agency Rev., Series 2000 C, (Residential Housing Finance), 3.00%, 7/1/21 (GO of Agency) $ 1,014 - -------------------------------------------------------------------------------- 3,403 - -------------------------------------------------------------------------------- MISSISSIPPI -- 0.2% - -------------------------------------------------------------------------------- 1,510 Walnut Grove Correctional Auth. COP, 5.25%, 11/1/03 (AMBAC) 1,536 - -------------------------------------------------------------------------------- MISSOURI -- 2.2% - -------------------------------------------------------------------------------- 1,145 Jackson County Public Building Corp. Rev., Series 2000 A, 6.00%, 11/1/18 1,269 - -------------------------------------------------------------------------------- 1,775 Missouri Development Finance Board Rev., Series 2000 A, (Midtown Redevelopment), 5.75%, 4/1/22 (MBIA) 2,040 - -------------------------------------------------------------------------------- 3,000 Missouri Health & Educational Facilities Auth. Rev., Series 1998 A, (Park Lane Medical Center), 5.60%, 1/1/15 (MBIA) 3,543 - -------------------------------------------------------------------------------- 2,475 Springfield COP, (Greene County Park), 3.00%, 12/1/03 2,497 - -------------------------------------------------------------------------------- 3,210 Springfield COP, (Greene County Park), 3.50%, 12/1/04 3,311 - -------------------------------------------------------------------------------- 1,000 St. Louis Airport Rev., 6.00%, 7/1/03, Prerefunded at 101% of Par(3) 1,014 - -------------------------------------------------------------------------------- 13,674 - -------------------------------------------------------------------------------- NEBRASKA -- 0.8% - -------------------------------------------------------------------------------- 5,000 Nebraska Public Power District Rev., 3.50%, 12/1/03 5,059 - -------------------------------------------------------------------------------- NEVADA -- 0.9% - -------------------------------------------------------------------------------- 1,000 Clark County Airport Rev., Series 1998 A, (Sub Lien), 5.00%, 7/1/03 (MBIA) 1,003 - -------------------------------------------------------------------------------- 1,000 Clark County School District GO, Series 1997 B, (Building & Renovation), 5.25%, 6/15/17 (FGIC) 1,116 - -------------------------------------------------------------------------------- 1,550 Reno Sales and Room Tax Rev., (Transportation Project), (Senior Lien), 5.50%, 6/1/19 (AMBAC) 1,758 - -------------------------------------------------------------------------------- 1,865 Reno Sales and Room Tax Rev., (Transportation Project), (Senior Lien), 5.50%, 6/1/20 (AMBAC) 2,107 - -------------------------------------------------------------------------------- 5,984 - -------------------------------------------------------------------------------- NEW JERSEY -- 2.9% - -------------------------------------------------------------------------------- 4,680 New Jersey Transit Corporation COP, 4.00%, 10/1/11 (FSA) 5,030 - -------------------------------------------------------------------------------- 4,335 New Jersey Transit Corporation COP, 5.00%, 10/1/12 (FSA) 4,994 - -------------------------------------------------------------------------------- 5,595 New Jersey Transit Corporation COP, 5.00%, 10/1/13 (FSA) 6,464 - -------------------------------------------------------------------------------- 1,855 Tobaco Settlement Financing Corp. Rev., 4.375%, 6/1/19 1,765 - -------------------------------------------------------------------------------- 18,253 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- NEW MEXICO -- 0.3% - ------------------------------------------------------------------------------- $ 1,415 San Juan County Gross Receipts Tax Rev., Series 2001 A, 5.75%, 9/15/21 (AMBAC) $ 1,620 - -------------------------------------------------------------------------------- NEW YORK -- 7.9% - -------------------------------------------------------------------------------- 1,000 City of New York GO, Series 1996 F, 5.75%, 2/1/04 1,029 - -------------------------------------------------------------------------------- 2,100 City of New York GO, Series 2002 B, 5.00%, 8/1/04 2,186 - -------------------------------------------------------------------------------- 2,975 City of New York GO, Series 2002 B, 5.25%, 8/1/09 (CIFG) 3,421 - -------------------------------------------------------------------------------- 2,885 City of New York GO, Series 2002 C, 5.25%, 8/1/09 (CIFG) 3,318 - -------------------------------------------------------------------------------- 4,000 City of New York GO, Series 2002 C, 5.25%, 8/1/10 4,481 - -------------------------------------------------------------------------------- 5,840 City of New York GO, Series 2002 E, 4.00%, 8/1/03 5,867 - -------------------------------------------------------------------------------- 5,000 City of New York GO, Series 2003 I, 5.75%, 3/1/20 5,532 - -------------------------------------------------------------------------------- 5,790 Long Island Power Auth. Rev., Series 2003 B, 5.00%, 12/1/06 (XLCA) 6,416 - -------------------------------------------------------------------------------- 1,100 New York Dormitory Auth. Rev., (United Cerebral Palsy Affiliate No. 1-A), 5.75%, 7/1/18 (AMBAC) 1,292 - -------------------------------------------------------------------------------- 1,500 New York Dormitory Auth. Rev., Series 1995 A, (State University Educational Facilities), 6.50%, 5/15/04 1,575 - -------------------------------------------------------------------------------- 1,000 New York Dormitory Auth. Rev., Series 1995 A, (State University Educational Facilities), 6.50%, 5/15/06 1,140 - -------------------------------------------------------------------------------- 1,000 New York Dormitory Auth. Rev., Series 1996 E, (Mental Health Service Facility), 6.00%, 8/15/04 (AMBAC) 1,057 - -------------------------------------------------------------------------------- 2,000 New York Dormitory Auth. Rev., Series 2002 A, (School Districts Financing Program), 5.25%, 10/1/11 (MBIA) 2,339 - -------------------------------------------------------------------------------- 3,250 New York Dormitory Auth. Rev., Series 2002 A, (School Districts Financing Program), 5.25%, 10/1/12 (MBIA) 3,821 - -------------------------------------------------------------------------------- 1,105 New York Dormitory Auth. Rev., Series 2002 H, (School District Financing Program), 5.00%, 10/1/11 (MBIA) 1,272 - -------------------------------------------------------------------------------- 1,285 New York Dormitory Auth. Rev., Series 2002 H, (School District Financing Program), 5.00%, 10/1/12 (MBIA) 1,485 - -------------------------------------------------------------------------------- 1,110 New York Dormitory Auth. Rev., Series 2002 I, (School District Financing Program), 4.00%, 10/1/11 (MBIA) 1,196 - -------------------------------------------------------------------------------- 1,160 New York State Thruway Auth. Service Contract Rev., 5.50%, 4/1/06 1,289 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 14 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,000 Niagara Falls Bridge Commission Toll Rev., Series 1993 B, 5.25%, 10/1/15 (FGIC) $ 1,188 - -------------------------------------------------------------------------------- 49,904 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 1.9% - -------------------------------------------------------------------------------- 2,000 North Carolina Eastern Municipal Power Agency System Rev., Series 1993 B, 6.00%, 1/1/06 (FSA) 2,229 - -------------------------------------------------------------------------------- 2,455 North Carolina Eastern Municipal Power Agency System Rev., Series 2003 D, 4.125%, 1/1/10 2,475 - -------------------------------------------------------------------------------- 2,500 North Carolina Housing Finance Agency Rev., Series 2000 A, (Student Housing-Appalachian), 5.00%, 7/1/03 (LOC: First Union National Bank) 2,524 - -------------------------------------------------------------------------------- 1,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., 6.00%, 1/1/10 (MBIA) 1,196 - -------------------------------------------------------------------------------- 1,500 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 3.00%, 1/1/05 1,529 - -------------------------------------------------------------------------------- 2,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 5.50%, 1/1/13 2,282 - -------------------------------------------------------------------------------- 12,235 - -------------------------------------------------------------------------------- NORTH DAKOTA -- 0.3% - -------------------------------------------------------------------------------- 1,500 Grand Forks Health Care System Rev., (Altru Health System Obligation Group), 7.125%, 8/15/24 1,671 - -------------------------------------------------------------------------------- OHIO -- 2.9% - -------------------------------------------------------------------------------- 1,500 Bowling Green State University, 4.75%, 6/1/09 (FGIC) 1,693 - -------------------------------------------------------------------------------- 895 Erie County Hospital Facilities Rev., Series 2002 A, (Firelands Regional Medical Center), 4.00%, 8/15/05 935 - -------------------------------------------------------------------------------- 500 Erie County Hospital Facilities Rev., Series 2002 A, (Firelands Regional Medical Center), 4.50%, 8/15/07 538 - -------------------------------------------------------------------------------- 1,150 Mad River Local School District GO, (Classroom Facilities), 5.75%, 12/1/19 (FGIC) 1,351 - -------------------------------------------------------------------------------- 1,700 Milford Exempt Village School District GO, (School Improvement), 6.00%, 12/1/18 (FSA) 2,047 - -------------------------------------------------------------------------------- 1,200 Ohio Higher Educational Facility Commission Rev., (University of Dayton), 5.55%, 12/1/07 (FGIC) 1,301 - -------------------------------------------------------------------------------- 750 Ohio Higher Educational Facility Commission Rev., Series 1990 B, (Case Western Reserve University), 6.50%, 10/1/20 993 - -------------------------------------------------------------------------------- 3,320 Ohio Water Development Auth. Pollution Control Facilities Rev., 6.00%, 12/1/05 (MBIA) 3,671 - -------------------------------------------------------------------------------- 1,505 Summit County GO, 5.75%, 12/1/19 (FGIC) 1,779 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,550 Tri Valley Local School District GO, 5.75%, 12/1/21 (FGIC) $ 1,788 - -------------------------------------------------------------------------------- 1,990 Wright St. University Rev., 5.00%, 5/1/11 (MBIA) 2,279 - -------------------------------------------------------------------------------- 18,375 - -------------------------------------------------------------------------------- OKLAHOMA -- 0.5% - -------------------------------------------------------------------------------- 600 Moore GO, 6.00%, 4/1/04 (MBIA) 623 - -------------------------------------------------------------------------------- 2,500 Oklahoma Industrial Auth. Health System Rev., Series 1995 C, 7.00%, 8/15/04 (AMBAC)(3) 2,677 - -------------------------------------------------------------------------------- 3,300 - -------------------------------------------------------------------------------- OREGON -- 1.7% - -------------------------------------------------------------------------------- 1,805 Lane County School District No. 19 GO, (Springfield), 6.375%, 10/15/04, Prerefunded at 101% of Par (MBIA)(3) 1,953 - -------------------------------------------------------------------------------- 8,200 Portland Rev., Series 2003 A, (Second Lien), 4.00%, 6/1/08 (FSA) 8,915 - -------------------------------------------------------------------------------- 10,868 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 2.5% - -------------------------------------------------------------------------------- 1,000 Oxford Area School District GO, Series 2001 A, 5.50%, 2/15/17 (FGIC/State Aid Withholding) 1,150 - -------------------------------------------------------------------------------- 2,975 Philadelphia School District GO, Series 2002 A, 5.25%, 2/1/11 (FSA/State Aid Withholding) 3,451 - -------------------------------------------------------------------------------- 2,500 Philadelphia Water and Wastewater Rev., 5.15%, 6/15/04 (FGIC) 2,602 - -------------------------------------------------------------------------------- 1,500 Pittsburgh School District GO, 5.25%, 9/1/09 (FSA) 1,745 - -------------------------------------------------------------------------------- 1,560 Sayre Health Care Facilities Auth. Rev., Series 2002 A, (Guthrie Health), 4.50%, 12/1/03 1,582 - -------------------------------------------------------------------------------- 1,000 Spring Ford Area School District GO, 3.75%, 8/1/03 (FSA) 1,005 - -------------------------------------------------------------------------------- 1,915 York County School Technology Auth. Rev., 5.00%, 2/15/11 (FGIC) 2,183 - -------------------------------------------------------------------------------- 2,010 York County School Technology Auth. Rev., 5.00%, 2/15/12 (FGIC) 2,300 - -------------------------------------------------------------------------------- 16,018 - -------------------------------------------------------------------------------- PUERTO RICO -- 1.2% - -------------------------------------------------------------------------------- 1,940 Children's Trust Fund Rev., 5.375%, 5/15/33 1,703 - -------------------------------------------------------------------------------- 500 Puerto Rico Commonwealth GO, 6.45%, 7/1/04, Prerefunded at 101.5% of Par(3) 537 - -------------------------------------------------------------------------------- 2,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/21 (FSA) 2,270 - -------------------------------------------------------------------------------- 2,500 Puerto Rico Highway & Transportation Auth. Rev., 5.00%, 7/1/08 (CIFG) 2,848 - -------------------------------------------------------------------------------- 7,358 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 15 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- RHODE ISLAND -- 1.0% - -------------------------------------------------------------------------------- $ 1,000 Cranston GO, 6.375%, 11/15/17 (FGIC) $ 1,210 - -------------------------------------------------------------------------------- 1,100 Rhode Island Clean Water Finance Agency Safe Drinking Water Rev., 6.70%, 1/1/15 (AMBAC) 1,209 - -------------------------------------------------------------------------------- 2,000 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 A, 6.25%, 8/1/16 (MBIA)(3) 2,551 - -------------------------------------------------------------------------------- 1,300 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 B, 6.00%, 8/1/17 (MBIA)(3) 1,334 - -------------------------------------------------------------------------------- 6,304 - -------------------------------------------------------------------------------- SOUTH CAROLINA -- 3.3% - -------------------------------------------------------------------------------- 1,700 Florence Water & Sewer Rev., 7.50%, 3/1/18 (AMBAC) 2,167 - -------------------------------------------------------------------------------- 1,205 Orangeburg County Consolidated School District No. 5 GO, 5.375%, 3/1/21 (FSA) 1,351 - -------------------------------------------------------------------------------- 1,500 Piedmont Municipal Power Agency Electric Rev., 6.75%, 1/1/19 (FGIC) 1,982 - -------------------------------------------------------------------------------- 860 Piedmont Municipal Power Agency Electric Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC) 1,101 - -------------------------------------------------------------------------------- 140 Piedmont Municipal Power Agency Electric Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(3) 183 - -------------------------------------------------------------------------------- 4,930 Piedmont Municipal Power Agency Electric Rev., Series 2002 A, 5.00%, 1/1/04 (FGIC) 5,040 - -------------------------------------------------------------------------------- 6,035 Piedmont Municipal Power Agency Electric Rev., Series 2002 A, 4.00%, 1/1/07 (FGIC) 6,224 - -------------------------------------------------------------------------------- 1,425 Rock Hill Rev., Series 2003 A, 4.00%, 1/1/05 (FSA) 1,489 - -------------------------------------------------------------------------------- 1,095 Spartanburg County Health Services District Inc. Hospital Rev., 5.50%, 4/15/16 (FSA) 1,235 - -------------------------------------------------------------------------------- 20,772 - -------------------------------------------------------------------------------- TENNESSEE -- 0.5% - -------------------------------------------------------------------------------- 1,050 Clarksville Water Sewer & Gas Rev., 4.25%, 2/1/07 (FSA) 1,139 - -------------------------------------------------------------------------------- 1,685 Clarksville Water Sewer & Gas Rev., 4.85%, 2/1/15 (FSA) 1,830 - -------------------------------------------------------------------------------- 2,969 - -------------------------------------------------------------------------------- TEXAS -- 5.5% - -------------------------------------------------------------------------------- 1,815 Clint Independent School District GO, 6.00%, 2/15/17 (PSF) 2,169 - -------------------------------------------------------------------------------- 1,000 Corpus Christi Utility System Rev., 5.50%, 7/15/07 (FSA) 1,141 - -------------------------------------------------------------------------------- 1,000 Dallas-Fort Worth Regional Airport Rev., Series 1994 A, 5.90%, 11/1/08 (MBIA) 1,065 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,000 Denison Hospital Auth. Rev., (Texoma Medical Center), 5.90%, 8/15/07 (ACA) $ 1,130 - -------------------------------------------------------------------------------- 1,000 Denton Utility System Rev., Series 1996 A, 5.95%, 12/1/14 (MBIA) 1,134 - -------------------------------------------------------------------------------- 1,325 Guadalupe-Blanco River Auth. Rev., (Western Canyon Regional Water Supply), 5.00%, 4/15/12 (MBIA) 1,521 - -------------------------------------------------------------------------------- 1,000 Guadalupe-Blanco River Auth. Rev., (Western Canyon Regional Water Supply), 5.25%, 4/15/20 (MBIA) 1,112 - -------------------------------------------------------------------------------- 1,375 Harris County Housing Finance Corporation Rev., (Las Americas Apartments), 4.90%, 3/1/11 (FNMA) 1,505 - -------------------------------------------------------------------------------- 3,000 Hays Consolidated Independent School District GO, (Capital Appreciation), 5.20%, 8/15/11 (PSF)(1) 2,259 - -------------------------------------------------------------------------------- 1,295 Hidalgo County GO, 5.50%, 8/15/19 (FGIC) 1,475 - -------------------------------------------------------------------------------- 1,750 Hidalgo County GO, 5.50%, 8/15/21 (FGIC) 1,959 - -------------------------------------------------------------------------------- 574 Houston Participation Interest COP, 6.40%, 6/1/27 636 - -------------------------------------------------------------------------------- 500 Houston Water & Sewer System Rev., Series 1992 C, (Junior Lien), 5.90%, 12/1/05 (MBIA) 557 - -------------------------------------------------------------------------------- 1,500 Houston Water & Sewer System Rev., Series 1997 C, (Junior Lien), 5.375%, 12/1/27 (FGIC) 1,625 - -------------------------------------------------------------------------------- 1,800 Lewisville Combination Contract Special Assessment Rev., (Castle Hills), 4.95%, 11/1/03, Prerefunded at 100% of Par(3) 1,827 - -------------------------------------------------------------------------------- 1,000 Lubbock Health Facilities Development Corp. Rev., (Lutheran Retirement), 6.00%, 3/20/29 (GNMA) 1,098 - -------------------------------------------------------------------------------- 550 Pasadena Independent School District GO, Series 2001 A, 6.05%, 2/15/16 (PSF) 689 - -------------------------------------------------------------------------------- 1,500 Pearland Independent School District GO, 6.00%, 2/15/15 (PSF) 1,741 - -------------------------------------------------------------------------------- 2,000 San Antonio Electric and Gas Rev., 7.10%, 2/1/09 (FGIC)(1)(3) 1,714 - -------------------------------------------------------------------------------- 1,000 Tarrant County Health Facility Development Corp. Health System Rev., (Ft. Worth Osteopathic), 6.00%, 5/15/11 (MBIA) 1,172 - -------------------------------------------------------------------------------- 1,500 Texas Public Finance Auth. Building Rev., (Technical College), 6.25%, 8/1/09 (MBIA) 1,754 - -------------------------------------------------------------------------------- 1,000 Texas Technical University Rev., 5.00%, 8/15/08 (MBIA) 1,137 - -------------------------------------------------------------------------------- 1,000 Travis County Health Facilities Development Corp. Rev., Series 1999 A, (Ascension Health Credit), 5.875%, 11/15/09, Prerefunded at 101% of Par (AMBAC)(3) 1,215 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 16 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,000 Tyler Health Facilities Development Corp. Rev., (Mother Frances Hospital), 4.50%, 7/1/06 $ 1,054 - -------------------------------------------------------------------------------- 2,000 Tyler Health Facilities Development Corp. Rev., (Mother Frances Hospital), 5.00%, 7/1/08 2,152 - -------------------------------------------------------------------------------- 34,841 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 0.3% - -------------------------------------------------------------------------------- 2,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, (Senior Lien), 5.20%, 10/1/09 2,173 - -------------------------------------------------------------------------------- UTAH -- 2.3% - -------------------------------------------------------------------------------- 660 Intermountain Agency Power Supply Rev., Series 1993 A, 5.40%, 7/1/08 (MBIA-IBC)(3) 676 - -------------------------------------------------------------------------------- 340 Intermountain Agency Power Supply Rev., Series 1993 A, 5.40%, 7/1/08 (MBIA-IBC) 348 - -------------------------------------------------------------------------------- 1,000 Salt Lake City Hospital Rev., Series 1988 A, (Intermountain Health Corporation), 8.125%, 5/15/15(3) 1,350 - -------------------------------------------------------------------------------- 1,000 Salt Lake County Municipal Building Auth. Lease Rev., Series 1994 A, 6.00%, 10/1/07, Prerefunded at 101% of Par (MBIA)(3) 1,075 - -------------------------------------------------------------------------------- 1,000 Utah County Municipal Building Auth. Lease Rev., 4.00%, 11/1/05 (AMBAC) 1,064 - -------------------------------------------------------------------------------- 1,495 Utah County Municipal Building Auth. Lease Rev., 5.00%, 11/1/09 (AMBAC) 1,715 - -------------------------------------------------------------------------------- 1,820 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/13 (AMBAC) 2,087 - -------------------------------------------------------------------------------- 1,915 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/14 (AMBAC) 2,192 - -------------------------------------------------------------------------------- 1,000 Utah County Municipal Building Auth. Lease Rev., 5.50%, 11/1/16 (AMBAC) 1,149 - -------------------------------------------------------------------------------- 170 Utah Housing Finance Agency Single Family Mortgage Rev., 5.65%, 7/1/06 185 - -------------------------------------------------------------------------------- 1,130 West Valley City Municipal Building Auth. Rev., Series 2002 A, 5.00%, 8/1/10 (AMBAC) 1,296 - -------------------------------------------------------------------------------- 1,305 West Valley City Utility Sales Tax Rev., Series 2001 A, 5.50%, 7/15/16 (MBIA) 1,502 - -------------------------------------------------------------------------------- 14,639 - -------------------------------------------------------------------------------- VIRGINIA -- 0.6% - -------------------------------------------------------------------------------- 1,500 Fairfax County COP, 5.30%, 4/15/23 1,612 - -------------------------------------------------------------------------------- 1,000 Hampton Industrial Development Auth. Rev., Series 1994 A, (Sentara General Hospital), 6.50%, 11/1/06, Prerefunded at 100% of Par(3) 1,164 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,115 Pittsylvania County GO, Series 2001 B, 5.75%, 3/1/18 (MBIA) $ 1,307 - -------------------------------------------------------------------------------- 4,083 - -------------------------------------------------------------------------------- WASHINGTON -- 8.9% - -------------------------------------------------------------------------------- 1,000 Benton County Public Utility District No. 1 Rev., Series 2001 A, 5.625%, 11/1/19 (FSA) 1,145 - -------------------------------------------------------------------------------- 1,000 Cowlitz County School District No. 458 Kelso GO, 5.75%, 12/1/18 (FSA) 1,164 - -------------------------------------------------------------------------------- 3,500 Energy Northwest Electrical Rev., Series 2002 A, (Columbia Generating), 5.75%, 7/1/18 (MBIA)(4) 4,062 - -------------------------------------------------------------------------------- 9,000 Energy Northwest Electrical Rev., Series 2002 B, (Columbia Generating), 6.00%, 7/1/18 (AMBAC) 10,651 - -------------------------------------------------------------------------------- 7,145 King County GO, 5.50%, 12/1/12 8,545 - -------------------------------------------------------------------------------- 2,000 King County GO, Series 1997 D, 5.75%, 12/1/11 2,326 - -------------------------------------------------------------------------------- 1,555 King County School District No. 414 Lake Washington GO, 5.75%, 12/1/15 1,856 - -------------------------------------------------------------------------------- 3,500 King County Sewer Rev., Series 2002 B, 5.00%, 1/1/04 (FSA) 3,581 - -------------------------------------------------------------------------------- 1,000 King County Sewer Rev., Series 2002 B, 5.00%, 1/1/05 (FSA) 1,060 - -------------------------------------------------------------------------------- 1,260 Mason County School District No. 309 GO, (Shelton), 5.625%, 12/1/17 (FGIC) 1,464 - -------------------------------------------------------------------------------- 1,120 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/16 (AMBAC) 1,351 - -------------------------------------------------------------------------------- 1,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/18 (AMBAC) 1,200 - -------------------------------------------------------------------------------- 695 Tacoma Electrical Systems Rev., 6.10%, 1/1/04, Prerefunded at 102% of Par (FGIC)(3) 730 - -------------------------------------------------------------------------------- 305 Tacoma Electrical Systems Rev., 6.10%, 1/1/07 (FGIC) 320 - -------------------------------------------------------------------------------- 1,720 University of Washington Rev., (Student Facilities Fee), 5.875%, 6/1/18 (FSA) 2,030 - -------------------------------------------------------------------------------- 1,000 Washington GO, Series 1990 A, 6.75%, 2/1/15 1,312 - -------------------------------------------------------------------------------- 3,000 Washington GO, Series 1997 E, 6.00%, 7/1/04 3,159 - -------------------------------------------------------------------------------- 1,000 Washington Public Power Supply System Rev., Series 1996 A, (Nuclear Project No. 1), 5.75%, 7/1/12 (MBIA) 1,131 - -------------------------------------------------------------------------------- 4,570 Washington Public Power Supply System Rev., Series 1998 A, (Nuclear Project No. 2), 5.00%, 7/1/12 (FSA-CR) 5,129 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 17 Tax-Free Bond - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,500 Whitman County School District No. 267 Pullman GO, 5.625%, 12/1/16 (FSA) $ 1,750 - -------------------------------------------------------------------------------- 1,115 Whitman County School District No. 267 Pullman GO, 5.625%, 12/1/17 (FSA) 1,294 - -------------------------------------------------------------------------------- 55,260 - -------------------------------------------------------------------------------- WISCONSIN -- 2.2% - -------------------------------------------------------------------------------- 1,180 Winneconne Community School District GO, 6.75%, 4/1/06, Prerefunded at 100% of Par (FGIC)(3) 1,356 - -------------------------------------------------------------------------------- 1,900 Wisconsin Clean Water Rev., 6.875%, 6/1/11 2,382 - -------------------------------------------------------------------------------- 2,590 Wisconsin Health & Educational Facilities Auth. Rev., (Aurora Medical Group), 6.00%, 11/15/10 (FSA) 3,075 - -------------------------------------------------------------------------------- 345 Wisconsin Health & Educational Facilities Auth. Rev., (Froedert & Community Health Obligation), 4.50%, 10/1/03 348 - -------------------------------------------------------------------------------- 400 Wisconsin Health & Educational Facilities Auth. Rev., (Froedert & Community Health Obligation), 5.00%, 10/1/04 417 - -------------------------------------------------------------------------------- 1,100 Wisconsin Health & Educational Facilities Auth. Rev., (Wheaton Franciscan Services), 4.00%, 8/15/04 1,131 - -------------------------------------------------------------------------------- 1,225 Wisconsin Health & Educational Facilities Auth. Rev., (Wheaton Franciscan Services), 4.00%, 8/15/06 1,294 - -------------------------------------------------------------------------------- 1,680 Wisconsin Health & Educational Facilities Auth. Rev., Series 2002 A, (Ministry Health Care), 4.00%, 2/15/04 (MBIA) 1,713 - -------------------------------------------------------------------------------- 2,250 Wisconsin Transportation Rev., 7.00%, 1/1/04(3) 2,329 - -------------------------------------------------------------------------------- 14,045 - -------------------------------------------------------------------------------- WYOMING -- 0.2% - -------------------------------------------------------------------------------- 1,135 Albany County Improvements Stat Trust COP, 3.00%, 1/15/04 (MBIA) 1,149 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $554,967) 595,528 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 5.7% ARIZONA -- 0.3% - -------------------------------------------------------------------------------- 800 Pinal County Industrial Development Auth. Pollution Control Rev., (Newmont), VRDN, 1.35%, 6/2/03 (LOC: ABN AMRO Bank N.V.) 800 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 1,000 Tempe Excise Tax Rev., (Center for the Arts), VRDN, 1.35%, 6/2/03 $ 1,000 - -------------------------------------------------------------------------------- 1,800 - -------------------------------------------------------------------------------- CALIFORNIA -- 1.3% - -------------------------------------------------------------------------------- 3,000 California Rev. Anticipation Notes, Series 2002 G, VRDN, 1.34%, 6/5/03 2,996 - -------------------------------------------------------------------------------- 5,000 California Rev. Anticipation Notes, VRDN, 1.37%, 6/5/03 4,982 - -------------------------------------------------------------------------------- 7,978 - -------------------------------------------------------------------------------- MULTI-STATE -- 0.6% - -------------------------------------------------------------------------------- 3,509 Koch Floating Rate Trust Rev., Series 2000-1, VRDN, 1.44%, 6/5/03 (AMBAC) (SBBPA: State Street Bank & Trust Co.) (Acquired 4/3/03, Cost $3,509)(5) 3,509 - -------------------------------------------------------------------------------- NEW YORK -- 1.8% - -------------------------------------------------------------------------------- 11,790 New York City Municipal Water Finance Auth. Rev., Series 1993 C, 1.30%, 6/2/03 (FGIC) 11,790 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 0.8% - -------------------------------------------------------------------------------- 5,030 North Carolina Medical Care Commission Rev., (Aldersgate), VRDN, 1.25%, 6/4/03 (LOC: Branch Banking & Trust) 5,030 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 0.3% - -------------------------------------------------------------------------------- 2,000 Allegheny County Industrial Development Auth. Rev., Series 2001 A, (Longwood), VRDN, 1.35%, 6/2/03 (Radian Asset Assurance Inc.) (SBBPA: Fleet National Bank) 2,000 - -------------------------------------------------------------------------------- TENNESSEE -- 0.6% - -------------------------------------------------------------------------------- 400 Knox County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.34%, 6/5/03 (LOC: U.S. Bank Trust N.A.) 400 - -------------------------------------------------------------------------------- 3,400 Shelby County Health Educational & Housing Facilities Board Rev., (Kings Daughter & Sons), VRDN, 1.44%, 6/5/03 (LOC: AmSouth Bank)(6) 3,400 - -------------------------------------------------------------------------------- 3,800 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $35,915) 35,907 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $590,882) $631,435 ================================================================================ See Notes to Financial Statements. (continued) - ----- 18 Tax-Free Bond - Schedule of Investments MAY 31, 2003 FUTURES CONTRACTS* ($ In Thousands) Underlying Face Sold Expiration Date Amount at Value Unrealized Loss - -------------------------------------------------------------------------------- 75 U.S. Long Bond Futures September 2003 $8,941 $93 ================================= *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 CIFG = CDC IXIS Financial Guaranty North America COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FNMA = Federal National Mortgage Association FSA = Financial Security Assurance Inc. FSA-CR = Financial Security Assurance Inc. Custodial Receipts GNMA = Government National Mortgage Association GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. MBIA-IBC = MBIA Insured Bond Certificates PSF = Permanent School Fund SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective May 31, 2003. XLCA = XL Capital Assurance Corp. (1) Security is a zero-coupon municipal bond. The rate indicated is the yield to maturity at purchase. Zero-coupon securities are purchased at a substantial discount from their value at maturity. (2) Security, or a portion thereof, has been segregated for a when-issued security. (3) Escrowed to maturity in U.S. government securities or state and local government securities. (4) Security, or a portion thereof, has been segregated at the custodian bank or with the broker as initial margin on futures contracts. (5) 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 May 31, 2003, was $3,509 (in thousands), which represented 0.6% of net assets. (6) When-issued security. See Notes to Financial Statements. ----- 19 Statement of Assets and Liabilities MAY 31, 2003 - -------------------------------------------------------------------------------- TAX-FREE (Amounts In Thousands Except Per-Share Amounts) MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $271,052 and $590,882, respectively) $ 271,052 $ 631,435 ----------------------------------------------- Receivable for investments sold 6,000 -- ----------------------------------------------- Receivable for capital shares sold -- 647 ----------------------------------------------- Receivable for variation margin on futures contracts -- 49 ----------------------------------------------- Interest receivable 467 8,802 ----------------------------------------------- Prepaid portfolio insurance 20 -- - -------------------------------------------------------------------------------- 277,539 640,933 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 370 6,090 ----------------------------------------------- Payable for investments purchased 4,800 6,680 ----------------------------------------------- Accrued management fees 113 258 ----------------------------------------------- Dividends payable -- 296 - -------------------------------------------------------------------------------- 5,283 13,324 - -------------------------------------------------------------------------------- NET ASSETS $ 272,256 $ 627,609 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $ 272,310 $ 585,605 ----------------------------------------------- Accumulated undistributed net realized gain (loss) on investment transactions (54) 1,544 ----------------------------------------------- Net unrealized appreciation on investments -- 40,460 - -------------------------------------------------------------------------------- $ 272,256 $ 627,609 ================================================================================ INVESTOR CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets $ 272,255,709 $620,000,077 ----------------------------------------------- Shares outstanding 272,309,563 55,395,501 ----------------------------------------------- Net asset value per share $ 1.00 $ 11.19 - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets N/A $ 7,609,244 ----------------------------------------------- Shares outstanding N/A 679,867 ----------------------------------------------- Net asset value per share N/A $ 11.19 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ----- 20 Statement of Operations YEAR ENDED MAY 31, 2003 - -------------------------------------------------------------------------------- TAX-FREE (Amounts In Thousands) MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ----------------------------------------------- Interest $4,120 $21,494 - -------------------------------------------------------------------------------- EXPENSES: ----------------------------------------------- Management fees 1,310 2,612 ----------------------------------------------- Trustees' fees and expenses 14 28 ----------------------------------------------- Portfolio insurance and other expenses 32 9 - -------------------------------------------------------------------------------- 1,356 2,649 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 2,764 18,845 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN - -------------------------------------------------------------------------------- Net realized gain on investment transactions 7 2,640 ----------------------------------------------- Change in net unrealized appreciation on investments -- 24,257 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN 7 26,897 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,771 $45,742 ================================================================================ See Notes to Financial Statements. ----- 21 Statement of Changes in Net Assets YEARS ENDED MAY 31, 2003 AND MAY 31, 2002 - ---------------------------------------------------------------------------------- (Amounts In Thousands) TAX-FREE MONEY MARKET TAX-FREE BOND - ---------------------------------------------------------------------------------- INCREASE IN NET ASSETS 2003 2002 2003 2002 - ---------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------- Net investment income $ 2,764 $ 4,049 $ 18,845 $ 11,139 --------------------------------- Net realized gain (loss) 7 (3) 2,640 1,370 --------------------------------- Change in net unrealized appreciation -- -- 24,257 3,668 - ---------------------------------------------------------------------------------- Net increase in net assets resulting from operations 2,771 4,046 45,742 16,177 - ---------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------- From net investment income: --------------------------------- Investor Class (2,764) (4,049) (18,836) (11,148) --------------------------------- Institutional Class -- -- (17) -- --------------------------------- From net realized gains: --------------------------------- Investor Class -- -- (859) (1,756) - ---------------------------------------------------------------------------------- Decrease in net assets from distributions (2,764) (4,049) (19,712) (12,904) - ---------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ---------------------------------------------------------------------------------- Net increase in net assets from capital share transactions 22,214 577 219,132 190,988 - ---------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 22,221 574 245,162 194,261 NET ASSETS - ---------------------------------------------------------------------------------- Beginning of period 250,035 249,461 382,447 188,186 - ---------------------------------------------------------------------------------- End of period $ 272,256 $ 250,035 $ 627,609 $ 382,447 ================================================================================== Undistributed net investment income -- -- -- $ 8 ================================================================================== See Notes to Financial Statements. - ----- 22 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Municipal Trust (the trust), is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. Tax-Free Money Market Fund (Tax-Free Money Market) and Tax-Free Bond Fund (Tax-Free Bond) (collectively, the funds) are two funds in a series issued by the trust. The funds are diversified under the 1940 Act. The funds' investment objective is to seek safety of principal and high current income that is exempt from federal income tax. The funds invest primarily in municipal obligations. The funds may concentrate their investments in certain states and therefore may have more exposure to credit risk related to those states than funds that have broader geographical diversification. The following is a summary of the funds' significant accounting policies. MULTIPLE CLASS -- Tax-Free Money Market is authorized to issue the Investor Class. Tax-Free Bond is authorized to issue the Investor Class and the Institutional Class. The share classes differ principally in their respective shareholder servicing and distribution expenses and arrangements. All shares of each 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 funds are allocated to each class of shares based on their relative net assets. The Institutional Class of Tax-Free Bond commenced operations on April 15, 2003. SECURITY VALUATIONS -- Securities of Tax-Free Money Market are valued at amortized cost, which approximates current market value. Securities of Tax-Free Bond are valued at current market value as provided by a commercial pricing service or at the mean of the most recent bid and asked prices. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds may engage in securities transactions on a when-issued or forward commitment basis. Under these arrangements, the securities' prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The funds will segregate cash, cash equivalents or other appropriate liquid securities on their records in amounts sufficient to meet the purchase price. FUTURES CONTRACTS -- Tax-Free Bond may enter into stock index futures contracts in order to manage the fund's 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, the fund is required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the fund. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. The fund recognizes a realized gain or loss when the contract is closed or expires. 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 the funds' policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually. Tax-Free Money Market does not expect to realize any long-term capital gains, and accordingly, does not expect to pay any capital gains distributions. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. (continued) ----- 23 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides the funds with investment advisory and management services in exchange for a single, unified management fee per class. The Agreement provides that all expenses of the funds, except brokerage commissions, taxes, portfolio insurance, interest, fees and expenses of those trustees who are not considered "interested persons" as defined in the 1940 Act (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid monthly in arrears. It consists of an Investment Category Fee based on the average net assets of the funds in a specific fund's investment category and a Complex Fee based on the average net assets of all the funds managed by ACIM. The rates for the Investment Category Fee range from 0.1570% to 0.2700% for Tax-Free Money Market. The rates for the Investment Category Fee range from 0.1625% to 0.2800% for Tax-Free Bond. Rates for the Complex Fee range from 0.2900% to 0.3100% for the Investor Class. The Institutional Class is 0.2000% less at each point within the Complex Fee Range. For the year ended May 31, 2003, the effective annual management fee for the Investor Class of Tax-Free Money Market and Tax-Free Bond was 0.49% and 0.50%, respectively. For the year ended May 31, 2003, the effective annual management fee for the Institutional Class of Tax-Free Bond was 0.30%. MONEY MARKET INSURANCE -- Tax-Free Money Market, along with other money market funds managed by ACIM, has entered into an insurance agreement with MBIA Insurance Corporation (MBIA). MBIA provides limited coverage for certain loss events including issuer defaults as to payment of principal or interest and insolvency of a credit enhancement provider. The fund pays annual premiums to MBIA, which are amortized daily over one year. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust's investment manager, ACIM, the distributor of the trust, American Century Investment Services, Inc., and the trust's transfer agent, American Century Services Corporation. Tax-Free Bond has a bank line of credit agreement with J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities for Tax-Free Bond, excluding short-term investments, for the year ended May 31, 2003, were $444,614 and $284,802, respectively. All investment transactions for Tax-Free Money Market were short-term during the year ended May 31, 2003. (continued) - ----- 24 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows: - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED MAY 31, 2003 - ----------------------------- Sold 210,319 $210,319 30,403 $331,080 - ----------------------------- Issued in connection with acquisition -- -- 4,690 51,094 - ----------------------------- Issued in reinvestment of distributions 2,622 2,622 1,491 16,276 - ----------------------------- Redeemed (190,727) (190,727) (17,153) (186,832) - -------------------------------------------------------------------------------- Net increase 22,214 $22,214 19,431 $211,618 ================================================================================ YEAR ENDED MAY 31, 2002 - ----------------------------- Sold 191,743 $191,743 19,975 $211,780 - ----------------------------- Issued in connection with acquisition -- -- 10,653 112,512 - ----------------------------- Issued in reinvestment of distributions 3,855 3,855 1,030 10,913 - ----------------------------- Redeemed (195,021) (195,021) (13,607) (144,217) - -------------------------------------------------------------------------------- Net increase 577 $577 18,051 $190,988 ================================================================================ INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- PERIOD ENDED MAY 31, 2003(1) - ----------------------------- Sold N/A N/A 703 $7,768 - ----------------------------- Issued in reinvestment of distributions 1 16 - ----------------------------- Redeemed (24) (270) - -------------------------------------------------------------------------------- Net increase 680 $7,514 ================================================================================ (1) April 15, 2003 (commencement of sale) through May 31, 2003. - -------------------------------------------------------------------------------- 5. BANK LINE OF CREDIT Tax-Free Bond, along with certain other funds managed by ACIM, has a $620 million unsecured bank line of credit agreement with JPM, which was renewed from $650 million effective December 17, 2002. The fund may borrow money for temporary or emergency purposes to fund shareholder redemptions. Borrowings under the agreement bear interest at the Federal Funds rate plus 0.50%. Tax-Free Bond did not borrow from the line during the year ended May 31, 2003. (continued) ----- 25 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 6. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended May 31, 2003 and May 31, 2002 were as follows: - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- 2003 2002 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $2,764 $4,049 $18,853 $12,524 - -------------------------------------------------------------------------------- Long-term capital gains -- -- $859 $380 - -------------------------------------------------------------------------------- The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts. As of May 31, 2003, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST - -------------------------------------------------------------------------------- Federal tax cost of investments $271,052 $590,882 ================================================================================ Gross tax appreciation of investments -- $40,972 - ------------------------------------------------- Gross tax depreciation of investments -- (419) - -------------------------------------------------------------------------------- Net tax appreciation of investments -- $40,553 ================================================================================ Net tax depreciation on derivatives -- -- - -------------------------------------------------------------------------------- Net tax appreciation -- $40,553 ================================================================================ Undistributed taxable ordinary income -- $842 - ------------------------------------------------- Undistributed tax-exempt ordinary income -- -- - ------------------------------------------------- Accumulated long-term gains -- $609 - ------------------------------------------------- Accumulated capital losses $(54) -- - -------------------------------------------------------------------------------- The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire in 2008 through 2010 for Tax-Free Money Market. (continued) - ----- 26 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 7. REORGANIZATION PLAN 2002 REORGANIZATION -- On September 3, 2002, Tax-Free Bond acquired all of the net assets of Limited-Term Tax-Free Fund (Limited-Term), another fund previously issued by the trust, pursuant to a plan of reorganization approved by the acquired fund's shareholders on August 2, 2002. Tax-Free Bond is the surviving fund for the purposes of maintaining the financial statements and performance history in the post-reorganization. The acquisition was accomplished by a tax-free exchange of 4,690 shares of Tax-Free Bond for 4,892 shares of Limited-Term, outstanding on September 3, 2002. The net assets of Tax-Free Bond and Limited-Term immediately before the acquisition were $454,253 and $51,094, respectively. Limited-Term unrealized appreciation of $1,699 was combined with that of Tax-Free Bond. Immediately after the acquisition, the combined net assets were $505,347. 2001 REORGANIZATION -- On December 3, 2001, Tax-Free Bond acquired all of the net assets of Long-Term Tax-Free Fund (Long-Term), another fund previously issued by the trust, pursuant to a plan of reorganization approved by the acquired funds' shareholders on November 16, 2001. Tax-Free Bond is the surviving fund for the purposes of maintaining the financial statements and performance history in the post-reorganization. The acquisition was accomplished by a tax-free exchange of 10,653 shares of Tax-Free Bond for 10,704 shares of Long-Term, outstanding on December 3, 2001. The net assets of Tax-Free Bond and Long-Term immediately before the acquisition were $209,517 and $112,512, respectively. Long-Term unrealized appreciation of $5,558 was combined with that of Tax-Free Bond. Immediately after the acquisition, the combined net assets were $322,029. Tax-Free Bond acquired capital loss carryovers for federal income tax purposes of $503. These acquired capital loss carryovers are subject to limitations on their use under the Internal Revenue Code, as amended. - -------------------------------------------------------------------------------- 8. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The funds designate exempt interest and capital gain dividends for the fiscal year ended May 31, 2003, as follows: - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- Exempt interest dividends $2,764 $18,839 - -------------------------------------------------------------------------------- Long-term capital gains -- $859 - -------------------------------------------------------------------------------- ----- 27 Tax-Free Money Market - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 - --------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------- Net Investment Income 0.01 0.02 0.04 0.03 0.03 - --------------------------------------------------------------------------------------------------------- Distributions - ----------------------------------- From Net Investment Income (0.01) (0.02) (0.04) (0.03) (0.03) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 ========================================================================================================= TOTAL RETURN(1) 1.05% 1.64% 3.71% 3.30% 3.10% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.50% 0.50% 0.31%(2) - ----------------------------------- Ratio of Net Investment Income to Average Net Assets 1.04% 1.62% 3.64% 3.23% 3.10%(2) - ----------------------------------- Net Assets, End of Period (in thousands) $272,256 $250,035 $249,461 $233,852 $283,046 - --------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. (2) ACIM voluntarily waived its management fee from August 1, 1997 through July 31, 1998. Effective August 1, 1998, ACIM began decreasing the waiver by 0.10% of the fund's net assets on a monthly basis, until the waiver expired in December 1998. In the absence of the waiver, the ratio of expenses to average net assets and the ratio of net investment income to average net assets would have been 0.50% and 2.91% for 1999. See Notes to Financial Statements. - ----- 28 Tax-Free Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 - --------------------------------------------------------------------------------------------------------- INVESTOR CLASS - --------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.63 $10.50 $9.93 $10.39 $10.52 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------- Net Investment Income 0.39 0.44 0.48 0.48 0.48 - ----------------------------------- Net Realized and Unrealized Gain (Loss) 0.58 0.22 0.57 (0.44) (0.05) - --------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.97 0.66 1.05 0.04 0.43 - --------------------------------------------------------------------------------------------------------- Distributions - ----------------------------------- From Net Investment Income (0.39) (0.44) (0.48) (0.48) (0.48) - ----------------------------------- From Net Realized Gains (0.02) (0.09) -- (0.02) (0.08) - --------------------------------------------------------------------------------------------------------- Total Distributions (0.41) (0.53) (0.48) (0.50) (0.56) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $11.19 $10.63 $10.50 $9.93 $10.39 ========================================================================================================= TOTAL RETURN(1) 9.31% 6.45% 10.77% 0.44% 4.07% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.51% 0.51% 0.51% - ----------------------------------- Ratio of Net Investment Income to Average Net Assets 3.62% 4.14% 4.65% 4.75% 4.52% - ----------------------------------- Portfolio Turnover Rate 57% 86% 106% 107% 32% - ----------------------------------- Net Assets, End of Period (in thousands) $620,000 $382,447 $188,186 $149,511 $149,678 - --------------------------------------------------------------------------------------------------------- (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. ----- 29 Tax-Free Bond - Financial Highlights For a Share Outstanding Throughout the Period Indicated - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.90 - -------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------------------------------------- Net Investment Income 0.05 - ----------------------------------------------------------------- Net Realized and Unrealized Gain 0.29 - -------------------------------------------------------------------------------- Total From Investment Operations 0.34 - -------------------------------------------------------------------------------- Distributions - ----------------------------------------------------------------- From Net Investment Income (0.05) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $11.19 ================================================================================ TOTAL RETURN(2) 3.14% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.30%(3) - ----------------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.68%(3) - ----------------------------------------------------------------- Portfolio Turnover Rate 57%(4) - ----------------------------------------------------------------- Net Assets, End of Period (in thousands) $7,609 - -------------------------------------------------------------------------------- (1) April 15, 2003 (commencement of sale) through May 31, 2003. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. 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 May 31, 2003. See Notes to Financial Statements. - ----- 30 Report of Independent Auditors To the Trustees of the American Century Municipal Trust and Shareholders of the Tax-Free Money Market Fund and Tax-Free Bond 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 Tax-Free Money Market Fund and the Tax-Free Bond Fund (two of the six funds in the American Century Municipal Trust hereafter referred to as the "Funds") at May 31, 2003, the results of each of their operations for the year then ended, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Kansas City, Missouri July 11, 2003 ----- 31 Management The individuals listed below serve as trustees or officers of the funds. Those listed as interested trustees are "interested" primarily by virtue of their engagement as officers of American Century Companies, Inc. (ACC) or its wholly-owned subsidiaries, including the funds' investment advisor, American Century Investment Management, Inc. (ACIM); the funds' principal underwriter, American Century Investment Services, Inc. (ACIS); and the funds' transfer agent, American Century Services Corporation (ACSC). The other trustees (more than two-thirds of the total number) are independent; that is, they are not employees or officers of, and have no financial interest in, ACC or any of its wholly-owned subsidiaries, including ACIM, ACIS, and ACSC. All persons named as officers of the funds also serve in similar capacities for other funds advised by ACIM. Only officers with policy-making functions are listed. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds. INDEPENDENT TRUSTEES - -------------------------------------------------------------------------------- ALBERT EISENSTAT (72) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: General Partner, Discovery Ventures (Venture capital firm, 1996 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Independent Director, Sungard Data Systems (1991 to present); Independent Director, Business Objects S/A (1994 to present) - -------------------------------------------------------------------------------- RONALD J. GILSON (56) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Mark and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present); Counsel, Marron, Reid & Sheehy (a San Francisco law firm, 1984 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- KATHRYN A. HALL (45) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Investment Officer, Offit Hall Capital Management, LLC (April 2002 to present); President and Managing Director, Laurel Management Company, L.L.C. (1996 to April 2002) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Princeton University Investment Company (1997 to present); Director, Stanford Management Company (2001 to present); Director, UCSF Foundation (2000 to present); Director, San Francisco Day School (1999 to present) - -------------------------------------------------------------------------------- MYRON S. SCHOLES (61) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 22 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Partner, Oak Hill Capital Management (1999 to present); Principal, Long-Term Capital Management (investment advisor, 1993 to January 1999); Frank E. Buck Professor of Finance, Stanford Graduate School of Business (1981 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Smith Breeden Family of Funds (1992 to present) - -------------------------------------------------------------------------------- (continued) - ----- 32 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- KENNETH E. SCOTT (74) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 31 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Ralph M. Parsons Professor of Law and Business, Stanford Law School (1972 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, RCM Capital Funds, Inc. (1994 to present) - -------------------------------------------------------------------------------- JOHN B. SHOVEN (55) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1977 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to present); Director, Watson Wyatt Worldwide (2002 to present); Director, Palmsource Inc. (2002 to present) - -------------------------------------------------------------------------------- JEANNE D. WOHLERS (58) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 18 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Director and Partner, Windy Hill Productions, LP (educational software, 1994 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Indus International (software solutions, January 1999 to present); Director, Quintus Corporation (automation solutions, 1995 to present) - -------------------------------------------------------------------------------- INTERESTED TRUSTEE - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to present); President, ACIM (September 2002 to present); Chief Operating Officer, ACC (June 1996 to September 2000); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1989 to June 1998); Also serves as: Executive Vice President, ACIS, ACSC, and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) ----- 33 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: See entry under "Interested Trustees." - -------------------------------------------------------------------------------- ROBERT T. JACKSON (57) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Executive Vice President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC (August 1997 to present); Chief Financial Officer, ACC (May 1995 to October 2002); President, ACSC (January 1999 to present); Executive Vice President, ACC (May 1995 to present); Also serves as: Executive Vice President and Chief Financial Officer, ACIM, ACIS, and other ACC subsidiaries - -------------------------------------------------------------------------------- MARYANNE ROEPKE, CPA (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Accounting Officer LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Assistant Treasurer, ACSC - -------------------------------------------------------------------------------- DAVID C. TUCKER (44) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present) - -------------------------------------------------------------------------------- ROBERT LEACH (36) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- C. JEAN WADE (39) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- JON ZINDEL (35) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Tax Officer LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC (April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries (April 1999 to present); President, American Century Employee Benefit Services, Inc. (January 2000 to December 2000); Treasurer, American Century Ventures, Inc. (December 1999 to January 2001) - -------------------------------------------------------------------------------- The SAI has additional information about the funds' trustees and is available without charge upon request by calling 1-800-345-2021. - ----- 34 Share Class Information One class of shares is authorized for sale by Tax-Free Money Market: Investor Class. Two classes of shares are authorized for sale by Tax-Free Bond: Investor Class and Institutional Class. The total expense ratio of Institutional Class shares is lower than that of Investor Class shares. INVESTOR CLASS shares are available for purchase in two ways: 1) directly from American Century without any commissions or other fees; or 2) through a broker-dealer, which may require payment of a transaction fee to the broker. INSTITUTIONAL CLASS shares are available to large investors such as endowments, foundations, and retirement plans, and to financial intermediaries serving these investors. This class recognizes the relatively lower cost of serving institutional customers and others who invest at least $5 million ($3 million for endowments and foundations) in an American Century fund or at least $10 million in multiple funds. In recognition of the larger investments and account balances and comparatively lower transaction costs, the total expense ratio of Institutional Class shares is 0.20% less than the total expense ratio of Investor Class shares. All classes of shares represent a pro rata interest in the funds and generally have the same rights and preferences. ----- 35 Index Definition The following index is used in the report to illustrate investment market, sector, or style performance or to serve as a fund performance comparison. It is not an investment product available for purchase. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION 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. - ----- 36 CONTACT US WWW.AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR RELATIONS: 1-800-345-2021 or 816-531-5575 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY MUNICIPAL TRUST INVESTMENT MANAGER: American Century Investment Management, Inc. Kansas City, Missouri THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. 0307 American Century Investment Services, Inc. SH-ANN-35036N (c)2003 American Century Services Corporation
[front cover] May 31, 2003 American Century Annual Report [photo] High-Yield Municipal [american century logo and text logo (reg.sm)] [inside front cover] Table of Contents Our Message to You ........................................................ 1 HIGH-YIELD MUNICIPAL Performance ............................................................... 2 Portfolio Commentary ...................................................... 4 Yields ................................................................. 4 Portfolio Composition by Credit Rating ................................. 5 Top Five States ........................................................ 5 Schedule of Investments ................................................... 6 FINANCIAL STATEMENTS Statement of Assets and Liabilities ....................................... 9 Statement of Operations ................................................... 10 Statement of Changes in Net Assets ........................................ 11 Notes to Financial Statements ............................................. 12 Financial Highlights ...................................................... 16 Report of Independent Auditors ............................................ 20 OTHER INFORMATION Management ................................................................ 21 Share Class Information ................................................... 24 Retirement Account Information ............................................ 25 Index Definitions ......................................................... 26 Our Message to You James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the annual report for the American Century High-Yield Municipal fund for the fiscal year ended May 31, 2003. The report includes comparative performance figures, commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Also, through our Web site, we provide quarterly commentaries on all American Century portfolios, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. Your next shareholder report for this fund will be the semiannual report dated November 30, 2003, available in approximately six months. As always, we deeply appreciate your investment with American Century. Sincerely, /*/James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /*/James E. Stowers III James E. Stowers III Co-Chairman of the Board ----- 1 High-Yield Municipal - Performance TOTAL RETURNS AS OF MAY 31, 2003 ------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS(1) INCEPTION(1) DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 9.40% 5.93% 6.10% 3/31/98 - -------------------------------------------------------------------------------- LEHMAN LONG-TERM MUNICIPAL BOND INDEX 11.84% 6.53% 6.60% -- - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S HIGH YIELD MUNICIPAL DEBT FUNDS 6.12% 3.31% 3.40% -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(2) 2 of 72 1 of 50 1 of 50 -- - -------------------------------------------------------------------------------- A Class 1/31/03 No sales charge* -- -- 3.57%(3) With sales charge* -- -- -1.05%(3) - -------------------------------------------------------------------------------- B Class 1/31/03 No sales charge* -- -- 3.44%(3) With sales charge* -- -- -1.56%(3) - -------------------------------------------------------------------------------- C Class 7/24/02 No sales charge* -- -- 6.15%(3) With sales charge* -- -- 5.40%(3) - -------------------------------------------------------------------------------- *Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. (A Class shares have an initial sales charge and CDSC; B and C Class shares have CDSCs. Please see the Share Class Information pages for more about the applicable sales charges for each share class.) The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Fund returns and rankings would have been lower if management fees had not been waived from 3/31/98 to 4/30/99. Beginning on 5/1/99, management fees were phased in at a rate of 0.10% each month until 11/1/99. (2) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated. (3) Returns for periods less than one year are not annualized. (continued) - ----- 2 High-Yield Municipal - Performance
GROWTH OF $10,000 OVER LIFE OF INVESTOR CLASS
$10,000 investment made March 31, 1998
![](https://capedge.com/proxy/N-CSR/0000746458-03-000016/growthhymuni0503.gif)
ONE-YEAR RETURNS OVER LIFE OF INVESTOR CLASS Periods ended May 31 - -------------------------------------------------------------------------------- 1998* 1999 2000 2001 2002 2003 - -------------------------------------------------------------------------------- Investor Class** 1.81% 6.18% -2.81% 9.13% 8.25% 9.40% - -------------------------------------------------------------------------------- Lehman Long-Term Municipal Bond Index 1.41% 4.35% -4.45% 15.38% 6.64% 11.84% - -------------------------------------------------------------------------------- * From 3/31/98 (the class's inception date) to 5/31/98. Not annualized. **Fund returns and rankings would have been lower if management fees had not been waived from 3/31/98 to 4/30/99. Beginning on 5/1/99, management fees were phased in at a rate of 0.10% each month until 11/1/99. The charts on the performance pages give historical return data for the fund. Returns for the index are provided for comparison. The fund's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Unless otherwise indicated, the charts are based on Investor Class shares; performance for other classes will vary due to differences in fee structures (see the Total Returns table on the previous page). Past performance does not guarantee future results. None of these charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. ----- 3 High-Yield Municipal - Portfolio Commentary By Steven Permut, portfolio manager RETURN PERSPECTIVE American Century High-Yield Municipal performed well during the fiscal year ended May 31, 2003, especially compared with its fund peers. The fund remained near the top of its peer group and provided an attractive alternative to eroding equity values and miniscule money market yields. High-Yield Municipal returned 9.40% for the fiscal year, well above the 6.12% average return of 72 high-yield municipal debt funds tracked by Lipper Inc.* That return earned a #2 ranking in the fund's Lipper group for the period. It also contributed to the fund's #1 ranking based on the total returns of the 50 funds tracked by Lipper since the fund's inception (see page 2 for more details). By comparison, the S&P 500 Index, representing broad U.S. stock market performance, declined 8.1% for the fiscal year. The three-month Treasury bill, representing the money market, returned 1.5% as its yield dropped to 1.11% by the end of May 2003. YIELD PERSPECTIVE High-Yield Municipal's yield fell as the fund's share price rose, but the yield still compared favorably with those of similar funds and other municipal instruments with like maturities. The fund's 30-day SEC yield fell from 5.13% to 4.86% during the fiscal year.* However, that yield was still higher than the 4.79% average of the Lipper peer group on May 31, 2003, and well above the 4.51% yield on that date for the investment-grade Lehman Long-Term Municipal Bond Index. YIELDS AS OF MAY 31, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 4.86% - -------------------------------------------------------------------------------- A Class 4.46% - -------------------------------------------------------------------------------- B Class 3.84% - -------------------------------------------------------------------------------- C Class 4.09% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.0% Tax Bracket 6.48% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 6.75% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 7.25% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 7.48% - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE (ADR) - -------------------------------------------------------------------------------- Investor Class 5.26% - -------------------------------------------------------------------------------- A Class 5.02% - -------------------------------------------------------------------------------- B Class 4.22% - -------------------------------------------------------------------------------- C Class 4.47% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are for federal taxes only. Part of the reason for the higher yield compared with the peer group was lower expenses; High-Yield Municipal's expense ratio as of May 31, 2003, was 0.64%, around half the 1.25% average of the Lipper group. ADR, ANOTHER WAY TO REPORT YIELD American Century has started reporting annualized distribution rates (ADRs) on its dividend-paying funds (see the yield table above). ADRs are easier to calculate and explain to investors than other yields--they're based on fund distributions as opposed to investment income. High-Yield Municipal's ADR for each share class equals the ordinary dividends earned by the share class over a 30-day period, multiplied by 12 and divided by the current share price (net asset value or maximum offering price) at the end of the period. *All fund returns, yields, and fees referenced in this commentary are for Investor Class shares. (continued) - ----- 4 High-Yield Municipal - Portfolio Commentary ECONOMIC & MUNICIPAL MARKET PERSPECTIVE U.S. economic growth decelerated significantly during the fiscal year. Real gross domestic product (GDP) fell from a 4% annualized rate in the third quarter of 2002 to just 1.4% in both the fourth quarter of 2002 and the first quarter of 2003. Against that backdrop, the Federal Reserve (the Fed) cut its target for overnight interest rates--the federal funds rate--from 1.75% to 1.25% in early November. The economy's struggles were reflected in the labor market, with the U.S. unemployment rate rising to 6.1% in May. On the bright side, inflation remained well under control: the consumer price index rose just 2.1% during the year ended May 31. Municipal bonds generally fared well in that environment, with longer-maturity securities typically posting the biggest gains. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- AAA 21% 32% - -------------------------------------------------------------------------------- AA 3% 6% - -------------------------------------------------------------------------------- A 4% -- - -------------------------------------------------------------------------------- BBB 6% 3% - -------------------------------------------------------------------------------- BB 2% 2% - -------------------------------------------------------------------------------- Unrated 64% 57% - -------------------------------------------------------------------------------- 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 STATES AS OF MAY 31, 2003 - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- California 17.8% 6.7% - -------------------------------------------------------------------------------- Florida 16.3% 18.5% - -------------------------------------------------------------------------------- Nevada 14.2% 11.0% - -------------------------------------------------------------------------------- Arizona 6.6% 4.1% - -------------------------------------------------------------------------------- Maryland 6.2% 8.9% - -------------------------------------------------------------------------------- PORTFOLIO STRATEGY Our basic strategy did not change. We worked to maintain a competitive yield (a high yield can help reduce total return volatility), but capital appreciation was important too. Our long-term strategy is to provide high current federal tax-exempt income combined with bond price appreciation, achieved at least in part through improvements in the credit ratings of our holdings. We continued to focus on thorough credit reviews and meticulous security selection--the foundations of our approach. We believe our process reduces the risks of potential downgrades and defaults inherent to the high-yield sector. What we don't own can be as important to our relative performance as what we do own. Keys to our success during the fiscal year included avoiding securities from struggling sectors like airlines and project finance. We also had limited exposure to the tobacco sector and health care. ----- 5 High-Yield Municipal - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 95.0% ALASKA -- 1.0% - -------------------------------------------------------------------------------- $ 500 Anchorage Schools GO, Series 2000 A, 5.75%, 12/1/16 (MBIA) $ 588 - -------------------------------------------------------------------------------- ARIZONA -- 5.8% - -------------------------------------------------------------------------------- 1,000 Arizona Tourism & Sports Auth. Rev., Series 2003 A, (Multipurpose Stadium Facilities), 5.375%, 7/1/23 (MBIA) 1,111 - -------------------------------------------------------------------------------- 1,125 Maricopa County Industrial Development Auth. Education Rev., (Horizon Community Learning Center), 7.95%, 6/1/23 1,194 - -------------------------------------------------------------------------------- 1,150 Sundance Community Facilities Assessment District No. 2 Rev., 7.125%, 7/1/27 1,166 - -------------------------------------------------------------------------------- 3,471 - -------------------------------------------------------------------------------- CALIFORNIA -- 17.8% - -------------------------------------------------------------------------------- 1,000 Beaumont Financing Auth. Rev., Series 2003 A, 6.875%, 9/1/27 1,021 - -------------------------------------------------------------------------------- 2,000 California Mobilehome Park Financing Auth. Rev., (Palomar Estates), 7.00%, 9/15/36(1) 2,023 - -------------------------------------------------------------------------------- 1,000 California Statewide Communities Development Auth. COP, Series 1999 A, (Windsor Terrace Healthcare), 7.875%, 10/1/29 (Acquired 10/26/99, Cost $1,000)(2) 1,006 - -------------------------------------------------------------------------------- 750 California Statewide Communities Development Auth. Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/31 774 - -------------------------------------------------------------------------------- 965 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/23 1,051 - -------------------------------------------------------------------------------- 1,000 Soledad Special Assessment Rev., (Diamond Ridge Assessment District No. 02-01), 6.75%, 9/2/33 1,027 - -------------------------------------------------------------------------------- 1,620 Vallejo Multifamily Housing Rev., Series 1998 B, (Solano Affordable Housing), 8.25%, 4/1/39 (Acquired 12/12/02, Cost $1,753)(2) 1,770 - -------------------------------------------------------------------------------- 2,000 William S. Hart Union High School District Special Tax, (Community Facilities District No. 2002-1), 6.00%, 9/1/33 2,035 - -------------------------------------------------------------------------------- 10,707 - -------------------------------------------------------------------------------- COLORADO -- 1.8% - -------------------------------------------------------------------------------- 335 Colorado Health Facilities Auth. Rev., Series 1998 A, (Volunteers), 5.00%, 7/1/03 335 - -------------------------------------------------------------------------------- 640 Douglas County School District No. RE-1 GO, (Douglas & Elbert Counties Building), Series 2002 B, 5.75%, 12/15/19 (FSA/State Aid Withholding) 753 - -------------------------------------------------------------------------------- 1,088 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- CONNECTICUT -- 1.7% - -------------------------------------------------------------------------------- $1,000 Connecticut Development Auth. Industrial Rev., (Afco Cargo BDL-LLC), 8.00%, 4/1/30 $ 1,038 - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA -- 1.4% - -------------------------------------------------------------------------------- 750 Metropolitan Washington D.C. Airports Auth. General Rev., Series 2001 A, 5.50%, 10/1/18 (MBIA) 825 - -------------------------------------------------------------------------------- FLORIDA -- 13.8% - -------------------------------------------------------------------------------- 135 Arbor Greene Community Development District Special Assessment Rev., 5.75%, 5/1/06 136 - -------------------------------------------------------------------------------- 180 Arbor Greene Community Development District Special Assessment Rev., 6.50%, 5/1/07 183 - -------------------------------------------------------------------------------- 1,000 Double Branch Community Development District Special Assessment Rev., Series 2002 A, 6.70%, 5/1/34 1,025 - -------------------------------------------------------------------------------- 530 Fleming Island Plantation Community Development District Special Assessment Rev., Series 2000 B, 7.375%, 5/1/31 569 - -------------------------------------------------------------------------------- 1,500 Gateway Services Community Development District Special Assessment Rev., Series 2003 B, (Sun City Center), 5.50%, 5/1/10 1,502 - -------------------------------------------------------------------------------- 1,225 Heritage Harbor South Community Development District Rev., Series 2002 B, 5.40%, 11/1/08 1,231 - -------------------------------------------------------------------------------- 210 Maple Ridge Community Development District Special Assessment Rev., Series 2000 B, 6.15%, 11/1/04 213 - -------------------------------------------------------------------------------- 1,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/19 (MBIA) 1,145 - -------------------------------------------------------------------------------- 900 Reunion East Community Development District Special Assessment Rev., Series 2002 B, 5.90%, 11/1/07 907 - -------------------------------------------------------------------------------- 380 Stoneybrook West Community Development District Special Assessment Rev., Series 2000 A, 7.00%, 5/1/32 399 - -------------------------------------------------------------------------------- 985 Waterchase Community Development District Rev., Series 2001 A, 6.70%, 5/1/32 1,013 - -------------------------------------------------------------------------------- 8,323 - -------------------------------------------------------------------------------- GEORGIA -- 1.0% - -------------------------------------------------------------------------------- 500 Atlanta Water & Wastewater Rev., Series 1999 A, 5.50%, 11/1/18 (FGIC) 607 - -------------------------------------------------------------------------------- MARYLAND -- 6.2% - -------------------------------------------------------------------------------- 1,250 Anne Arundel County Special Obligation Rev., (Arundel Mills), 7.10%, 7/1/29 1,371 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 6 High-Yield Municipal - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $1,000 Anne Arundel County Special Obligation Rev., (National Business Park), 7.375%, 7/1/28 $ 1,093 - -------------------------------------------------------------------------------- 1,250 Prince Georges County Rev., (Woodview Village Phase II - Subdistrict), 7.00%, 7/1/32 1,281 - -------------------------------------------------------------------------------- 3,745 - -------------------------------------------------------------------------------- MICHIGAN -- 0.9% - -------------------------------------------------------------------------------- 500 East China School District GO, 5.50%, 5/1/18 (Q-SBLF) 571 - -------------------------------------------------------------------------------- MISSOURI -- 3.6% - -------------------------------------------------------------------------------- 860 Missouri Bottom Transportation Development District Hazelwood Rev., 7.20%, 5/1/33 879 - -------------------------------------------------------------------------------- 1,205 Missouri Housing Development Commission Mortgage Rev., Series 1998 B2, (Single Family), 6.40%, 9/1/29 (GNMA/FNMA) 1,315 - -------------------------------------------------------------------------------- 2,194 - -------------------------------------------------------------------------------- NEVADA -- 14.2% - -------------------------------------------------------------------------------- 1,000 Clark County Improvement District No. 121 Special Assessment Rev., (Southern Highlands Area), 7.50%, 12/1/19 1,098 - -------------------------------------------------------------------------------- 1,575 Henderson Local Improvement Districts No. T-14 Special Assessment Rev., 5.25%, 3/1/13(3) 1,584 - -------------------------------------------------------------------------------- 1,105 Henderson Redevelopment Agency Tax Allocation, Series 2002 B, 7.10%, 10/1/22 1,154 - -------------------------------------------------------------------------------- 350 Henderson Redevelopment Agency Tax Allocation, Series 2002 B, 7.20%, 10/1/25 366 - -------------------------------------------------------------------------------- 500 Las Vegas Special Assessment Rev., (Special Improvement District No. 808-Summerlin), 5.40%, 6/1/06 520 - -------------------------------------------------------------------------------- 500 Las Vegas Special Assessment Rev., (Special Improvement District No. 808-Summerlin), 5.70%, 6/1/08 520 - -------------------------------------------------------------------------------- 1,165 North Las Vegas Special Assessment Rev., (Special Improvement District No. 60-Aliante), 5.25%, 12/1/10 1,191 - -------------------------------------------------------------------------------- 500 North Las Vegas Special Assessment Rev., (Special Improvement District No. 60-Aliante), 5.60%, 12/1/12 510 - -------------------------------------------------------------------------------- 755 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.20%, 12/1/10 770 - -------------------------------------------------------------------------------- 795 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.45%, 12/1/11 813 - -------------------------------------------------------------------------------- 8,526 - -------------------------------------------------------------------------------- NEW JERSEY -- 5.0% - -------------------------------------------------------------------------------- 1,000 New Jersey Economic Development Auth. Rev., Series 1999 A, (Transportation Sublease), 6.00%, 5/1/16 (FSA) 1,166 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $2,000 Tobaco Settlement Financing Corp. Rev., 6.75%, 6/1/39 $ 1,864 - -------------------------------------------------------------------------------- 3,030 - -------------------------------------------------------------------------------- NEW YORK -- 1.7% - -------------------------------------------------------------------------------- 1,000 Onondaga County Industrial Development Auth. Rev., (Air Cargo), (Sub Lien), 7.25%, 1/1/32 1,005 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 3.3% - -------------------------------------------------------------------------------- 1,000 North Carolina Eastern Municipal Power Agency Rev., Series 2003 D, 5.125%, 1/1/23 1,001 - -------------------------------------------------------------------------------- 1,000 North Carolina Eastern Municipal Power Agency Rev., Series 2003 D, 5.125%, 1/1/26 1,002 - -------------------------------------------------------------------------------- 2,003 - -------------------------------------------------------------------------------- OHIO -- 1.9% - -------------------------------------------------------------------------------- 1,000 Plain Local School District GO, 5.50%, 12/1/19 (FGIC) 1,141 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 3.3% - -------------------------------------------------------------------------------- 1,200 Dauphin County General Auth. Rev., (Hyatt Regency Hotel & Conference Center), 6.20%, 1/1/29 974 - -------------------------------------------------------------------------------- 980 New Morgan Municipal Auth. Office Rev., Series 1999 A, (Commonwealth Office), 5.375%, 6/1/08 985 - -------------------------------------------------------------------------------- 1,959 - -------------------------------------------------------------------------------- RHODE ISLAND -- 1.0% - -------------------------------------------------------------------------------- 500 Cranston GO, 6.375%, 11/15/17 (FGIC) 605 - -------------------------------------------------------------------------------- TEXAS -- 3.9% - -------------------------------------------------------------------------------- 890 Abia Development Corp. Airport Facilities Rev., (Aero Austin L.P.), 6.75%, 1/1/11 859 - -------------------------------------------------------------------------------- 400 Bexar County Health Facilities Development Corp. Rev., (Army Retirement Residence), 6.125%, 7/1/22 421 - -------------------------------------------------------------------------------- 1,000 Bexar County Health Facilities Development Corp. Rev., (Army Retirement Residence), 6.30%, 7/1/32 1,055 - -------------------------------------------------------------------------------- 2,335 - -------------------------------------------------------------------------------- UTAH -- 3.5% - -------------------------------------------------------------------------------- 685 Bountiful Hospital Rev., (South Davis Community Hospital), 5.125%, 12/15/05 (Acquired 9/24/98, Cost $680)(2) 698 - -------------------------------------------------------------------------------- 1,235 West Valley City Rev., Series 2001 A, 5.50%, 7/15/15 (MBIA) 1,430 - -------------------------------------------------------------------------------- 2,128 - -------------------------------------------------------------------------------- WASHINGTON -- 2.2% - -------------------------------------------------------------------------------- 860 Cowlitz County School District No. 458 Kelso GO, 5.75%, 12/1/18 (FSA) 1,001 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 7 High-Yield Municipal - Schedule of Investments MAY 31, 2003 Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 250 Port of Seattle Rev., Series 2000 B, 6.00%, 2/1/15 (MBIA) $ 305 - -------------------------------------------------------------------------------- 1,306 - -------------------------------------------------------------------------------- WYOMING(4) - -------------------------------------------------------------------------------- 5 Wyoming Community Development Auth. Rev., Series 1990 B, (Single Family Mortgage), 8.125%, 6/1/21 (FHA) 5 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $54,798) 57,200 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 5.0% ARIZONA -- 0.8% - -------------------------------------------------------------------------------- 500 Tempe Excise Tax Rev., (Center for the Arts), VRDN, 1.35%, 6/2/03 500 - -------------------------------------------------------------------------------- FLORIDA -- 2.5% - -------------------------------------------------------------------------------- 200 Florida Housing Finance Corporation Rev., VRDN, 1.39%, 6/5/03 (Acquired 4/21/03, Cost $200)(2) 200 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 500 Pinellas County Health Facilities Auth. Rev., (Pooled Hospital Loan Program), VRDN, 1.35%, 6/2/03 (AMBAC) $ 500 - -------------------------------------------------------------------------------- 800 Sarasota County Public Hospital Board Rev., Series 2003 A, (Sarasota Memorial Hospital), VRDN, 1.45%, 6/2/03 800 - -------------------------------------------------------------------------------- 1,500 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 1.7% - -------------------------------------------------------------------------------- 1,000 Allegheny County Industrial Development Auth. Rev., Series 2001 A, (Longwood), VRDN, 1.35%, 6/2/03 (Radian Asset Assurance Inc.) (SBBPA: Fleet National Bank) 1,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $3,000) 3,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $57,798) $60,200 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FHA = Federal Housing Authority FNMA = Federal National Mortgage Association FSA = Financial Security Assurance Inc. GNMA = Government National Mortgage Association GO = General Obligation MBIA = MBIA Insurance Corp. Q-SBLF = Qualified State Bond Loan Fund SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective May 31, 2003. (1) Security, or a portion thereof, has been segregated for when-issued security. (2) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at May 31, 2003, was $3,674 (in thousands), which represents 6.3% of net assets. (3) When-issued security. (4) Category is less than 0.05% of total investment securities. See Notes to Financial Statements. - ----- 8 Statement of Assets and Liabilities MAY 31, 2003 (Amounts In Thousands Except Per-Share Amounts) - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $57,798) $ 60,200 ----------------------------------------------------------------- Receivable for capital shares sold 97 ----------------------------------------------------------------- Interest receivable 923 - ------------------------------------------------------------------------------- 61,220 - ------------------------------------------------------------------------------- LIABILITIES - ------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 1,636 ----------------------------------------------------------------- Payable for investments purchased 1,575 ----------------------------------------------------------------- Accrued management fees 30 ----------------------------------------------------------------- Distribution fees payable 1 ----------------------------------------------------------------- Service fees payable 1 ----------------------------------------------------------------- Dividends payable 77 - ------------------------------------------------------------------------------- 3,320 - ------------------------------------------------------------------------------- NET ASSETS $ 57,900 =============================================================================== NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------- Capital paid in $ 57,308 ----------------------------------------------------------------- Accumulated net realized loss on investment transactions (1,810) ----------------------------------------------------------------- Net unrealized appreciation on investments 2,402 - ------------------------------------------------------------------------------- $ 57,900 =============================================================================== INVESTOR CLASS ($ AND SHARES IN FULL) - ------------------------------------------------------------------------------- Net assets $ 53,620,727 ----------------------------------------------------------------- Shares outstanding 5,230,561 ----------------------------------------------------------------- Net asset value per share $ 10.25 - ------------------------------------------------------------------------------- A CLASS ($ AND SHARES IN FULL) - ------------------------------------------------------------------------------- Net assets $ 2,117,370 ----------------------------------------------------------------- Shares outstanding 206,544 ----------------------------------------------------------------- Net asset value per share $ 10.25 ----------------------------------------------------------------- Maximum offering price (net asset value divided by 0.955) $ 10.73 - ------------------------------------------------------------------------------- B CLASS ($ AND SHARES IN FULL) - ------------------------------------------------------------------------------- Net assets $ 707,921 ----------------------------------------------------------------- Shares outstanding 69,055 ----------------------------------------------------------------- Net asset value per share $ 10.25 - ------------------------------------------------------------------------------- C CLASS ($ AND SHARES IN FULL) - ------------------------------------------------------------------------------- Net assets $ 1,453,990 ----------------------------------------------------------------- Shares outstanding 141,833 ----------------------------------------------------------------- Net asset value per share $ 10.25 - ------------------------------------------------------------------------------- See Notes to Financial Statements. ----- 9 Statement of Operations YEAR ENDED MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ----------------------------------------------------------------- Interest $2,652 - -------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------- Management fees 285 - ----------------------------------------------------------------- Distribution fees: - ----------------------------------------------------------------- B Class 1 - ----------------------------------------------------------------- C Class 1 - ----------------------------------------------------------------- Service fees: - ----------------------------------------------------------------- B Class -- - ----------------------------------------------------------------- C Class 1 - ----------------------------------------------------------------- Service and distribution fees -- A Class 1 - ----------------------------------------------------------------- Trustees' fees and expenses 2 - ----------------------------------------------------------------- Other expenses 1 - -------------------------------------------------------------------------------- 292 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 2,360 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN - -------------------------------------------------------------------------------- Net realized gain on investment transactions 387 - ----------------------------------------------------------------- Change in net unrealized appreciation on investments 1,368 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN 1,755 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,115 ================================================================================ See Notes to Financial Statements. - ----- 10 Statement of Changes in Net Assets YEARS ENDED MAY 31, 2003 AND MAY 31, 2002 (Amounts In Thousands) - -------------------------------------------------------------------------------- INCREASE IN NET ASSETS 2003 2002 - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income $ 2,360 $ 1,657 ------------------------------------------------ Net realized gain (loss) 387 (26) ------------------------------------------------ Change in net unrealized appreciation 1,368 815 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 4,115 2,446 - ------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ------------------------------------------------------------------------------- From net investment income: ------------------------------------------------ Investor Class (2,333) (1,657) ------------------------------------------------ A Class (11) -- ------------------------------------------------ B Class (3) -- ------------------------------------------------ C Class (13) -- - ------------------------------------------------------------------------------- Decrease in net assets from distributions (2,360) (1,657) - ------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ------------------------------------------------------------------------------- Net increase in net assets from capital share transactions 19,983 6,031 - ------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 21,738 6,820 NET ASSETS - ------------------------------------------------------------------------------- Beginning of period 36,162 29,342 - ------------------------------------------------------------------------------- End of period $ 57,900 $ 36,162 =============================================================================== See Notes to Financial Statements. ----- 11 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Municipal Trust (the trust), is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. 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 exempt from federal income taxes. Capital appreciation is a secondary objective. The fund invests primarily in lower-rated debt securities, which are subject to greater credit risk and consequently offer higher yield. Securities of this type are subject to substantial risks including price volatility, liquidity risk and default risk. The fund invests primarily in long- and intermediate-term municipal obligations. The fund may concentrate its investments in certain states and therefore may have more exposure to credit risk related to those states than funds that have broader geographical diversification. The following is a summary of the fund's significant accounting policies. MULTIPLE CLASS -- The fund is authorized to issue the Investor Class, the A Class, the B Class and the C Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and shareholder servicing and distribution expenses and arrangements. All shares of the fund represent an equal pro rata interest in the assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets. Sale of the A Class and B Class commenced on January 31, 2003, at which time the Investor Class was no longer available to new investors. Sale of the C Class commenced on July 24, 2002. SECURITY VALUATIONS -- Securities are valued through a commercial pricing service or at the mean of the most recent bid and asked prices. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities transactions on a when-issued or forward commitment basis. Under these arrangements, the securities' prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price. INCOME TAX STATUS -- It is the fund's policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. (continued) - ----- 12 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee per class. The Agreement provides that all expenses of the fund, except brokerage commissions, taxes, portfolio insurance, interest, fees and expenses of those trustees who are not considered "interested persons" as defined in the 1940 Act (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid monthly in arrears. It consists of an Investment Category Fee based on the average net assets of the funds in a specific fund's investment category and a Complex Fee based on the average net assets of all the funds managed by ACIM. The rates for the Investment Category Fee range from 0.2925% to 0.4100% and the rates for the Complex Fee range from 0.2900% to 0.3100% (Investor, A, B, and C Classes). For the year ended May 31, 2003, the effective annual management fee was 0.63% for the Investor, A, B and C Classes. 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 the B Class and C Class will pay American Century Investment Services, Inc. (ACIS) the following annual distribution and service fees: - -------------------------------------------------------------------------------- B C - -------------------------------------------------------------------------------- Distribution Fee 0.75% 0.50% - -------------------------------------------------------------------------------- Service Fee 0.25% 0.25% - -------------------------------------------------------------------------------- The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The fees are computed daily and paid monthly in arrears based on each class's average daily closing net assets during the previous month. The distribution fee provides compensation for expenses incurred in connection with distributing shares of the classes including, but not limited to, payments to brokers, dealers, and financial institutions that have entered into sales agreements with respect to shares of the fund. The service fee provides compensation for individual shareholder services rendered by broker/dealers or other independent financial intermediaries. All or a portion of the distribution and service fees for the A Class and B Class were voluntarily waived during the year ended May 31, 2003. Fees incurred under the plans during the year ended May 31, 2003, are detailed in the Statement of Operations. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust's investment manager, ACIM, the distributor of the trust, ACIS, and the trust's transfer agent, American Century Services Corporation. The fund has a bank line of credit agreement with J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities, excluding short-term investments, for the year ended May 31, 2003, were $40,428 and $19,049, respectively. (continued) ----- 13 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the fund were as follows (unlimited number of shares authorized): - -------------------------------------------------------------------------------- SHARES AMOUNT - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- YEAR ENDED MAY 31, 2003 - ---------------------------------------------------- Sold 3,267 $ 32,863 ---------------------------------------------------- Issued in reinvestment of distributions 159 1,602 ---------------------------------------------------- Redeemed (1,860) (18,712) - ------------------------------------------------------------------------------- Net increase 1,566 $ 15,753 =============================================================================== YEAR ENDED MAY 31, 2002 ---------------------------------------------------- Sold 1,840 $ 18,010 ---------------------------------------------------- Issued in reinvestment of distributions 123 1,201 ---------------------------------------------------- Redeemed (1,347) (13,180) - ------------------------------------------------------------------------------- Net increase 616 $ 6,031 =============================================================================== A CLASS - ------------------------------------------------------------------------------- PERIOD ENDED MAY 31, 2003(1) ---------------------------------------------------- Sold 208 $ 2,104 ---------------------------------------------------- Issued in reinvestment of distributions 1 9 ---------------------------------------------------- Redeemed (2) (16) - ------------------------------------------------------------------------------- Net increase 207 $ 2,097 =============================================================================== B CLASS - ------------------------------------------------------------------------------- PERIOD ENDED MAY 31, 2003(1) ---------------------------------------------------- Sold 69 $ 702 ---------------------------------------------------- Issued in reinvestment of distributions -- 1 ---------------------------------------------------- Redeemed -- (5) - ------------------------------------------------------------------------------- Net increase 69 $ 698 =============================================================================== C CLASS - ------------------------------------------------------------------------------- PERIOD ENDED MAY 31, 2003(2) ---------------------------------------------------- Sold 145 $ 1,472 ---------------------------------------------------- Issued in reinvestment of distributions 1 7 ---------------------------------------------------- Redeemed (4) (44) - ------------------------------------------------------------------------------- Net increase 142 $ 1,435 =============================================================================== (1) January 31, 2003 (commencement of sale) through May 31, 2003. (2) July 24, 2002 (commencement of sale) through May 31, 2003. - -------------------------------------------------------------------------------- 5. BANK LINE OF CREDIT The fund, along with certain other funds managed by ACIM, has a $620 million unsecured bank line of credit agreement with JPM, which was renewed from $650 million effective December 17, 2002. The fund may borrow money for temporary or emergency purposes to fund shareholder redemptions. Borrowings under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund did not borrow from the line during the year ended May 31, 2003. (continued) - ----- 14 Notes to Financial Statements MAY 31, 2003 (Amounts In Thousands) - -------------------------------------------------------------------------------- 6. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended May 31, 2003 and May 31, 2002 were as follows: - -------------------------------------------------------------------------------- 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $2,360 $1,657 - -------------------------------------------------------------------------------- Long-term capital gains -- -- - -------------------------------------------------------------------------------- The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts. As of May 31, 2003, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: - -------------------------------------------------------------------------------- COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST - -------------------------------------------------------------------------------- Federal tax cost of investments $57,798 ================================================================================ Gross tax appreciation of investments $ 2,616 - ----------------------------------------------------------- Gross tax depreciation of investments (214) - -------------------------------------------------------------------------------- Net tax appreciation of investments $ 2,402 ================================================================================ Undistributed taxable ordinary income -- - ----------------------------------------------------------- Undistributed tax-exempt ordinary income -- - ----------------------------------------------------------- Accumulated long-term gains -- - ----------------------------------------------------------- Accumulated capital losses $(1,810) - -------------------------------------------------------------------------------- The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire in 2008 through 2010. - -------------------------------------------------------------------------------- 7. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The fund designated exempt interest and capital gain dividends for the fiscal year ended May 31, 2003, as follows: - ------------------------------------------------------------------------------- Exempt interest dividends $2,360 - ------------------------------------------------------------------------------- Long-term capital gains -- - ------------------------------------------------------------------------------- ----- 15 High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 - --------------------------------------------------------------------------------------------------------- INVESTOR CLASS - --------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $9.87 $9.62 $9.32 $10.12 $10.08 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------- Net Investment Income 0.53 0.53 0.53 0.51 0.54 - ----------------------------------- Net Realized and Unrealized Gain (Loss) 0.38 0.25 0.30 (0.79) 0.07 - --------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.91 0.78 0.83 (0.28) 0.61 - --------------------------------------------------------------------------------------------------------- Distributions - ----------------------------------- From Net Investment Income (0.53) (0.53) (0.53) (0.51) (0.54) - ----------------------------------- From Net Realized Gains -- -- -- (0.01) (0.03) - --------------------------------------------------------------------------------------------------------- Total Distributions (0.53) (0.53) (0.53) (0.52) (0.57) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.25 $9.87 $9.62 $9.32 $10.12 ========================================================================================================= TOTAL RETURN(1) 9.40% 8.25% 9.13% (2.81)% 6.18% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.64% 0.64% 0.64% 0.52%(2) 0.01%(2) - ----------------------------------- Ratio of Net Investment Income to Average Net Assets 5.22% 5.39% 5.59% 5.31%(2) 5.28%(2) - ----------------------------------- Portfolio Turnover Rate 43% 28% 50% 60% 92% - ----------------------------------- Net Assets, End of Period (in thousands) $53,621 $36,162 $29,342 $28,189 $42,068 - --------------------------------------------------------------------------------------------------------- (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. (2) ACIM voluntarily agreed to pay all expenses of the fund from March 31, 1998 (inception) through April 30, 1999. In May 1999, ACIM began adding expenses at a rate of 0.10% of average daily closing net assets per month until October 31, 1999. In absence of the waiver, the annualized ratio of Operating expenses to average net assets would have been 0.64% for both periods and the annualized ratio of net investment income to average net assets would have been 4.65% and 4.74%, for the same periods, respectively. See Notes to Financial Statements. - ----- 16 High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Period Indicated - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.06 - -------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------------------------------------- Net Investment Income 0.17 - ----------------------------------------------------------------- Net Realized and Unrealized Gain 0.19 - -------------------------------------------------------------------------------- Total From Investment Operations 0.36 - -------------------------------------------------------------------------------- Distributions - ----------------------------------------------------------------- From Net Investment Income (0.17) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.25 ================================================================================ TOTAL RETURN(2) 3.57% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.88%(3) - ----------------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 5.03%(3) - ----------------------------------------------------------------- Portfolio Turnover Rate 43%(4) - ----------------------------------------------------------------- Net Assets, End of Period (in thousands) $2,117 - -------------------------------------------------------------------------------- (1) January 31, 2003 (commencement of sale) through May 31, 2003. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not reflect 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 May 31, 2003. See Notes to Financial Statements. ----- 17 High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Period Indicated - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.06 - -------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------------------------------------- Net Investment Income 0.15 - ----------------------------------------------------------------- Net Realized and Unrealized Gain 0.19 - -------------------------------------------------------------------------------- Total From Investment Operations 0.34 - -------------------------------------------------------------------------------- Distributions - ----------------------------------------------------------------- From Net Investment Income (0.15) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.25 ================================================================================ TOTAL RETURN(2) 3.44% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.63%(3) - ----------------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.35%(3) - ----------------------------------------------------------------- Portfolio Turnover Rate 43%(4) - ----------------------------------------------------------------- Net Assets, End of Period (in thousands) $708 - -------------------------------------------------------------------------------- (1) January 31, 2003 (commencement of sale) through May 31, 2003. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not reflect 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 May 31, 2003. See Notes to Financial Statements. - ----- 18 High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Period Indicated - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2003(1) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.03 - -------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------------------------------------- Net Investment Income 0.39 - ----------------------------------------------------------------- Net Realized and Unrealized Gain 0.22 - -------------------------------------------------------------------------------- Total From Investment Operations 0.61 - -------------------------------------------------------------------------------- Distributions - ----------------------------------------------------------------- From Net Investment Income (0.39) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.25 ================================================================================ TOTAL RETURN(2) 6.15% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.39%(3) - ----------------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.55%(3) - ----------------------------------------------------------------- Portfolio Turnover Rate 43%(4) - ----------------------------------------------------------------- Net Assets, End of Period (in thousands) $1,454 - -------------------------------------------------------------------------------- (1) July 24, 2002 (commencement of sale) through May 31, 2003. (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not reflect 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 May 31, 2003. See Notes to Financial Statements. ----- 19 Report of Independent Auditors To the Trustees of the American Century Municipal Trust and Shareholders of the 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 High-Yield Municipal Fund (one of the six funds in the American Century Municipal Trust hereafter referred to as the "Fund") at May 31, 2003, 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 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 Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Kansas City, Missouri July 11, 2003 - ----- 20 Management The individuals listed below serve as trustees or officers of the funds. Those listed as interested trustees are "interested" primarily by virtue of their engagement as officers of American Century Companies, Inc. (ACC) or its wholly-owned subsidiaries, including the funds' investment advisor, American Century Investment Management, Inc. (ACIM); the funds' principal underwriter, American Century Investment Services, Inc. (ACIS); and the funds' transfer agent, American Century Services Corporation (ACSC). The other trustees (more than two-thirds of the total number) are independent; that is, they are not employees or officers of, and have no financial interest in, ACC or any of its wholly-owned subsidiaries, including ACIM, ACIS, and ACSC. All persons named as officers of the funds also serve in similar capacities for other funds advised by ACIM. Only officers with policy-making functions are listed. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds. INDEPENDENT TRUSTEES - -------------------------------------------------------------------------------- ALBERT EISENSTAT (72) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: General Partner, Discovery Ventures (Venture capital firm, 1996 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Independent Director, Sungard Data Systems (1991 to present); Independent Director, Business Objects S/A (1994 to present) - -------------------------------------------------------------------------------- RONALD J. GILSON (56) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Mark and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present); Counsel, Marron, Reid & Sheehy (a San Francisco law firm, 1984 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- KATHRYN A. HALL (45) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Investment Officer, Offit Hall Capital Management, LLC (April 2002 to present); President and Managing Director, Laurel Management Company, L.L.C. (1996 to April 2002) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Princeton University Investment Company (1997 to present); Director, Stanford Management Company (2001 to present); Director, UCSF Foundation (2000 to present); Director, San Francisco Day School (1999 to present) - -------------------------------------------------------------------------------- MYRON S. SCHOLES (61) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 22 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Partner, Oak Hill Capital Management (1999 to present); Principal, Long-Term Capital Management (investment advisor, 1993 to January 1999); Frank E. Buck Professor of Finance, Stanford Graduate School of Business (1981 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Smith Breeden Family of Funds (1992 to present) - -------------------------------------------------------------------------------- (continued) ----- 21 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- KENNETH E. SCOTT (74) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 31 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Ralph M. Parsons Professor of Law and Business, Stanford Law School (1972 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, RCM Capital Funds, Inc. (1994 to present) - -------------------------------------------------------------------------------- JOHN B. SHOVEN (55) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1977 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to present); Director, Watson Wyatt Worldwide (2002 to present); Director, Palmsource Inc. (2002 to present) - -------------------------------------------------------------------------------- JEANNE D. WOHLERS (58) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 18 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Director and Partner, Windy Hill Productions, LP (educational software, 1994 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Indus International (software solutions, January 1999 to present); Director, Quintus Corporation (automation solutions, 1995 to present) - -------------------------------------------------------------------------------- INTERESTED TRUSTEE - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to present); President, ACIM (September 2002 to present); Chief Operating Officer, ACC (June 1996 to September 2000); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1989 to June 1998); Also serves as: Executive Vice President, ACIS, ACSC, and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ----- 22 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: See entry under "Interested Trustees." - -------------------------------------------------------------------------------- ROBERT T. JACKSON (57) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Executive Vice President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC (August 1997 to present); Chief Financial Officer, ACC (May 1995 to October 2002); President, ACSC (January 1999 to present); Executive Vice President, ACC (May 1995 to present); Also serves as: Executive Vice President and Chief Financial Officer, ACIM, ACIS, and other ACC subsidiaries - -------------------------------------------------------------------------------- MARYANNE ROEPKE, CPA (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Accounting Officer LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Assistant Treasurer, ACSC - -------------------------------------------------------------------------------- DAVID C. TUCKER (44) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present) - -------------------------------------------------------------------------------- ROBERT LEACH (36) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- C. JEAN WADE (39) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- JON ZINDEL (35) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Tax Officer LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC (April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries (April 1999 to present); President, American Century Employee Benefit Services, Inc. (January 2000 to December 2000); Treasurer, American Century Ventures, Inc. (December 1999 to January 2001) - -------------------------------------------------------------------------------- The SAI has additional information about the funds' trustees and is available without charge upon request by calling 1-800-345-2021. ----- 23 Share Class Information Four classes of shares are authorized for sale by the fund: Investor Class, A Class, B Class, and C Class. The total expense ratios of A, B, and C Class shares are higher than those of Investor Class shares. ON JANUARY 31, 2003, INVESTOR CLASS SHARES BECAME UNAVAILABLE TO NEW INVESTORS. INVESTOR CLASS shares are available for purchase BY EXISTING SHAREHOLDERS in two ways: 1) directly from American Century without any commissions or other fees; or 2) through a broker-dealer, which may require payment of a transaction fee to the broker. A CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as banks, broker-dealers, and insurance companies. A Class shares are sold at their offering price, which is net asset value plus an initial sales charge that ranges from 4.50% to 0.00% for fixed-income funds and 5.75% to 0.00% for equity funds, depending on the amount invested. The initial sales charge is deducted from the purchase amount before it is invested. A Class shares may be subject to a contingent deferred sales charge (CDSC). There is no CDSC on shares acquired through reinvestment of dividends or capital gains. The prospectus contains information regarding reductions and waivers of sales charges for A Class shares. A Class shares also are subject to a 0.25% annual Rule 12b-1 service and distribution fee. B CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as banks, broker-dealers, and insurance companies. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. There is no CDSC on shares acquired through reinvestment of dividends or capital gains. B Class shares also are subject to a 1.00% annual Rule 12b-1 service and distribution fee. B Class shares automatically convert to A Class shares (with lower expenses) eight years after their purchase date. C CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as banks, broker-dealers, and insurance companies. C Class shares redeemed within 12 months of purchase are subject to a CDSC of 1.00%. There is no CDSC on shares acquired through reinvestment of dividends or capital gains. C Class shares also are subject to a Rule 12b-1 service and distribution fee of 1.00% for stock funds and 0.75% for bond funds. All classes of shares represent a pro rata interest in the fund and generally have the same rights and preferences. - ----- 24 Retirement Account Information As required by law, any distributions you receive from an IRA or certain 403(b) and qualified plans [those not eligible for rollover to an IRA or to another qualified plan] are subject to federal income tax withholding, unless you elect not to have withholding apply. Tax will be withheld on the total amount withdrawn even though you may be receiving amounts that are not subject to withholding, such as nondeductible contributions. In such case, excess amounts of withholding could occur. You may adjust your withholding election so that a greater or lesser amount will be withheld. If you don't want us to withhold on this amount, you must notify us to not withhold the federal income tax. Even if you plan to roll over the amount you withdraw to another tax-deferred account, the withholding rate still applies to the withdrawn amount unless we have received notice not to withhold federal income tax prior to the withdrawal. You may notify us in writing or in certain situations by telephone or through other electronic means. You have the right to revoke your withholding election at any time and any election you make may remain in effect until revoked by filing a new election. Remember, even if you elect not to have income tax withheld, you are liable for paying income tax on the taxable portion of your withdrawal. If you elect not to have income tax withheld or you don't have enough income tax withheld, you may be responsible for payment of estimated tax. You may incur penalties under the estimated tax rules if your withholding and estimated tax payments are not sufficient. State tax will be withheld if, at the time of your distribution, your address is within one of the mandatory withholding states and you have federal income tax withheld. State taxes will be withheld from your distribution in accordance with the respective state rules. ----- 25 Index Definitions The following indices are used in the report to illustrate investment market, sector, or style performance or to serve as fund performance comparisons. They are not investment products available for purchase. The Lehman Brothers Municipal Bond Index is a market-value-weighted index designed for the long-term tax-exempt bond market. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. The 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. - ----- 26 Notes ----- 27 Notes - ----- 28 [inside back cover - blank] [back cover] CONTACT US WWW.AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR RELATIONS: 1-800-345-2021 or 816-531-5575 INVESTORS USING ADVISORS: 1-800-378-9878 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY MUNICIPAL TRUST INVESTMENT MANAGER: American Century Investment Management, Inc. Kansas City, Missouri THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. 0307 American Century Investment Services, Inc. SH-ANN-35035N (c)2003 American Century Services Corporation
[front cover] May 31, 2003 American Century Annual Report [photo] Florida Municipal Money Market Florida Municipal Bond [american century logo and text logo (reg.sm)] [inside front cover] Table of Contents Our Message to You ........................................................ 1 FLORIDA MUNICIPAL MONEY MARKET Performance ............................................................... 2 Portfolio Composition by Credit Rating ................................. 2 Portfolio Composition by Maturity ...................................... 2 Yields ................................................................. 2 Portfolio Commentary ...................................................... 3 Schedule of Investments ................................................... 4 FLORIDA MUNICIPAL BOND Performance ............................................................... 6 Portfolio Commentary ...................................................... 7 Yields ................................................................. 7 Portfolio Composition by Credit Rating ................................. 8 Top Five Sectors ....................................................... 8 Schedule of Investments ................................................... 9 FINANCIAL STATEMENTS Statement of Assets and Liabilities ....................................... 12 Statement of Operations ................................................... 13 Statement of Changes in Net Assets ........................................ 14 Notes to Financial Statements ............................................. 15 Financial Highlights ...................................................... 18 Report of Independent Auditors ............................................ 20 OTHER INFORMATION Management ................................................................ 21 Index Definition .......................................................... 24 Our Message to You [photo] James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the annual report for the American Century Florida Municipal Money Market and Florida Municipal Bond funds for the fiscal year ended May 31, 2003. The reports include comparative performance figures, commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Also, through our Web site, we provide quarterly commentaries on all American Century portfolios, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. Your next shareholder reports for these funds will be the semiannual reports dated November 30, 2003, available in approximately six months. As always, we deeply appreciate your investment with American Century. Sincerely, /*/James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /*/James E. Stowers III James E. Stowers III Co-Chairman of the Board ----- 1 Florida Municipal Money Market - Performance TOTAL RETURNS AS OF MAY 31, 2003 ------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS INCEPTION(1) DATE - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL MONEY MARKET 0.96% 2.49% 2.98% 4/11/94 - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S OTHER STATESTAX-EXEMPT MONEY MARKET FUNDS 0.77% 2.33% 2.77%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 10 of 41 8 of 32 2 of 18(2) -- - -------------------------------------------------------------------------------- (1) Fund returns and rankings would have been lower if management fees had not been waived from 4/11/94 to 12/31/96. Beginning on 1/1/97, management fees were phased in at a rate of 0.10% each month until 5/1/97. (2) Since 4/30/94, the date nearest the fund's inception for which data are available. (3) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- A-1+ 68% 82% - -------------------------------------------------------------------------------- A-1 32% 18% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. PORTFOLIO COMPOSITION BY MATURITY - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- 1-30 days 90% 88% - -------------------------------------------------------------------------------- 31-90 days -- 2% - -------------------------------------------------------------------------------- 91-180 days 4% 2% - -------------------------------------------------------------------------------- More than 180 days 6% 8% - -------------------------------------------------------------------------------- YIELDS AS OF MAY 31, 2003 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 0.83% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 0.83% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS* - -------------------------------------------------------------------------------- 25.0% Tax Bracket 1.11% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 1.15% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 1.24% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 1.28% - -------------------------------------------------------------------------------- *The tax brackets indicated are for federal taxes only. Past performance does not guarantee future results. Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Yields will fluctuate, and although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund. The 7-day current yield more closely reflects the current earnings of the fund than the total return. - ----- 2 Florida Municipal Money Market - Portfolio Commentary By Alan Kruss, portfolio manager PERFORMANCE SUMMARY During the fiscal year ended May 31, 2003, Florida Municipal Money Market posted a total return of 0.96%, outperforming the 0.77% average return of the 41 funds in Lipper Inc.'s "Other States Tax Exempt Money Market Funds" category (see the previous page for additional performance information). ECONOMIC & MARKET REVIEW U.S. economic growth was limited during the fiscal year, while inflation remained well under control. The Federal Reserve (the Fed) lowered its federal funds rate target in early November, trimming it from 1.75% to 1.25%. It was the Fed's 12th rate cut since the beginning of 2001. Municipal money market yields generally fell during the fiscal year, tracking the Fed's rate cut. For example, Florida Municipal Money Market's 7-day current yield fell from 1.14% on May 31, 2002, to 0.83% on May 31, 2003. PORTFOLIO STRATEGY We maintained a weighted portfolio average maturity of less than 30 days for much of the fiscal year, although we extended out to 35 days in early April. We also devoted a significant portion of the portfolio--more than 80%--to short-term variable-rate demand notes (known as "floaters" and referred to as VRDNs in the Schedule of Investments). Municipal floaters generally offered yields that were competitive with those of one-year municipal securities, and they offered the potential to capture higher yields quickly if interest rates were to rise. By the end of the fiscal year, floaters were offering higher yields than one-year notes. As a result, we increased Florida Municipal Money Market's holdings of floaters to about 95% of the portfolio by May 31, 2003. The fund also held an average of 15% in non-Florida municipal money market securities. The primary exception was December 31, 2002, when the portfolio held 100% Florida securities to meet the requirements for intangibles tax relief. SUBSEQUENT EVENT In June, the Fed cut its federal funds rate target by another 25 basis points (one quarter of a percentage point) to 1%. In its statement accompanying the rate cut, the Fed indicated that, while the "upside and downside risks" to the economy were roughly equal, "an unwelcome substantial fall in inflation" was more likely than rising inflation. As of June 30, 2003, Florida Municipal Money Market's seven-day current yield (which is net of the fund's 0.51% annual expense ratio) was 0.65%. With more than 60 basis points of yield remaining, even after the Fed's June rate cut, we expect to maintain a positive yield on Florida Municipal Money Market unless there are significant further rate reductions. Should that happen, American Century will examine all possible ways to maintain a fund yield that is competitive and positive, including the waiver of management fees. ----- 3 Florida Municipal Money Market - Schedule of Investments MAY 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 100.0% ALABAMA -- 3.1% - -------------------------------------------------------------------------------- $2,000,000 Anniston Industrial Development Board Rev., (Hunjan Moulded Products Ltd.), VRDN, 1.54%, 6/5/03 (LOC: AmSouth Bank) $ 2,000,000 - -------------------------------------------------------------------------------- CALIFORNIA -- 4.2% - -------------------------------------------------------------------------------- 2,736,450 San Bernardino County Housing Auth. Rev., Series 2002 C, VRDN, 1.21%, 6/2/03, Final Maturity 9/1/03 (XLCA) 2,736,450 - -------------------------------------------------------------------------------- COLORADO -- 4.6% - -------------------------------------------------------------------------------- 3,000,000 Thornton Rev., (Kroger Co.), VRDN, 1.34%, 6/5/03 (LOC: U.S. Bank N.A.) 3,000,000 - -------------------------------------------------------------------------------- FLORIDA -- 80.3% - -------------------------------------------------------------------------------- 5,300,000 Broward County Airport Exempt Facility Rev., (Various LearJet Inc. Projects), VRDN, 1.35%, 6/5/03 (LOC: Bank of America N.A.) 5,300,000 - -------------------------------------------------------------------------------- 1,400,000 Broward County Health Facilities Auth. Rev., (John Knox Village), VRDN, 1.35%, 6/2/03 (Radian Asset Assurance Inc.) (SBBPA: LaSalle Bank N.A.) 1,400,000 - -------------------------------------------------------------------------------- 1,005,000 Broward County Industrial Development Rev., (MDR Fitness Corp.), VRDN, 1.30%, 6/4/03 (LOC: SunTrust Bank) (Acquired 2/28/96-4/9/96, Cost $1,005,000)(1) 1,005,000 - -------------------------------------------------------------------------------- 1,635,000 Broward County Industrial Development Rev., VRDN, 1.30%, 6/4/03 (LOC: SunTrust Bank) (Acquired 6/28/01, Cost $1,635,000)(1) 1,635,000 - -------------------------------------------------------------------------------- 1,400,000 Coral Springs Industrial Development Rev., (Royal Plastics Group), VRDN, 1.30%, 6/4/03 (LOC: SunTrust Bank) (Acquired 1/31/01, Cost $1,400,000)(1) 1,400,000 - -------------------------------------------------------------------------------- 7,300,000 Florida Housing Finance Agency Multifamily Rev., (Country Club), VRDN, 1.34%, 6/5/03 (LOC: Freddie Mac) 7,300,000 - -------------------------------------------------------------------------------- 3,750,000 Florida Housing Finance Agency Multifamily Rev., (Woodlands), VRDN, 1.30%, 6/4/03 (LOC: Northern Trust Company) 3,750,000 - -------------------------------------------------------------------------------- 2,120,000 Florida Housing Finance Agency Trust Receipts, VRDN, 1.40%, 6/4/03 (LOC: Bank of New York) (MBIA) (Acquired 1/23/01- 6/26/01, Cost $2,120,000)(1) 2,120,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,500,000 Florida Housing Finance Corporation Rev., Series 2002-1, (Tuscany Lakes), VRDN, 1.34%, 6/5/03 (LOC: FNMA) $ 1,500,000 - -------------------------------------------------------------------------------- 6,365,000 Florida Housing Finance Corporation Rev., VRDN, 1.39%, 6/5/03 (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 12/21/01-2/4/03, Cost $6,365,000)(1) 6,365,000 - -------------------------------------------------------------------------------- 1,500,000 Hillsborough County Aviation Auth. Rev., VRDN, 1.32%, 6/5/03 (MBIA) (SBBPA: Svenska Handelsbanken AB) (Acquired 2/20/03, Cost $1,500,000)(1) 1,500,000 - -------------------------------------------------------------------------------- 1,350,000 Hillsborough County Housing Finance Auth. Multifamily Rev., (Royal Palm Key Apartments), VRDN, 1.27%, 6/4/03 (FNMA) 1,350,000 - -------------------------------------------------------------------------------- 1,900,000 Hillsborough County Industrial Development Auth. Rev., (Seaboard Tampa), VRDN, 1.35%, 6/4/03 (LOC: First Union National Bank) 1,900,000 - -------------------------------------------------------------------------------- 500,000 Indian River County Industrial Development Rev., (Florida Convention Centers), VRDN, 1.40%, 6/2/03 (LOC: Wells Fargo Bank Minnesota, N.A.) 500,000 - -------------------------------------------------------------------------------- 4,300,000 Miami Health Facilities Auth. Rev., VRDN, 1.34%, 6/5/03 (SBBPA: Westdeutsche Landesbank AG) (Acquired 8/22/02-11/7/02, Cost $4,300,000)(1) 4,300,000 - -------------------------------------------------------------------------------- 2,400,000 Miami-Dade County Industrial Development Auth. Rev., (Dutton Press Inc.), VRDN, 1.30%, 6/4/03 (LOC: SunTrust Bank) (Acquired 12/27/00-4/11/01, Cost $2,400,000)(1) 2,400,000 - -------------------------------------------------------------------------------- 2,150,000 Orange County Housing Finance Auth. Multifamily Guaranteed Mortgage Rev., Series 1989 A, (Sundown Association II), VRDN, 1.30%, 6/4/03 (LOC: Northern Trust Co.) 2,150,000 - -------------------------------------------------------------------------------- 2,000,000 Palm Beach County Airport Rev., Series 2000 A, (Galaxy Aviation), VRDN, 1.30%, 6/4/03 (LOC: SunTrust Bank) 2,000,000 - -------------------------------------------------------------------------------- 300,000 Palm Beach County Rev., (Convalescent Centers), VRDN, 1.40%, 6/4/03 (LOC: Wells Fargo N.A.) 300,000 - -------------------------------------------------------------------------------- 2,100,000 Pinellas County Industrial Council Development Rev., (Hunter Douglas Inc.), VRDN, 1.30%, 6/4/03 (LOC: ABN Amro Bank N.V.) (Acquired 3/17/97, Cost $2,100,000)(1) 2,100,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 4 Florida Municipal Money Market - Schedule of Investments MAY 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $ 500,000 Sarasota County Public Hospital Board Rev., Series 2003 A, (Sarasota Memorial Hospital), VRDN, 1.45%, 6/2/03 (AMBAC) $ 500,000 - -------------------------------------------------------------------------------- 1,000,000 Seminole County Industrial Development Auth. Rev., VRDN, 1.39%, 6/5/03 (LOC: Bank of America N.A.) 1,000,000 - -------------------------------------------------------------------------------- 51,775,000 - -------------------------------------------------------------------------------- NEW YORK -- 2.3% - -------------------------------------------------------------------------------- 1,500,000 New York State Thruway Auth. Rev., Series 2003 A, 1.125%, 3/25/04 1,500,306 - -------------------------------------------------------------------------------- TENNESSEE -- 2.4% - -------------------------------------------------------------------------------- 700,000 Cookeville Industrial Development Board Rev., Series 2001 A, (Advocacy & Resources Project), VRDN, 1.44%, 6/5/03 (LOC: AmSouth Bank) 700,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 850,000 Knox County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.34%, 6/5/03 (LOC: U.S. Bank Trust N.A.) $ 850,000 - -------------------------------------------------------------------------------- 1,550,000 - -------------------------------------------------------------------------------- TEXAS -- 3.1% - -------------------------------------------------------------------------------- 2,000,000 Pasadena Independent School District GO, Series 2000 A, 1.35%, 4/1/04 (PSF) (SBBPA: Westdeutsche Landesbank AG) 2,000,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% $64,561,756 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation FNMA = Federal National Mortgage Association GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. PSF = Permanent School Fund SBBPA = Standby Bond Purchase Agreement XLCA = XL Capital Assurance Corp. VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. If final maturity is indicated, then final maturity is used to calculate the weighted average portfolio maturity. Rate shown is effective May 31, 2003. (1) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at May 31, 2003, was $22,825,000, which represented 35.6% of net assets. None of these securities are considered to be illiquid. See Notes to Financial Statements. ----- 5 Florida Municipal Bond - Performance TOTAL RETURNS AS OF MAY 31, 2003 ------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS INCEPTION** DATE - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL BOND 9.90% 6.29% 6.54% 4/11/94 - -------------------------------------------------------------------------------- LEHMAN MUNICIPAL 5-YEAR GO INDEX 8.72% 6.10% 6.19%(1) -- - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S FLORIDA INTERMEDIATE MUNICIPAL DEBT FUNDS 8.28% 5.12% 5.39%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 1 of 16 1 of 15 1 of 10(2) -- - -------------------------------------------------------------------------------- (1) Since 3/31/94, the date nearest the fund's inception for which data are available. (2) Since 4/14/94, the date nearest the fund's inception for which data are available. (3) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated.
GROWTH OF $10,000 OVER LIFE OF FUND
$10,000 investment made April 11, 1994*
![](https://capedge.com/proxy/N-CSR/0000746458-03-000016/growthflmuni0503.gif)
ONE-YEAR RETURNS OVER LIFE OF FUND Periods ended May 31 - ------------------------------------------------------------------------------------------------------------------ 1994* 1995 1996 1997 1998 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------ Florida Municipal Bond** 1.79% 7.31% 4.34% 6.63% 8.20% 4.71% 0.49% 10.70% 5.98% 9.90% - ------------------------------------------------------------------------------------------------------------------ Lehman Municipal 5-Year GO Index 1.58% 6.89% 4.74% 6.08% 6.95% 4.90% 0.65% 10.17% 6.33% 8.72% - ------------------------------------------------------------------------------------------------------------------ * From 4/11/94, the fund's inception date. Index data from 3/31/94, the date nearest the fund's inception for which data are available. Not annualized. **Fund returns and rankings would have been lower if management fees had not been waived from 4/11/94 to 12/31/95. Beginning on 1/1/96, management fees were phased in at a rate of 0.10% each month until 7/1/96. The charts on the performance page give historical return data for the fund. Returns for the index are provided for comparison. The fund's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Past performance does not guarantee future results. None of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. - ----- 6 Florida Municipal Bond - Portfolio Commentary By Kenneth Salinger, portfolio manager PERFORMANCE SUMMARY For the 12 months ended May 31, 2003, Florida Municipal Bond performed extremely well compared with its Lipper peers and the Lehman Brothers Municipal 5-Year General Obligation Index. Florida Municipal Bond's 9.90% total return outpaced the 8.28% average return of the 16 Florida Intermediate Municipal Debt Funds tracked by Lipper Inc. The fund ranked first among its peer group based on those performances. By comparison, the Lehman Brothers Municipal 5-Year General Obligation Index returned 8.72% for the year ended May 31, 2003. (See the previous page for details.) Florida Municipal Bond's five-year performance was equally impressive, earning the fund a top-place finish based on the total returns of the 15 funds tracked by Lipper for that period. ECONOMIC & MARKET BACKDROP U.S. economic growth remained limited during the fiscal year. Real gross domestic product (GDP) moved forward at a mere 1.4% seasonally adjusted annual rate during the final quarter of 2002. That marked a sharp deceleration from the 4.0% pace that the economy achieved during 2002's third quarter and was little improvement over the 1.3% second-quarter pace. That backdrop, geopolitical uncertainties, and other factors led the Federal Reserve (the Fed) to reduce its target for the federal funds rate (generally considered the Fed's benchmark short-term interest rate) by 50 basis points (0.50%) to 1.25% in early November. But the U.S. economy remained resistant to a quicker pace of growth, pushing ahead at a 1.4% rate during 2003's first quarter. Mounting tensions between the U.S. and Iraq led to a short-lived war early this year that fanned the flames of uncertainty and clouded the economic outlook. The labor market faced its share of problems as well, with the nation's unemployment rate rising to 6.1% in May, up from a 5.8% average during 2003's first quarter. On the bright side, inflation remained well under control: as gauged by the consumer price index for all urban consumers, inflation rose 2.1% during the year ended May 31. By the end of the 12 months, although there were some signs of increased economic activity in April and May, conditions were generally sluggish, while consumer spending was lackluster overall, and manufacturing activity remained mixed. Municipal bonds fared well in that environment, particularly during the last six months, with the longer maturities generally posting the biggest gains. YIELDS AS OF MAY 31, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 2.29% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 25.0% Tax Bracket 3.05% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 3.18% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 3.42% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 3.52% - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE (ADR) - -------------------------------------------------------------------------------- 4.24% - -------------------------------------------------------------------------------- *The tax brackets indicated are for federal taxes only. (continued) ----- 7 Florida Municipal Bond - Portfolio Commentary PORTFOLIO STRATEGIES We decreased Florida Municipal Bond's interest rate sensitivity during the last six months, reducing its duration (a measurement of bond price sensitivity to interest rate changes) from 4.9 years at the end of November 2002, to 4.6 years at the end of May. The portfolio's concentration in bonds rated AAA and AA remained largely unchanged over the last six months. Such securities represented approximately 87% of the portfolio six months ago. Although we subsequently picked up some bonds with A or lower ratings, AAA and AA securities still comprised roughly 85% of the portfolio as of the end of the period. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- AAA 84% 85% - -------------------------------------------------------------------------------- AA 1% 2% - -------------------------------------------------------------------------------- A 6% 5% - -------------------------------------------------------------------------------- BBB 9% 8% - -------------------------------------------------------------------------------- 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 MAY 31, 2003 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- GO 17% - -------------------------------------------------------------------------------- COPs/Leases 15% - -------------------------------------------------------------------------------- Water & Sewer Revenue 14% - -------------------------------------------------------------------------------- Transportation Revenue 10% - -------------------------------------------------------------------------------- Hospital Revenue 6% - -------------------------------------------------------------------------------- From a sector standpoint, general obligation bonds represented the portfolio's biggest allotment at the end of May. Next in line were certificates of participation, followed by water and sewer revenue and transportation revenue bonds. In addition, we modified the portfolio's bond maturity structure. One of the biggest shifts over the last six months was an increase in the portfolio's holdings of bonds with durations of six years or less. At the end of November, those securities represented approximately 58% of holdings, but rose to nearly 65% by the end of May. At the same time, bonds with six- to nine-year durations declined from nearly 37% of the portfolio to just more than 30%. - ----- 8 Florida Municipal Bond - Schedule of Investments MAY 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 94.7% FLORIDA -- 89.7% - -------------------------------------------------------------------------------- $2,110,000 Broward County Airport Systems Rev., (Passenger Facility), (Conventional Lien H-1), 5.25%, 10/1/12 (AMBAC) $ 2,341,656 - -------------------------------------------------------------------------------- 500,000 Broward County School Board COP, Series 2002 B, 5.375%, 7/1/13 (FSA) 578,085 - -------------------------------------------------------------------------------- 1,475,000 Collier County School Board COP, 5.50%, 2/15/12 (FSA) 1,752,330 - -------------------------------------------------------------------------------- 960,000 Crossings at Fleming Island Community Development District Special Assessment Rev., Series 2000 B, 5.20%, 5/1/04 (MBIA) 996,547 - -------------------------------------------------------------------------------- 715,000 Crossings at Fleming Island Community Development District Special Assessment Rev., Series 2000 B, 5.25%, 5/1/05 (MBIA) 769,662 - -------------------------------------------------------------------------------- 250,000 Dade County Aviation Rev., Series 1995 E, 5.50%, 10/1/10 (AMBAC) 277,080 - -------------------------------------------------------------------------------- 525,000 Delray Beach Rev., 3.00%, 6/1/04 (FSA) 535,385 - -------------------------------------------------------------------------------- 1,150,000 Duval County School Board COP, 5.75%, 7/1/16 (FSA) 1,329,538 - -------------------------------------------------------------------------------- 160,000 Escambia County Housing Finance Auth. Single Family Mortgage Rev., Series 1998 A, (Multi-County Program), 4.80%, 4/1/06 (GNMA/FNMA) 172,104 - -------------------------------------------------------------------------------- 245,000 Escambia County Housing Finance Auth. Single Family Mortgage Rev., Series 1998 A, (Multi-County Program), 4.85%, 4/1/07 (GNMA/FNMA) 266,114 - -------------------------------------------------------------------------------- 1,050,000 Florida Board of Education Capital Outlay GO, Series 1995 C, 5.50%, 6/1/12 (MBIA) 1,139,261 - -------------------------------------------------------------------------------- 2,320,000 Florida Division of Bond Finance Rev., Series 1998 B, (Environmental Protection - Preservation), 5.25%, 7/1/10 (FSA)(1) 2,670,969 - -------------------------------------------------------------------------------- 450,000 Florida Housing Finance Agency Rev., Series 1995 E, (Williamsburg Village Apartments), 5.60%, 12/1/07 (AMBAC) 487,044 - -------------------------------------------------------------------------------- 1,075,000 Florida Housing Finance Corp. Rev., Series 1999-2, (Homeowner Mortgage), 4.60%, 1/1/21 (FSA) 1,093,770 - -------------------------------------------------------------------------------- 1,165,000 Florida Keys Aqueduct Auth. Rev., 5.00%, 9/1/20 (MBIA)(2) 1,279,100 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,280,000 Florida Municipal Loan Council Rev., Series 2002 C, 4.00%, 11/1/11 (MBIA) $ 1,381,517 - -------------------------------------------------------------------------------- 1,325,000 Florida Municipal Loan Council Rev., Series 2002 C, 4.00%, 11/1/12 (MBIA) 1,428,257 - -------------------------------------------------------------------------------- 1,895,000 Florida Municipal Loan Council Rev., Series 2002 C, 5.25%, 11/1/21 (MBIA) 2,108,964 - -------------------------------------------------------------------------------- 1,000,000 Florida Turnpike Auth. Rev., Series 1993 A, (Department of Transportation), 5.00%, 7/1/03, Prerefunded at 101% of Par (FGIC)(3) 1,013,400 - -------------------------------------------------------------------------------- 350,000 Gainesville Utilities System Rev., Series 1996 A, 5.75%, 10/1/09 418,184 - -------------------------------------------------------------------------------- 675,000 Greater Orlando Aviation Auth. Rev., Series 1999 A, 5.25%, 10/1/09 (FGIC) 763,054 - -------------------------------------------------------------------------------- 400,000 Hillsborough County Port District Special Rev., 6.50%, 6/1/04 (FSA) 420,208 - -------------------------------------------------------------------------------- 1,715,000 Hillsborough County School Board Sales Tax Rev., 4.00%, 10/1/03 (AMBAC) 1,732,167 - -------------------------------------------------------------------------------- 1,235,000 Indian River County Rev., (Spring Training Facility), 5.25%, 4/1/15 (FGIC) 1,406,381 - -------------------------------------------------------------------------------- 295,000 Julington Creek Plantation Community Development District Assessment Rev., 2.75%, 5/1/06 (MBIA) 306,163 - -------------------------------------------------------------------------------- 295,000 Julington Creek Plantation Community Development District Assessment Rev., 3.10%, 5/1/07 (MBIA) 308,741 - -------------------------------------------------------------------------------- 310,000 Julington Creek Plantation Community Development District Assessment Rev., 3.40%, 5/1/08 (MBIA) 327,875 - -------------------------------------------------------------------------------- 330,000 Julington Creek Plantation Community Development District Assessment Rev., 3.65%, 5/1/09 (MBIA) 352,480 - -------------------------------------------------------------------------------- 350,000 Julington Creek Plantation Community Development District Assessment Rev., 3.85%, 5/1/10 (MBIA) 375,358 - -------------------------------------------------------------------------------- 625,000 Julington Creek Plantation Community Development District Assessment Rev., 4.00%, 5/1/11 (MBIA) 671,263 - -------------------------------------------------------------------------------- 850,000 Lee County Industrial Development Health Care Facilities Auth. Rev., Series 1999 A, (Shell Point Village), 5.50%, 11/15/09 921,417 - -------------------------------------------------------------------------------- 1,290,000 Lee County Transportation Facilities Rev., Series 2001 A, 4.80%, 10/1/12 (AMBAC) 1,458,061 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 9 Florida Municipal Bond - Schedule of Investments MAY 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 3.35%, 11/15/04 $ 1,014,530 - -------------------------------------------------------------------------------- 1,325,000 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 4.25%, 11/15/07 1,391,250 - -------------------------------------------------------------------------------- 1,000,000 Miami Beach Stormwater Rev., 5.75%, 9/1/17 (FGIC) 1,176,960 - -------------------------------------------------------------------------------- 1,910,000 Miami Beach Water & Sewer Rev., 5.625%, 9/1/16 (AMBAC) 2,227,346 - -------------------------------------------------------------------------------- 650,000 Miami Parking Facilities Rev., 5.25%, 10/1/15 (MBIA) 772,116 - -------------------------------------------------------------------------------- 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/16 (FSA) 1,150,880 - -------------------------------------------------------------------------------- 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/17 (FSA) 1,147,440 - -------------------------------------------------------------------------------- 160,000 Orange County Health Facilities Auth. Rev., Series 1996 A, (Orlando Regional Healthcare), 6.00%, 10/1/04 (MBIA) 170,378 - -------------------------------------------------------------------------------- 390,000 Orange County Health Facilities Auth. Rev., Series 1996 A, (Orlando Regional Healthcare), 6.00%, 10/1/04 (MBIA)(3) 415,459 - -------------------------------------------------------------------------------- 1,875,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/19 (MBIA) 2,147,080 - -------------------------------------------------------------------------------- 450,000 Orlando and Orange County Expressway Auth. Rev., 6.50%, 7/1/11 (FGIC) 567,122 - -------------------------------------------------------------------------------- 1,000,000 Orlando and Orange County Expressway Auth. Rev., Linked Inverse Floater, 5.10%, 7/1/03, Prerefunded at 102% of Par (FGIC)(3) 1,023,270 - -------------------------------------------------------------------------------- 500,000 Orlando Utilities Commission Water & Electric Rev., 5.70%, 10/1/04 530,655 - -------------------------------------------------------------------------------- 1,300,000 Orlando Utilities Commission Water & Electric Rev., Series 1993 B, 5.25%, 10/1/03, Prerefunded at 101% of Par (MBIA-IBC)(3) 1,331,408 - -------------------------------------------------------------------------------- 1,000,000 Palm Beach County Airport Systems Rev., 4.00%, 10/1/06 (MBIA) 1,081,890 - -------------------------------------------------------------------------------- 1,000,000 Palm Beach County School Board COP, Series 2002 A, 5.375%, 8/1/17 (FSA) 1,145,510 - -------------------------------------------------------------------------------- 2,000,000 Pasco County Solid Waste Disposal & Resource Recovery System Rev., 6.00%, 4/1/10 (AMBAC) 2,331,280 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 500,000 Pensacola Airport Rev., Series 1997 B, 5.40%, 10/1/07 (MBIA) $ 563,495 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.45%, 12/1/04 310,275 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.55%, 12/1/05 316,551 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.70%, 12/1/07 321,894 - -------------------------------------------------------------------------------- 1,000,000 Polk County Housing Finance Auth. Multifamily Housing Rev., Series 1997 A, (Winter Oaks Apartments), 5.25%, 7/1/07 (FNMA) 1,071,280 - -------------------------------------------------------------------------------- 705,000 Punta Gorda Rev., (Utility Systems), 3.00%, 1/1/04 (AMBAC) 713,192 - -------------------------------------------------------------------------------- 1,595,000 Seminole County GO, 5.375%, 10/1/17 (FGIC) 1,823,340 - -------------------------------------------------------------------------------- 1,015,000 St. Lucie County Public Improvement Rev., Series 2000 A, (800 MHZ Radio System), 5.50%, 4/1/10 (MBIA) 1,193,914 - -------------------------------------------------------------------------------- 1,000,000 Sumter County School Board COP, 5.50%, 1/1/21 (MBIA) 1,131,610 - -------------------------------------------------------------------------------- 1,000,000 Sunrise Utility System Rev., 5.20%, 10/1/22 (AMBAC) 1,121,220 - -------------------------------------------------------------------------------- 1,000,000 Tampa Bay Water Utility System Rev., Series 1998 B, 5.125%, 10/1/15 (FGIC) 1,122,130 - -------------------------------------------------------------------------------- 400,000 Tampa Guaranteed Entitlement Rev., 6.00%, 10/1/18 (AMBAC) 493,832 - -------------------------------------------------------------------------------- 1,000,000 Tampa Water & Sewer Rev., 6.00%, 10/1/17 (FSA) 1,271,410 - -------------------------------------------------------------------------------- 910,000 Village Center Community Development District Recreational Rev., Series 2001 A, 3.75%, 11/1/05 (MBIA) 964,063 - -------------------------------------------------------------------------------- 63,124,915 - -------------------------------------------------------------------------------- PUERTO RICO -- 1.6% - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.50%, 7/1/10 (Commonwealth Guaranteed) 1,149,200 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 3.4% - -------------------------------------------------------------------------------- 2,385,000 Virgin Islands Public Finance Auth. Rev., Series 1999 A, 5.00%, 10/1/03 2,412,308 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $61,789,576) 66,686,423 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ----- 10 Florida Municipal Bond - Schedule of Investments MAY 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 5.3% FLORIDA -- 5.3% - -------------------------------------------------------------------------------- $1,000,000 Pinellas County Health Facilities Auth. Rev., (Pooled Hospital Loan Program), VRDN, 1.35%, 6/2/03 (AMBAC) (SBBPA: SunTrust Bank) $ 1,000,000 - -------------------------------------------------------------------------------- 2,700,000 Sarasota County Public Hospital Board Rev., Series 2003 A, (Sarasota Memorial Hospital), VRDN, 1.45%, 6/2/03 (AMBAC) 2,700,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $3,700,000) 3,700,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $65,489,576) $70,386,423 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FNMA = Federal National Mortgage Association FSA = Financial Security Assurance Inc. GNMA = Government National Mortgage Association GO = General Obligation MBIA = MBIA Insurance Corp. MBIA-IBC = MBIA Insured Bond Certificates SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective May 31, 2003. (1) Security, or a portion thereof, has been segregated for a when-issued security. (2) When-issued security. (3) Escrowed to maturity in U.S. government securities or state and local government securities. See Notes to Financial Statements. ----- 11 Statement of Assets and Liabilities MAY 31, 2003 - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL FLORIDA MONEY MARKET MUNICIPAL BOND - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $64,561,756 and $65,489,576) $ 64,561,756 $70,386,423 --------------------------------------------- Receivable for investments sold -- 1,245,084 --------------------------------------------- Receivable for capital shares sold -- 9,260 --------------------------------------------- Interest receivable 110,361 687,881 --------------------------------------------- Prepaid portfolio insurance 4,970 -- - -------------------------------------------------------------------------------- 64,677,087 72,328,648 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 491,697 885,788 --------------------------------------------- Payable for investments purchased -- 1,271,737 --------------------------------------------- Accrued management fees 26,856 29,393 --------------------------------------------- Dividends payable 2,420 64,219 ------------------------------------------------------------------------------- 520,973 2,251,137 - -------------------------------------------------------------------------------- NET ASSETS $ 64,156,114 $70,077,511 ================================================================================ CAPITAL SHARES - -------------------------------------------------------------------------------- Outstanding (unlimited number of shares authorized) 64,205,536 6,208,406 ================================================================================ NET ASSET VALUE PER SHARE $ 1.00 $ 11.29 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $ 64,205,125 $64,942,010 --------------------------------------------- Accumulated undistributed net realized gain (loss) on investment transactions (49,011) 238,654 --------------------------------------------- Net unrealized appreciation on investments -- 4,896,847 - -------------------------------------------------------------------------------- $ 64,156,114 $70,077,511 ================================================================================ See Notes to Financial Statements. - ----- 12 Statement of Operations YEAR ENDED MAY 31, 2003 - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL FLORIDA MONEY MARKET MUNICIPAL BOND - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: --------------------------------------------- Interest $ 930,936 $2,759,637 - -------------------------------------------------------------------------------- EXPENSES: --------------------------------------------- Management fees 314,527 321,620 --------------------------------------------- Trustees' fees and expenses 3,493 3,465 --------------------------------------------- Portfolio insurance and other expenses 8,660 1,480 - -------------------------------------------------------------------------------- 326,680 326,565 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 604,256 2,433,072 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------- Net realized gain (loss) on investment transactions (6,307) 462,181 --------------------------------------------- Change in net unrealized appreciation on investments -- 3,132,967 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (6,307) 3,595,148 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 597,949 $6,028,220 ================================================================================ See Notes to Financial Statements. ----- 13 Statement of Changes in Net Assets YEARS ENDED MAY 31, 2003 AND MAY 31, 2002 - ---------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FLORIDA MUNICIPAL MONEY MARKET FLORIDA MUNICIPAL BOND - ---------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 - ---------------------------------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------------------------------- Net investment income $604,256 $1,191,613 $2,433,072 $2,131,286 - ---------------------------------- Net realized gain (loss) (6,307) (3,238) 462,181 467,557 - ---------------------------------- Change in net unrealized appreciation -- -- 3,132,967 598,806 - ---------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 597,949 1,188,375 6,028,220 3,197,649 - ---------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------------------------------- From net investment income (604,881) (1,191,613) (2,433,072) (2,131,435) - ---------------------------------- From net realized gains -- -- (379,812) (618,292) - ---------------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (604,881) (1,191,613) (2,812,884) (2,749,727) - ---------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ---------------------------------------------------------------------------------------------------------- Proceeds from shares sold 51,256,232 68,733,157 37,203,985 17,402,910 - ---------------------------------- Proceeds from reinvestment of distributions 572,270 1,142,498 2,002,779 1,902,532 - ---------------------------------- Payments for shares redeemed (53,789,721) (79,101,512) (26,909,961) (19,047,504) - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (1,961,219) (9,225,857) 12,296,803 257,938 - ---------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (1,968,151) (9,229,095) 15,512,139 705,860 NET ASSETS - ---------------------------------------------------------------------------------------------------------- Beginning of period 66,124,265 75,353,360 54,565,372 53,859,512 - ---------------------------------------------------------------------------------------------------------- End of period $64,156,114 $66,124,265 $70,077,511 $54,565,372 ========================================================================================================== Undistributed net investment income -- $625 -- -- ========================================================================================================== TRANSACTIONS IN SHARES OF THE FUND - ---------------------------------------------------------------------------------------------------------- Sold 51,256,232 68,733,157 3,399,806 1,627,997 - ------------------------------------ Issued in reinvestment of distributions 572,270 1,142,498 182,002 177,920 - ------------------------------------ Redeemed (53,789,721) (79,101,512) (2,457,953) (1,771,474) - ---------------------------------------------------------------------------------------------------------- Net increase (decrease) in shares of the fund (1,961,219) (9,225,857) 1,123,855 34,443 ========================================================================================================== See Notes to Financial Statements. - ----- 14 Notes to Financial Statements MAY 31, 2003 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Municipal Trust (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. Florida Municipal Money Market Fund (Municipal Money Market) and Florida Municipal Bond Fund (Municipal Bond) (collectively, the funds) are two funds in a series issued by the trust. The funds are non-diversified under the 1940 Act. The funds' investment objective is to seek safety of principal and high current income that is exempt from federal income tax and taxes imposed by the state of Florida. The funds invest primarily in Florida municipal obligations. The funds concentrate their investments in a single state and therefore may have more exposure to credit risk related to the state of Florida than a fund with a broader geographical diversification. The following is a summary of the funds' significant accounting policies. SECURITY VALUATIONS -- Securities of Municipal Money Market are valued at amortized cost, which approximates current market value. Securities of Municipal Bond are valued at current market value as provided by a commercial pricing service or at the mean of the most recent bid and asked prices. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds may engage in securities transactions on a when-issued or forward commitment basis. Under these arrangements, the securities' prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The funds will segregate cash, cash equivalents or other appropriate liquid securities on their records in amounts sufficient to meet the purchase price. INCOME TAX STATUS -- It is the funds' policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. 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. Municipal Money Market does not expect to realize any long-term capital gains, and accordingly, does not expect to pay any capital gains distributions. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those 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), under which ACIM provides the funds with investment advisory and management services in exchange for a single, unified management fee. The Agreement provides that all expenses of the funds, except brokerage commissions, taxes, portfolio insurance, interest, fees and expenses of those trustees who are not considered "interested persons" as defined in the 1940 Act (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid monthly in arrears. It consists of an Investment Category Fee based on the average net assets of the funds in a specific fund's investment category and a Complex Fee based on the average net assets of all the funds managed by ACIM. The rates for the Investment Category Fee range from 0.1570% to 0.2700% for Municipal Money Market and from 0.1625% to 0.2800% for Municipal Bond. The rates for the Complex Fee range from 0.2900% to 0.3100%. For the year ended May 31, 2003, the effective annual management fee for Municipal Money Market and Municipal Bond was 0.49% and 0.50%, respectively. (continued) ----- 15 Notes to Financial Statements MAY 31, 2003 - -------------------------------------------------------------------------------- 2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) MONEY MARKET INSURANCE -- Municipal Money Market, along with other money market funds managed by ACIM, has entered into an insurance agreement with MBIA Insurance Corporation (MBIA). MBIA provides limited coverage for certain loss events including issuer defaults as to payment of principal and interest and insolvency of a credit enhancement provider. Municipal Money Market pays annual premiums to MBIA, which are amortized daily over one year. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust 's investment manager, ACIM, the distributor of the trust, American Century Investment Services, Inc., and the trust 's transfer agent, American Century Services Corporation. Municipal Bond has a bank line of credit agreement with J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities for Municipal Bond, excluding short-term investments, for the year ended May 31, 2003, were $39,062,988 and $27,773,867, respectively. All investment transactions for Municipal Money Market were short-term during the year ended May 31, 2003. - -------------------------------------------------------------------------------- 4. BANK LINE OF CREDIT Municipal Bond, along with certain other funds managed by ACIM, has a $620,000,000 unsecured bank line of credit agreement with JPM, which was renewed from $650,000,000 effective December 17, 2002. The funds 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%. Municipal Bond did not borrow from the line during the year ended May 31, 2003. - -------------------------------------------------------------------------------- 5. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended May 31, 2003 and May 31, 2002 were as follows: - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL MONEY MARKET FLORIDA MUNICIPAL BOND - -------------------------------------------------------------------------------- 2003 2002 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $604,881 $1,191,613 $2,810,518 $2,694,515 - -------------------------------------------------------------------------------- Long-term capital gain -- -- $2,366 $55,212 - -------------------------------------------------------------------------------- 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. (continued) - ----- 16 Notes to Financial Statements MAY 31, 2003 - -------------------------------------------------------------------------------- 5. FEDERAL TAX INFORMATION (CONTINUED) As of May 31, 2003, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL FLORIDA MONEY MARKET MUNICIPAL BOND - -------------------------------------------------------------------------------- COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST - -------------------------------------------------------------------------------- Federal tax cost of investments $64,561,756 $65,489,576 ================================================================================ Gross tax appreciation of investments -- $4,896,847 - ---------------------------------------------- Gross tax depreciation of investments -- -- - -------------------------------------------------------------------------------- Net tax appreciation (depreciation) of investments -- $4,896,847 ================================================================================ Undistributed taxable ordinary income -- $235,088 - ---------------------------------------------- Undistributed tax-exempt ordinary income -- -- - ---------------------------------------------- Accumulated long-term gains -- $3,566 - ---------------------------------------------- Accumulated capital losses $(41,552) -- - ---------------------------------------------- Capital loss deferral $(7,459) -- - -------------------------------------------------------------------------------- The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire in 2008 through 2010 for Municipal Money Market. The capital loss deferrals represent net capital losses incurred in the seven-month period ended May 31, 2003. The funds have elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. - -------------------------------------------------------------------------------- 6. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The funds designate exempt interest and capital gain dividends for the fiscal year ended May 31, 2003, as follows: - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL FLORIDA MONEY MARKET MUNICIPAL BOND - -------------------------------------------------------------------------------- Exempt interest dividends $604,881 $2,432,938 - -------------------------------------------------------------------------------- Long-term capital gain -- $2,366 - -------------------------------------------------------------------------------- ----- 17 Florida Municipal Money Market - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 - --------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------- Net Investment Income 0.01 0.02 0.04 0.03 0.03 - --------------------------------------------------------------------------------------------------------- Distributions - ----------------------------------- From Net Investment Income (0.01) (0.02) (0.04) (0.03) (0.03) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 ========================================================================================================= TOTAL RETURN(1) 0.96% 1.59% 3.72% 3.30% 2.92% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.50% 0.50% 0.50% - ----------------------------------- Ratio of Net Investment Income to Average Net Assets 0.95% 1.58% 3.67% 3.26% 2.88% - ----------------------------------- Net Assets, End of Period (in thousands) $64,156 $66,124 $75,353 $84,902 $87,509 - --------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. - ----- 18 Florida Municipal Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 - --------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.73 $10.67 $10.08 $10.50 $10.56 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------- Net Investment Income 0.42 0.44 0.47 0.45 0.44 - ----------------------------------- Net Realized and Unrealized Gain (Loss) 0.62 0.19 0.59 (0.41) 0.05 - --------------------------------------------------------------------------------------------------------- Total From Investment Operations 1.04 0.63 1.06 0.04 0.49 - --------------------------------------------------------------------------------------------------------- Distributions - ----------------------------------- From Net Investment Income (0.42) (0.44) (0.47) (0.45) (0.44) - ----------------------------------- From Net Realized Gains (0.06) (0.13) -- (0.01) (0.11) - --------------------------------------------------------------------------------------------------------- Total Distributions (0.48) (0.57) (0.47) (0.46) (0.55) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $11.29 $10.73 $10.67 $10.08 $10.50 ========================================================================================================= TOTAL RETURN(1) 9.90% 5.98% 10.70% 0.49% 4.71% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.51% 0.51% 0.51% - ----------------------------------- Ratio of Net Investment Income to Average Net Assets 3.78% 4.03% 4.49% 4.49% 4.13% - ----------------------------------- Portfolio Turnover Rate 45% 75% 138% 155% 154% - ----------------------------------- Net Assets, End of Period (in thousands) $70,078 $54,565 $53,860 $46,077 $44,379 - --------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. ----- 19 Report of Independent Auditors To the Trustees of the American Century Municipal Trust and Shareholders of the Florida Municipal Money Market Fund and Florida Municipal Bond 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 Florida Municipal Money Market Fund and the Florida Municipal Bond Fund (two of the six funds in the American Century Municipal Trust hereafter referred to as the "Funds") at May 31, 2003, the results of each of their operations for the year then ended, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Kansas City, Missouri July 11, 2003 - ----- 20 Management The individuals listed below serve as trustees or officers of the funds. Those listed as interested trustees are "interested" primarily by virtue of their engagement as officers of American Century Companies, Inc. (ACC) or its wholly-owned subsidiaries, including the funds' investment advisor, American Century Investment Management, Inc. (ACIM); the funds' principal underwriter, American Century Investment Services, Inc. (ACIS); and the funds' transfer agent, American Century Services Corporation (ACSC). The other trustees (more than two-thirds of the total number) are independent; that is, they are not employees or officers of, and have no financial interest in, ACC or any of its wholly-owned subsidiaries, including ACIM, ACIS, and ACSC All persons named as officers of the funds also serve in similar capacities for other funds advised by ACIM. Only officers with policy-making functions are listed. No officer is compensated for his or her service as an officer of the funds. The listed officers are interested persons of the funds. INDEPENDENT TRUSTEES - -------------------------------------------------------------------------------- ALBERT EISENSTAT (72) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: General Partner, Discovery Ventures (Venture capital firm, 1996 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Independent Director, Sungard Data Systems (1991 to present); Independent Director, Business Objects S/A (1994 to present) - -------------------------------------------------------------------------------- RONALD J. GILSON (56) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Mark and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present); Counsel, Marron, Reid & Sheehy (a San Francisco law firm, 1984 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- KATHRYN A. HALL (45) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Investment Officer, Offit Hall Capital Management, LLC (April 2002 to present); President and Managing Director, Laurel Management Company, L.L.C. (1996 to April 2002) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Princeton University Investment Company (1997 to present); Director, Stanford Management Company (2001 to present); Director, UCSF Foundation (2000 to present); Director, San Francisco Day School (1999 to present) - -------------------------------------------------------------------------------- MYRON S. SCHOLES (61) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 22 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Partner, Oak Hill Capital Management (1999 to present); Principal, Long-Term Capital Management (investment advisor, 1993 to January 1999); Frank E. Buck Professor of Finance, Stanford Graduate School of Business (1981 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Smith Breeden Family of Funds (1992 to present) - -------------------------------------------------------------------------------- (continued) ----- 21 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- KENNETH E. SCOTT (74) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 31 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Ralph M. Parsons Professor of Law and Business, Stanford Law School (1972 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, RCM Capital Funds, Inc. (1994 to present) - -------------------------------------------------------------------------------- JOHN B. SHOVEN (55) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1977 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to present); Director, Watson Wyatt Worldwide (2002 to present); Director, Palmsource Inc. (2002 to present) - -------------------------------------------------------------------------------- JEANNE D. WOHLERS (58) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 18 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Director and Partner, Windy Hill Productions, LP (educational software, 1994 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Indus International (software solutions, January 1999 to present); Director, Quintus Corporation (automation solutions, 1995 to present) - -------------------------------------------------------------------------------- INTERESTED TRUSTEE - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to present); President, ACIM (September 2002 to present); Chief Operating Officer, ACC (June 1996 to September 2000); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1989 to June 1998); Also serves as: Executive Vice President, ACIS, ACSC, and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ----- 22 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: See entry under "Interested Trustees." - -------------------------------------------------------------------------------- ROBERT T. JACKSON (57) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Executive Vice President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC (August 1997 to present); Chief Financial Officer, ACC (May 1995 to October 2002); President, ACSC (January 1999 to present); Executive Vice President, ACC (May 1995 to present); Also serves as: Executive Vice President and Chief Financial Officer, ACIM, ACIS, and other ACC subsidiaries - -------------------------------------------------------------------------------- MARYANNE ROEPKE, CPA (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Accounting Officer LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Assistant Treasurer, ACSC - -------------------------------------------------------------------------------- DAVID C. TUCKER (44) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present) - -------------------------------------------------------------------------------- ROBERT LEACH (36) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- C. JEAN WADE (39) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- JON ZINDEL (35) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Tax Officer LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC (April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries (April 1999 to present); President, American Century Employee Benefit Services, Inc. (January 2000 to December 2000); Treasurer, American Century Ventures, Inc. (December 1999 to January 2001) - -------------------------------------------------------------------------------- The SAI has additional information about the funds' trustees and is available without charge upon request by calling 1-800-345-2021. ----- 23 Index Definition The following index is used in the report to illustrate investment market, sector, or style performance or to serve as a fund performance comparison. It is not an investment product available for purchase. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION 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. - ----- 24 [inside back cover - blank] [back cover] CONTACT US WWW.AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR RELATIONS: 1-800-345-2021 or 816-531-5575 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY MUNICIPAL TRUST INVESTMENT MANAGER: American Century Investment Management, Inc. Kansas City, Missouri THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. 0307 American Century Investment Services, Inc. SH-ANN-35033N (c)2003 American Century Services Corporation
[front cover] May 31, 2003 American Century Annual Report [photo] Arizona Municipal Bond [american century logo and text logo (reg.sm)] [inside front cover] Table of Contents Our Message to You ........................................................ 1 ARIZONA MUNICIPAL BOND Performance ............................................................... 2 Portfolio Commentary ...................................................... 3 Yields ................................................................. 3 Portfolio Composition by Credit Rating ................................. 4 Top Five Sectors ....................................................... 4 Schedule of Investments ................................................... 5 FINANCIAL STATEMENTS Statement of Assets and Liabilities ....................................... 8 Statement of Operations ................................................... 9 Statement of Changes in Net Assets ........................................ 10 Notes to Financial Statements ............................................. 11 Financial Highlights ...................................................... 13 Report of Independent Auditors ............................................ 14 OTHER INFORMATION Management ................................................................ 15 Index Definition .......................................................... 18 Our Message to You [photo] James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the annual report for the American Century Arizona Municipal Bond fund for the fiscal year ended May 31, 2003. The report includes comparative performance figures, commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Also, through our Web site, we provide quarterly commentaries on all American Century portfolios, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. Your next shareholder reports for this fund will be the semiannual report dated November 30, 2003, available in approximately six months. As always, we deeply appreciate your investment with American Century. Sincerely, /*/James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /*/James E. Stowers III James E. Stowers III Co-Chairman of the Board ----- 1 Arizona Municipal Bond - Performance TOTAL RETURNS AS OF MAY 31, 2003 ------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS INCEPTION** DATE - -------------------------------------------------------------------------------- ARIZONA MUNICIPAL BOND 9.36% 6.21% 6.37% 4/11/94 - -------------------------------------------------------------------------------- LEHMAN MUNICIPAL 5-YEAR GO INDEX 8.72% 6.10% 6.19%(1) -- - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S OTHER STATES INTERMEDIATE MUNICIPAL DEBT FUNDS 8.42% 5.05% 5.49%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 17 of 102 1 of 83 1 of 45(2) -- - -------------------------------------------------------------------------------- (1) Since 3/31/94, the date nearest the fund's inception for which data are available. (2) Since 4/14/94, the date nearest the fund's inception for which data are available. (3) Lipper rankings are based on average annual total returns for the fund in a given category for the periods indicated.
GROWTH OF $10,000 OVER LIFE OF FUND
$10,000 investment made April 11, 1994*
![](https://capedge.com/proxy/N-CSR/0000746458-03-000016/growthazmuni0503.gif)
ONE-YEAR RETURNS OVER LIFE OF FUND Periods ended May 31 - ------------------------------------------------------------------------------------------------------------------------ 1994* 1995 1996 1997 1998 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------------ Arizona Municipal Bond** 1.99% 7.52% 4.65% 5.77% 7.19% 4.51% 0.20% 10.57% 6.74% 9.36% - ------------------------------------------------------------------------------------------------------------------------ Lehman Municipal 5-Year GO Index 1.58% 6.89% 4.74% 6.08% 6.95% 4.90% 0.65% 10.17% 6.33% 8.72% - ------------------------------------------------------------------------------------------------------------------------ * From 4/11/94, the fund's inception date. Index data from 3/31/94, the date nearest the fund's inception for which data are available. Not annualized. **Fund returns and rankings would have been lower if management fees had not been waived from 4/11/94 to 12/31/95. Beginning on 1/1/96, management fees were phased in at a rate of 0.10% each month until 7/1/96. The charts on the performance page give historical return data for the fund. Returns for the index are provided for comparison. The fund's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. Past performance does not guarantee future results. None of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. - ----- 2 Arizona Municipal Bond - Portfolio Commentary By Kenneth Salinger, portfolio manager PERFORMANCE SUMMARY For the 12 months ended May 31, 2003, Arizona Municipal Bond performed well compared with its Lipper peers and the Lehman Brothers Municipal 5-Year General Obligation Index. Arizona Municipal Bond's 9.36% return outpaced the 8.42% average return of the 102 Other States Intermediate Municipal Debt Funds tracked by Lipper Inc. The fund ranked among the top 20% of its peer group based on those performances. By comparison, the Lehman Brothers Municipal 5-Year General Obligation Index returned 8.72% for the year. (See the previous page for details.) Arizona Municipal Bond's five-year performance was even better, earning the fund the top spot in its Lipper group based on the total returns of the 83 funds tracked by Lipper for that period. ECONOMIC & MARKET BACKDROP U.S. economic growth remained limited during the fiscal year. Real gross domestic product (GDP) moved forward at a mere 1.4% seasonally adjusted annual rate during the final quarter of 2002. That marked a sharp deceleration from the 4.0% pace that the economy achieved during 2002's third quarter and was little improvement over the 1.3% second-quarter pace. That backdrop, geopolitical uncertainties, and other factors led the Federal Reserve (the Fed) to reduce its target for the federal funds rate (generally considered the Fed's benchmark short-term interest rate) by 50 basis points (0.50%) to 1.25% in early November. But the U.S. economy remained resistant to a quicker pace of growth, pushing ahead at a 1.4% rate during 2003's first quarter. Mounting tensions between the U.S. and Iraq led to a short-lived war early this year that fanned the flames of uncertainty and clouded the economic outlook. The labor market faced its share of problems as well, with the nation's unemployment rate rising to 6.1% in May, up from a 5.8% average during 2003's first quarter. On the bright side, inflation remained well under control: as gauged by the consumer price index for all urban consumers, inflation rose 2.1% during the year ended May 31. By the end of the 12 months, although there were some signs of increased economic activity in April and May, conditions were generally sluggish, while consumer spending was lackluster overall, and manufacturing activity remained mixed. Municipal bonds fared well in that environment, particularly during the last six months, with the longer maturities generally posting the biggest gains. YIELDS AS OF MAY 31, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 2.41% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 28.54% Tax Bracket 3.37% - -------------------------------------------------------------------------------- 31.40% Tax Bracket 3.51% - -------------------------------------------------------------------------------- 36.38% Tax Bracket 3.79% - -------------------------------------------------------------------------------- 38.28% Tax Bracket 3.90% - -------------------------------------------------------------------------------- ANNUALIZED DISTRIBUTION RATE (ADR) - -------------------------------------------------------------------------------- 3.66% - -------------------------------------------------------------------------------- *The tax brackets indicated are combined federal and state tax brackets. (continued) ----- 3 Arizona Municipal Bond - Portfolio Commentary PORTFOLIO STRATEGIES Arizona Municipal Bond's interest rate sensitivity decreased during the last six months. To make that happen, we reduced the portfolio's duration (a measurement of bond price sensitivity to interest rate changes) from 5.1 years at the end of November 2002, to 4.9 years as of May 31. On the credit-quality front, we decreased the portfolio's concentration in bonds rated AAA and AA. Those securities represented approximately 95% of the portfolio at the end of November. But we picked up some bonds with A or lower ratings since then, so holdings of AAA and AA bonds declined to roughly 87% of the portfolio by the end of May. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 5/31/03 11/30/02 - -------------------------------------------------------------------------------- AAA 72% 81% - -------------------------------------------------------------------------------- AA 15% 14% - -------------------------------------------------------------------------------- A 4% 1% - -------------------------------------------------------------------------------- BBB 9% 4% - -------------------------------------------------------------------------------- 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 MAY 31, 2003 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- GO 36% - -------------------------------------------------------------------------------- COPs/Leases 9% - -------------------------------------------------------------------------------- Higher Education 9% - -------------------------------------------------------------------------------- Water and Sewer Revenue 8% - -------------------------------------------------------------------------------- Special Tax Revenue 8% - -------------------------------------------------------------------------------- In addition, we modified the portfolio's bond maturity structure. One of the biggest shifts over the last six months was an increase in the portfolio's holdings of municipal bonds with durations of two to six years. At the end of November, such bonds represented around 25% of the portfolio. By the end of May, that allotment had increased to approximately 34%. We sold some bonds with durations of six to nine years to help accomplish that shift. From a sector standpoint, general obligation bonds represented the portfolio's biggest allotment at the end of May. Next in line were certificates of participation, followed by higher education and water and sewer revenue bonds. - ----- 4 Arizona Municipal Bond - Schedule of Investments MAY 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.0% ARIZONA -- 89.1% - -------------------------------------------------------------------------------- $ 500,000 Arizona School Facilities Board Rev., (State School Improvement), 5.25%, 7/1/20 $ 556,670 - -------------------------------------------------------------------------------- 1,750,000 Arizona School Facilities Board Rev., (State School Improvement), 5.50%, 7/1/18 2,021,915 - -------------------------------------------------------------------------------- 1,000,000 Arizona Student Loan Acquisition Auth. Rev., Series 1999 A1, (Guaranteed: Student Loans), 5.65%, 5/1/14 1,103,280 - -------------------------------------------------------------------------------- 1,880,000 Arizona Tourism & Sports Auth. Tax Rev., (Baseball Training Facilities), 5.00%, 7/1/13 2,032,280 - -------------------------------------------------------------------------------- 1,250,000 Arizona Tourism & Sports Auth. Tax Rev., Series 2003 A, (Multipurpose Stadium Facilities), 5.375%, 7/1/23 (MBIA) 1,388,713 - -------------------------------------------------------------------------------- 1,000,000 Arizona Transportation Board Highway Rev., Series 2002 B, 5.25%, 7/1/21 1,100,410 - -------------------------------------------------------------------------------- 1,000,000 Arizona Transportation Board Highway Rev., Series 2003 A, 5.00%, 7/1/22 1,075,840 - -------------------------------------------------------------------------------- 930,000 Cochise County Unified School District No. 68 GO, (Sierra Vista), 2.50%, 7/1/07 (FSA)(1) 952,385 - -------------------------------------------------------------------------------- 1,000,000 Coconino County Unified School District No. 1 GO, (Flagstaff), 5.25%, 7/1/03 (FSA) 1,003,630 - -------------------------------------------------------------------------------- 2,060,000 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/11 (MBIA) 2,288,947 - -------------------------------------------------------------------------------- 1,000,000 Glendale Industrial Development Auth. Rev., Series 1998 A, (Midwestern University), 5.375%, 5/15/28 1,037,240 - -------------------------------------------------------------------------------- 500,000 Glendale Industrial Development Auth. Rev., Series 2001 A, (Midwestern University), 5.75%, 5/15/21 548,260 - -------------------------------------------------------------------------------- 1,515,000 Maricopa County Elementary School District No. 68 GO, (Alhambra), 2.75%, 7/1/08 (FSA) 1,552,299 - -------------------------------------------------------------------------------- 1,615,000 Maricopa County Elementary School District No. 79 GO, Series 2000 A, (Litchfield Elementary Projects of 1998), 4.55%, 7/1/07 (FSA) 1,780,796 - -------------------------------------------------------------------------------- 500,000 Maricopa County GO, 6.25%, 7/1/03 (FGIC) 502,235 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 340,000 Maricopa County Industrial Development Auth. Hospital Facility Rev., Series 1990 A, (Samaritan Health Services), 7.15%, 12/1/04 (MBIA)(2) $ 359,819 - -------------------------------------------------------------------------------- 700,000 Maricopa County Stadium District Rev., 2.50%, 6/1/03 (AMBAC) 700,028 - -------------------------------------------------------------------------------- 1,650,000 Maricopa County Stadium District Rev., 2.50%, 6/1/04 (AMBAC) 1,673,678 - -------------------------------------------------------------------------------- 1,445,000 Maricopa County Unified High School District No. 210 GO, (Phoenix), 4.75%, 7/1/11 (FSA) 1,633,645 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Unified High School District No. 210 GO, Series 1992 E, (Phoenix), 7.10%, 7/1/04 1,064,860 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Unified School District No. 1 GO, (Phoenix), 5.50%, 7/1/07, Prerefunded at 101% of Par (MBIA)(2) 1,153,340 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Unified School District No. 4 GO, Series 1993 E, (Mesa), 5.25%, 7/1/03 (FGIC) 1,003,620 - -------------------------------------------------------------------------------- 1,040,000 Maricopa County Unified School District No. 28 GO, Series 2001 B, (Kyrene), 4.30%, 7/1/07 (MBIA)(3) 954,907 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Unified School District No. 48 GO, (Scottsdale), 6.60%, 7/1/12 1,277,550 - -------------------------------------------------------------------------------- 1,955,000 Maricopa County Unified School District No. 90 GO, Series 2003 A, (Saddle Mountain), 5.00%, 7/1/10 2,144,635 - -------------------------------------------------------------------------------- 2,145,000 Mesa Industrial Development Auth. Rev., Series 1998 A1, (Lutheran Health System), 4.75%, 1/1/05 (MBIA) 2,264,433 - -------------------------------------------------------------------------------- 1,265,000 Mohave County Community College District Rev., 5.75%, 3/1/14 (AMBAC) 1,472,789 - -------------------------------------------------------------------------------- 1,150,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/20 (MBIA) 1,344,856 - -------------------------------------------------------------------------------- 1,255,000 Phoenix Civic Improvement Corp. Airport Rev., Series 1998 B, (Senior Lien), 5.00%, 7/1/03 (FSA) 1,259,129 - -------------------------------------------------------------------------------- 1,500,000 Phoenix Civic Improvement Corp. Excise Tax Rev., (Senior Lien), 5.00%, 7/1/26 1,595,880 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Rev., (Senior Lien), 5.00%, 7/1/05 1,070,430 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) ----- 5 Arizona Municipal Bond - Schedule of Investments MAY 31, 2003 Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Phoenix Civic Improvement Corp. Wastewater System Rev., (Junior Lien), 6.25%, 7/1/10, Prerefunded at 101% of Par (FGIC)(2) $ 1,242,760 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 6.50%, 7/1/06 1,149,730 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 5.50%, 7/1/19 (FGIC) 1,138,210 - -------------------------------------------------------------------------------- 2,070,000 Phoenix GO, Series 1995 A, 6.25%, 7/1/17(4) 2,681,206 - -------------------------------------------------------------------------------- 1,000,000 Phoenix GO, Series 1995 B, 5.25%, 7/1/15 1,111,750 - -------------------------------------------------------------------------------- 1,220,000 Phoenix Industrial Development Auth. Single Family Mortgage Rev., Series 1998 A, 6.60%, 12/1/29 (GNMA/FNMA/FHLMC) 1,264,884 - -------------------------------------------------------------------------------- 1,710,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/18 (AMBAC) 2,024,093 - -------------------------------------------------------------------------------- 1,800,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/19 (AMBAC) 2,120,274 - -------------------------------------------------------------------------------- 1,550,000 Pima County Unified School District No. 10 GO, Series 1995 B, (Ampitheater), 5.05%, 7/1/05, Prerefunded at 101% of Par (MBIA)(2) 1,689,531 - -------------------------------------------------------------------------------- 1,000,000 Pima County Unified School District No. 10 GO, Series 1995 B, (Amphitheater), 7.00%, 7/1/05 (MBIA) 1,119,010 - -------------------------------------------------------------------------------- 1,125,000 Pima County Unified School District No. 6 GO, (Marana), 5.50%, 7/1/15 (FGIC) 1,302,188 - -------------------------------------------------------------------------------- 1,000,000 Pima County Unified School District No. 12 GO, (Sunnyside), 5.50%, 7/1/05, Prerefunded at 101% of Par (MBIA)(2) 1,099,490 - -------------------------------------------------------------------------------- 560,000 Pinal County COP, 3.40%, 12/1/03 (AMBAC) 566,653 - -------------------------------------------------------------------------------- 820,000 Pinal County COP, 4.75%, 6/1/13 (AMBAC) 914,054 - -------------------------------------------------------------------------------- 435,000 Prescott Valley Municipal Property Corp. Rev., 3.00%, 1/1/05 (FGIC) 447,645 - -------------------------------------------------------------------------------- 1,500,000 Salt River Project Agricultural Improvement and Power District Electrical System Rev., Series 2001 A, 5.00%, 1/1/05 1,590,615 - -------------------------------------------------------------------------------- 1,345,000 Scottsdale GO, 4.00%, 7/1/04 1,388,390 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,600,000 Scottsdale GO, 6.25%, 7/1/09, Prerefunded at 100% of Par(2) $ 1,952,912 - -------------------------------------------------------------------------------- 1,000,000 Sedona COP, 5.75%, 7/1/20 1,091,050 - -------------------------------------------------------------------------------- 1,645,000 University of Arizona COP, Series 2002 A, 5.50%, 6/1/17 (AMBAC) 1,892,392 - -------------------------------------------------------------------------------- 500,000 Yavapai County Unified School District No. 28 GO, (Camp Verde), 6.10%, 7/1/04 (FGIC) 526,605 - -------------------------------------------------------------------------------- 68,231,941 - -------------------------------------------------------------------------------- PUERTO RICO -- 7.5% - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, (Public Improvement), 5.25%, 7/1/10 1,133,430 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/21 (FSA) 1,134,790 - -------------------------------------------------------------------------------- 2,000,000 Puerto Rico Electric Power Auth. Rev., Series 2002 KK, 5.00%, 7/1/11 (XLCA) 2,306,200 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.50%, 7/1/10 (Commonwealth Guaranteed) 1,149,200 - -------------------------------------------------------------------------------- 5,723,620 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS- 1.4% - -------------------------------------------------------------------------------- 1,000,000 Virgin Islands Public Finance Auth. Rev., Series 1999 A, (Gross Receipts Taxes), 5.00%, 10/1/04 1,042,910 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $69,672,552) 74,998,471 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 2.0% ARIZONA -- 2.0% - -------------------------------------------------------------------------------- 1,115,000 Pima County Industrial Development Auth. Rev., (Lease Purchase), VRDN, 1.35%, 6/5/03 1,115,000 - -------------------------------------------------------------------------------- 400,000 Pinal County Industrial Development Auth. Pollution Control Rev., (Newmont), VRDN, 1.35%, 6/2/03 (LOC: ABN AMRO Bank N.V.) 400,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $1,515,000) 1,515,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $71,187,552) $76,513,471 ================================================================================ See Notes to Financial Statements. (continued) - ----- 6 Arizona Municipal Bond - Schedule of Investments MAY 31, 2003 NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FHLMC = Federal Home Loan Mortgage Corporation FNMA = Federal National Mortgage Association FSA = Financial Security Assurance Inc. GNMA = Government National Mortgage Association GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. VRDN = Variable Rate Demand Note. Interest reset date is indicated and used in calculating the weighted average portfolio maturity. Rate shown is effective May 31, 2003. XLCA = XL Capital Assurance Corp. (1) When-issued security. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) 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. (4) Security, or a portion thereof, has been segregated for a when-issued security. See Notes to Financial Statements. ----- 7 Statement of Assets and Liabilities MAY 31, 2003 - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $71,187,552) $76,513,471 -------------------------------------------------------------- Receivable for capital shares sold 6,710 -------------------------------------------------------------- Interest receivable 1,302,876 - -------------------------------------------------------------------------------- 77,823,057 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 1,013,463 -------------------------------------------------------------- Payable for investments purchased 949,037 -------------------------------------------------------------- Accrued management fees 31,834 -------------------------------------------------------------- Dividends payable 41,316 - -------------------------------------------------------------------------------- 2,035,650 - -------------------------------------------------------------------------------- NET ASSETS $75,787,407 - -------------------------------------------------------------------------------- CAPITAL SHARES - -------------------------------------------------------------------------------- Outstanding (unlimited number of shares authorized) 6,650,811 ================================================================================ NET ASSET VALUE PER SHARE $ 11.40 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $70,248,332 -------------------------------------------------------------- Undistributed net realized gain on investment transactions 213,156 -------------------------------------------------------------- Net unrealized appreciation on investments 5,325,919 - -------------------------------------------------------------------------------- $75,787,407 ================================================================================ See Notes to Financial Statements. - ----- 8 Statement of Operations YEAR ENDED MAY 31, 2003 - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - -------------------------------------------------------------- Interest $3,017,188 - -------------------------------------------------------------------------------- EXPENSES: -------------------------------------------------------------- Management fees 359,414 -------------------------------------------------------------- Trustees' fees and expenses 3,890 -------------------------------------------------------------- Other expenses 1,205 - -------------------------------------------------------------------------------- 364,509 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 2,652,679 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN - -------------------------------------------------------------------------------- Net realized gain on investment transactions 436,649 -------------------------------------------------------------- Change in net unrealized appreciation on investments 3,257,820 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN 3,694,469 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,347,148 ================================================================================ See Notes to Financial Statements. ----- 9 Statement of Changes in Net Assets YEARS ENDED MAY 31, 2003 AND MAY 31, 2002 - -------------------------------------------------------------------------------- INCREASE IN NET ASSETS 2003 2002 - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income $ 2,652,679 $ 2,380,919 ----------------------------------------------- Net realized gain 436,649 434,391 ----------------------------------------------- Change in net unrealized appreciation 3,257,820 962,732 - ------------------------------------------------------------------------------- Net increase in net assets resulting from operations 6,347,148 3,778,042 - ------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ------------------------------------------------------------------------------- From net investment income (2,652,679) (2,381,156) ----------------------------------------------- From net realized gains (485,706) (368,733) - ------------------------------------------------------------------------------- Decrease in net assets from distributions (3,138,385) (2,749,889) - ------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ------------------------------------------------------------------------------- Proceeds from shares sold 26,659,951 24,287,661 ----------------------------------------------- Proceeds from reinvestment of distributions 2,545,075 2,216,981 ----------------------------------------------- Payments for shares redeemed (22,952,939) (11,515,316) - ------------------------------------------------------------------------------- Net increase in net assets from capital share transactions 6,252,087 14,989,326 - ------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 9,460,850 16,017,479 NET ASSETS - ------------------------------------------------------------------------------- Beginning of period 66,326,557 50,309,078 - ------------------------------------------------------------------------------- End of period $ 75,787,407 $ 66,326,557 =============================================================================== TRANSACTIONS IN SHARES OF THE FUND - ------------------------------------------------------------------------------- Sold 2,401,588 2,240,594 ----------------------------------------------- Issued in reinvestment of distributions 228,851 204,648 ----------------------------------------------- Redeemed (2,068,611) (1,063,608) - ------------------------------------------------------------------------------- Net increase in shares of the fund 561,828 1,381,634 =============================================================================== See Notes to Financial Statements. - ----- 10 Notes to Financial Statements MAY 31, 2003 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Municipal Trust (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. Arizona Municipal Bond 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 objective is to seek safety of principal and high current income that is exempt from federal and Arizona income taxes. The fund invests primarily in Arizona municipal obligations. The fund concentrates its investments in a single state and therefore may have more exposure to credit risk related to the state of Arizona than a fund with a broader geographical diversification. The following is a summary of the fund's significant accounting policies. SECURITY VALUATIONS -- Securities are valued through a commercial pricing service or at the mean of the most recent bid and asked prices. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. WHEN-ISSUED AND FORWARD COMMITMENTS -- The fund may engage in securities transactions on a when-issued or forward commitment basis. Under these arrangements, the securities' prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The fund will segregate cash, cash equivalents or other appropriate liquid securities on its records in amounts sufficient to meet the purchase price. INCOME TAX STATUS -- It is the fund's policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income for the fund are declared daily and paid monthly. Distributions from net realized gains for the fund, if any, are generally declared and paid annually. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. - -------------------------------------------------------------------------------- 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM), under which ACIM provides the fund with investment advisory and management services in exchange for a single, unified management fee. The Agreement provides that all expenses of the fund, except brokerage commissions, taxes, portfolio insurance, interest, fees and expenses of those trustees who are not considered "interested persons" as defined in the 1940 Act (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is computed daily and paid monthly in arrears. It consists of an Investment Category Fee based on the average net assets of the funds in a specific fund's investment category and a Complex Fee based on the average net assets of all the funds managed by ACIM. The rates for the Investment Category Fee range from 0.1625% to 0.2800% and the rates for the Complex Fee range from 0.2900% to 0.3100%. For the year ended May 31, 2003, the effective annual management fee was 0.50%. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust's investment manager, ACIM, the distributor of the trust, American Century Investment Services, Inc., and the trust's transfer agent, American Century Services Corporation. The fund has a bank line of credit agreement with J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. (continued) ----- 11 Notes to Financial Statements MAY 31, 2003 - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities, excluding short-term investments, for the year ended May 31, 2003, were $42,031,544 and $35,212,091, respectively. - -------------------------------------------------------------------------------- 4. BANK LINE OF CREDIT The fund, along with certain other funds managed by ACIM, has a $620,000,000 unsecured bank line of credit agreement with JPM, which was renewed from $650,000,000 effective December 17, 2002. The fund may borrow money for temporary or emergency purposes to fund shareholder redemptions. Borrowings under the agreement bear interest at the Federal Funds rate plus 0.50%. The fund did not borrow from the line during the year ended May 31, 2003. - -------------------------------------------------------------------------------- 5. FEDERAL TAX INFORMATION The tax character of distributions paid during the years ended May 31, 2003 and May 31, 2002 were as follows: - -------------------------------------------------------------------------------- 2003 2002 - -------------------------------------------------------------------------------- DISTRIBUTIONS PAID FROM - -------------------------------------------------------------------------------- Ordinary income $3,114,068 $2,678,328 - -------------------------------------------------------------------------------- Long-term capital gains $24,317 $71,561 - -------------------------------------------------------------------------------- The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts. As of May 31, 2003, the components of distributable earnings on a tax-basis and the federal tax cost of investments were as follows: - -------------------------------------------------------------------------------- COMPONENTS OF DISTRIBUTABLE EARNINGS AND TAX COST - -------------------------------------------------------------------------------- Federal tax cost of investments $71,187,552 ================================================================================ Gross tax appreciation of investments $ 5,384,181 - -------------------------------------------------------------- Gross tax depreciation of investments (58,262) - -------------------------------------------------------------------------------- Net tax appreciation of investments $ 5,325,919 ================================================================================ Undistributed taxable ordinary income $ 230,466 - -------------------------------------------------------------- Undistributed tax-exempt ordinary income -- - -------------------------------------------------------------- Accumulated long-term gains -- - -------------------------------------------------------------- Capital loss deferral $( 17,310) - -------------------------------------------------------------------------------- The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The capital loss deferrals represent net capital losses incurred in the seven-month period ended May 31, 2003. The fund has elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. - -------------------------------------------------------------------------------- 6. OTHER TAX INFORMATION (UNAUDITED) The following information is provided pursuant to provisions of the Internal Revenue Code. The fund hereby designates $2,652,465 and $22,058 of exempt interest and capital gain dividends, respectively, for the fiscal year ended May 31, 2003. - ----- 12 Arizona Municipal Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 - --------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.89 $10.69 $10.12 $10.62 $10.67 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------- Net Investment Income 0.41 0.44 0.48 0.48 0.46 - ----------------------------------- Net Realized and Unrealized Gain (Loss) 0.59 0.27 0.57 (0.47) 0.01 - --------------------------------------------------------------------------------------------------------- Total From Investment Operations 1.00 0.71 1.05 0.01 0.47 - --------------------------------------------------------------------------------------------------------- Distributions - ----------------------------------- From Net Investment Income (0.41) (0.44) (0.48) (0.48) (0.46) - ----------------------------------- From Net Realized Gains (0.08) (0.07) -- (0.03) (0.06) - --------------------------------------------------------------------------------------------------------- Total Distributions (0.49) (0.51) (0.48) (0.51) (0.52) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $11.40 $10.89 $10.69 $10.12 $10.62 ========================================================================================================= TOTAL RETURN(1) 9.36% 6.74% 10.57% 0.20% 4.51% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51% 0.51% 0.51% 0.51% 0.51% - ----------------------------------- Ratio of Net Investment Income to Average Net Assets 3.70% 4.04% 4.57% 4.71% 4.30% - ----------------------------------- Portfolio Turnover Rate 50% 77% 104% 117% 70% - ----------------------------------- Net Assets, End of Period (in thousands) $75,787 $66,327 $50,309 $40,594 $45,410 - --------------------------------------------------------------------------------------------------------- (1) Total return assumes reinvestment of net investment income and capital gains distributions, if any. See Notes to Financial Statements. ----- 13 Report of Independent Auditors To the Trustees of the American Century Municipal Trust and Shareholders of the Arizona Municipal Bond 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 Arizona Municipal Bond Fund (one of the six funds in the American Century Municipal Trust hereafter referred to as the "Fund") at May 31, 2003, 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 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 Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Kansas City, Missouri July 11, 2003 - ----- 14 Management The individuals listed below serve as trustees or officers of the fund. Those listed as interested trustees are "interested" primarily by virtue of their engagement as officers of American Century Companies, Inc. (ACC) or its wholly-owned subsidiaries, including the fund's investment advisor, American Century Investment Management, Inc. (ACIM); the fund's principal underwriter, American Century Investment Services, Inc. (ACIS); and the fund's transfer agent, American Century Services Corporation (ACSC). The other trustees (more than two-thirds of the total number) are independent; that is, they are not employees or officers of, and have no financial interest in, ACC or any of its wholly-owned subsidiaries, including ACIM, ACIS, and ACSC All persons named as officers of the fund also serve in similar capacities for other funds advised by ACIM. Only officers with policy-making functions are listed. No officer is compensated for his or her service as an officer of the fund. The listed officers are interested persons of the fund. INDEPENDENT TRUSTEES - -------------------------------------------------------------------------------- ALBERT EISENSTAT (72) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: General Partner, Discovery Ventures (Venture capital firm, 1996 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Independent Director, Sungard Data Systems (1991 to present); Independent Director, Business Objects S/A (1994 to present) - -------------------------------------------------------------------------------- RONALD J. GILSON (56) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 7 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Charles J. Meyers Professor of Law and Business, Stanford Law School (1979 to present); Mark and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present); Counsel, Marron, Reid & Sheehy (a San Francisco law firm, 1984 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- KATHRYN A. HALL (45) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: President and Chief Investment Officer, Offit Hall Capital Management, LLC (April 2002 to present); President and Managing Director, Laurel Management Company, L.L.C. (1996 to April 2002) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Princeton University Investment Company (1997 to present); Director, Stanford Management Company (2001 to present); Director, UCSF Foundation (2000 to present); Director, San Francisco Day School (1999 to present) - -------------------------------------------------------------------------------- MYRON S. SCHOLES (61) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 22 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Partner, Oak Hill Capital Management (1999 to present); Principal, Long-Term Capital Management (investment advisor, 1993 to January 1999); Frank E. Buck Professor of Finance, Stanford Graduate School of Business (1981 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Dimensional Fund Advisors (investment advisor, 1982 to present); Director, Smith Breeden Family of Funds (1992 to present) - -------------------------------------------------------------------------------- (continued) ----- 15 Management INDEPENDENT TRUSTEES (CONTINUED) - -------------------------------------------------------------------------------- KENNETH E. SCOTT (74) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 31 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Ralph M. Parsons Professor of Law and Business, Stanford Law School (1972 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, RCM Capital Funds, Inc. (1994 to present) - -------------------------------------------------------------------------------- JOHN B. SHOVEN (55) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): Less than 1 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Professor of Economics, Stanford University (1977 to present) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Cadence Design Systems (1992 to present); Director, Watson Wyatt Worldwide (2002 to present); Director, Palmsource Inc. (2002 to present) - -------------------------------------------------------------------------------- JEANNE D. WOHLERS (58) 1665 Charleston Road, Mountain View, CA 94043 POSITION(S) HELD WITH FUND: Trustee LENGTH OF TIME SERVED (YEARS): 18 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Director and Partner, Windy Hill Productions, LP (educational software, 1994 to 1998) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: Director, Indus International (software solutions, January 1999 to present); Director, Quintus Corporation (automation solutions, 1995 to present) - -------------------------------------------------------------------------------- INTERESTED TRUSTEE - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Trustee, Chairman of the Board LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Executive Officer, ACC and other ACC subsidiaries (September 2000 to present); President, ACC (June 1997 to present); President, ACIM (September 2002 to present); Chief Operating Officer, ACC (June 1996 to September 2000); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1989 to June 1998); Also serves as: Executive Vice President, ACIS, ACSC, and other ACC subsidiaries NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE: 35 OTHER DIRECTORSHIPS HELD BY TRUSTEE: None - -------------------------------------------------------------------------------- (continued) - ----- 16 Management OFFICERS - -------------------------------------------------------------------------------- WILLIAM M. LYONS (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: See entry under "Interested Trustees." - -------------------------------------------------------------------------------- ROBERT T. JACKSON (57) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Executive Vice President LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Chief Administrative Officer, ACC (August 1997 to present); Chief Financial Officer, ACC (May 1995 to October 2002); President, ACSC (January 1999 to present); Executive Vice President, ACC (May 1995 to present); Also serves as: Executive Vice President and Chief Financial Officer, ACIM, ACIS, and other ACC subsidiaries - -------------------------------------------------------------------------------- MARYANNE ROEPKE, CPA (47) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President, Treasurer and Chief Accounting Officer LENGTH OF TIME SERVED (YEARS): 2 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President and Assistant Treasurer, ACSC - -------------------------------------------------------------------------------- DAVID C. TUCKER (44) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Senior Vice President and General Counsel LENGTH OF TIME SERVED (YEARS): 4 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Senior Vice President, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present); General Counsel, ACC, ACIM, ACIS, ACSC, and other ACC subsidiaries (June 1998 to present) - -------------------------------------------------------------------------------- ROBERT LEACH (36) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- C. JEAN WADE (39) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Controller LENGTH OF TIME SERVED (YEARS): 6 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, ACSC (February 2000 to present); Controller-Fund Accounting, ACSC - -------------------------------------------------------------------------------- JON ZINDEL (35) 4500 Main Street, Kansas City, MO 64111 POSITION(S) HELD WITH FUND: Tax Officer LENGTH OF TIME SERVED (YEARS): 5 PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS: Vice President, Corporate Tax, ACSC (April 1998 to present); Vice President, ACIM, ACIS, and other ACC subsidiaries (April 1999 to present); President, American Century Employee Benefit Services, Inc. (January 2000 to December 2000); Treasurer, American Century Ventures, Inc. (December 1999 to January 2001) - -------------------------------------------------------------------------------- The SAI has additional information about the fund's trustees and is available without charge upon request by calling 1-800-345-2021. ----- 17 Index Definition The following index is used in the report to illustrate investment market, sector, or style performance or to serve as a fund performance comparison. It is not an investment product available for purchase. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION 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. - ----- 18 Notes ----- 19 Notes - ----- 20 [inside back cover - blank] [back cover] CONTACT US WWW.AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR RELATIONS: 1-800-345-2021 or 816-531-5575 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY MUNICIPAL TRUST INVESTMENT MANAGER: American Century Investment Management, Inc. Kansas City, Missouri THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. 0307 American Century Investment Services, Inc. SH-ANN-35034N (c)2003 American Century Services Corporation
Item 2 - N/A Item 3 - N/A Item 4 - N/A Item 5 - Reserved Item 6 - Reserved Item 7 - N/A Item 8 - Reserved Item 9. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document. (b) There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Item 10. Exhibits 10(a) - N/A 10(b) - Attached hereto.
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 Municipal Trust By: /s/William M. Lyons Name: William M. Lyons Title: President (principal executive officer) Date: July 30, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/William M. Lyons Name: William M. Lyons Title: President (principal executive officer) Date: July 30, 2003 By: /s/Maryanne L. Roepke Name: Maryanne L. Roepke Title: Sr. Vice President, Treasurer and Chief Accounting Officer (principal financial officer) Date: July 30, 2003