UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-4025 --------------------------------------------- American Century Municipal Trust - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 4500 Main Street, Kansas City, Missouri 64111 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) David C. Tucker, Esq., 4500 Main Street, 9th Floor, Kansas City, Missouri 64111 - ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 816-531-5575 ---------------------------- Date of fiscal year end: May 31, 2003 -------------------------------------------------------- Date of reporting period: November 30, 2003 -------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS. [front cover] NOVEMBER 30, 2003 American Century Semiannual Report [graphic of market line chart] [graphic of starfish] [graphic of bridge] Tax-Free Money Market Tax-Free Bond [american century logo and text logo (reg.sm)] 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...................................................... 27 OTHER INFORMATION Share Class Information................................................... 30 Index Definition.......................................................... 31 The opinions expressed in the Portfolio Commentary reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo of James E. Stowers III and James E. Stowers, Jr.] JAMES E. STOWERS III WITH JAMES E. STOWERS, JR. We are pleased to provide you with the semiannual report for the American Century Tax-Free Money Market and Tax-Free Bond funds for the six months ended November 30, 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. Many of you have called or written to express your concern about allegations of wrongdoing by other mutual fund investment management firms. We share your concern--fund companies must put investors first and do everything possible to maintain investor trust. Through the Investment Company Institute, the mutual fund trade association, American Century has advocated industry-wide proposals that strengthen protections for fund investors. We believe that decisive action is needed to show that we are committed, as an industry, to the interests of the 95 million investors we serve. As information about alleged trading abuses in the mutual fund industry has come to light, we have posted messages and commentary about these issues on www.americancentury.com. Beyond what's currently in the headlines, American Century has been a champion of many important investor and industry issues, which are outlined in a document titled Putting Investors First. We invite you to visit our Web site and read about how our values have influenced these positions. As always, we deeply appreciate your investment with American Century. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER AND CHAIRMAN /s/James E. Stowers III James E. Stowers III CO-CHAIRMAN OF THE BOARD - ------ 1 Tax-Free Money Market - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2003 ------------------------------------ AVERAGE ANNUAL RETURNS - ------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS(1) 10 YEARS(1) INCEPTION(1) DATE - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET 0.74% 2.28% 2.68% 3.53% 7/31/84 - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S TAX-EXEMPT MONEY MARKET FUNDS 0.46% 1.98% 2.48% 3.35%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 11 of 126 8 of 105 12 of 78 5 of 35 -- - -------------------------------------------------------------------------------- (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) Since 8/31/84, 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 11/30/03 5/31/03 - -------------------------------------------------------------------------------- A-1+ 84% 62% - -------------------------------------------------------------------------------- A-1 16% 38% - -------------------------------------------------------------------------------- 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 11/30/03 5/31/03 - -------------------------------------------------------------------------------- 1-30 days 80% 91% - -------------------------------------------------------------------------------- 31-90 days -- -- - -------------------------------------------------------------------------------- 91-180 days 8% 4% - -------------------------------------------------------------------------------- More than 180 days 12% 5% - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 0.75% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 0.75% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS* - -------------------------------------------------------------------------------- 25.0% Tax Bracket 1.00% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 1.04% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 1.12% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 1.15% - -------------------------------------------------------------------------------- *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 Tax-Free Money Market returned 0.31% for the six months ended November 30, 2003. This return ranked the fund 13th out of the 128 funds in Lipper Inc.'s "Tax-Exempt Money Market Funds" category, and placed it in the top 11% of its Lipper peers. In addition, the portfolio's long-term returns continued to hold up well against the competition, ranking in the top 10% for the one- and five-year periods, and the top 16% for the 10-year period ended November 30 (see the previous page for performance figures). ECONOMIC & MARKET REVIEW The U.S. economy picked up steam during the period, with growth accelerating from a 3.1% annual pace at the end of the second quarter to 8.2% in the third quarter of 2003 (as measured by real gross domestic product). One drag on the economy was unemployment: the U.S. economy lost 140,000 jobs in the first two months of the period, pushing the unemployment rate up to 6.4% in June. In August, employment reports started turning positive, and the unemployment rate gradually dropped back to 5.9% by November. The employment data, other signs of economic weakness that lasted until mid-summer, and low inflation, prompted the Federal Reserve (the Fed) to cut its short-term interest rate target to a mere 1.0% in June. Municipal money market yields generally fell during the six months. Yields fell significantly in June after the Fed's rate cut, but they recovered to a certain extent as demand for money market securities fell during the year. Assets invested in money market funds have dropped by nearly 9% in 2003 because of money funds' low yields--largely the result of 13 Fed interest rate cuts spread over the past three years. Tax-Free Money Market's 7-day current yield held up fairly well during the period, falling only 10 basis points, from 0.85% at the end of May, to 0.75% at the end of November. PORTFOLIO STRATEGY The portfolio's weighted average maturity (WAM) averaged around 45 days, moving from a low of 25 days early in June to 46 days at the end of November. The WAM was extended when we invested in some Texas TRANs (Tax & Revenue Anticipation Notes) with very attractive yields, maturing in August of 2004. But the majority of the portfolio--about 80%--remained in "floaters"--very short-term floating-rate municipal notes. (You'll see them labeled as VRDNs in the report's Schedule of Investments.) Overall, yields on floaters were competitive with, or better than, those on one-year muni notes. And we preferred not to lock ourselves into low-yielding notes with longer maturities. A NOTE ABOUT THE FUND'S YIELD The sharp decline in interest rates over the past several years has brought money market yields down to very low levels. Nonetheless, we expect the fund to maintain a positive yield unless the Fed cuts interest rates significantly in the future. Should that happen, American Century will examine all possible ways to maintain yields that are competitive and positive, including the waiver of management fees. - ------ 3 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 100.0% ALABAMA -- 1.6% - -------------------------------------------------------------------------------- $ 4,200 Brundidge Combined Utilities Rev., Series 2002 A, VRDN, 1.30%, 12/4/03 (LOC: SouthTrust Bank N.A.) $ 4,200 - -------------------------------------------------------------------------------- ARIZONA -- 1.8% - -------------------------------------------------------------------------------- 1,215 Pinal County Industrial Development Auth. Pollution Control Rev., (Newmont), VRDN, 1.10%, 12/1/03 (LOC: ABN AMRO Bank N.V.) 1,215 - -------------------------------------------------------------------------------- 3,500 Pinal County Industrial Development Auth. Solid Waste Disposal Rev., (S & T Dairy LLC), VRDN, 1.35%, 12/4/03 (LOC: Wells Fargo Bank N.A.) 3,500 - -------------------------------------------------------------------------------- 4,715 - -------------------------------------------------------------------------------- CALIFORNIA -- 20.1% - -------------------------------------------------------------------------------- 1,735 Alameda County Industrial Development Auth. Rev., (Design Workshops), VRDN, 1.40%, 12/4/03 (LOC: Wells Fargo Bank N.A.) 1,735 - -------------------------------------------------------------------------------- 3,500 California GO, Series 2003 C4, VRDN, 1.12%, 12/4/03 (LOC: Landesbank Hessen-Thuringen Girozentrale, Bank of America N.A., Bank of Nova Scotia) 3,500 - ------------------------------------------------------------------------------- 4,000 California Rev. Anticipation Notes, Series 2003 A1, 2.00%, 6/23/04 (LOC: HSH Nordbank AG) 4,021 - ------------------------------------------------------------------------------- 12,000 California Rev. Anticipation Warrants, Series 2003 A, 2.00%, 6/16/04 (FWPA) 12,058 - ------------------------------------------------------------------------------- 6,500 El Monte Community Redevelopment Agency Rev., Series 2003 A, (Pacific Towers Apartment), 1.15%, 3/31/04 (GIC: FSA Capital Management Services) 6,500 - ------------------------------------------------------------------------------- 9,165 Roaring Fork Municipal Products LLC Rev., VRDN, 1.45%, 12/4/03 (SBBPA: Bank of New York) (Acquired 9/19/02, Cost $9,165)(1) 9,165 - ------------------------------------------------------------------------------- 12,500 San Bernardino County Housing Auth. Rev., Series 2002 C, VRDN, 1.12%, 12/1/03 (XLCA) 12,500 - ------------------------------------------------------------------------------- 2,500 San Bernardino County Multifamily Housing Auth. Rev., Series 1990 A, (Highland Hills), 1.25%, 5/1/04 (Acquired 4/30/03, Cost $2,500) (GIC: FHLB)(1) 2,500 - ------------------------------------------------------------------------------- 51,979 - ------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - ------------------------------------------------------------------------------- COLORADO -- 6.1% - ------------------------------------------------------------------------------- $ 3,340 Arvada Water Enterprise Rev., VRDN, 1.20%, 12/1/03 (FSA) (SBBPA: Dexia Credit Local) $ 3,340 - ------------------------------------------------------------------------------- 5,345 Avada West Town Center Improvement District GO, VRDN, 1.27%, 12/4/03 (LOC: KeyBank N.A.) 5,345 - -------------------------------------------------------------------------------- 7,000 Colorado Housing & Finance Auth. Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank Trust N.A.) 7,000 - -------------------------------------------------------------------------------- 15,685 - -------------------------------------------------------------------------------- FLORIDA -- 4.3% - -------------------------------------------------------------------------------- 600 Alachua County Housing Finance Auth. Rev., (University Cove Apartments), VRDN, 1.14%, 12/3/03 (LOC: FNMA) 600 - -------------------------------------------------------------------------------- 1,900 Broward County Airport Exempt Facility Rev., (Various LearJet Inc. Projects), VRDN, 1.25%, 12/4/03 (LOC: Bank of America) 1,900 - -------------------------------------------------------------------------------- 6,305 Florida Housing Finance Agency Multifamily Rev., (Country Club), VRDN, 1.25%, 12/4/03 (LOC: FHLMC) 6,305 - -------------------------------------------------------------------------------- 2,300 Miami Health Facilities Auth. Rev., VRDN, 1.23%, 12/4/03 (SBBPA: Westdeutsche Landesbank AG) (Acquired 3/7/03-11/28/03, Cost $2,300)(1) 2,300 - -------------------------------------------------------------------------------- 11,105 - -------------------------------------------------------------------------------- GEORGIA -- 1.1% - -------------------------------------------------------------------------------- 2,725 Fulton County Development Auth. Industrial Rev., VRDN, 1.16%, 2/15/03 (CRP: Automatic Data Processing) 2,725 - -------------------------------------------------------------------------------- IDAHO -- 1.2% - -------------------------------------------------------------------------------- 3,000 Lincoln County Industrial Development Corp. Rev., (Double A Dairy), VRDN, 1.35%, 12/4/03 (LOC: Bank of America N.A.) 3,000 - -------------------------------------------------------------------------------- INDIANA -- 11.1% - -------------------------------------------------------------------------------- 5,500 Fort Wayne Industrial Economic Development Rev., (Lutheran Homes Inc.), VRDN, 1.20%, 12/4/03 (LOC: Fifth Third Bank) 5,500 - -------------------------------------------------------------------------------- 2,800 Jasper County Industrial Development Rev., (Newberry Farms LLC), VRDN, 1.35%, 12/4/03 (LOC: Bank of the West) 2,800 - -------------------------------------------------------------------------------- 6,500 La Porte Industrial Development Rev., (KKO Realty), VRDN, 1.35%, 12/4/03 (LOC: Bank of New York) 6,500 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 4 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 1,700 Morgan County Rev., Series 2002 A, (Morgan Hospital & Medical Center), VRDN, 1.23%, 12/4/03 (LOC: Fifth Third Bank) $ 1,700 - -------------------------------------------------------------------------------- 12,330 Morgan County Rev., Series 2002 B, (Morgan Hospital & Medical Center), VRDN, 1.23%, 12/4/03 (LOC: Fifth Third Bank) 12,330 - -------------------------------------------------------------------------------- 28,830 - -------------------------------------------------------------------------------- KENTUCKY -- 0.8% - -------------------------------------------------------------------------------- 1,000 Murray Industrial Building Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank N.A.) 1,000 - -------------------------------------------------------------------------------- 1,000 Winchester Industrial Building Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank N.A.) 1,000 - -------------------------------------------------------------------------------- 2,000 - -------------------------------------------------------------------------------- LOUISIANA -- 1.9% - -------------------------------------------------------------------------------- 2,800 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Trinity Episcopal School), VRDN, 1.20%, 12/3/03 (LOC: SunTrust Bank) 2,800 - -------------------------------------------------------------------------------- 2,000 Regional Transportation Auth. COP, 4.00%, 5/1/04 (MBIA) 2,025 - -------------------------------------------------------------------------------- 4,825 - -------------------------------------------------------------------------------- MINNESOTA -- 2.9% - -------------------------------------------------------------------------------- 7,440 Dakota County Community Development Agency Rev., (Catholic Finance Corp.), VRDN, 1.25%, 12/3/03 (LOC: U.S. Bank N.A.) 7,440 - -------------------------------------------------------------------------------- MISSOURI -- 2.8% - -------------------------------------------------------------------------------- 7,355 Kansas City Tax Allocation Rev., Series 2003 A, (Chouteau I-35), VRDN, 1.30%, 12/4/03 (MBIA) (SBBPA: JPMorgan Chase Bank) 7,355 - -------------------------------------------------------------------------------- MULTI-STATE -- 9.5% - -------------------------------------------------------------------------------- 17,495 Koch Floating Rate Trust Rev., Series 2000-1, VRDN, 1.35%, 12/4/03 (AMBAC) (SBBPA: State Street Bank & Trust Co.) (Acquired 5/2/00-11/12/03, Cost $17,495)(1) 17,495 - -------------------------------------------------------------------------------- 7,107 Koch Floating Rate Trust Various States Rev., Series 2001-1, VRDN, 1.35%, 12/4/03 (AMBAC) (SBBPA: State Street Bank & Trust Co.) (Acquired 11/4/02-6/16/03, Cost $7,107)(1) 7,107 - -------------------------------------------------------------------------------- 24,602 - -------------------------------------------------------------------------------- NEVADA -- 1.4% - -------------------------------------------------------------------------------- 3,700 Clark County Economic Development Rev., (Lutheran Secondary School Association), VRDN, 1.35%, 12/4/03 (LOC: Allied Irish Bank plc) 3,700 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- NEW JERSEY -- 0.6% - -------------------------------------------------------------------------------- $ 1,500 New Jersey Economic Development Auth. Rev., (Erasteel Inc.), VRDN, 1.40%, 12/4/03 (LOC: Svenska Handelsbanken) $ 1,500 - -------------------------------------------------------------------------------- NEW YORK -- 3.3% - -------------------------------------------------------------------------------- 8,500 New York State Thruway Auth. Rev., Series 2003 A, 1.125%, 3/25/04 8,500 - -------------------------------------------------------------------------------- OHIO -- 2.0% - -------------------------------------------------------------------------------- 5,300 Miami County Hospital Facilities Rev., VRDN, 1.23%, 12/4/03 (Acquired 3/25/02, Cost $5,300) (LOC: National Australia Bank, Ltd.)(1) 5,300 - -------------------------------------------------------------------------------- OREGON -- 6.2% - -------------------------------------------------------------------------------- 13,100 Port of Portland Public Grain Elevator Rev., (Columbia Grain Inc.), VRDN, 1.27%, 12/4/03 (LOC: Wachovia Bank, N.A.) 13,100 - -------------------------------------------------------------------------------- 3,000 State of Oregon GO Tax Anticipation Notes, 2.25%, 11/15/04 3,033 - -------------------------------------------------------------------------------- 16,133 - -------------------------------------------------------------------------------- TENNESSEE -- 6.5% - -------------------------------------------------------------------------------- 7,580 Bradley County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank N.A.) 7,580 - -------------------------------------------------------------------------------- 1,150 Knox County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank Trust N.A.) 1,150 - -------------------------------------------------------------------------------- 8,200 Shelby County Health Educational & Housing Facilities Board Rev., (Kings Daughter & Sons), VRDN, 1.30%, 12/4/03 (LOC: AmSouth Bank) 8,200 - -------------------------------------------------------------------------------- 16,930 - -------------------------------------------------------------------------------- TEXAS -- 10.7% - -------------------------------------------------------------------------------- 5,500 Gulf Coast Industrial Development Auth. Rev., (Petrounited Term Inc.), VRDN, 1.25%, 12/4/03 (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: Westdeutsche Landesbank AG) 2,000 - -------------------------------------------------------------------------------- 9,870 Roaring Fork Municipal Products LLC Rev., VRDN, 1.35%, 12/4/03 (SBBPA: Bank of New York) (Acquired 9/19/02, Cost $9,870)(1) 9,870 - -------------------------------------------------------------------------------- 10,200 Texas Tax & Revenue Anticipation Notes, 2.00%, 8/31/04 10,263 - -------------------------------------------------------------------------------- 27,633 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 5 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- VERMONT -- 1.5% - -------------------------------------------------------------------------------- $ 1,970 Vermont Educational & Health Buildings Financing Agency Rev., Series 2003 B, (Vermont Law School), VRDN, 1.20%, 12/4/03 (LOC: SunTrust Bank) $ 1,970 - -------------------------------------------------------------------------------- 2,000 Vermont Industrial Development Auth. Rev., (Central Public Service Corp.), VRDN, 1.15%, 12/15/03 (LOC: Citizens Bank of MA) 2,000 - -------------------------------------------------------------------------------- 3,970 - -------------------------------------------------------------------------------- WASHINGTON -- 1.9% - -------------------------------------------------------------------------------- 1,015 Pierce County Economic Development Corporate Rev., (K & M Holdings II), VRDN, 1.40%, 12/3/03 (LOC: Wells Fargo Bank, N.A.) (Acquired 11/17/97, Cost $1,015)(1) 1,015 - -------------------------------------------------------------------------------- 1,400 Snohomish County School District No. 15 Edmonds GO, Series 2003 B, 5.00%, 6/1/04 (FSA/School Board Guaranteed) 1,427 - -------------------------------------------------------------------------------- 2,400 Washington Housing Finance Commission Nonprofit Rev., (YMCA Columbia/Willamette), VRDN, 1.20%, 12/4/03 (LOC: Wells Fargo Bank, N.A.) 2,400 - -------------------------------------------------------------------------------- 4,842 - -------------------------------------------------------------------------------- WYOMING -- 0.7% - -------------------------------------------------------------------------------- 1,800 Sweetwater County Pollution Control Rev., Series 1988 B, (Pacificorp), VRDN, 1.10%, 12/1/03 (LOC: Bank One N.A.) 1,800 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% $258,769 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation CRP = Corporate Guarantee FHLB = Federal Home Loan Bank FHLMC = Federal Home Loan Mortgage Corporation FNMA = Federal National Mortgage Association FSA = Financial Security Assurance Inc. FWPA = Forward Warrant Purchase Agreement GIC = Guaranteed Investment Contract GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corp. PSF = Permanent School Fund SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 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 November 30, 2003, was $54,752 (in thousands), which represented 21.1% of net assets. Restricted securities considered illiquid represent 1.0% of net assets. See Notes to Financial Statements. - ------ 6 Tax-Free Bond - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2003 ------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 5.72% 5.36% 5.46% 5.87% 3/2/87 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 5.72% 5.49% 5.52% 6.10%(1) -- - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S INTERMEDIATE MUNICIPAL DEBT FUNDS 5.57% 4.80% 5.23% 6.07%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 68 of 143 12 of 96 15 of 56 8 of 12(2) -- - -------------------------------------------------------------------------------- Institutional Class -- -- -- 3.05%(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 November 30, 1993
ONE-YEAR RETURNS OVER 10 YEARS Periods ended November 30 - -------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 - -------------------------------------------------------------------------------- Investor Class -1.90% 12.80% 4.99% 5.66% 6.77% - -------------------------------------------------------------------------------- Lehman Municipal 5-Year GO Index -0.90% 11.99% 5.36% 5.38% 6.32% - -------------------------------------------------------------------------------- Periods ended November 30 - -------------------------------------------------------------------------------- 1999 2000 2001 2002 2003 - -------------------------------------------------------------------------------- Investor Class -0.24% 7.29% 8.25% 6.02% 5.72% - -------------------------------------------------------------------------------- Lehman Municipal 5-Year GO Index 1.49% 5.62% 8.24% 6.47% 5.72% - ------------------------------------------------------------------------------- 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 returned -0.19%* for the six months ended November 30, 2003, performance. By comparison, the average return of the 148 Intermediate Municipal Debt Funds tracked by Lipper Inc. was -0.05%. (See the pre wasn't as solid as we would have liked, long-term performance remained solid. For example, Tax-Free Bond ranked among the top 30% or better of its Lipper peer group for the five- and 10-year periods ended November 30, 2003. ECONOMIC AND GLOBAL BACKDROP After serving out the second quarter at a 3.1% annualized pace, economic growth (as measured by seasonally adjusted gross domestic product) accelerated to an estimated 8.2% during the third quarter. That surprisingly robust three-month rate marked the fastest quarterly increase since 1983. Activity appears to have tapered off some here in the fourth quarter, but is still forecast to rise in the neighborhood of 4-5%. Encouraging economic news arrived in other forms as well, especially toward period-end. In particular, consumer confidence surged, housing-market activity remained near record levels, and durable goods orders generally increased as well. In addition, inflation (as measured by the consumer price index) remained tame. Prices were so well behaved that the Federal Reserve, which reduced its benchmark interest rate--the federal funds rate--to approximately a 45-year low of 1.00% in late June, said in late October that the chance for deflation, or a drop in prices, posed a bigger threat than an increase in prices. Outside of the economic front, however, a full spate of troubling news tempered consumer enthusiasm going into the holiday season. Global evidence of increased terrorist activity, a brief evacuation of the White House, ongoing violence in Iraq, and still-high oil prices reminded investors that plenty of challenges remained. MUNICIPAL MARKET PERFORMANCE Municipal bonds produced limited total returns, as evidenced by the 0.47% gain of the Lehman Brothers Municipal 5-Year GO Index. The solid economic improvement weighed on bonds in general. However, terrorist-related concerns provided a limited counterbalance, as did Fed Chief Alan Greenspan's early November reassurance that the Fed will remain patient regarding interest rates. YIELDS AS OF NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 2.53% - -------------------------------------------------------------------------------- Institutional Class 2.73% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.0% Tax Bracket 3.37% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 3.51% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 3.78% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 3.89% - -------------------------------------------------------------------------------- (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 Stepped-up supply played a role as well. Although new municipal bond issuance tapered off some by the end of the six months, the supply of new municipal bonds kept 2003 on track to fall not far from 2002's $358 billion record. Fortunately, solid investor demand helped to buoy municipal bonds in spite of the increased supply. PORTFOLIO STRATEGIES With that environment in mind, we generally kept Tax-Free Bond's interest rate sensitivity conservatively low and even decreased it some from the start of June. That generally helped performance when economic data surprised to the upside and bond prices fell, but dampened returns during rallies. We maintained Tax-Free Bond's emphasis on better-rated bonds, as shown by the accompanying table regarding the portfolio's composition by credit rating. However, we continued to look for lower-rated investment-grade bonds with what we felt were solid credit stories with the help of our credit research team. Along those lines, we added what we considered to be some attractively valued hospital bonds. As always, as we also looked for what we felt were attractive opportunities based on supply and demand fluctuations within and between the various states. For the six months, that strategy prompted us to increase the portfolio's exposure to California bonds and to decrease its exposure to bonds from states such as Arizona and New York. Lastly, our interest rate and inflation expectations combined with what we felt was a significant difference between the yields of short- and long-term bonds led us to often favor short- and long-term bonds when adding to the portfolio. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/03 5/31/03 - -------------------------------------------------------------------------------- AAA 72% 76% - -------------------------------------------------------------------------------- AA 13% 10% - -------------------------------------------------------------------------------- A 7% 10% - -------------------------------------------------------------------------------- BBB 8% 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 STATES AS OF NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/03 5/31/03 - -------------------------------------------------------------------------------- California 11.6% 9.7% - -------------------------------------------------------------------------------- Washington 9.2% 8.9% - -------------------------------------------------------------------------------- New York 6.6% 9.7% - -------------------------------------------------------------------------------- Texas 6.3% 5.5% - -------------------------------------------------------------------------------- Arizona 5.7% 9.0% - -------------------------------------------------------------------------------- - ------ 9 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 96.3% ALABAMA -- 1.6% - -------------------------------------------------------------------------------- $ 1,000 Alabama Board of Education Rev., (Shelton State Community College), 6.00%, 10/1/09, Prerefunded at 102% of Par (MBIA)(4) $ 1,061 - -------------------------------------------------------------------------------- 865 Alabama Water Pollution Control Auth. Rev., 5.75%, 8/15/18 (AMBAC) 980 - -------------------------------------------------------------------------------- 1,000 East Central Industrial Development Auth. Rev., 5.25%, 9/1/13 (AMBAC) 1,111 - -------------------------------------------------------------------------------- 1,875 Helena Utilities Board Water & Sewer Rev., 5.75%, 4/1/20 (MBIA) 2,109 - -------------------------------------------------------------------------------- 1,435 Helena Utilities Board Water & Sewer Rev., 5.75%, 4/1/22 (MBIA) 1,600 - -------------------------------------------------------------------------------- 1,250 Huntsville Health Care Auth. Rev., Series 2002 A, 3.80%, 6/1/06 (MBIA) 1,308 - -------------------------------------------------------------------------------- 1,500 Montgomery Waterworks & Sanitary Sewer Board Rev., Series 2002 A, 5.00%, 9/1/04 (AMBAC) 1,544 - -------------------------------------------------------------------------------- 9,713 - -------------------------------------------------------------------------------- ALASKA -- 0.5% - -------------------------------------------------------------------------------- 1,670 Alaska Energy Auth. Power Rev., Series 2000-4, (Bradley Lake), 5.50%, 7/1/04 (FSA) 1,713 - -------------------------------------------------------------------------------- 1,000 Alaska Energy Auth. Power Rev., Series 2000-4, (Bradley Lake), 5.50%, 7/1/05 (FSA) 1,065 - -------------------------------------------------------------------------------- 2,778 - -------------------------------------------------------------------------------- ARIZONA -- 5.7% - -------------------------------------------------------------------------------- 2,000 Arizona School Facilities Board Rev., (State School Improvement), 5.25%, 7/1/20 2,161 - -------------------------------------------------------------------------------- 1,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/11 1,061 - -------------------------------------------------------------------------------- 1,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/12 1,056 - -------------------------------------------------------------------------------- 1,500 Arizona Transportation Board Highway Rev., Series 2002 B, 5.25%, 7/1/19 1,627 - -------------------------------------------------------------------------------- 2,000 Arizona Transportation Board Highway Rev., Series 2002 B, 5.25%, 7/1/20 2,158 - -------------------------------------------------------------------------------- 2,925 Chandler Water & Sewer Rev., 4.50%, 7/1/06 (FSA) 3,134 - -------------------------------------------------------------------------------- 2,130 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/12 (MBIA) 2,293 - -------------------------------------------------------------------------------- 1,000 Glendale Water & Sewer Rev., 5.00%, 7/1/06 (FGIC) 1,085 - -------------------------------------------------------------------------------- 4,000 Maricopa County Community College District GO, Series 1997 B, 5.00%, 7/1/12 4,349 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 1,155 Maricopa County Unified School District No. 41 Gilbert GO, 5.75%, 7/1/11 (FSA) $ 1,351 - -------------------------------------------------------------------------------- 2,415 Maricopa County Unified School District No. 90 GO, Series 2003 A, (Saddle Mountain), 5.25%, 7/1/11 2,607 - -------------------------------------------------------------------------------- 2,000 Maricopa County Unified School District No. 90 GO, Series 2003 A, (Saddle Mountain), 5.25%, 7/1/12 2,155 - -------------------------------------------------------------------------------- 1,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/20 (MBIA) 1,150 - -------------------------------------------------------------------------------- 2,000 Pima County Unified School District No. 1 GO, Series 1993 E, (Tucson), 5.25%, 7/1/08 (FGIC) 2,067 - -------------------------------------------------------------------------------- 1,200 Pima County Unified School District No. 40 Rev., Series 2002 A, (Indian Oasis-Baboquivari), 4.60%, 7/1/13 (MBIA) 1,287 - -------------------------------------------------------------------------------- 1,500 Salt River Project Agricultural Improvement and Power District Electrical System Rev., Series 2001 A, 5.00%, 1/1/05 1,563 - -------------------------------------------------------------------------------- 705 South Tucson Municipal Property Corp. Rev., 5.25%, 6/1/18 703 - -------------------------------------------------------------------------------- 3,085 South Tucson Municipal Property Corp. Rev., 5.50%, 6/1/24 3,082 - -------------------------------------------------------------------------------- 34,889 - -------------------------------------------------------------------------------- ARKANSAS -- 0.7% - -------------------------------------------------------------------------------- 2,000 Fort Smith Sales and Use Tax Rev., Series 2001 A, 4.375%, 12/1/11 2,152 - -------------------------------------------------------------------------------- 1,300 Sebastian County Health Facilities Board Hospital Rev., Series 2001 A, (Sparks Regional Medical Center), 4.00%, 11/1/04 1,321 - -------------------------------------------------------------------------------- 905 Sebastian County Health Facilities Board Hospital Rev., Series 2001 B, (Sparks Regional Medical Center), 4.00%, 11/1/04 919 - -------------------------------------------------------------------------------- 4,392 - -------------------------------------------------------------------------------- CALIFORNIA -- 10.9% - -------------------------------------------------------------------------------- 1,405 Aromas-San Juan Unified School District GO, Series 2002 A, 5.62%, 8/1/25 (FGIC)(1) 447 - -------------------------------------------------------------------------------- 1,545 Aromas-San Juan Unified School District GO, Series 2002 A, 5.64%, 7/1/27 (FGIC)(1) 440 - -------------------------------------------------------------------------------- 2,245 Calaveras Unified School District GO, 5.88%, 8/1/26 (FSA)(1) 674 - -------------------------------------------------------------------------------- 2,875 Calaveras Unified School District GO, 5.89%, 5/1/27 (FSA)(1) 826 - -------------------------------------------------------------------------------- 1,000 California Public Works Board Lease Rev., Series 1994 A, (Various California State University Projects), 6.20%, 10/1/08 1,057 - -------------------------------------------------------------------------------- 1,100 California Public Works Board Lease Rev., Series 1994 A, (Various University of California Projects), 6.15%, 11/1/04 1,171 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 10 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $11,375 California Public Works Board Lease Rev., Series 2002 A, (Department of General Services - Capital East End), 5.00%, 12/1/12 (AMBAC)(2) $ 12,626 - -------------------------------------------------------------------------------- 10,000 California Rev. Anticipation Warrants, Series 2003 B, 2.00%, 6/16/04 10,020 - -------------------------------------------------------------------------------- 1,000 California Statewide Communities Development Auth. Rev., Series 2002 E, (Kaiser Permanente), 4.70%, 6/1/09 1,069 - -------------------------------------------------------------------------------- 4,500 California Statewide Communities Development Auth. Rev., Series 2003 C, (Pooled Financing Program), 5.25%, 10/1/24 (FSA)(3) 4,691 - -------------------------------------------------------------------------------- 1,615 Campbell COP, (Civic Center), 5.83%, 10/1/31 (AMBAC)(1) 358 - -------------------------------------------------------------------------------- 1,615 Campbell COP, (Civic Center), 5.83%, 10/1/32 (AMBAC)(1) 338 - -------------------------------------------------------------------------------- 675 Glendale Unified School District GO, Series 2003 F, 4.50%, 9/1/17 (MBIA) 696 - -------------------------------------------------------------------------------- 800 Glendale Unified School District GO, Series 2003 F, 4.50%, 9/1/19 (MBIA) 814 - -------------------------------------------------------------------------------- 4,000 Golden State Tobacco Securitization Corp. Rev., Series 2003 A1, 5.00%, 6/1/21 4,007 - -------------------------------------------------------------------------------- 3,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (AMBAC) 3,246 - -------------------------------------------------------------------------------- 1,500 Los Angeles Community Redevelopment Agency Tax Allocation Rev., Series 1993 H, (Bunker Hill), 6.50%, 12/1/14 (FSA) 1,536 - -------------------------------------------------------------------------------- 2,070 Pleasant Valley School District Ventura County GO, Series 2002 A, 5.85%, 2/1/24 (MBIA) 2,415 - -------------------------------------------------------------------------------- 825 Rocklin Unified School District Community Facilities Special Tax Rev., (Capital Appreciation #1), 6.10%, 9/1/24 (AMBAC)(1) 278 - -------------------------------------------------------------------------------- 3,925 Sacramento Municipal Utility District Rev., Series 2003 S, 5.00%, 11/15/12 (MBIA) 4,387 - -------------------------------------------------------------------------------- 2,145 San Francisco Uptown Parking Corporation Rev., (Union Square), 5.50%, 7/1/15 (MBIA) 2,412 - -------------------------------------------------------------------------------- 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) 2,268 - -------------------------------------------------------------------------------- 1,000 San Mateo Union High School District GO, Series 2002 B, (Election of 2000), 5.68%, 9/1/25 (FGIC)(1) 317 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 3,400 Santa Barbara Redevelopment Agency Tax Allocation Rev., Series 1995 A, (Central City Redevelopment), 6.00%, 3/1/08 (AMBAC) $ 3,853 - -------------------------------------------------------------------------------- 5,000 University of California Rev., Series 2002 O, (Multiple Purpose Projects), 4.50%, 9/1/15 (FGIC) 5,220 - -------------------------------------------------------------------------------- 66,322 - -------------------------------------------------------------------------------- COLORADO -- 3.9% - -------------------------------------------------------------------------------- 1,100 Arapahoe County Water & Wastewater Public Improvement District GO, Series 2002 B, 5.75%, 12/1/17 (MBIA) 1,258 - -------------------------------------------------------------------------------- 500 Colorado Water Resources & Power Development Auth. Clean Water Rev., Series 2000 A, 6.25%, 9/1/16 587 - -------------------------------------------------------------------------------- 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) 3,244 - -------------------------------------------------------------------------------- 490 Eagle Bend Metropolitan District No. 2 GO, 4.00%, 12/1/10 (RADIAN) 506 - -------------------------------------------------------------------------------- 515 Eagle Bend Metropolitan District No. 2 GO, 4.00%, 12/1/11 (RADIAN) 525 - -------------------------------------------------------------------------------- 535 Eagle Bend Metropolitan District No. 2 GO, 4.50%, 12/1/12 (RADIAN) 559 - -------------------------------------------------------------------------------- 560 Eagle Bend Metropolitan District No. 2 GO, 4.50%, 12/1/13 (RADIAN) 581 - -------------------------------------------------------------------------------- 2,500 Eagle Bend Metropolitan District No. 2 GO, 5.25%, 12/1/23 (RADIAN) 2,562 - -------------------------------------------------------------------------------- 2,000 Eagle Bend Metropolitan District No. 2 GO, 5.00%, 12/1/28 (RADIAN) 1,968 - -------------------------------------------------------------------------------- 1,990 Superior Metropolitan District No. 1 Water & Sewer Rev., Series 2000 A, 5.45%, 12/1/04 (LOC: Banque Nationale de Paris SA) 2,059 - -------------------------------------------------------------------------------- 3,955 Superior Metropolitan District No. 1 Water & Sewer Rev., Series 2000 B, 5.45%, 12/1/20 (LOC: Allied Irish Bank plc) 4,093 - -------------------------------------------------------------------------------- 5,000 University of Colorado Regents COP, 6.00%, 12/1/22 (MBIA-IBC) 5,771 - -------------------------------------------------------------------------------- 23,713 - -------------------------------------------------------------------------------- CONNECTICUT -- 1.4% - -------------------------------------------------------------------------------- 1,880 Connecticut Development Auth. Rev., Series 1994 A, 6.375%, 10/15/24 1,997 - -------------------------------------------------------------------------------- 2,000 Farmington GO, 3.30%, 9/15/11 2,015 - -------------------------------------------------------------------------------- 2,000 Farmington GO, 3.80%, 9/15/14 2,012 - -------------------------------------------------------------------------------- 2,215 New Haven Air Rights Package Facility Rev., 5.00%, 12/1/10 (AMBAC) 2,493 - -------------------------------------------------------------------------------- 8,517 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 11 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA -- 1.6% - -------------------------------------------------------------------------------- $ 1,080 District of Columbia COP, (Public Safety & Emergency), 3.00%, 1/1/05 (AMBAC) $ 1,100 - -------------------------------------------------------------------------------- 1,385 District of Columbia GO, Series 1999 B, 5.50%, 6/1/09 (FSA) 1,578 - -------------------------------------------------------------------------------- 1,155 District of Columbia Rev., (Gonzaga College High School), 5.20%, 7/1/12 (FSA) 1,270 - -------------------------------------------------------------------------------- 6,415 District of Columbia Tobacco Settlement Financing Corporation Rev., 6.25%, 5/15/24 6,119 - -------------------------------------------------------------------------------- 10,067 - -------------------------------------------------------------------------------- FLORIDA -- 1.4% - -------------------------------------------------------------------------------- 2,585 Greater Orlando Aviation Auth. Rev., Series 2003 A, 5.00%, 10/1/13 (FSA) 2,858 - -------------------------------------------------------------------------------- 1,465 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 3.60%, 11/15/05 1,492 - -------------------------------------------------------------------------------- 1,500 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 4.00%, 11/15/06 1,549 - -------------------------------------------------------------------------------- 1,000 Orlando Utilities Commission Water & Electric Rev., Series 1989 D, 6.75%, 10/1/17 1,249 - -------------------------------------------------------------------------------- 1,420 Port St. Lucie Rev., 5.00%, 9/1/21 (MBIA) 1,491 - -------------------------------------------------------------------------------- 8,639 - -------------------------------------------------------------------------------- GEORGIA -- 1.3% - -------------------------------------------------------------------------------- 3,150 Atlanta Airport Rev., Series 2003 RF-A, 4.50%, 1/1/05 (MBIA) 3,261 - -------------------------------------------------------------------------------- 255 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/09, Prerefunded at 100% of Par (MBIA-IBC)(4) 300 - -------------------------------------------------------------------------------- 110 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC) 133 - -------------------------------------------------------------------------------- 635 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC)(4) 757 - -------------------------------------------------------------------------------- 1,510 La Grange Water & Sewer Rev., 2.60%, 1/1/05 (AMBAC) 1,533 - -------------------------------------------------------------------------------- 2,030 La Grange Water & Sewer Rev., 3.00%, 1/1/06 (AMBAC) 2,090 - -------------------------------------------------------------------------------- 8,074 - -------------------------------------------------------------------------------- HAWAII -- 0.1% - -------------------------------------------------------------------------------- 500 Maui County GO, Series 2000 A, 6.50%, 3/1/10, Prerefunded at 101% of Par (FGIC)(4) 608 - -------------------------------------------------------------------------------- IDAHO -- 0.2% - -------------------------------------------------------------------------------- 1,000 Blaine County School District No. 61 GO, (Hailey), 5.00%, 7/30/10 (AMBAC) 1,122 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- ILLINOIS -- 4.0% - -------------------------------------------------------------------------------- $ 1,400 Chicago GO, (Equipment Notes), 5.60%, 1/1/05 (AMBAC) $ 1,466 - -------------------------------------------------------------------------------- 1,300 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 4.80%, 1/1/05 1,329 - -------------------------------------------------------------------------------- 4,000 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 5.00%, 1/1/12 (MBIA-IBC) 4,380 - -------------------------------------------------------------------------------- 1,000 Du Page Airport Auth. Rev., Series 2002 A, 3.00%, 2/1/04 (FGIC) 1,003 - -------------------------------------------------------------------------------- 2,170 Du Page Airport Auth. Rev., Series 2002 A, 3.00%, 2/1/06 (FGIC) 2,238 - -------------------------------------------------------------------------------- 2,000 Illinois Dedicated Tax Rev., (Civic Center), 6.25%, 12/15/20 (AMBAC) 2,443 - -------------------------------------------------------------------------------- 595 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.00%, 5/15/08 640 - -------------------------------------------------------------------------------- 655 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.125%, 5/15/10 697 - -------------------------------------------------------------------------------- 400 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.75%, 5/15/16 427 - -------------------------------------------------------------------------------- 1,140 Illinois Health Facilities Auth. Rev., Series 1992 C, (Evangelical Hospital), 6.75%, 4/15/12(4) 1,388 - -------------------------------------------------------------------------------- 1,100 Illinois Health Facilities Auth. Rev., Series 2002 A, (Lake Forest Hospital), 5.00%, 7/1/05 1,150 - -------------------------------------------------------------------------------- 1,000 Illinois Regional Transportation Auth. Rev., Series 1990 A, 7.20%, 11/1/20 (AMBAC) 1,336 - -------------------------------------------------------------------------------- 2,000 Illinois State University Rev., (Auxiliary Facilities System), 5.00%, 4/1/13 (FSA) 2,216 - -------------------------------------------------------------------------------- 1,105 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/17 (MBIA) 1,294 - -------------------------------------------------------------------------------- 1,220 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/18 (MBIA) 1,423 - -------------------------------------------------------------------------------- 1,000 University of Illinois COP, (Utility Infrastructure), 5.75%, 8/15/08 (MBIA) 1,141 - -------------------------------------------------------------------------------- 24,571 - -------------------------------------------------------------------------------- INDIANA -- 1.8% - -------------------------------------------------------------------------------- 1,010 Hamilton County Public Building Corp. Rev., (First Mortgage), 3.50%, 1/20/04 (AMBAC) 1,013 - -------------------------------------------------------------------------------- 1,005 Hamilton County Public Building Corp. Rev., (First Mortgage), 4.00%, 1/20/05 (AMBAC) 1,037 - -------------------------------------------------------------------------------- 1,900 Indiana Health Facilities Financing Auth. Hospital Rev., (Holy Cross Health System Corp.), 5.375%, 12/2/12 (MBIA) 2,110 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 12 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 1,000 Indiana Municipal Power Agency Rev., Series 2003 B, 4.00%, 1/1/05 (MBIA) $ 1,030 - -------------------------------------------------------------------------------- 780 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15 1,009 - -------------------------------------------------------------------------------- 220 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15, Prerefunded at 100% of Par(4) 275 - -------------------------------------------------------------------------------- 1,500 Mount Vernon of Hancock County Multi-School Building Corp. Rev., Series 2001 B, (First Mortgage), 5.75%, 7/15/15 (AMBAC) 1,718 - -------------------------------------------------------------------------------- 1,650 Valparaiso Middle Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/11, Prerefunded at 100% of Par (FGIC)(4) 1,941 - -------------------------------------------------------------------------------- 1,000 Zionsville Community Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/15 (FGIC/State Aid Withholding) 1,127 - -------------------------------------------------------------------------------- 11,260 - -------------------------------------------------------------------------------- KANSAS -- 0.6% - -------------------------------------------------------------------------------- 325 Kansas City Utility System Rev., 6.375%, 9/1/04, Prerefunded at 102% of Par (FGIC)(4) 344 - -------------------------------------------------------------------------------- 675 Kansas City Utility System Rev., 6.375%, 9/1/23 (FGIC) 713 - -------------------------------------------------------------------------------- 1,280 Wichita Hospital Facilities Rev., Series 2001 III, 5.25%, 11/15/13 1,379 - -------------------------------------------------------------------------------- 1,195 Wichita Hospital Facilities Rev., Series 2001 III, 5.50%, 11/15/16 1,281 - -------------------------------------------------------------------------------- 3,717 - -------------------------------------------------------------------------------- LOUISIANA -- 1.0% - -------------------------------------------------------------------------------- 2,000 Louisiana Public Facilities Auth. Rev., (University Hospital Facilities), 3.00%, 10/15/04 (FGIC) 2,031 - -------------------------------------------------------------------------------- 3,800 Louisiana Public Facilities Auth. Rev., (University Hospital Facilities), 3.00%, 10/15/05 (FGIC) 3,908 - -------------------------------------------------------------------------------- 5,939 - -------------------------------------------------------------------------------- MARYLAND -- 0.7% - -------------------------------------------------------------------------------- 4,180 Howard County GO, Series 2003 A, (Consolidated Public Improvement), 4.00%, 8/15/07 4,484 - -------------------------------------------------------------------------------- MASSACHUSSETTS -- 3.2% - -------------------------------------------------------------------------------- 2,000 Massachusetts GO, Series 2002 E, (Consolidated Loan), 5.00%, 1/1/05 2,081 - -------------------------------------------------------------------------------- 5,000 Massachusetts GO, Series 2003 C, 5.00%, 12/1/06 (XLCA) 5,464 - -------------------------------------------------------------------------------- 10,000 Massachusetts GO, Series 2003 C, 5.00%, 12/1/07 (XLCA) 11,069 - -------------------------------------------------------------------------------- 1,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 1992 F, 6.25%, 7/1/12 (AMBAC) 1,183 - -------------------------------------------------------------------------------- 19,797 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MICHIGAN -- 2.3% - -------------------------------------------------------------------------------- $ 1,485 Grand Valley State University Rev., 5.75%, 12/1/15 (FGIC) $ 1,695 - -------------------------------------------------------------------------------- 1,000 Michigan Hospital Finance Auth. Rev., Series 1999 A, (Ascension Health Credit), 5.25%, 11/15/05 (MBIA) 1,072 - -------------------------------------------------------------------------------- 2,440 Michigan State Building Auth. Rev., (State Police Communications System), 2.50%, 10/1/05 2,490 - -------------------------------------------------------------------------------- 2,010 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/11 (FGIC) 2,239 - -------------------------------------------------------------------------------- 1,205 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/12 (FGIC) 1,333 - -------------------------------------------------------------------------------- 2,215 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/13 (FGIC) 2,502 - -------------------------------------------------------------------------------- 2,335 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/14 (FGIC) 2,618 - -------------------------------------------------------------------------------- 13,949 - -------------------------------------------------------------------------------- MINNESOTA -- 0.6% - -------------------------------------------------------------------------------- 2,325 Minneapolis Health Care Systems Rev., Series 2002 B, (Fairview Health Services), 4.00%, 5/15/04 (MBIA) 2,356 - -------------------------------------------------------------------------------- 1,000 Minnesota Housing Finance Agency Rev., Series 2000 C, (Residential Housing Finance), 3.00%, 7/1/21 (GO of Agency) 1,007 - -------------------------------------------------------------------------------- 3,363 - -------------------------------------------------------------------------------- MISSOURI -- 2.0% - -------------------------------------------------------------------------------- 1,145 Jackson County Public Building Corp. Rev., Series 2000 A, 6.00%, 11/1/18 1,242 - -------------------------------------------------------------------------------- 1,775 Missouri Development Finance Board Rev., Series 2000 A, (Midtown Redevelopment), 5.75%, 4/1/22 (MBIA) 1,997 - -------------------------------------------------------------------------------- 3,000 Missouri Health & Educational Facilities Auth. Rev., Series 1998 A, (Park Lane Medical Center), 5.60%, 1/1/15 (MBIA) 3,440 - -------------------------------------------------------------------------------- 2,475 Springfield COP, (Greene County Park), 3.00%, 12/1/03 2,475 - -------------------------------------------------------------------------------- 3,210 Springfield COP, (Greene County Park), 3.50%, 12/1/04 3,278 - -------------------------------------------------------------------------------- 12,432 - -------------------------------------------------------------------------------- NEBRASKA -- 0.8% - -------------------------------------------------------------------------------- 5,000 Nebraska Public Power District Rev., 3.50%, 12/1/03 5,001 - -------------------------------------------------------------------------------- NEVADA -- 2.0% - -------------------------------------------------------------------------------- 1,000 Clark County School District GO, Series 1997 B, (Building & Renovation), 5.25%, 6/15/17 (FGIC) 1,093 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 13 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 3,295 Las Vegas Redevelopment Agency Tax Increment Rev., Series 2003 A, (Fremont Street), 4.50%, 6/15/10 $ 3,360 - -------------------------------------------------------------------------------- 3,785 Las Vegas Redevelopment Agency Tax Increment Rev., Series 2003 A, (Fremont Street), 5.00%, 6/15/13 3,858 - -------------------------------------------------------------------------------- 1,550 Reno Senior Lien Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), 5.50%, 6/1/19 (AMBAC) 1,703 - -------------------------------------------------------------------------------- 1,865 Reno Senior Lien Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), 5.50%, 6/1/20 (AMBAC) 2,040 - -------------------------------------------------------------------------------- 12,054 - -------------------------------------------------------------------------------- NEW JERSEY -- 2.5% - -------------------------------------------------------------------------------- 4,335 New Jersey Transit Corporation COP, 5.00%, 10/1/12 (FSA) 4,810 - -------------------------------------------------------------------------------- 5,595 New Jersey Transit Corporation COP, 5.00%, 10/1/13 (FSA) 6,200 - -------------------------------------------------------------------------------- 2,275 New Jersey Transportation Trust Fund Auth. Rev., Series 2003 C, 5.00%, 6/15/09 2,535 - -------------------------------------------------------------------------------- 1,855 Tobacco Settlement Financing Corp. Rev., 4.375%, 6/1/19 1,757 - -------------------------------------------------------------------------------- 15,302 - -------------------------------------------------------------------------------- NEW MEXICO -- 0.3% - -------------------------------------------------------------------------------- 1,415 San Juan County Gross Receipts Tax Rev., Series 2001 A, 5.75%, 9/15/21 (AMBAC) 1,604 - -------------------------------------------------------------------------------- NEW YORK -- 6.6% - -------------------------------------------------------------------------------- 1,000 City of New York GO, Series 1996 F, 5.75%, 2/1/04 1,008 - -------------------------------------------------------------------------------- 2,100 City of New York GO, Series 2002 B, 5.00%, 8/1/04 2,152 - -------------------------------------------------------------------------------- 2,975 City of New York GO, Series 2002 B, 5.25%, 8/1/09 (CIFG) 3,376 - -------------------------------------------------------------------------------- 2,885 City of New York GO, Series 2002 C, 5.25%, 8/1/09 (CIFG) 3,274 - -------------------------------------------------------------------------------- 4,000 City of New York GO, Series 2002 C, 5.25%, 8/1/10 4,431 - -------------------------------------------------------------------------------- 5,000 City of New York GO, Series 2003 I, 5.75%, 3/1/20 5,498 - -------------------------------------------------------------------------------- 5,790 Long Island Power Auth. Rev., Series 2003 B, 5.00%, 12/1/06 (XLCA) 6,296 - -------------------------------------------------------------------------------- 1,500 New York Dormitory Auth. Rev., Series 1995 A, (State University Educational Facilities), 6.50%, 5/15/04 1,536 - -------------------------------------------------------------------------------- 1,000 New York Dormitory Auth. Rev., Series 1995 A, (State University Educational Facilities), 6.50%, 5/15/06 1,113 - -------------------------------------------------------------------------------- 1,000 New York Dormitory Auth. Rev., Series 1996 E, (Mental Health Service Facility), 6.00%, 8/15/04 (AMBAC) 1,034 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 2,000 New York Dormitory Auth. Rev., Series 2002 A, (School Districts Financing Program), 5.25%, 10/1/11 (MBIA) $ 2,275 - -------------------------------------------------------------------------------- 3,250 New York Dormitory Auth. Rev., Series 2002 A, (School Districts Financing Program), 5.25%, 10/1/12 (MBIA) 3,685 - -------------------------------------------------------------------------------- 1,100 New York Dormitory Auth. Rev., Series 2002 A, (United Cerebral Palsy Affiliate No. 1), 5.75%, 7/1/18 (AMBAC) 1,250 - -------------------------------------------------------------------------------- 1,105 New York Dormitory Auth. Rev., Series 2002 H, (School District Financing Program), 5.00%, 10/1/11 (MBIA) 1,238 - -------------------------------------------------------------------------------- 1,160 New York State Thruway Auth. Service Contract Rev., 5.50%, 4/1/06 1,261 - -------------------------------------------------------------------------------- 1,000 Niagara Falls Bridge Commission Toll Rev., Series 1993 B, 5.25%, 10/1/15 (FGIC) 1,134 - -------------------------------------------------------------------------------- 40,561 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 1.5% - -------------------------------------------------------------------------------- 2,000 North Carolina Eastern Municipal Power Agency System Rev., Series 1993 B, 6.00%, 1/1/06 (FSA) 2,178 - -------------------------------------------------------------------------------- 1,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., 6.00%, 1/1/10 (MBIA) 1,168 - -------------------------------------------------------------------------------- 1,500 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 3.00%, 1/1/05 1,520 - -------------------------------------------------------------------------------- 2,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 5.50%, 1/1/13 2,215 - -------------------------------------------------------------------------------- 1,910 Town of Mooresville COP, 2.00%, 2/1/06 (MBIA)(3) 1,927 - -------------------------------------------------------------------------------- 9,008 - -------------------------------------------------------------------------------- NORTH DAKOTA -- 0.3% - -------------------------------------------------------------------------------- 1,500 Grand Forks Health Care System Rev., (Altru Health System Obligation Group), 7.125%, 8/15/24 1,635 - -------------------------------------------------------------------------------- OHIO -- 2.9% - -------------------------------------------------------------------------------- 1,500 Bowling Green State University General Receipts Rev., 4.75%, 6/1/09 (FGIC) 1,663 - -------------------------------------------------------------------------------- 1,000 City of Cleveland GO, 2.00%, 8/1/05 (FGIC) 1,011 - -------------------------------------------------------------------------------- 1,000 City of Cleveland GO, 2.00%, 8/1/06 (FGIC) 1,009 - -------------------------------------------------------------------------------- 895 Erie County Hospital Facilities Rev., Series 2002 A, (Firelands Regional Medical Center), 4.00%, 8/15/05 922 - -------------------------------------------------------------------------------- 500 Erie County Hospital Facilities Rev., Series 2002 A, (Firelands Regional Medical Center), 4.50%, 8/15/07 531 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 14 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 1,150 Mad River Local School District GO, (Classroom Facilities), 5.75%, 12/1/19 (FGIC) $ 1,306 - -------------------------------------------------------------------------------- 1,700 Milford Exempt Village School District GO, (School Improvement), 6.00%, 12/1/18 (FSA) 1,993 - -------------------------------------------------------------------------------- 1,200 Ohio Higher Educational Facility Commission Rev., (University of Dayton), 5.55%, 12/1/07 (FGIC) 1,275 - -------------------------------------------------------------------------------- 750 Ohio Higher Educational Facility Commission Rev., Series 1990 B, (Case Western Reserve University), 6.50%, 10/1/20 946 - -------------------------------------------------------------------------------- 3,320 Ohio Water Development Auth. Pollution Control Facilities Rev., 6.00%, 12/1/05, Prerefunded at 101% of Par (MBIA)(4) 3,586 - -------------------------------------------------------------------------------- 1,505 Summit County GO, 5.75%, 12/1/19 (FGIC) 1,720 - -------------------------------------------------------------------------------- 1,550 Tri Valley Local School District GO, 5.75%, 12/1/21 (FGIC) 1,739 - -------------------------------------------------------------------------------- 17,701 - -------------------------------------------------------------------------------- OKLAHOMA -- 0.5% - -------------------------------------------------------------------------------- 600 Moore GO, 6.00%, 4/1/04 (MBIA) 610 - -------------------------------------------------------------------------------- 2,500 Oklahoma Industrial Auth. Health System Rev., Series 1995 C, 7.00%, 8/15/04 (AMBAC)(4) 2,604 - -------------------------------------------------------------------------------- 3,214 - -------------------------------------------------------------------------------- OREGON -- 1.7% - -------------------------------------------------------------------------------- 1,805 Lane County School District No. 19 Springfield GO, 6.375%, 10/15/04, Prerefunded at 101% of Par (MBIA)(4) 1,906 - -------------------------------------------------------------------------------- 8,200 Portland Rev., Series 2003 A, (Second Lien), 4.00%, 6/1/08 (FSA) 8,767 - -------------------------------------------------------------------------------- 10,673 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 1.9% - -------------------------------------------------------------------------------- 1,000 Oxford Area School District GO, Series 2001 A, 5.50%, 2/15/17 (FGIC/State Aid Withholding) 1,110 - -------------------------------------------------------------------------------- 2,975 Philadelphia School District GO, Series 2002 A, 5.25%, 2/1/11 (FSA/State Aid Withholding) 3,361 - -------------------------------------------------------------------------------- 2,500 Philadelphia Water and Wastewater Rev., 5.15%, 6/15/04 (FGIC) 2,552 - -------------------------------------------------------------------------------- 1,500 Pittsburgh School District GO, 5.25%, 9/1/09 (FSA) 1,706 - -------------------------------------------------------------------------------- 1,560 Sayre Health Care Facilities Auth. Rev., Series 2002 A, (Guthrie Health), 4.50%, 12/1/03 1,560 - -------------------------------------------------------------------------------- 1,010 York County School Technology Auth. Rev., 5.00%, 2/15/12 (FGIC) 1,118 - -------------------------------------------------------------------------------- 11,407 - -------------------------------------------------------------------------------- PUERTO RICO -- 1.6% - -------------------------------------------------------------------------------- 500 Puerto Rico Commonwealth GO, 6.45%, 7/1/04, Prerefunded at 101.5% of Par(4) 523 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 2,835 Puerto Rico Commonwealth GO, Series 2003 A, 4.00%, 7/1/05 $ 2,945 - -------------------------------------------------------------------------------- 1,470 Puerto Rico Commonwealth GO, Series 2003 A, 4.00%, 7/1/06 1,548 - -------------------------------------------------------------------------------- 2,000 Puerto Rico Commonwealth GO, Series 2003 C, 5.00%, 7/1/08 (FSA) 2,215 - -------------------------------------------------------------------------------- 2,500 Puerto Rico Highway & Transportation Auth. Rev., 5.00%, 7/1/08 (CIFG) 2,794 - -------------------------------------------------------------------------------- 10,025 - -------------------------------------------------------------------------------- RHODE ISLAND -- 1.0% - -------------------------------------------------------------------------------- 1,000 Cranston GO, 6.375%, 11/15/17 (FGIC) 1,189 - -------------------------------------------------------------------------------- 1,100 Rhode Island Clean Water Finance Agency Rev., Series 1994 A, (Safe Drinking Water-Providence), 6.70%, 1/1/15 (AMBAC) 1,184 - -------------------------------------------------------------------------------- 2,000 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 A, 6.25%, 8/1/16 (MBIA)(4) 2,454 - -------------------------------------------------------------------------------- 1,300 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 B, 6.00%, 8/1/17 (MBIA)(4) 1,331 - -------------------------------------------------------------------------------- 6,158 - -------------------------------------------------------------------------------- SOUTH CAROLINA -- 5.5% - -------------------------------------------------------------------------------- 1,700 Florence Water & Sewer Rev., 7.50%, 3/1/18 (AMBAC) 2,111 - -------------------------------------------------------------------------------- 1,205 Orangeburg County Consolidated School District No. 5 GO, 5.375%, 3/1/21 (FSA) 1,307 - -------------------------------------------------------------------------------- 1,500 Piedmont Municipal Power Agency Electric Rev., 6.75%, 1/1/19 (FGIC) 1,885 - -------------------------------------------------------------------------------- 860 Piedmont Municipal Power Agency Electric Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC) 1,051 - -------------------------------------------------------------------------------- 140 Piedmont Municipal Power Agency Electric Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(4) 174 - -------------------------------------------------------------------------------- 4,930 Piedmont Municipal Power Agency Electric Rev., Series 2002 A, 5.00%, 1/1/04 (FGIC) 4,947 - -------------------------------------------------------------------------------- 6,035 Piedmont Municipal Power Agency Electric Rev., Series 2002 A, 4.00%, 1/1/07 (FGIC) 6,158 - -------------------------------------------------------------------------------- 1,425 Rock Hill Utilities System Rev., Series 2003 A, 4.00%, 1/1/05 (FSA) 1,468 - -------------------------------------------------------------------------------- 6,140 South Carolina GO, Series 2003 B, (State Capital Improvement), 3.00%, 3/1/08 6,337 - -------------------------------------------------------------------------------- 3,035 South Carolina Jobs Economic Development Auth. Hospital Facilities Rev., Series 2003 C, (Palmetto Health), 5.00%, 8/1/08 (ACA) 3,297 - -------------------------------------------------------------------------------- 3,195 South Carolina Jobs Economic Development Auth. Hospital Facilities Rev., Series 2003 C, (Palmetto Health), 5.50%, 8/1/09 (ACA) 3,542 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 15 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 1,095 Spartanburg County Health Services District Inc. Hospital Rev., 5.50%, 4/15/16 (FSA) $ 1,210 - -------------------------------------------------------------------------------- 33,487 - -------------------------------------------------------------------------------- TENNESSEE -- 0.5% - -------------------------------------------------------------------------------- 1,050 Clarksville Water Sewer & Gas Rev., 4.25%, 2/1/07 (FSA) 1,124 - -------------------------------------------------------------------------------- 1,685 Clarksville Water Sewer & Gas Rev., 4.85%, 2/1/15 (FSA) 1,786 - -------------------------------------------------------------------------------- 2,910 - -------------------------------------------------------------------------------- TEXAS -- 6.3% - -------------------------------------------------------------------------------- 1,815 Clint Independent School District GO, 6.00%, 2/15/17 (PSF) 2,098 - -------------------------------------------------------------------------------- 1,000 Corpus Christi Utility System Rev., 5.50%, 7/15/07 (FSA) 1,119 - -------------------------------------------------------------------------------- 1,000 Dallas-Fort Worth Regional Airport Rev., Series 1994 A, 5.90%, 11/1/08 (MBIA) 1,042 - -------------------------------------------------------------------------------- 1,000 Denison Hospital Auth. Rev., (Texoma Medical Center), 5.90%, 8/15/07 (ACA) 1,114 - -------------------------------------------------------------------------------- 1,000 Denton Utility System Rev., Series 1996 A, 5.95%, 12/1/14 (MBIA) 1,109 - -------------------------------------------------------------------------------- 1,000 Guadalupe-Blanco River Auth. Rev., (Western Canyon Regional Water Supply), 5.25%, 4/15/20 (MBIA) 1,077 - -------------------------------------------------------------------------------- 1,310 Harris County Housing Finance Corporation Rev., (Las Americas Apartments), 4.90%, 3/1/11 (FNMA) 1,419 - -------------------------------------------------------------------------------- 3,000 Hays Consolidated Independent School District GO, (Capital Appreciation), 5.20%, 8/15/11 (PSF)(1) 2,251 - -------------------------------------------------------------------------------- 1,295 Hidalgo County GO, 5.50%, 8/15/19 (FGIC) 1,427 - -------------------------------------------------------------------------------- 1,750 Hidalgo County GO, 5.50%, 8/15/21 (FGIC) 1,912 - -------------------------------------------------------------------------------- 3,560 Houston GO, Series 2003 A1, 4.00%, 3/1/07 (MBIA) 3,784 - -------------------------------------------------------------------------------- 574 Houston Participation Interest COP, 6.40%, 6/1/27 630 - -------------------------------------------------------------------------------- 500 Houston Water & Sewer System Rev., Series 1992 C, (Junior Lien), 5.90%, 12/1/05 (MBIA) 544 - -------------------------------------------------------------------------------- 1,500 Houston Water & Sewer System Rev., Series 1997 C, (Junior Lien), 5.375%, 12/1/27 (FGIC) 1,588 - -------------------------------------------------------------------------------- 1,000 Lubbock Health Facilities Development Corp. Rev., (Lutheran Retirement), 6.00%, 3/20/29 (GNMA) 1,074 - -------------------------------------------------------------------------------- 550 Pasadena Independent School District GO, Series 2001 A, 6.05%, 2/15/16 (PSF) 658 - -------------------------------------------------------------------------------- 1,500 Pearland Independent School District GO, 6.00%, 2/15/15 (PSF) 1,706 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 2,000 San Antonio Electric and Gas Rev., 7.10%, 2/1/09 (FGIC)(1)(4) $ 1,721 - -------------------------------------------------------------------------------- 1,000 Tarrant County Health Facility Development Corp. Health System Rev., (Ft. Worth Osteopathic), 6.00%, 5/15/11 (MBIA) 1,151 - -------------------------------------------------------------------------------- 3,645 Texas GO, Series 2003 C, (Water Financial Assistance), 5.00%, 8/1/07 4,018 - -------------------------------------------------------------------------------- 1,500 Texas Public Finance Auth. Building Rev., (Technical College), 6.25%, 8/1/09 (MBIA) 1,720 - -------------------------------------------------------------------------------- 1,000 Texas Technical University Rev., 5.00%, 8/15/08 (MBIA) 1,113 - -------------------------------------------------------------------------------- 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)(4) 1,184 - -------------------------------------------------------------------------------- 1,000 Tyler Health Facilities Development Corp. Rev., (Mother Frances Hospital), 4.50%, 7/1/06 1,042 - -------------------------------------------------------------------------------- 2,000 Tyler Health Facilities Development Corp. Rev., (Mother Frances Hospital), 5.00%, 7/1/08 2,123 - -------------------------------------------------------------------------------- 38,624 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 0.4% - -------------------------------------------------------------------------------- 2,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, (Senior Lien), 5.20%, 10/1/09 2,143 - -------------------------------------------------------------------------------- UTAH -- 2.2% - -------------------------------------------------------------------------------- 355 Intermountain Agency Power Supply Rev., Series 1993 A, 5.40%, 7/1/08, Prerefunded at 102% of Par (MBIA-IBC)(4) 363 - -------------------------------------------------------------------------------- 1,000 Salt Lake City Hospital Rev., Series 1988 A, (Intermountain Health Corporation), 8.125%, 5/15/15(4) 1,304 - -------------------------------------------------------------------------------- 1,000 Salt Lake County Municipal Building Auth. Lease Rev., Series 1994 A, 6.00%, 10/1/07, Prerefunded at 101% of Par (MBIA)(4) 1,051 - -------------------------------------------------------------------------------- 1,000 Utah County Municipal Building Auth. Lease Rev., 4.00%, 11/1/05 (AMBAC) 1,049 - -------------------------------------------------------------------------------- 1,495 Utah County Municipal Building Auth. Lease Rev., 5.00%, 11/1/09 (AMBAC) 1,677 - -------------------------------------------------------------------------------- 1,820 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/13 (AMBAC) 2,024 - -------------------------------------------------------------------------------- 1,915 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/14 (AMBAC) 2,119 - -------------------------------------------------------------------------------- 1,000 Utah County Municipal Building Auth. Lease Rev., 5.50%, 11/1/16 (AMBAC) 1,125 - -------------------------------------------------------------------------------- 100 Utah Housing Finance Agency Single Family Mortgage Rev., 5.65%, 7/1/06 107 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 16 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 1,130 West Valley City Municipal Building Auth. Rev., Series 2002 A, 5.00%, 8/1/10 (AMBAC) $ 1,268 - -------------------------------------------------------------------------------- 1,305 West Valley City Utility Sales Tax Rev., Series 2001 A, 5.50%, 7/15/16 (MBIA) 1,465 - -------------------------------------------------------------------------------- 13,552 - -------------------------------------------------------------------------------- VIRGINIA -- 0.7% - -------------------------------------------------------------------------------- 1,500 Fairfax County COP, 5.30%, 4/15/23 1,564 - -------------------------------------------------------------------------------- 1,000 Hampton Industrial Development Auth. Rev., Series 1994 A, (Sentara General Hospital), 6.50%, 11/1/06, Prerefunded at 100% of Par(4) 1,137 - -------------------------------------------------------------------------------- 1,115 Pittsylvania County GO, Series 2001 B, 5.75%, 3/1/18 (MBIA) 1,267 - -------------------------------------------------------------------------------- 3,968 - -------------------------------------------------------------------------------- WASHINGTON -- 9.2% - -------------------------------------------------------------------------------- 1,000 Benton County Public Utility District No. 1 Rev., Series 2001 A, 5.625%, 11/1/19 (FSA) 1,121 - -------------------------------------------------------------------------------- 1,000 Cowlitz County School District No. 458 Kelso GO, 5.75%, 12/1/18 (FSA) 1,126 - -------------------------------------------------------------------------------- 2,150 Douglas County Public Utilities District No. 1 Wells Hydroelectric Rev., Series 2003 B, 3.00%, 9/1/06 (MBIA)(3) 2,223 - -------------------------------------------------------------------------------- 3,500 Energy Northwest Electrical Rev., Series 2002 A, (Columbia Generating), 5.75%, 7/1/18 (MBIA) 3,935 - -------------------------------------------------------------------------------- 9,000 Energy Northwest Electrical Rev., Series 2002 B, (Columbia Generating), 6.00%, 7/1/18 (AMBAC) 10,337 - -------------------------------------------------------------------------------- 7,145 King County GO, 5.50%, 12/1/12 8,218 - -------------------------------------------------------------------------------- 2,000 King County GO, Series 1997 D, 5.75%, 12/1/11 2,303 - -------------------------------------------------------------------------------- 1,555 King County School District No. 414 Lake Washington GO, 5.75%, 12/1/15 1,779 - -------------------------------------------------------------------------------- 3,500 King County Sewer Rev., Series 2002 B, 5.00%, 1/1/04 (FSA) 3,512 - -------------------------------------------------------------------------------- 1,000 King County Sewer Rev., Series 2002 B, 5.00%, 1/1/05 (FSA) 1,041 - -------------------------------------------------------------------------------- 1,260 Mason County School District No. 309 GO, (Shelton), 5.625%, 12/1/17 (FGIC) 1,423 - -------------------------------------------------------------------------------- 1,120 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/16 (AMBAC) 1,311 - -------------------------------------------------------------------------------- 1,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/18 (AMBAC) 1,165 - -------------------------------------------------------------------------------- 695 Tacoma Electrical Systems Rev., 6.10%, 1/1/04, Prerefunded at 102% of Par (FGIC)(4) 712 - -------------------------------------------------------------------------------- 305 Tacoma Electrical Systems Rev., 6.10%, 1/1/07 (FGIC) 312 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 1,720 University of Washington Rev., (Student Facilities Fee), 5.875%, 6/1/18 (FSA) $ 1,975 - -------------------------------------------------------------------------------- 1,000 Washington GO, Series 1990 A, 6.75%, 2/1/15 1,252 - -------------------------------------------------------------------------------- 3,000 Washington GO, Series 1997 E, 6.00%, 7/1/04 3,085 - -------------------------------------------------------------------------------- 1,000 Washington Public Power Supply System Rev., Series 1996 A, (Nuclear Project No. 1), 5.75%, 7/1/12 (MBIA) 1,114 - -------------------------------------------------------------------------------- 4,570 Washington Public Power Supply System Rev., Series 1998 A, (Nuclear Project No. 2), 5.00%, 7/1/12 (FSA-CR) 4,966 - -------------------------------------------------------------------------------- 1,500 Whitman County School District No. 267 Pullman GO, 5.625%, 12/1/16 (FSA) 1,691 - -------------------------------------------------------------------------------- 1,115 Whitman County School District No. 267 Pullman GO, 5.625%, 12/1/17 (FSA) 1,251 - -------------------------------------------------------------------------------- 55,852 - -------------------------------------------------------------------------------- WISCONSIN -- 2.2% - -------------------------------------------------------------------------------- 1,180 Winneconne Community School District GO, 6.75%, 4/1/06, Prerefunded at 100% of Par (FGIC)(4) 1,320 - -------------------------------------------------------------------------------- 1,900 Wisconsin Clean Water Rev., 6.875%, 6/1/11 2,324 - -------------------------------------------------------------------------------- 2,590 Wisconsin Health & Educational Facilities Auth. Rev., (Aurora Medical Group), 6.00%, 11/15/10 (FSA) 3,019 - -------------------------------------------------------------------------------- 400 Wisconsin Health & Educational Facilities Auth. Rev., (Froedert & Community Health Obligation), 5.00%, 10/1/04 411 - -------------------------------------------------------------------------------- 1,100 Wisconsin Health & Educational Facilities Auth. Rev., (Wheaton Franciscan Services), 4.00%, 8/15/04 1,118 - -------------------------------------------------------------------------------- 1,225 Wisconsin Health & Educational Facilities Auth. Rev., (Wheaton Franciscan Services), 4.00%, 8/15/06 1,278 - -------------------------------------------------------------------------------- 1,680 Wisconsin Health & Educational Facilities Auth. Rev., Series 2002 A, (Ministry Health Care), 4.00%, 2/15/04 (MBIA) 1,690 - -------------------------------------------------------------------------------- 2,250 Wisconsin Transportation Rev., 7.00%, 1/1/04(4) 2,262 - -------------------------------------------------------------------------------- 13,422 - -------------------------------------------------------------------------------- WYOMING -- 0.2% - -------------------------------------------------------------------------------- 1,135 Albany County Improvements Stat Trust COP, 3.00%, 1/15/04 (MBIA) 1,138 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $559,698) 587,785 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 18 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 3.7% CALIFORNIA -- 0.7% - -------------------------------------------------------------------------------- $ 2,645 Allegheny County Industrial Development Auth. Rev., Series 2001 A, (Longwood), VRDN, 1.10%, 12/1/03 (Asset Guaranty Insurance Company) $ 2,645 - -------------------------------------------------------------------------------- 1,600 California GO, Series 2003 C4, VRDN, 1.12%, 12/4/03 (LOC: Landesbank Hessen-Thuringen Girozentrale, Bank of America N.A., Bank of Nova Scotia) 1,600 - -------------------------------------------------------------------------------- 4,245 - -------------------------------------------------------------------------------- COLORADO -- 0.3% - -------------------------------------------------------------------------------- 500 Colorado Housing & Finance Auth. Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank Trust N.A.) 500 - -------------------------------------------------------------------------------- 1,600 Thornton Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank N.A.) 1,600 - -------------------------------------------------------------------------------- 2,100 - -------------------------------------------------------------------------------- FLORIDA -- 0.7% - -------------------------------------------------------------------------------- 4,100 Florida Housing Finance Agency Multifamily Rev., (Woodlands), VRDN, 1.22%, 12/3/03 (LOC: Northern Trust Company) 4,100 - -------------------------------------------------------------------------------- 225 Sarasota County Public Hospital Board Rev., Series 2003 A, (Sarasota Memorial Hospital), VRDN, 1.07%, 12/1/03 (AMBAC) 225 - -------------------------------------------------------------------------------- 4,325 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MULTI-STATE -- 0.6% - -------------------------------------------------------------------------------- $ 3,776 Koch Floating Rate Trust Rev., Series 2000-1, VRDN, 1.35%, 12/4/03 (AMBAC) (SBBPA: State Street Bank & Trust Co.) (Acquired 7/31/03-11/10/03, Cost $3,776)(5) $ 3,776 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 0.8% - -------------------------------------------------------------------------------- 4,900 North Carolina Medical Care Commission Rev., Series 2002 B, (Northeast Medical Center), VRDN, 1.08%, 12/3/03 (LOC: SunTrust Bank) 4,900 - -------------------------------------------------------------------------------- OHIO -- 0.4% - -------------------------------------------------------------------------------- 200 Clinton County Rev., Series 2003 A-1, (H B Magruder Hospital), VRDN, 1.19%, 12/3/03 (LOC: Fifth Third Bank) 200 - -------------------------------------------------------------------------------- 2,100 Trumbull County Health Care Facility Rev., VRDN, 1.10%, 12/1/03 (RADIAN) (SBBPA: Fleet Bank N.A.) 2,100 - -------------------------------------------------------------------------------- 2,300 - -------------------------------------------------------------------------------- TENNESSEE -- 0.2% - -------------------------------------------------------------------------------- 950 Knox County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank Trust N.A.) 950 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $22,596) 22,596 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $582,294) $610,381 ================================================================================ See Notes to Financial Statements. (continued) - ------ 18 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) 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 RADIAN = Radian Asset Assurance Inc. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2003. XLCA = XL Capital Assurance Corp. (1) Security is a zero-coupon municipal bond. The rate indicated is the yield to maturity at purchase. Zero-coupon securities are issued at a substantial discount from their value at maturity. (2) Security, or a portion thereof, has been segregated for when-issued securities. (3) When-issued security. (4) Escrowed to maturity in U.S. government securities or state and local government securities. (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 November 30, 2003, was $3,776 (in thousands), which represented 0.6% of net assets. See Notes to Financial Statements. - ------ 19 Statement of Assets and Liabilities NOVEMBER 30, 2003 (UNAUDITED) - -------------------------------------------------------------------------------- TAX-FREE (AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $258,769 and $582,294, respectively) $258,769 $610,381 - ------------------------------------------------- Cash 638 176 - ------------------------------------------------- Receivable for investments sold -- 1,266 - ------------------------------------------------- Receivable for capital shares sold -- 224 - ------------------------------------------------- Interest receivable 596 9,544 - ------------------------------------------------- Prepaid portfolio insurance 5 -- - -------------------------------------------------------------------------------- 260,008 621,591 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Payable for investments purchased -- 8,826 - ------------------------------------------------- Accrued management fees 104 250 - ------------------------------------------------- Dividends payable 1 370 - -------------------------------------------------------------------------------- 105 9,446 - -------------------------------------------------------------------------------- NET ASSETS $259,903 $612,145 ================================================================================ NET ASSETS CONSIST OF: Capital paid in $259,961 $582,964 - ------------------------------------------------- Accumulated undistributed net realized gain (loss) on investment transactions (58) 1,094 - ------------------------------------------------- Net unrealized appreciation on investments -- 28,087 - -------------------------------------------------------------------------------- $259,903 $612,145 ================================================================================ INVESTOR CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets $259,903,024 $605,247,631 - ------------------------------------------------- Shares outstanding 259,961,291 55,130,234 - ------------------------------------------------- Net asset value per share $1.00 $10.98 - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets N/A $6,897,529 - ------------------------------------------------- Shares outstanding N/A 628,275 - ------------------------------------------------- Net asset value per share N/A $10.98 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 20 Statement of Operations FOR THE SIX MONTHS ENDED NOVEMBER 30, 2003 (UNAUDITED) - -------------------------------------------------------------------------------- TAX-FREE (AMOUNTS IN THOUSANDS) MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ---------------------------------------- Interest $1,484 $ 12,142 - -------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------- Management fees 651 1,548 - ---------------------------------------- Trustees' fees and expenses 7 17 - ---------------------------------------- Portfolio insurance and other expenses 15 1 - -------------------------------------------------------------------------------- 673 1,566 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 811 10,576 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED LOSS - ---------------------------------------- Net realized loss on investment transactions (4) (450) - ---------------------------------------- Change in net unrealized appreciation on investments -- (12,373) - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS (4) (12,823) - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 807 $ (2,247) ================================================================================ See Notes to Financial Statements. - ------ 21 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2003 (UNAUDITED) AND YEAR ENDED MAY 31, 2003 - ----------------------------------------------------------------------------------------------------- (AMOUNTS IN THOUSANDS) TAX-FREE MONEY MARKET TAX-FREE BOND - ----------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS NOV. 30, 2003 MAY 31, 2003 NOV. 30, 2003 MAY 31, 2003 - ----------------------------------------------------------------------------------------------------- OPERATIONS - ----------------------------------------------------------------------------------------------------- Net investment income $ 811 $ 2,764 $ 10,576 $ 18,845 - ---------------------------------------- Net realized gain (loss) (4) 7 (450) 2,640 - ---------------------------------------- Change in net unrealized appreciation -- -- (12,373) 24,257 - ----------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 807 2,771 (2,247) 45,742 - ----------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ----------------------------------------------------------------------------------------------------- From net investment income: - ---------------------------------------- Investor Class (811) (2,764) (10,446) (18,836) - ---------------------------------------- Institutional Class -- -- (130) (17) - ---------------------------------------- From net realized gains: - ---------------------------------------- Investor Class -- -- -- (859) - ----------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (811) (2,764) (10,576) (19,712) - ----------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ----------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (12,349) 22,214 (2,641) 219,132 - ----------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (12,353) 22,221 (15,464) 245,162 NET ASSETS - ----------------------------------------------------------------------------------------------------- Beginning of period 272,256 250,035 627,609 382,447 - ----------------------------------------------------------------------------------------------------- End of period $259,903 $272,256 $612,145 $627,609 ===================================================================================================== See Notes to Financial Statements. - ------ 22 Notes to Financial Statements NOVEMBER 30, 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. Tax-Free Money Market is diversified under the 1940 Act. Tax-Free Bond is 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. 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. 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 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 each 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. 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 NOVEMBER 30, 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 six months ended November 30, 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 six months ended November 30, 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, have entered into an insurance agreement with MBIA Insurance Corporation (MBIA). MBIA provides limited coverage for certain loss events including issuer defaults as to payment of principal or interest and insolvency of a credit enhancement provider. 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 JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities for Tax-Free Bond, excluding short-term investments, for the six months ended November 30, 2003, were $123,539 and $123,936, respectively. All investment transactions for Tax-Free Money Market were considered short-term during the six months ended November 30, 2003. (continued) - ------ 24 Notes to Financial Statements NOVEMBER 30, 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 - ----------------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2003 - --------------------------------------- Sold 89,170 $ 89,170 12,039 $132,122 - --------------------------------------- Issued in reinvestment of distributions 782 782 728 7,931 - --------------------------------------- Redeemed (102,301) (102,301) (13,033) (142,125) - ----------------------------------------------------------------------------------------- Net decrease (12,349) $(12,349) (266) $(2,072) ========================================================================================= 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 ========================================================================================= INSTITUTIONAL CLASS - ----------------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2003 - --------------------------------------- Sold N/A N/A 42 $461 - --------------------------------------- Issued in reinvestment of distributions 12 129 - --------------------------------------- Redeemed (106) (1,159) - ----------------------------------------------------------------------------------------- Net decrease (52) $(569) ========================================================================================= 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 for Tax-Free Bond. 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 JPMCB, which was renewed to $650 million effective December 17, 2003. 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 six months ended November 30, 2003. (continued) - ------ 25 Notes to Financial Statements NOVEMBER 30, 2003 (AMOUNTS IN THOUSANDS) 6. FEDERAL TAX INFORMATION On December 9, 2003, Tax-Free Bond declared and paid a per-share distribution of $0.0264 from net realized gains to shareholders of record on December 8, 2003. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. As of November 30, 2003, the components of investments for federal income tax purposes were as follows: TAX-FREE MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- Federal tax cost of investments $258,769 $582,294 ================================================================================ Gross tax appreciation of investments -- $28,571 - -------------------------------------------- Gross tax depreciation of investments -- (484) - -------------------------------------------------------------------------------- Net tax appreciation of investments -- $28,087 ================================================================================ The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes Tax-Free Money Market had capital loss carryovers of $54 as of May 31, 2003, which may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire in 2008 through 2010. 7. REORGANIZATION PLAN 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. (continued) - ------ 26 Tax-Free Money Market - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - ---------------------------------------------------------------------------------------------- 2003(1) 2003 2002 2001 2000 1999 - ---------------------------------------------------------------------------------------------- PER-SHARE DATA - ---------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - ---------------------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income --(2) 0.01 0.02 0.04 0.03 0.03 - ---------------------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income --(2) (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 $1.00 ============================================================================================== TOTAL RETURN(3) 0.31% 1.05% 1.64% 3.71% 3.30% 3.10% - ---------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ---------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51%(4) 0.51% 0.51% 0.50% 0.50% 0.31%(5) - --------------------------------- Ratio of Net Investment Income to Average Net Assets 0.62%(4) 1.04% 1.62% 3.64% 3.23% 3.10%(5) - --------------------------------- Net Assets, End of Period (in thousands) $259,903 $272,256 $250,035 $249,461 $233,852 $283,046 - ---------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (2) Per share amount was less than $0.005. (3) 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. (4) Annualized. (5) 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. - ------ 27 Tax-Free Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - ----------------------------------------------------------------------------------------------- INVESTOR CLASS - ----------------------------------------------------------------------------------------------- 2003(1) 2003 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------------- PER-SHARE DATA - ----------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.19 $10.63 $10.50 $9.93 $10.39 $10.52 - ----------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------- Net Investment Income 0.19 0.39 0.44 0.48 0.48 0.48 - ------------------------------- Net Realized and Unrealized Gain (Loss) (0.21) 0.58 0.22 0.57 (0.44) (0.05) - ----------------------------------------------------------------------------------------------- Total From Investment Operations (0.02) 0.97 0.66 1.05 0.04 0.43 - ----------------------------------------------------------------------------------------------- Distributions - ------------------------------- From Net Investment Income (0.19) (0.39) (0.44) (0.48) (0.48) (0.48) - ------------------------------- From Net Realized Gains -- (0.02) (0.09) -- (0.02) (0.08) - ----------------------------------------------------------------------------------------------- Total Distributions (0.19) (0.41) (0.53) (0.48) (0.50) (0.56) - ----------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.98 $11.19 $10.63 $10.50 $9.93 $10.39 =============================================================================================== TOTAL RETURN(2) (0.19)% 9.31% 6.45% 10.77% 0.44% 4.07% - ----------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51%(3) 0.51% 0.51% 0.51% 0.51% 0.51% - ------------------------------- Ratio of Net Investment Income to Average Net Assets 3.40%(3) 3.62% 4.14% 4.65% 4.75% 4.52% - ------------------------------- Portfolio Turnover Rate 21% 57% 86% 106% 107% 32% - ------------------------------- Net Assets, End of Period (in thousands) $605,248 $620,000 $382,447 $188,186 $149,511 $149,678 - ----------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (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 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 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. See Notes to Financial Statements. - ------ 28 Tax-Free Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2003(1) 2003(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.19 $10.90 - -------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------------------------- Net Investment Income 0.20 0.05 - ----------------------------------------------------- Net Realized and Unrealized Gain (Loss) (0.21) 0.29 - -------------------------------------------------------------------------------- Total From Investment Operations (0.01) 0.34 - -------------------------------------------------------------------------------- Distributions - ----------------------------------------------------- From Net Investment Income (0.20) (0.05) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.98 $11.19 ================================================================================ TOTAL RETURN(3) (0.09)% 3.14% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.31%(4) 0.30%(4) - ----------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.60%(4) 3.68%(4) - ----------------------------------------------------- Portfolio Turnover Rate 21% 57%(5) - ----------------------------------------------------- Net Assets, End of Period (in thousands) $6,898 $7,609 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (2) April 15, 2003 (commencement of sale) through May 31, 2003. (3) 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 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 is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2003. See Notes to Financial Statements. - ------ 29 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 for 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. (continued) - ------ 30 Index Definition The following index is used to illustrate investment market, sector, or style performance or to serve as a fund performance comparison. It is not an investment product available for purchase. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. - ------ 31 Notes - ------ 32 [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. 0401 American Century Investment Services, Inc. SH-SAN-36711N (c)2004 American Century Services Corporation
[front cover] November 30, 2003 [graphic of chart] American Century Semiannual Report [graphic of starfish on beach] [graphic of bridge over stream] High-Yield Municipal [american century logo and text logo (reg. sm)] 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 OTHER INFORMATION Proxy Voting Results...................................................... 20 Share Class Information................................................... 21 Additional Information.................................................... 22 Index Definition.......................................................... 23 The opinions expressed in the Portfolio Commentary reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo of James E Stowers III with James E. Stowers, Jr.] James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the semiannual report for American Century High-Yield Municipal for the six months ended November 30, 2003. The report includes comparative performance figures, portfolio and market commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Many of you have called or written to express your concern about allegations of wrongdoing by other mutual fund investment management firms. We share your concern--fund companies must put investors first and do everything possible to maintain investor trust. Through the Investment Company Institute, the mutual fund trade association, American Century has advocated industry-wide proposals that strengthen protections for fund investors. We believe that decisive action is needed to show that we are committed, as an industry, to the interests of the 95 million investors we serve. As information about alleged trading abuses in the mutual fund industry has come to light, we have posted messages and commentary about these issues on www.americancentury.com. Beyond what's currently in the headlines, American Century has been a champion of many important investor and industry issues, which are outlined in a document titled Putting Investors First. We invite you to visit our Web site and read about how our values have influenced these positions. As always, we deeply appreciate your investment with American Century. Sincerely, /s/ of James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /s/ of James E. Stowers III James E. Stowers III Co-Chairman of the Board - ------ 1 High-Yield Municipal - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2003 AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS(1) INCEPTION(1) DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 7.03% 5.40% 5.84% 3/31/98 - -------------------------------------------------------------------------------- LEHMAN BROS. LONG-TERM MUNICIPAL BOND INDEX 7.55% 5.74% 6.06% -- - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S HIGH-YIELD MUNICIPAL DEBT FUNDS 7.23% 3.28% 3.54% -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(2) 37 of 78 3 of 51 2 of 50 -- - -------------------------------------------------------------------------------- A Class 1/31/03 No sales charge* -- -- 5.12%(3) With sales charge* -- -- 0.43%(3) - -------------------------------------------------------------------------------- B Class 1/31/03 No sales charge* -- -- 4.60%(3) With sales charge* -- -- -0.40%(3) - -------------------------------------------------------------------------------- C Class* 6.23% -- 5.47% 7/24/02 - -------------------------------------------------------------------------------- *Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. (A Class shares have an initial sales charge and CDSC; B and C Class shares have CDSCs. Please see the Share Class Information page for more about the applicable sales charges for each share class.) The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) 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 10/31/99. (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 CLASS $10,000 investment made March 31, 1998
ONE-YEAR RETURNS OVER LIFE OF CLASS Periods ended November 30 - ------------------------------------------------------------------------------- 1998* 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------- Investor Class** 6.08% -0.70% 4.33% 8.64% 7.99% 7.03% - ------------------------------------------------------------------------------- Lehman Bros. Long-Term Municipal Bond Index 5.56% -5.10% 10.70% 10.30% 6.09% 7.55% - ------------------------------------------------------------------------------- * From 3/31/98 (the class's inception date) to 11/30/98. 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 10/31/99. 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 SUMMARY & PERSPECTIVE American Century High-Yield Municipal returned 1.62%* for the six months ended November 30, 2003. The fund's broad market benchmark -- the Lehman Brothers Long-Term Municipal Bond Index -- returned 0.31%. The index reflects the performance of investment-grade municipal bonds -- its credit quality is AA1/AA2. Investment-grade municipals tend to underperform high-yield municipals when interest rates rise. As rates rose during the period, the average return of High-Yield Municipal's peer group -- 80 high-yield municipal debt funds tracked by Lipper Inc. -- was 2.43%. Peer performance was boosted by the strong rebound of airline bonds, which weren't part of the fund's portfolio. Despite trailing the Lipper average for the six- and 12-month periods ended November 30, 2003, High-Yield Municipal continued to distinguish itself over longer time frames. The fund outperformed its peer average for the five-year and since-inception periods ended November 30, ranking in the top 10% of the Lipper group. YIELD SUMMARY & PERSPECTIVE High-Yield Municipal's primary investment objective is to seek high current income that is exempt from federal income tax. To accomplish this, the investment team buys securities that are rated below investment grade, as well as unrated securities. These bonds offer higher yields as compensation for their perceived risk. As of November 30, 2003, the fund's 30-day SEC yield was 4.90%. That equates to a 7.54% 30-day tax-equivalent yield for investors in the 35% federal tax bracket, comparable to the 30-day yield on taxable corporate high-yield securities but with less default risk. ECONOMIC & MARKET PERSPECTIVE Municipal bond yields rose during the six months as economic conditions improved. Economic growth, as measured by GDP, accelerated rapidly, starting at a 3.1% annual rate in the second quarter of 2003, then spiking to 8.2% in the third quarter. That increase was due in part to the amount of monetary and fiscal stimulus provided by the Federal Reserve and the government, including low short-term interest rates and tax cuts. Fourth-quarter growth is expected to top second-quarter levels as well, with projections in the 4-5% range. YIELDS AS OF NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 4.90% - -------------------------------------------------------------------------------- A Class 4.44% - -------------------------------------------------------------------------------- B Class 3.90% - -------------------------------------------------------------------------------- C Class 4.15% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.0% Tax Bracket 6.53% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 6.81% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 7.31% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 7.54% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are for federal taxes only. *All fund returns and yields referenced in this commentary are for Investor Class shares. (continued) - ------ 4 High-Yield Municipal - Portfolio Commentary That's bad news for most bonds, but relatively better news for high-yield municipals, which have historically tended to outperform investment-grade municipals and Treasurys when interest rates rise. A case in point was July 2003. While the 10-year Treasury note and the Lehman Brothers Long-Term Municipal Bond Index returned -7.07% and -4.82% respectively, High-Yield Municipal and its Lipper group average returned -2.21% and -1.83% respectively. This potential for outperformance in a down bond market is part of what makes high-yield municipals attractive as a portfolio diversifier for fixed-income investors, in addition to providing high levels of federal tax-free income. PORTFOLIO POSITIONING & STRATEGY Although High-Yield Municipal invests primarily for income, it also employs techniques designed to realize capital appreciation. The investment team may select bonds with credit ratings, financial structures, types of issuers, maturities, or coupon rates that position the portfolio for potential capital appreciation for various reasons. Those reasons include the possibility of a credit upgrade (as the underlying project or projects being financed mature) or a change in the direction of interest rates. During the six-month period, the investment team sought to provide high current income and long-term capital appreciation potential by investing in a portfolio that, from a credit perspective, included approximately 65% unrated (believed to be mostly below investment-grade) and 22% AAA municipal bonds (creating a "credit barbell"). From a sector standpoint, the portfolio owned approximately 40% land-secured bonds located primarily in high-population-growth states like California, Nevada, and Florida. These positions remained essentially unchanged during the period, as did the portfolio's duration, which was just over six years. Also unchanged was our 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. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/03 5/31/03 - -------------------------------------------------------------------------------- AAA 22% 21% - -------------------------------------------------------------------------------- AA 3% 3% - -------------------------------------------------------------------------------- A -- 4% - -------------------------------------------------------------------------------- BBB 7% 6% - -------------------------------------------------------------------------------- BB 2% 2% - -------------------------------------------------------------------------------- Unrated 66% 64% - -------------------------------------------------------------------------------- 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 NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/03 5/31/03 - -------------------------------------------------------------------------------- California 20.5% 17.8% - -------------------------------------------------------------------------------- Nevada 17.0% 14.2% - -------------------------------------------------------------------------------- Florida 15.0% 16.3% - -------------------------------------------------------------------------------- Maryland 5.1% 6.2% - -------------------------------------------------------------------------------- Colorado 4.5% 1.8% - -------------------------------------------------------------------------------- - ------ 5 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES - 94.9% ALASKA - 0.8% - -------------------------------------------------------------------------------- $ 500 Anchorage Schools GO, Series 2000 A, 5.75%, 12/1/16 (MBIA) $ 571 - -------------------------------------------------------------------------------- ARIZONA - 3.2% - -------------------------------------------------------------------------------- 1,125 Maricopa County Industrial Development Auth. Education Rev., (Horizon Community Learning Center), 7.95%, 6/1/23 1,176 - -------------------------------------------------------------------------------- 1,150 Sundance Community Facilities Assessment District No. 2 Rev., 7.125%, 7/1/27 1,154 - -------------------------------------------------------------------------------- 2,330 - -------------------------------------------------------------------------------- CALIFORNIA - 20.5% - -------------------------------------------------------------------------------- 2,000 Beaumont Financing Auth. Rev., Series 2003 A, 6.875%, 9/1/27 2,098 - -------------------------------------------------------------------------------- 2,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B (Palomar Estates E&W), 7.00%, 9/15/36(1) 2,029 - -------------------------------------------------------------------------------- 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) 984 - -------------------------------------------------------------------------------- 750 California Statewide Communities Development Auth. Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/31 804 - -------------------------------------------------------------------------------- 2,000 Capistrano Unified School District Community Facilities District Special Tax Rev., (No. 90-2 Talega), 6.00%, 9/1/33 2,015 - -------------------------------------------------------------------------------- 950 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/23 1,020 - -------------------------------------------------------------------------------- 2,000 Perris Public Financing Auth. Special Tax Rev., Series 2003 A, 6.25%, 9/1/33 2,031 - -------------------------------------------------------------------------------- 1,000 Soledad Special Assessment, (Diamond Ridge Assessment District No. 02-01), 6.75%, 9/2/33 1,046 - -------------------------------------------------------------------------------- 1,615 Vallejo Multifamily Housing Rev., Series 1998 B, (Solano Affordable Housing), 8.25%, 4/1/39 (Acquired 12/12/02, Cost $1,748)(2) 1,747 - -------------------------------------------------------------------------------- 1,000 West Sacramento Special Tax Rev., (Community Facilities District No. 16), 6.00%, 9/1/33 1,000 - -------------------------------------------------------------------------------- 14,774 - -------------------------------------------------------------------------------- COLORADO - 4.5% - -------------------------------------------------------------------------------- 640 Douglas County School District No. Re-1 GO, Series 2002 B, (Douglas & Elbert counties), 5.75%, 12/15/19 (FSA/State Aid Withholding) 727 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $1,000 La Plata County School District No. 9R GO, (Durango), 5.00%, 11/1/22 (MBIA/State Aid Withholding) $ 1,040 - -------------------------------------------------------------------------------- 1,500 Plaza Metropolitan District No. 1 Rev., 8.00%, 12/1/25 1,511 - -------------------------------------------------------------------------------- 3,278 - -------------------------------------------------------------------------------- CONNECTICUT - 1.4% - -------------------------------------------------------------------------------- 1,000 Connecticut Development Auth. Industrial Rev., (Afco Cargo BDL-LLC), 8.00%, 4/1/30 1,041 - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA - 2.6% - -------------------------------------------------------------------------------- 1,000 District of Columbia COP, (Public Safety & Emergency), 5.50%, 1/1/19 (AMBAC) 1,100 - -------------------------------------------------------------------------------- 750 Metropolitan Washington D.C. Airports Auth. General Rev., Series 2001 A, 5.50%, 10/1/18 (MBIA) 807 - -------------------------------------------------------------------------------- 1,907 - -------------------------------------------------------------------------------- FLORIDA - 12.9% - -------------------------------------------------------------------------------- 110 Arbor Greene Community Development District Special Assessment, 5.75%, 5/1/06 110 - -------------------------------------------------------------------------------- 105 Arbor Greene Community Development District Special Assessment, 6.50%, 5/1/07 106 - -------------------------------------------------------------------------------- 1,000 Double Branch Community Development District Special Assessment, Series 2002 A, 6.70%, 5/1/34 1,041 - -------------------------------------------------------------------------------- 530 Fleming Island Plantation Community Development District Special Assessment, Series 2000 B, 7.375%, 5/1/31 563 - -------------------------------------------------------------------------------- 1,495 Gateway Services Community Development District Special Assessment, Series 2003 B, (Sun City Center-Fort Meyers), 5.50%, 5/1/10 1,488 - -------------------------------------------------------------------------------- 1,125 Heritage Harbor South Community Development District Rev., Series 2002 B, 5.40%, 11/1/08 1,132 - -------------------------------------------------------------------------------- 210 Maple Ridge Community Development District Special Assessment, Series 2000 B, 6.15%, 11/1/04 212 - -------------------------------------------------------------------------------- 1,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/19 (MBIA) 1,106 - -------------------------------------------------------------------------------- 800 Reunion East Community Development District Special Assessment Rev., Series 2002 B, 5.90%, 11/1/07 803 - -------------------------------------------------------------------------------- 1,315 Sterling Hill Community Development District Special Assessment, Series 2003 B, (Capital Improvement Revenue), 5.50%, 11/1/10 1,313 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 6 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 380 Stoneybrook West Community Development District Special Assessment Rev., Series 2000 A, 7.00%, 5/1/32 $ 398 - -------------------------------------------------------------------------------- 985 Waterchase Community Development District Rev., Series 2001 A, 6.70%, 5/1/32 1,013 - -------------------------------------------------------------------------------- 9,285 - -------------------------------------------------------------------------------- GEORGIA - 0.8% - -------------------------------------------------------------------------------- 500 Atlanta Water & Wastewater Rev., Series 1999 A, 5.50%, 11/1/18 (FGIC) 577 - -------------------------------------------------------------------------------- GUAM - 1.6% - -------------------------------------------------------------------------------- 390 Guam International Airport Auth. Rev., Series 2003 A, 4.00%, 10/1/10 (MBIA) 414 - -------------------------------------------------------------------------------- 690 Guam International Airport Auth. Rev., Series 2003 A, 4.00%, 10/1/11 (MBIA) 725 - -------------------------------------------------------------------------------- 1,139 - -------------------------------------------------------------------------------- MARYLAND - 5.1% - -------------------------------------------------------------------------------- 1,250 Anne Arundel County Special Obligation Rev., (Arundel Mills), 7.10%, 7/1/29 1,354 - -------------------------------------------------------------------------------- 1,000 Anne Arundel County Special Obligation Rev., (National Business Park), 7.375%, 7/1/28 1,081 - -------------------------------------------------------------------------------- 1,250 Prince Georges County Rev., (Woodview Village Phase II - Subdistrict), 7.00%, 7/1/32 1,266 - -------------------------------------------------------------------------------- 3,701 - -------------------------------------------------------------------------------- MICHIGAN - 0.8% - -------------------------------------------------------------------------------- 500 East China School District GO, 5.50%, 5/1/18 (Q-SBLF) 557 - -------------------------------------------------------------------------------- MISSOURI - 2.6% - -------------------------------------------------------------------------------- 860 Missouri Bottom Transportation Development District Hazelwood Rev., 7.20%, 5/1/33 878 - -------------------------------------------------------------------------------- 955 Missouri Housing Development Commission Mortgage Rev., Series 1998 B2, (Single Family), 6.40%, 9/1/29 (GNMA/FNMA) 1,026 - -------------------------------------------------------------------------------- 1,904 - -------------------------------------------------------------------------------- NEVADA - 17.0% - -------------------------------------------------------------------------------- 975 Clark County Improvement District No. 121 Special Assessment, (Southern Highlands Area), 7.50%, 12/1/19 1,058 - -------------------------------------------------------------------------------- 3,000 Clark County Improvement District No. 142 Special Assessment, 5.50%, 8/1/12(3) 2,987 - -------------------------------------------------------------------------------- 1,575 Henderson Local Improvement Districts No. T-14 Special Assessment, 5.25%, 3/1/13 1,557 - -------------------------------------------------------------------------------- 1,105 Henderson Redevelopment Agency Tax Allocation, Series 2002 B, 7.10%, 10/1/22 1,138 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- $ 350 Henderson Redevelopment Agency Tax Allocation, Series 2002 B, 7.20%, 10/1/25 $ 361 - -------------------------------------------------------------------------------- 440 Las Vegas Rev., (Special Improvement District No. 809-Summerlin Area), 4.95%, 6/1/12 428 - -------------------------------------------------------------------------------- 460 Las Vegas Rev., (Special Improvement District No. 809-Summerlin Area), 5.05%, 6/1/13 447 - -------------------------------------------------------------------------------- 500 Las Vegas Special Assessment, (Special Improvement District No. 808- Summerlin Area), 5.40%, 6/1/06 520 - -------------------------------------------------------------------------------- 495 Las Vegas Special Assessment, (Special Improvement District No. 808- Summerlin Area), 5.70%, 6/1/08 515 - -------------------------------------------------------------------------------- 1,165 North Las Vegas Special Assessment, (Special Improvement District No. 60-Aliante), 5.25%, 12/1/10 1,183 - -------------------------------------------------------------------------------- 500 North Las Vegas Special Assessment, (Special Improvement District No. 60-Aliante), 5.60%, 12/1/12 498 - -------------------------------------------------------------------------------- 755 Reno Special Assessment District No. 4, (Somersett Parkway), 5.20%, 12/1/10 764 - -------------------------------------------------------------------------------- 795 Reno Special Assessment District No. 4, (Somersett Parkway), 5.45%, 12/1/11 802 - -------------------------------------------------------------------------------- 12,258 - -------------------------------------------------------------------------------- NEW JERSEY - 4.3% - -------------------------------------------------------------------------------- 1,000 New Jersey Economic Development Auth. Rev., Series 1999 A, (Transportation Sublease), 6.00%, 5/1/09 (FSA) 1,170 - -------------------------------------------------------------------------------- 2,000 Tobacco Settlement Financing Corp. Rev., 6.75%, 6/1/39(1) 1,931 - -------------------------------------------------------------------------------- 3,101 - -------------------------------------------------------------------------------- NEW YORK - 1.4% - -------------------------------------------------------------------------------- 1,000 Onondaga County Industrial Development Auth. Rev., (Air Cargo), 7.25%, 1/1/32 1,022 - -------------------------------------------------------------------------------- OHIO - 1.5% - -------------------------------------------------------------------------------- 1,000 Plain Local School District GO, 5.50%, 12/1/19 (FGIC) 1,105 - -------------------------------------------------------------------------------- OKLAHOMA - 1.0% - -------------------------------------------------------------------------------- 750 Oklahoma City Industrial & Cultural Facilities Trust Rev., (Oklahoma City), 6.75%, 1/1/23 712 - -------------------------------------------------------------------------------- PENNSYLVANIA - 2.4% - -------------------------------------------------------------------------------- 1,200 Dauphin County General Auth. Rev., (Hyatt Regency Hotel & Conference Center), 6.20%, 1/1/29 948 - -------------------------------------------------------------------------------- 835 New Morgan Municipal Auth. Office Rev., Series 1999 A, (Commonwealth Office), 5.375%, 6/1/08 819 - -------------------------------------------------------------------------------- 1,767 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 7 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- RHODE ISLAND - 0.8% - -------------------------------------------------------------------------------- $ 500 Cranston GO, 6.375%, 11/15/17 (FGIC) $ 595 - -------------------------------------------------------------------------------- SOUTH CAROLINA - 2.0% - -------------------------------------------------------------------------------- 1,425 South Carolina Jobs Economic Development Auth. Hospital Facilities Rev., Series 2003 C, (Palmetto Health), 4.25%, 8/1/05 1,456 - -------------------------------------------------------------------------------- TEXAS - 3.2% - -------------------------------------------------------------------------------- 890 Abia Development Corp. Airport Facilities Rev., (Aero Austin L.P.), 6.75%, 1/1/11 864 - -------------------------------------------------------------------------------- 400 Bexar County Health Facilities Development Corp. Rev., (Army Retirement Residence), 6.125%, 7/1/22 417 - -------------------------------------------------------------------------------- 1,000 Bexar County Health Facilities Development Corp. Rev., (Army Retirement Residence), 6.30%, 7/1/32 1,044 - -------------------------------------------------------------------------------- 2,325 - -------------------------------------------------------------------------------- UTAH - 2.8% - -------------------------------------------------------------------------------- 630 Bountiful Hospital Rev., (South Davis Community Hospital), 5.125%, 12/15/05 (Acquired 9/24/98, Cost $625)(2) 638 - -------------------------------------------------------------------------------- 1,235 West Valley City Rev., Series 2001 A, 5.50%, 7/15/15 (MBIA) 1,387 - -------------------------------------------------------------------------------- 2,025 - -------------------------------------------------------------------------------- WASHINGTON - 1.7% - -------------------------------------------------------------------------------- 860 Cowlitz County School District No. 458 Kelso GO, 5.75%, 12/1/18 (FSA) 968 - -------------------------------------------------------------------------------- 250 Port of Seattle Rev., Series 2000 B, 6.00%, 2/1/15 (MBIA) 293 - -------------------------------------------------------------------------------- 1,261 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $66,689) 68,691 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES - 5.1% ARIZONA - 0.1% - -------------------------------------------------------------------------------- 100 Phoenix Industrial Development Auth. Rev., Series 2003 A, (Sunrise Vista Apartments), VRDN, 1.25%, 12/4/03 (LOC: Wells Fargo Bank N.A.) 100 - -------------------------------------------------------------------------------- FLORIDA - 2.1% - -------------------------------------------------------------------------------- 1,500 Duval County Housing Finance Auth. Rev., (Camri Green Apartments), VRDN, 1.15%, 12/4/03 (FNMA) 1,500 - -------------------------------------------------------------------------------- Principal Amount ($ In Thousands) Value - -------------------------------------------------------------------------------- OHIO - 1.8% - -------------------------------------------------------------------------------- $1,300 Trumbull County Health Care Facility Rev., VRDN, 1.10%, 12/1/03 (RADIAN) (SBBPA: Fleet Bank N.A.) $ 1,300 - -------------------------------------------------------------------------------- TENNESSEE - 0.7% - -------------------------------------------------------------------------------- 300 Bradley County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank N.A.) 300 - -------------------------------------------------------------------------------- 200 Knox County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.25%, 12/4/03 (LOC: U.S. Bank Trust N.A.) 200 - -------------------------------------------------------------------------------- 500 - -------------------------------------------------------------------------------- WYOMING - 0.4% - -------------------------------------------------------------------------------- 300 Sweetwater County Pollution Control Rev., Series 1988 B, (Pacificorp), VRDN, 1.10%, 12/1/03 (LOC: Bank One N.A.) 300 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $3,700) 3,700 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES - 100.0% (Cost $70,389) $72,391 ================================================================================ 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 LOC = Letter of Credit MBIA = MBIA Insurance Corp. Q-SBLF = Qualified State Bond Loan Fund RADIAN = Radian Asset Assurance Inc. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2003. (1) Security, or a portion thereof, has been segregated for a 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 November 30, 2003, was $3,369 (in thousands), which represented 4.7% of net assets. (3) When-issued security. See Notes to Financial Statements. - ------ 8 Statement of Assets and Liabilities NOVEMBER 30, 2003 (UNAUDITED) (Amounts In Thousands Except Per-Share Amounts) ASSETS Investment securities, at value (cost of $70,389) $72,391 - -------------------------------------------------------------------- Cash 250 - -------------------------------------------------------------------- Receivable for capital shares sold 798 - -------------------------------------------------------------------- Interest receivable 1,224 - -------------------------------------------------------------------------------- 74,663 - -------------------------------------------------------------------------------- LIABILITIES Payable for investments purchased 2,989 - -------------------------------------------------------------------- Accrued management fees 36 - -------------------------------------------------------------------- Distribution fees payable 3 - -------------------------------------------------------------------- Service fees payable 4 - -------------------------------------------------------------------- Dividends payable 100 - -------------------------------------------------------------------------------- 3,132 - -------------------------------------------------------------------------------- NET ASSETS $71,531 ================================================================================ NET ASSETS CONSIST OF: Capital paid in $71,454 - -------------------------------------------------------------------- Accumulated net realized loss on investment transactions (1,925) - -------------------------------------------------------------------- Net unrealized appreciation on investments 2,002 - -------------------------------------------------------------------------------- $71,531 ================================================================================ INVESTOR CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets $52,915,677 - -------------------------------------------------------------------- Shares outstanding 5,213,227 - -------------------------------------------------------------------- Net asset value per share $10.15 - -------------------------------------------------------------------------------- A CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets $11,504,224 - -------------------------------------------------------------------- Shares outstanding 1,133,393 - -------------------------------------------------------------------- Net asset value per share $10.15 - -------------------------------------------------------------------- Maximum offering price (net asset value divided by 0.955) $10.63 - -------------------------------------------------------------------------------- B CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets $1,970,746 - -------------------------------------------------------------------- Shares outstanding 194,157 - -------------------------------------------------------------------- Net asset value per share $10.15 - -------------------------------------------------------------------------------- C CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets $5,140,019 - -------------------------------------------------------------------- Shares outstanding 506,392 - -------------------------------------------------------------------- Net asset value per share $10.15 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 9 Statement of Operations FOR THE SIX MONTHS ENDED NOVEMBER 30, 2003 (UNAUDITED) (Amounts In Thousands) INVESTMENT INCOME INCOME: - -------------------------------------------------------------------- Interest $1,835 - -------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------- Management fees 199 - -------------------------------------------------------------------- Distribution fees: - -------------------------------------------------------------------- B Class 5 - -------------------------------------------------------------------- C Class 8 - -------------------------------------------------------------------- Service fees: - -------------------------------------------------------------------- B Class 2 - -------------------------------------------------------------------- C Class 4 - -------------------------------------------------------------------- Service and distribution fees - A Class 8 - -------------------------------------------------------------------- Trustees' fees and expenses 2 - -------------------------------------------------------------------------------- 228 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 1,607 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED LOSS Net realized loss on investment transactions (115) - -------------------------------------------------------------------- Change in net unrealized appreciation on investments (400) - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS (515) - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,092 ================================================================================ See Notes to Financial Statements. - ------ 10 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2003 (UNAUDITED) AND YEAR ENDED MAY 31, 2003 (Amounts In Thousands) - ------------------------------------------------------------------------------ INCREASE IN NET ASSETS NOV. 30, 2003 MAY 31, 2003 OPERATIONS Net investment income $ 1,607 $ 2,360 - ---------------------------------------------- Net realized gain (loss) (115) 387 - ---------------------------------------------- Change in net unrealized appreciation (400) 1,368 - ------------------------------------------------------------------------------ Net increase in net assets resulting from operations 1,092 4,115 - ------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income: - ---------------------------------------------- Investor Class (1,353) (2,333) - ---------------------------------------------- A Class (159) (11) - ---------------------------------------------- B Class (27) (3) - ---------------------------------------------- C Class (68) (13) - ------------------------------------------------------------------------------ Decrease in net assets from distributions (1,607) (2,360) - ------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Net increase in net assets from capital share transactions 14,146 19,983 - ------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS 13,631 21,738 NET ASSETS Beginning of period 57,900 36,162 - ------------------------------------------------------------------------------ End of period $71,531 $57,900 ============================================================================== See Notes to Financial Statements. - ------ 11 Notes to Financial Statements NOVEMBER 30, 2003 (UNAUDITED) (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. 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 NOVEMBER 30, 2003 (UNAUDITED) (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 six months ended November 30, 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% - -------------------------------------------------------- Effective January 2, 2004, the distribution fee for the C Class will increase to 0.75%. This increase was approved by shareholders on November 21, 2003. The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The fees are computed 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. Fees incurred under the plans during the six months ended November 30, 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 JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities, excluding short-term investments, for the six months ended November 30, 2003, were $18,096 and $6,067, respectively. (continued) - ------ 13 Notes to Financial Statements NOVEMBER 30, 2003 (UNAUDITED) (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 - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2003 - --------------------------------------------------------- Sold 1,193 $12,029 - --------------------------------------------------------- Issued in reinvestment of distributions 83 840 - --------------------------------------------------------- Redeemed (1,294) (12,996) - -------------------------------------------------------------------------------- Net decrease (18) $ (127) ================================================================================ 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 ================================================================================ A CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2003 - --------------------------------------------------------- Sold 969 $9,756 - --------------------------------------------------------- Issued in reinvestment of distributions 14 140 - --------------------------------------------------------- Redeemed (57) (567) - -------------------------------------------------------------------------------- Net increase 926 $9,329 ================================================================================ 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 - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2003 - --------------------------------------------------------- Sold 126 $1,271 - --------------------------------------------------------- Issued in reinvestment of distributions 1 7 - --------------------------------------------------------- Redeemed (2) (14) - -------------------------------------------------------------------------------- Net increase 125 $1,264 ================================================================================ PERIOD ENDED MAY 31, 2003(1) - --------------------------------------------------------- Sold 69 $702 - --------------------------------------------------------- Issued in reinvestment of distributions -- 1 - --------------------------------------------------------- Redeemed -- (5) - -------------------------------------------------------------------------------- Net increase 69 $698 ================================================================================ (1) January 31, 2003 (commencement of sale) through May 31, 2003. (continued) - ------ 14 Notes to Financial Statements NOVEMBER 30, 2003 (UNAUDITED) (Amounts In Thousands) 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) SHARES AMOUNT - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2003 - --------------------------------------------------------- Sold 367 $3,708 - --------------------------------------------------------- Issued in reinvestment of distributions 1 12 - --------------------------------------------------------- Redeemed (4) (40) - -------------------------------------------------------------------------------- Net increase 364 $3,680 ================================================================================ PERIOD ENDED MAY 31, 2003(1) - --------------------------------------------------------- Sold 145 $1,472 - --------------------------------------------------------- Issued in reinvestment of distributions 1 7 - --------------------------------------------------------- Redeemed (4) (44) - -------------------------------------------------------------------------------- Net increase 142 $1,435 ================================================================================ (1) 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 JPMCB, which was renewed to $650 million effective December 17, 2003. 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 six months ended November 30, 2003. 6. FEDERAL TAX INFORMATION The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. As of November 30, 2003, the federal tax cost of investments was as follows: - -------------------------------------------------------------------------------- Federal tax cost of investments $70,389 ================================================================================ Gross tax appreciation of investments $2,332 - -------------------------------------------------------------------- Gross tax depreciation of investments (330) - -------------------------------------------------------------------------------- Net tax appreciation of investments $2,002 ================================================================================ The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The fund had capital loss carryovers of $1,810 as of May 31, 2003. The accumulated losses 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. - ------ 15 High-Yield Municipal - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - -------------------------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------------------------- 2003(1) 2003 2002 2001 2000 1999 PER-SHARE DATA Net Asset Value, Beginning of Period $10.25 $9.87 $9.62 $9.32 $10.12 $10.08 - -------------------------------------------------------------------------------------------------- Income From Investment Operations - -------------------------- Net Investment Income 0.26 0.53 0.53 0.53 0.51 0.54 - --------------------------------------- Net Realized and Unrealized Gain (Loss) (0.10) 0.38 0.25 0.30 (0.79) 0.07 - -------------------------------------------------------------------------------------------------- Total From Investment Operations 0.16 0.91 0.78 0.83 (0.28) 0.61 - -------------------------------------------------------------------------------------------------- Distributions - -------------------------- From Net Investment Income (0.26) (0.53) (0.53) (0.53) (0.51) (0.54) - --------------------------------------- From Net Realized Gains -- -- -- -- (0.01) (0.03) - -------------------------------------------------------------------------------------------------- Total Distributions (0.26) (0.53) (0.53) (0.53) (0.52) (0.57) - -------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.15 $10.25 $9.87 $9.62 $9.32 $10.12 ================================================================================================== TOTAL RETURN(2) 1.62% 9.40% 8.25% 9.13% (2.81)% 6.18% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.64%(3) 0.64% 0.64% 0.64% 0.52%(4) 0.01%(4) - --------------------------------------- Ratio of Net Investment Income to Average Net Assets 5.15%(3) 5.22% 5.39% 5.59% 5.31%(4) 5.28%(4) - --------------------------------------- Portfolio Turnover Rate 10% 43% 28% 50% 60% 92% - --------------------------------------- Net Assets, End of Period (in thousands) $52,916 $53,621 $36,162 $29,342 $28,189 $42,068 - -------------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (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) 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 Periods Indicated - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2003(1) 2003(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.25 $10.06 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------ Net Investment Income 0.25 0.17 - ------------------------------------------------------ Net Realized and Unrealized Gain (Loss) (0.10) 0.19 - -------------------------------------------------------------------------------- Total From Investment Operations 0.15 0.36 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------ From Net Investment Income (0.25) (0.17) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.15 $10.25 ================================================================================ TOTAL RETURN(3) 1.49% 3.57% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.89%(4) 0.88%(4) - ------------------------------------------------------ Ratio of Net Investment Income to Average Net Assets 4.90%(4) 5.03%(4) - ------------------------------------------------------ Portfolio Turnover Rate 10% 43%(5) - ------------------------------------------------------ Net Assets, End of Period (in thousands) $11,504 $2,117 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (2) January 31, 2003 (commencement of sale) through May 31, 2003. (3) 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. (4) Annualized. (5) 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 Periods Indicated - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2003(1) 2003(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.25 $10.06 - -------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------------------------------- Net Investment Income 0.21 0.15 - --------------------------------------------------------- Net Realized and Unrealized Gain (Loss) (0.10) 0.19 - -------------------------------------------------------------------------------- Total From Investment Operations 0.11 0.34 - -------------------------------------------------------------------------------- Distributions - --------------------------------------------------------- From Net Investment Income (0.21) (0.15) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.15 $10.25 ================================================================================ TOTAL RETURN(3) 1.12% 3.44% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.64%(4) 1.63%(4) - --------------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.15%(4) 4.35%(4) - --------------------------------------------------------- Portfolio Turnover Rate 10% 43%(5) - --------------------------------------------------------- Net Assets, End of Period (in thousands) $1,971 $708 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (2) January 31, 2003 (commencement of sale) through May 31, 2003. (3) 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. (4) Annualized. (5) 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 Periods Indicated - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2003(1) 2003(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.25 $10.03 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------------------ Net Investment Income 0.22 0.39 - ------------------------------------------------------ Net Realized and Unrealized Gain (Loss) (0.10) 0.22 - -------------------------------------------------------------------------------- Total From Investment Operations 0.12 0.61 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------------------ From Net Investment Income (0.22) (0.39) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.15 $10.25 ================================================================================ TOTAL RETURN(3) 1.24% 6.15% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.39%(4) 1.39%(4) - ------------------------------------------------------ Ratio of Net Investment Income to Average Net Assets 4.40%(4) 4.55%(4) - ------------------------------------------------------ Portfolio Turnover Rate 10% 43%(5) - ------------------------------------------------------ Net Assets, End of Period (in thousands) $5,140 $1,454 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (2) July 24, 2002 (commencement of sale) through May 31, 2003. (3) 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. (4) Annualized. (5) 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 Proxy Voting Results A special meeting of C Class shareholders was held on November 21, 2003, to vote on the following proposal. The proposal received the required majority of votes and was adopted. A summary of voting results is listed below the proposal. PROPOSAL To vote on approval of the Amendment to the Master Distribution and Individual Shareholder Services Plan. - --------------------------------------------------------- HIGH-YIELD MUNICIPAL FUND C CLASS - --------------------------------------------------------- For: 121,544 - --------------------------------------------------------- Against: 18,023 - --------------------------------------------------------- Abstain: - - --------------------------------------------------------- - ------ 20 Share Class Information Four classes of shares are authorized for sale by High-Yield Municipal: Investor Class, A Class, B Class, and C Class. The total expense ratios of A, B, and C Class shares are higher than that of Investor Class. ON JANUARY 31, 2003, INVESTOR CLASS SHARES BECAME UNAVAILABLE TO NEW INVESTORS. INVESTOR CLASS shares are available for purchase by existing shareholders in two ways: 1) directly from American Century without any commissions or other fees; or 2) through a broker-dealer, which may require payment of a transaction fee to the broker. A CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as investment advisors, banks, broker-dealers, and insurance companies. A Class shares are sold at their offering price, which is net asset value plus an initial sales charge that ranges from 4.50% to 0.00% for fixed-income funds and 5.75% to 0.00% for equity funds, depending on the amount invested. The initial sales charge is deducted from the purchase amount before it is invested. A Class shares may be subject to a contingent deferred sales charge (CDSC). There is no CDSC on shares acquired through reinvestment of dividends or capital gains. The prospectus contains information regarding reductions and waivers of sales charges for A Class shares. A Class shares also are subject to a 0.25% annual Rule 12b-1 service and distribution fee. B CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as investment advisors, banks, broker-dealers, and insurance companies. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. There is no CDSC on shares acquired through reinvestment of dividends or capital gains. B Class shares also are subject to a 1.00% annual Rule 12b-1 service and distribution fee. B Class shares automatically convert to A Class shares (with lower expenses) eight years after their purchase date. C CLASS shares are sold primarily through employer-sponsored retirement plans and through institutions such as investment advisors, banks, broker-dealers, and insurance companies. C Class shares redeemed within 12 months of purchase are subject to a CDSC of 1.00%. There is no CDSC on shares acquired through reinvestment of dividends or capital gains. C Class shares also are subject to a Rule 12b-1 service and distribution fee of 1.00%. All classes of shares represent a pro rata interest in the fund and generally have the same rights and preferences. - ------ 21 Additional Information RETIREMENT ACCOUNT INFORMATION As required by law, any distributions you receive from an IRA or certain 403(b), 457 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. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's manager, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the manager uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's Web site at www.americancentury.com and on the Securities and Exchange Commission's Web site at www.sec.gov. - ------ 22 Index Definition The following index is used to illustrate investment market, sector, or style performance or to serve as a fund performance comparison. It is not an investment product available for purchase. The Lehman Brothers Municipal Bond Index is a market-value-weighted index designed for the long-term tax-exempt bond market. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. - ------ 23 Notes - ------ 24 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. 0401 American Century Investment Services, Inc. SH-SAN-36710N (c)2004 American Century Services Corporation
[front cover] November 30, 2003 American Century Semiannual Report [photos] Florida Municipal Money Market Florida Municipal Bond [american century logo and text logo (reg.tm)] [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 OTHER INFORMATION Additional Information.................................................... 20 The opinions expressed in the Portfolio Commentary reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo] James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the semiannual report for the American Century Florida Municipal Money Market and Florida Municipal Bond funds for the six months ended November 30, 2003. The report includes comparative performance figures, portfolio and market commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Many of you have called or written to express your concern about allegations of wrongdoing by other mutual fund investment management firms. We share your concern--fund companies must put investors first and do everything possible to maintain investor trust. Through the Investment Company Institute, the mutual fund trade association, American Century has advocated industry-wide proposals that strengthen protections for fund investors. We believe that decisive action is needed to show that we are committed, as an industry, to the interests of the 95 million investors we serve. As information about alleged trading abuses in the mutual fund industry has come to light, we have posted messages and commentary about these issues on www.americancentury.com. Beyond what's currently in the headlines, American Century has been a champion of many important investor and industry issues, which are outlined in a document titled Putting Investors First. We invite you to visit our Web site and read about how our values have influenced these positions. As always, we deeply appreciate your investment with American Century. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /s/James E. Stowers III James E. Stowers III Co-Chairman of the Board - ------ 1 Florida Municipal Money Market - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2003 ----------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS INCEPTION(1) DATE - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL MONEY MARKET 0.69% 2.24% 2.86% 4/11/94 - -------------------------------------------------------------------------------- LIPPER OTHER STATES TAX-EXEMPT MONEY MARKET FUNDS AVERAGE RETURN 0.53% 2.08% 2.65%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 9 of 40 8 of 33 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 11/30/03 5/31/03 - -------------------------------------------------------------------------------- A-1+ 72% 68% - -------------------------------------------------------------------------------- A-1 28% 32% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION BY MATURITY - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/03 5/31/03 - -------------------------------------------------------------------------------- 1-30 days 94% 90% - -------------------------------------------------------------------------------- 31-90 days -- -- - -------------------------------------------------------------------------------- 91-180 days 3% 4% - -------------------------------------------------------------------------------- More than 180 days 3% 6% - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 0.76% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 0.76% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS* - -------------------------------------------------------------------------------- 25.0% Tax Bracket 1.01% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 1.06% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 1.13% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 1.17% - -------------------------------------------------------------------------------- *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 Florida Municipal Money Market returned 0.30% for the six months ended November 30, 2003, outperforming the 0.22% average return of the 40 funds in Lipper Inc.'s "Other States Tax-Exempt Money Market Funds" category (see the previous page for additional performance figures). ECONOMIC & MARKET REVIEW The U.S. economy picked up steam, with growth accelerating from a 3.1% annual pace at the end of the second quarter to 8.2% in the third quarter of 2003 (as measured by real GDP). One drag on the economy was unemployment: the U.S. economy lost 140,000 jobs in the first two months of the period, pushing the unemployment rate up to 6.4% in June. In August, employment reports started turning positive, and unemployment gradually dropped back to 5.9% by November. The employment data, other signs of economic weakness that lasted until mid-summer, and low inflation, prompted the Federal Reserve (the Fed) to cut its short-term interest rate target to a mere 1.0% in June. Municipal money market yields generally fell during the six months. Yields fell significantly in June after the Fed's rate cut, but then recovered somewhat as demand for money market securities fell during the year. Assets invested in money market funds have dropped by nearly 9% in 2003 because of money funds' low yields--largely the result of 13 Fed interest rate cuts spread over the past three years. Florida Municipal Money Market's 7-day current yield held up very well during the period, falling only 7 basis points, from 0.83% at the end of May, to 0.76% at the end of November. PORTFOLIO STRATEGY The portfolio's weighted average maturity (WAM) fell gradually over the six months, as we prepared for the fund's eventual close in April 2004 (for more information on the closure, please see "Subsequent Events" on page 17). The fund's WAM climbed to 45 days in early June, then declined gradually, reaching 18 days at the end of November. We kept about 95% of the fund's assets invested in "floaters"--very short-term floating-rate municipal notes. (They're labeled as VRDNs in the Schedule of Investments.) Overall, yields on floaters were competitive with, or better than, those on one-year muni notes, and we didn't want to invest in longer-term securities with rates so low. We also picked up some extra yield investing in non-Florida municipal money market securities (the fund is allowed to hold up to 20% non-Florida paper). For example, on November 30, the fund held securities from California, Alabama, Georgia, New York, and Tennessee. A NOTE ABOUT THE FUND'S YIELD The sharp decline in interest rates over the past several years has brought money market yields down to very low levels. Nonetheless, we expect the fund to maintain a positive yield unless the Fed cuts interest rates significantly in the future. Should that happen, American Century will examine all possible ways to maintain yields that are competitive and positive, including the waiver of management fees. - ------ 3 Florida Municipal Money Market - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 100.0% ALABAMA -- 3.4% - -------------------------------------------------------------------------------- $2,000,000 Anniston Industrial Development Board Rev., (Hunjan Moulded Products Ltd.), VRDN, 1.40%, 12/4/03 (LOC: AmSouth Bank) $ 2,000,000 - -------------------------------------------------------------------------------- CALIFORNIA -- 7.6% - -------------------------------------------------------------------------------- 2,000,000 California Rev. Anticipation Warrants, Series 2003 A, 2.00%, 6/16/04 (FWPA) 2,009,650 - -------------------------------------------------------------------------------- 2,500,000 San Bernardino County Housing Auth. Rev., Series 2002 C, VRDN, 1.12%, 12/1/03 (XLCA) 2,500,000 - -------------------------------------------------------------------------------- 4,509,650 - -------------------------------------------------------------------------------- FLORIDA -- 83.9% - -------------------------------------------------------------------------------- 1,100,000 Alachua County Housing Finance Auth. Rev., (University Cove Apartments), VRDN, 1.14%, 12/3/03 (LOC: Southtrust Bank N.A.) 1,100,000 - -------------------------------------------------------------------------------- 4,600,000 Broward County Airport Exempt Facility Rev., (Various LearJet Inc. Projects), VRDN, 1.25%, 12/4/03 (LOC: Bank of America) 4,600,000 - -------------------------------------------------------------------------------- 965,000 Broward County Industrial Development Rev., (MDR Fitness Corp.), VRDN, 1.30%, 12/3/03 (LOC: SunTrust Bank) (Acquired 2/28/96-4/9/96, Cost $965,000)(1) 965,000 - -------------------------------------------------------------------------------- 1,400,000 Coral Springs Industrial Development Rev., (Royal Plastics Group), VRDN, 1.20%, 12/3/03 (LOC: SunTrust Bank South Florida, N.A.) (Acquired 1/31/01, Cost $1,400,000)(1) 1,400,000 - -------------------------------------------------------------------------------- 5,600,000 Florida Housing Finance Agency Multifamily Rev., (Country Club), VRDN, 1.25%, 12/4/03 (LOC: FHLMC) 5,600,000 - -------------------------------------------------------------------------------- 3,150,000 Florida Housing Finance Agency Multifamily Rev., (Woodlands), VRDN, 1.22%, 12/3/03 (LOC: Northern Trust Company) 3,150,000 - -------------------------------------------------------------------------------- 2,015,000 Florida Housing Finance Agency Trust Receipts Rev., Series 1998-12, VRDN, 1.22%, 12/3/03 (MBIA) (LOC: Bank of New York) (Acquired 1/23/01- 6/26/01, Cost $2,015,000)(1) 2,015,000 - -------------------------------------------------------------------------------- 4,985,000 Florida Housing Finance Agency Rev., VRDN, 1.28%, 12/4/03 (SBBPA: Merrill Lynch Capital Services) (Acquired 7/9/03, Cost $4,985,000)(1) 4,985,000 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,500,000 Florida Housing Finance Corporation Rev., Series 2002-1, (Tuscany Lakes), VRDN, 1.25%, 12/4/03 (LOC: FNMA) $ 1,500,000 - -------------------------------------------------------------------------------- 1,500,000 Hillsborough County Aviation Auth. Rev., VRDN, 1.21%, 12/4/03 (MBIA) (SBBPA: Svenska Handelsbanken AB) (Acquired 2/20/03, Cost $1,500,000)(1) 1,500,000 - -------------------------------------------------------------------------------- 1,900,000 Hillsborough County Industrial Development Auth. Rev., (Seaboard Tampa), VRDN, 1.35%, 12/3/03 (LOC: First Union National Bank) 1,900,000 - -------------------------------------------------------------------------------- 500,000 Indian River County Industrial Development Rev., (Florida Convention Centers), VRDN, 1.25%, 12/1/03 (LOC: Wells Fargo Bank Minnesota, N.A.) 500,000 - -------------------------------------------------------------------------------- 4,500,000 Miami Health Facilities Auth. Rev., VRDN, 1.23%, 12/4/03 (SBBPA: Westdeutsche Landesbank AG) (Acquired 8/22/02-11/20/03, Cost $4,500,000)(1) 4,500,000 - -------------------------------------------------------------------------------- 3,000,000 Miami-Dade County Industrial Development Auth. Rev., (Altira Inc.), VRDN, 1.25%, 12/3/03 (LOC: SunTrust Bank) 3,000,000 - -------------------------------------------------------------------------------- 2,400,000 Miami-Dade County Industrial Development Auth. Rev., (Dutton Press Inc.), VRDN, 1.20%, 12/3/03 (LOC: SunTrust Bank, Miami, N.A.) (Acquired 12/27/00-4/11/01, Cost $2,400,000)(1) 2,400,000 - -------------------------------------------------------------------------------- 2,130,000 Miami-Dade County Industrial Development Auth. Rev., (Von Drehle Florida Inc.), VRDN, 1.25%, 12/4/03 (LOC: Branch Banking & Trust) 2,130,000 - -------------------------------------------------------------------------------- 2,150,000 Orange County Housing Finance Auth. Multifamily Guaranteed Mortgage Rev., Series 1989 A, (Sundown Association II), VRDN, 1.22%, 12/3/03 (LOC: Northern Trust Co.) 2,150,000 - -------------------------------------------------------------------------------- 2,000,000 Palm Beach County Airport Rev., Series 2000 A, (Galaxy Aviation), VRDN, 1.20%, 12/3/03 (LOC: SunTrust Bank) 2,000,000 - -------------------------------------------------------------------------------- 1,200,000 Palm Beach County Rev., (Convalescent Centers), VRDN, 1.32%, 12/3/03 (LOC: Wells Fargo N.A.) 1,200,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 4 Florida Municipal Money Market - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $2,100,000 Pinellas County Industrial Council Development Rev., (Hunter Douglas Inc.), VRDN, 1.20%, 12/3/03 (LOC: ABN Amro Bank N.V.) (Acquired 3/17/97, Cost $2,100,000)(1) $ 2,100,000 - -------------------------------------------------------------------------------- 1,000,000 Seminole County Industrial Development Auth. Rev., VRDN, 1.30%, 12/4/03 (LOC: Bank of America N.A.) 1,000,000 - -------------------------------------------------------------------------------- 49,695,000 - -------------------------------------------------------------------------------- GEORGIA -- 1.4% - -------------------------------------------------------------------------------- 850,000 Fulton County Development Auth. Rev., (Darby Printing Co.), VRDN, 1.47%, 12/3/03 (LOC: Wachovia Bank N.A.) 850,000 - -------------------------------------------------------------------------------- NEW YORK -- 2.5% - -------------------------------------------------------------------------------- $1,500,000 New York State Thruway Auth. Rev., Series 2003 A, 1.125%, 3/25/04 $ 1,500,118 - -------------------------------------------------------------------------------- TENNESSEE -- 1.2% - -------------------------------------------------------------------------------- 700,000 Cookeville Industrial Development Board Rev., Series 2001 A, (Advocacy & Resources Project), VRDN, 1.30%, 12/4/03 (LOC: AmSouth Bank) 700,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% $59,254,768 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS LOC = Letter of Credit FHLMC = Federal Home Loan Mortgage Corporation FNMA = Federal National Mortgage Association FWPA = Forward Warrant Purchase Agreement MBIA = MBIA Insurance Corp. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 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 November 30, 2003, was $19,865,000, which represented 33.4% 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 NOVEMBER 30, 2003 ----------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS INCEPTION** DATE - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL BOND 5.62% 5.34% 6.12% 4/11/94 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 5.72% 5.49% 5.92%(1) -- - -------------------------------------------------------------------------------- LIPPER FLORIDA INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS 4.93% 4.41% 5.05%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 5 of 19 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
ONE-YEAR RETURNS OVER LIFE OF FUND Periods ended November 30 - -------------------------------------------------------------------------------- 1994* 1995 1996 1997 1998 - -------------------------------------------------------------------------------- Florida Municipal Bond** -0.40% 14.39% 4.61% 6.78% 7.39% - -------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 0.94% 11.99% 5.36% 5.38% 6.32% - -------------------------------------------------------------------------------- Periods ended November 30 - -------------------------------------------------------------------------------- 1999 2000 2001 2002 2003 - -------------------------------------------------------------------------------- Florida Municipal Bond** 0.00% 7.09% 7.82% 6.35% 5.62% - -------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 1.49% 5.62% 8.24% 6.47% 5.72% - -------------------------------------------------------------------------------- * 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 Florida Municipal Bond returned -0.63% for the six months ended November 30, 2003, reflecting municipal bonds' limited performance. By comparison, the average return of the 19 Florida Intermediate Municipal Debt Funds tracked by Lipper Inc. was -0.52%. (See the previous page for details.) Although the fund's short-term performance wasn't as good as we would have liked, long-term performance remained solid. For example, Florida Municipal Bond ranked among the top 30% of its Lipper peer group for the year ended November 30, 2003, while the five-year return earned the fund a #1 finish. ECONOMIC AND GLOBAL BACKDROP After serving out the second quarter at a 3.1% annualized pace, economic growth (as measured by seasonally adjusted gross domestic product) accelerated to an estimated 8.2% during the third quarter. That surprisingly robust three-month rate marked the fastest quarterly increase since 1983. Activity appears to have tapered off some here in the fourth quarter, but is still forecast to rise in the neighborhood of 4-5%. Encouraging economic news arrived in other forms as well, especially toward period-end. In particular, consumer confidence surged, housing-market activity remained not far off of record levels, and durable goods orders generally increased as well. In addition, inflation (as measured by the consumer price index) remained tame. Prices were so well behaved that the Federal Reserve, which reduced its benchmark interest rate--the federal funds rate--to approximately a 45-year low of 1.00% in late June, said in late October that the chance for deflation, or a drop in prices, posed a bigger threat than an increase in prices. Outside of the economic front, however, a full spate of troubling news tempered consumer enthusiasm going into the holiday season. Global evidence of increased terrorist activity, a brief evacuation of the White House, ongoing violence in Iraq, and still-high oil prices reminded investors that plenty of challenges remained. MUNICIPAL MARKET PERFORMANCE Municipal bonds produced limited total returns, as evidenced by the 0.47% gain of the Lehman Brothers Municipal 5-Year GO Index. The solid economic improvement weighed on bonds in general. However, terrorist-related concerns provided a limited counterbalance, as did Fed Chief Alan Greenspan's early November reassurance that the Fed will remain patient regarding interest rates. YIELDS AS OF NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 2.56% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 25.0% Tax Bracket 3.41% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 3.56% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 3.82% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 3.94% - -------------------------------------------------------------------------------- *The tax brackets indicated are for federal taxes only. (continued) - ------ 7 Florida Municipal Bond - Portfolio Commentary Stepped-up supply played a role as well. Although new municipal bond issuance tapered off some by the end of the six months, the supply of new municipal bonds kept 2003 on track to fall not far from 2002's $358 billion record. Fortunately, solid investor demand helped to buoy municipal bonds in spite of the increased supply. PORTFOLIO STRATEGIES With that environment in mind, we kept Florida Municipal Bond's interest rate sensitivity conservatively low. That generally helped performance when economic data surprised to the upside and bond prices fell, but dampened returns during rallies. We maintained Florida Municipal Bond's emphasis on better-rated bonds, as shown by the accompanying table regarding the portfolio's composition by credit rating. However, we continued to look for lower-rated investment-grade bonds with what we felt were compelling credit stories with the help of our credit research team. Lastly, our interest rate and inflation expectations combined with what we felt was a significant difference between the yields of short- and long-term bonds led us to generally emphasize somewhat of a barbell bond maturity structure for the portfolio. Such a structure tends to perform best when the yield curve (a graphic representation of the relationship between bond yields and maturities) flattens. That is, when the difference between the yields of short- and long-term bonds decreases. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/03 5/31/03 - -------------------------------------------------------------------------------- AAA 85% 84% - -------------------------------------------------------------------------------- AA 6% 1% - -------------------------------------------------------------------------------- A 2% 6% - -------------------------------------------------------------------------------- BBB 7% 9% - -------------------------------------------------------------------------------- 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 NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- COPs/Leases 20% - -------------------------------------------------------------------------------- Water and Sewer Revenue 18% - -------------------------------------------------------------------------------- GO 10% - -------------------------------------------------------------------------------- Transportation Revenue 10% - -------------------------------------------------------------------------------- Land Based 6% - -------------------------------------------------------------------------------- - ------ 8 Florida Municipal Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 97.8% FLORIDA -- 95.8% - -------------------------------------------------------------------------------- $2,110,000 Broward County Airport Systems Rev., (Passenger Facility), (Conventional Lien H1), 5.25%, 10/1/12 (AMBAC) $ 2,265,979 - -------------------------------------------------------------------------------- 500,000 Broward County School Board COP, Series 2002 B, 5.375%, 7/1/13 (FSA) 557,425 - -------------------------------------------------------------------------------- 1,475,000 Collier County School Board COP, 5.50%, 2/15/12 (FSA) 1,685,394 - -------------------------------------------------------------------------------- 960,000 Crossings at Fleming Island Community Development District Special Assessment Rev., Series 2000 B, 5.20%, 5/1/04 (MBIA) 976,608 - -------------------------------------------------------------------------------- 715,000 Crossings at Fleming Island Community Development District Special Assessment Rev., Series 2000 B, 5.25%, 5/1/05 (MBIA) 755,147 - -------------------------------------------------------------------------------- 250,000 Dade County Aviation Rev., Series 1995 E, 5.50%, 10/1/10 (AMBAC) 271,370 - -------------------------------------------------------------------------------- 1,150,000 Duval County School Board COP, 5.75%, 7/1/16 (FSA) 1,306,584 - -------------------------------------------------------------------------------- 145,000 Escambia County Housing Finance Auth. Single Family Mortgage Rev., Series 1998 A, (Multi-County Program), 4.80%, 4/1/06 (GNMA/FNMA) 153,445 - -------------------------------------------------------------------------------- 225,000 Escambia County Housing Finance Auth. Single Family Mortgage Rev., Series 1998 A, (Multi-County Program), 4.85%, 4/1/07 (GNMA/FNMA) 240,768 - -------------------------------------------------------------------------------- 1,050,000 Florida Board of Education Capital Outlay GO, Series 1995 C, 5.50%, 6/1/12, Prerefunded at 101% of Par (MBIA)(1) 1,126,419 - -------------------------------------------------------------------------------- 2,320,000 Florida Division of Bond Finance Rev., Series 1998 B, (Environmental Protection - Preservation), 5.25%, 7/1/10 (FSA) 2,600,533 - -------------------------------------------------------------------------------- 450,000 Florida Housing Finance Agency Rev., Series 1995 E, (Williamsburg Village Apartments), 5.60%, 12/1/07 (AMBAC) 478,890 - -------------------------------------------------------------------------------- 775,000 Florida Housing Finance Corp. Rev., Series 1999-2, (Homeowner Mortgage), 4.60%, 1/1/21 (FSA) 778,232 - -------------------------------------------------------------------------------- 1,000,000 Florida Municipal Loan Council Rev., Series 2002 C, 5.25%, 11/1/21 (MBIA) 1,076,480 - -------------------------------------------------------------------------------- 350,000 Gainesville Utilities System Rev., Series 1996 A, 5.75%, 10/1/09 406,746 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 675,000 Greater Orlando Aviation Auth. Rev., Series 1999 A, 5.25%, 10/1/09 (FGIC) $ 750,641 - -------------------------------------------------------------------------------- 400,000 Hillsborough County Port District Special Rev., 6.50%, 6/1/04 (FSA) 410,516 - -------------------------------------------------------------------------------- 2,010,000 Hollywood Water & Sewer Rev., 3.00%, 10/1/06 (FSA) 2,083,003 - -------------------------------------------------------------------------------- 1,235,000 Indian River County Rev., (Spring Training Facility), 5.25%, 4/1/15 (FGIC) 1,358,512 - -------------------------------------------------------------------------------- 1,000,000 JEA Electric Systems Rev., Series 2003-3A, 2.50%, 10/1/05 1,016,170 - -------------------------------------------------------------------------------- 295,000 Julington Creek Plantation Community Development District Assessment Rev., 2.75%, 5/1/06 (MBIA) 302,744 - -------------------------------------------------------------------------------- 295,000 Julington Creek Plantation Community Development District Assessment Rev., 3.10%, 5/1/07 (MBIA) 306,133 - -------------------------------------------------------------------------------- 330,000 Julington Creek Plantation Community Development District Assessment Rev., 3.65%, 5/1/09 (MBIA) 345,870 - -------------------------------------------------------------------------------- 350,000 Julington Creek Plantation Community Development District Assessment Rev., 3.85%, 5/1/10 (MBIA) 367,784 - -------------------------------------------------------------------------------- 625,000 Julington Creek Plantation Community Development District Assessment Rev., 4.00%, 5/1/11 (MBIA) 655,063 - -------------------------------------------------------------------------------- 850,000 Lee County Industrial Development Health Care Facilities Auth. Rev., Series 1999 A, (Shell Point Village), 5.50%, 11/15/09 914,192 - -------------------------------------------------------------------------------- 1,290,000 Lee County Rev., Series 2001 A, 4.80%, 10/1/12 (AMBAC) 1,406,848 - -------------------------------------------------------------------------------- 1,000,000 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 3.35%, 11/15/04 1,008,800 - -------------------------------------------------------------------------------- 1,325,000 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 4.25%, 11/15/07 1,373,296 - -------------------------------------------------------------------------------- 1,000,000 Miami Beach Stormwater Rev., 5.75%, 9/1/17 (FGIC) 1,145,470 - -------------------------------------------------------------------------------- 1,910,000 Miami Beach Water Sewer Rev., 5.625%, 9/1/16 (AMBAC) 2,131,331 - -------------------------------------------------------------------------------- 650,000 Miami Parking Facilities Rev., 5.25%, 10/1/15 (MBIA) 736,184 - -------------------------------------------------------------------------------- 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/16 (FSA) 1,123,090 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 9 Florida Municipal Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/17 (FSA) $ 1,118,900 - -------------------------------------------------------------------------------- 1,260,000 Miami-Dade County Water Rev., 4.00%, 10/1/05 (MBIA) 1,320,631 - -------------------------------------------------------------------------------- 160,000 Orange County Health Facilities Auth. Rev., Series 1996 A, (Orlando Regional Healthcare), 6.00%, 10/1/04 (MBIA) 166,285 - -------------------------------------------------------------------------------- 390,000 Orange County Health Facilities Auth. Rev., Series 1996 A, (Orlando Regional Healthcare), 6.00%, 10/1/04 (MBIA)(1) 406,010 - -------------------------------------------------------------------------------- 1,875,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/19 (MBIA) 2,072,813 - -------------------------------------------------------------------------------- 450,000 Orlando and Orange County Expressway Auth. Rev., 6.50%, 7/1/11 (FGIC) 548,861 - -------------------------------------------------------------------------------- 500,000 Orlando Utilities Commission Water & Electric Rev., 5.70%, 10/1/04 519,120 - -------------------------------------------------------------------------------- 1,000,000 Palm Beach County Airport Systems Rev., 4.00%, 10/1/06 (MBIA) 1,062,810 - -------------------------------------------------------------------------------- 1,000,000 Palm Beach County School Board COP, Series 2002 A, 5.375%, 8/1/17 (FSA) 1,105,680 - -------------------------------------------------------------------------------- 2,000,000 Pasco County Solid Waste Disposal & Resource Recovery System Rev., 6.00%, 4/1/10 (AMBAC) 2,285,719 - -------------------------------------------------------------------------------- 500,000 Pensacola Airport Rev., Series 1997 B, 5.40%, 10/1/07 (MBIA) 555,785 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.45%, 12/1/04 306,666 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.55%, 12/1/05 311,751 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.70%, 12/1/07 317,067 - -------------------------------------------------------------------------------- 1,000,000 Polk County Housing Finance Auth. Multifamily Housing Rev., Series 1997 A, (Winter Oaks Apartments), 5.25%, 7/1/07 (FNMA) 1,055,220 - -------------------------------------------------------------------------------- 705,000 Punta Gorda Rev., (Utility Systems), 3.00%, 1/1/04 (AMBAC) 706,241 - -------------------------------------------------------------------------------- 1,595,000 Seminole County GO, 5.375%, 10/1/17 (FGIC) 1,763,751 - -------------------------------------------------------------------------------- 1,015,000 St. Lucie County Public Improvement Rev., Series 2000 A, (800 MHZ Radio System), 5.50%, 4/1/10 (MBIA) 1,164,479 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Sumter County School Board COP, 5.50%, 1/1/21 (MBIA) $ 1,095,550 - -------------------------------------------------------------------------------- 1,000,000 Sunrise Utility System Rev., 5.20%, 10/1/22 (AMBAC) 1,080,210 - -------------------------------------------------------------------------------- 1,000,000 Tampa Bay Water Utility System Rev., Series 1998 B, 5.125%, 10/1/15 (FGIC) 1,091,370 - -------------------------------------------------------------------------------- 400,000 Tampa Guaranteed Entitlement Rev., 6.00%, 10/1/18 (AMBAC) 473,040 - -------------------------------------------------------------------------------- 1,000,000 Tampa Water & Sewer Rev., 6.00%, 10/1/17 (FSA) 1,204,420 - -------------------------------------------------------------------------------- 910,000 Village Center Community Development District Recreational Rev., Series 2001 A, 3.75%, 11/1/05 (MBIA) 951,323 - -------------------------------------------------------------------------------- 54,799,369 - -------------------------------------------------------------------------------- PUERTO RICO -- 2.0% - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.50%, 7/1/10 1,128,080 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $52,851,782) 55,927,449 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 2.2% FLORIDA -- 2.2% - -------------------------------------------------------------------------------- 300,000 Broward County Industrial Development Rev., VRDN, 1.20%, 12/3/03 (LOC: SunTrust Bank South Florida, N.A.) (Acquired 9/17/03-9/24/03, Cost $300,000)(2) 300,000 - -------------------------------------------------------------------------------- 750,000 Florida Housing Finance Agency Multifamily Rev., (Woodlands), VRDN, 1.22%, 12/3/03 (LOC: Northern Trust Company) 750,000 - -------------------------------------------------------------------------------- 200,000 Miami Health Facilities Auth. Rev., VRDN, 1.23%, 12/4/03 (LOC: Westdeutsche Landesbank Girozentrale) (Acquired 9/19/03, Cost $200,000)(2) 200,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $1,250,000) 1,250,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $54,101,782) $57,177,449 ================================================================================ See Notes to Financial Statements. (continued) - ------ 10 Florida Municipal Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) 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 LOC = Letter of Credit MBIA = MBIA Insurance Corp. VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2003. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (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 November 30, 2003, was $500,000, which represented 0.9% of net assets. See Notes to Financial Statements. - ------ 11 Statement of Assets and Liabilities NOVEMBER 30, 2003 (UNAUDITED) - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL FLORIDA MONEY MARKET MUNICIPAL BOND - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $59,254,768 and $54,101,782, respectively) $59,254,768 $57,177,449 - ----------------------------------------------- Cash 113,933 -- - ----------------------------------------------- Receivable for capital shares sold -- 2,910 - ----------------------------------------------- Interest receivable 113,631 600,467 - ----------------------------------------------- Prepaid portfolio insurance 1,259 -- - -------------------------------------------------------------------------------- 59,483,591 57,780,826 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash -- 15,022 - ----------------------------------------------- Accrued management fees 24,024 23,687 - ----------------------------------------------- Dividends payable 707 50,157 - -------------------------------------------------------------------------------- 24,731 88,866 - -------------------------------------------------------------------------------- NET ASSETS $59,458,860 $57,691,960 ================================================================================ CAPITAL SHARES - -------------------------------------------------------------------------------- Outstanding (unlimited number of shares authorized) 59,512,839 5,254,002 ================================================================================ NET ASSET VALUE PER SHARE $1.00 $10.98 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $59,512,840 $54,522,096 - ----------------------------------------------- Accumulated undistributed net realized gain (loss) on investment transactions (53,980) 94,197 - ----------------------------------------------- Net unrealized appreciation on investments -- 3,075,667 - -------------------------------------------------------------------------------- $59,458,860 $57,691,960 ================================================================================ See Notes to Financial Statements. - ------ 12 Statement of Operations FOR THE SIX MONTHS ENDED NOVEMBER 30, 2003 (UNAUDITED) - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL FLORIDA MONEY MARKET MUNICIPAL BOND - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ----------------------------------------------- Interest $328,300 $1,478,624 - -------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------- Management fees 147,173 153,927 - ----------------------------------------------- Trustees' fees and expenses 1,639 1,727 - ----------------------------------------------- Portfolio insurance and other expenses 3,814 592 - -------------------------------------------------------------------------------- 152,626 156,246 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 175,674 1,322,378 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED LOSS - -------------------------------------------------------------------------------- Net realized loss on investment transactions (4,557) (144,457) - ----------------------------------------------- Change in net unrealized appreciation on investments -- (1,821,180) - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS (4,557) (1,965,637) - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $171,117 $(643,259) ================================================================================ See Notes to Financial Statements. - ------ 13 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2003 (UNAUDITED) AND YEAR ENDED MAY 31, 2003 - ----------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FLORIDA MUNICIPAL MONEY MARKET FLORIDA MUNICIPAL BOND - ----------------------------------------------------------------------------------------------- NOVEMBER 30, MAY 31, NOVEMBER 30, MAY 31, 2003 2003 2003 2003 - ----------------------------------------------------------------------------------------------- OPERATIONS - ----------------------------------------------------------------------------------------------- Net investment income $175,674 $604,256 $1,322,378 $2,433,072 - -------------------------------------- Net realized gain (loss) (4,557) (6,307) (144,457) 462,181 - -------------------------------------- Change in net unrealized appreciation -- -- (1,821,180) 3,132,967 - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 171,117 597,949 (643,259) 6,028,220 - ----------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ----------------------------------------------------------------------------------------------- From net investment income (175,674) (604,881) (1,322,378) (2,433,072) - -------------------------------------- From net realized gains -- -- -- (379,812) - ----------------------------------------------------------------------------------------------- Decrease in net assets from distributions (175,674) (604,881) (1,322,378) (2,812,884) - ----------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ----------------------------------------------------------------------------------------------- Proceeds from shares sold 13,120,292 51,256,232 8,660,706 37,203,985 - -------------------------------------- Proceeds from reinvestment of distributions 166,610 572,270 902,407 2,002,779 - -------------------------------------- Payments for shares redeemed (17,979,599) (53,789,721) (19,983,027) (26,909,961) - ----------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (4,692,697) (1,961,219) (10,419,914) 12,296,803 - ----------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (4,697,254) (1,968,151) (12,385,551) 15,512,139 NET ASSETS - ----------------------------------------------------------------------------------------------- Beginning of period 64,156,114 66,124,265 70,077,511 54,565,372 - ----------------------------------------------------------------------------------------------- End of period $ 59,458,860 $ 64,156,114 $ 57,691,960 $ 70,077,511 =============================================================================================== TRANSACTIONS IN SHARES OF THE FUND - ----------------------------------------------------------------------------------------------- Sold 13,120,292 51,256,232 788,055 3,399,806 - -------------------------------------- Issued in reinvestment of distributions 166,610 572,270 82,598 182,002 - -------------------------------------- Redeemed (17,979,599) (53,789,721) (1,825,057) (2,457,953) - ----------------------------------------------------------------------------------------------- Net increase (decrease) in shares of the fund (4,692,697) (1,961,219) (954,404) 1,123,855 =============================================================================================== See Notes to Financial Statements. - ------ 14 Notes to Financial Statements NOVEMBER 30, 2003 (UNAUDITED) 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. Municipal Money Market is diversified under the 1940 Act. Municipal Bond is 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 each 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. 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 these estimates. (continued) - ------ 15 Notes to Financial Statements NOVEMBER 30, 2003 (UNAUDITED) 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 0.1625% to 0.2800% for Municipal Bond. The rates for the Complex Fee range from 0.2900% to 0.3100%. For the six months ended November 30, 2003, the effective annual management fee for Municipal Money Market and Municipal Bond was 0.49% and 0.50%, respectively. MONEY MARKET INSURANCE -- Municipal Money Market, along with other money market funds managed by ACIM, have entered into an insurance agreement with MBIA Insurance Corporation (MBIA). MBIA provides limited coverage for certain loss events including issuer defaults as to payment of principal or interest and insolvency of a credit enhancement provider. 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 JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities for Municipal Bond, excluding short-term investments, for the six months ended November 30, 2003, were $13,536,875 and $21,524,670, respectively. All investment transactions for Municipal Money Market were short-term during the six months ended November 30, 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 JPMCB, which was renewed to $650,000,000 effective December 17, 2003. 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 six months November 30, 2003. (continued) - ------ 16 Notes to Financial Statements NOVEMBER 30, 2003 (UNAUDITED) 5. FEDERAL TAX INFORMATION On December 9, 2003, Municipal Bond declared and paid a per-share distribution of $0.0454 from net realized gains to shareholders of record on December 8, 2003. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. As of November 30, 2003, the components of investments for federal income tax purposes were as follows: - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL FLORIDA MONEY MARKET MUNICIPAL BOND - -------------------------------------------------------------------------------- Federal tax cost of investments $59,254,768 $54,101,782 ================================================================================ Gross tax appreciation of investments -- $3,080,252 - ------------------------------------------ Gross tax depreciation of investments -- (4,585) - -------------------------------------------------------------------------------- Net tax appreciation of investments -- $3,075,667 ================================================================================ The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. As of May 31, 2003, Municipal Money Market had net capital loss carryovers of $41,552 that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire in 2008 through 2010. As of May 31, 2003, Municipal Money Market has capital loss deferrals of $7,459 which 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. SUBSEQUENT EVENTS On December 17, 2003, the Board of Trustees approved a plan to liquidate Florida Municipal Money Market. It is expected that the liquidation will be completed at the close of business on April 23, 2004. - ------ 17 Florida Municipal Money Market - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - --------------------------------------------------------------------------------------------- 2003(1) 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 - --------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------- Net Investment Income --(2) 0.01 0.02 0.04 0.03 0.03 - --------------------------------------------------------------------------------------------- Distributions - ------------------------------------- From Net Investment Income --(2) (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 $1.00 ============================================================================================= TOTAL RETURN(3) 0.30% 0.96% 1.59% 3.72% 3.30% 2.92% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51%(4) 0.51% 0.51% 0.50% 0.50% 0.50% - ------------------------------------- Ratio of Net Investment Income to Average Net Assets 0.59%(4) 0.95% 1.58% 3.67% 3.26% 2.88% - ------------------------------------- Net Assets, End of Period (in thousands) $59,459 $64,156 $66,124 $75,353 $84,902 $87,509 - --------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (2) Per share amount was less than $0.005. (3) 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. (4) Annualized. See Notes to Financial Statements. - ------ 18 Florida Municipal Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - ----------------------------------------------------------------------------------------------- 2003(1) 2003 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------------- PER-SHARE DATA - ----------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.29 $10.73 $10.67 $10.08 $10.50 $10.56 - ----------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------- Net Investment Income 0.24 0.42 0.44 0.47 0.45 0.44 - ------------------------------------- Net Realized and Unrealized Gain (Loss) (0.31) 0.62 0.19 0.59 (0.41) 0.05 - ----------------------------------------------------------------------------------------------- Total From Investment Operations (0.07) 1.04 0.63 1.06 0.04 0.49 - ----------------------------------------------------------------------------------------------- Distributions - ------------------------------------- From Net Investment Income (0.24) (0.42) (0.44) (0.47) (0.45) (0.44) - ------------------------------------- From Net Realized Gains -- (0.06) (0.13) -- (0.01) (0.11) - ----------------------------------------------------------------------------------------------- Total Distributions (0.24) (0.48) (0.57) (0.47) (0.46) (0.55) - ----------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.98 $11.29 $10.73 $10.67 $10.08 $10.50 =============================================================================================== TOTAL RETURN(2) (0.63)% 9.90% 5.98% 10.70% 0.49% 4.71% RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51%(3) 0.51% 0.51% 0.51% 0.51% 0.51% - ------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.30%(3) 3.78% 4.03% 4.49% 4.49% 4.13% - ------------------------------------- Portfolio Turnover Rate 23% 45% 75% 138% 155% 154% - ------------------------------------- Net Assets, End of Period (in thousands) $57,692 $70,078 $54,565 $53,860 $46,077 $44,379 - ---------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (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. (3) Annualized. See Notes to Financial Statements. - ------ 19 Additional Information INDEX DEFINITIONS The following index is used to illustrate investment market, sector, or style performance or to serve as a fund performance comparison. It is not an investment product available for purchase. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the funds' manager, is responsible for exercising the voting rights associated with the securities purchased and/or held by the funds. A description of the policies and procedures the manager uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's Web site at www.americancentury.com and on the Securities and Exchange Commission's Web site at www.sec.gov. - ------ 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. 0401 American Century Investment Services, Inc. SH-SAN-36708N (c)2004 American Century Services Corporation
[front cover] November 30, 2003 American Century Semiannual Report [photos] Arizona Municipal Bond [american century logo and text logo (reg.tm)] [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....................................... 7 Statement of Operations................................................... 8 Statement of Changes in Net Assets........................................ 9 Notes to Financial Statements............................................. 10 Financial Highlights...................................................... 12 OTHER INFORMATION Additional Information.................................................... 13 The opinions expressed in the Portfolio Commentary reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo] James E. Stowers III with James E. Stowers, Jr. We are pleased to provide you with the semiannual report for American Century Arizona Municipal Bond fund for the six months ended November 30, 2003. The report includes comparative performance figures, portfolio and market commentary, summary tables, a full list of portfolio holdings, and financial statements and highlights. We hope you find this information helpful in monitoring your investment. Many of you have called or written to express your concern about allegations of wrongdoing by other mutual fund investment management firms. We share your concern--fund companies must put investors first and do everything possible to maintain investor trust. Through the Investment Company Institute, the mutual fund trade association, American Century has advocated industry-wide proposals that strengthen protections for fund investors. We believe that decisive action is needed to show that we are committed, as an industry, to the interests of the 95 million investors we serve. As information about alleged trading abuses in the mutual fund industry has come to light, we have posted messages and commentary about these issues on www.americancentury.com. Beyond what's currently in the headlines, American Century has been a champion of many important investor and industry issues, which are outlined in a document titled Putting Investors First. We invite you to visit our Web site and read about how our values have influenced these positions. As always, we deeply appreciate your investment with American Century. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. Founder and Chairman /s/James E. Stowers III James E. Stowers III Co-Chairman of the Board - ------ 1 Arizona Municipal Bond - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2003 ---------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS INCEPTION** DATE - -------------------------------------------------------------------------------- ARIZONA MUNICIPAL BOND 5.72% 5.35% 5.98% 4/11/94 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 5.72% 5.49% 5.92%(1) -- - -------------------------------------------------------------------------------- LIPPER OTHER STATES INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS 5.27% 4.37% 5.19%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking(3) 31 of 111 1 of 83 2 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
ONE-YEAR RETURNS OVER LIFE OF FUND Periods ended November 30 - -------------------------------------------------------------------------------- 1994* 1995 1996 1997 1998 - -------------------------------------------------------------------------------- Arizona Municipal Bond** 0.78% 13.73% 4.91% 5.02% 6.83% - -------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 0.94% 11.99% 5.36% 5.38% 6.32% - -------------------------------------------------------------------------------- Periods ended November 30 - -------------------------------------------------------------------------------- 1999 2000 2001 2002 2003 - -------------------------------------------------------------------------------- Arizona Municipal Bond** -0.09% 6.96% 8.37% 5.99% 5.72% - -------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 1.49% 5.62% 8.24% 6.47% 5.72% - -------------------------------------------------------------------------------- * 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 Arizona Municipal Bond returned -0.44% for the six months ended November 30, 2003, reflecting municipal bonds' limited performance. By comparison, the average return of the 116 Other States Intermediate Municipal Debt Funds tracked by Lipper Inc. was -0.27%. (See the previous page for details.) Although the fund's short-term performance wasn't as good as we would have liked, long-term performance remained solid. For example, Arizona Municipal Bond ranked among the top 5% of its Lipper peer group for the five-year period ended November 30, 2003. ECONOMIC AND GLOBAL BACKDROP After serving out the second quarter at a 3.1% annualized pace, economic growth (as measured by seasonally adjusted gross domestic product) accelerated to an estimated 8.2% during the third quarter. That surprisingly robust three-month rate marked the fastest quarterly increase since 1983. Activity appears to have tapered off some here in the fourth quarter, but is still forecast to rise in the neighborhood of 4-5%. Encouraging economic news arrived in other forms as well, especially toward period-end. In particular, consumer confidence surged, housing-market activity remained near record levels, and durable goods orders generally increased as well. In addition, inflation (as measured by the consumer price index) remained tame. Prices were so well behaved that the Federal Reserve, which reduced its benchmark interest rate--the federal funds rate--to approximately a 45-year low of 1.00% in late June, said in late October that the chance for deflation, or a drop in prices, posed a bigger threat than an increase in prices. Outside of the economic front, however, a full spate of troubling news tempered consumer enthusiasm going into the holiday season. Global evidence of increased terrorist activity, a brief evacuation of the White House, ongoing violence in Iraq, and still-high oil prices reminded investors that plenty of challenges remained. MUNICIPAL MARKET PERFORMANCE Municipal bonds produced limited total returns, as evidenced by the 0.47% gain of the Lehman Brothers Municipal 5-Year GO Index. The solid economic improvement weighed on bonds in general. However, terrorist-related concerns provided a limited counterbalance, as did Fed Chief Alan Greenspan's early November reassurance that the Fed will remain patient regarding interest rates. YIELDS AS OF NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- 2.45% - -------------------------------------------------------------------------------- 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 28.54% Tax Bracket 3.43% - -------------------------------------------------------------------------------- 31.40% Tax Bracket 3.57% - -------------------------------------------------------------------------------- 36.38% Tax Bracket 3.85% - -------------------------------------------------------------------------------- 38.28% Tax Bracket 3.97% - -------------------------------------------------------------------------------- *The tax brackets indicated are combined federal and state tax brackets. (continued) - ------ 3 Arizona Municipal Bond - Portfolio Commentary Stepped-up supply played a role as well. Although new municipal bond issuance tapered off some by the end of the six months, the supply of new municipal bonds kept 2003 on track to fall not far from 2002's $358 billion record. Fortunately, solid investor demand helped to buoy municipal bonds in spite of the increased supply. PORTFOLIO STRATEGIES With that environment in mind, we generally kept Arizona Municipal Bond's interest rate sensitivity conservatively low and even decreased it some from the start of June. That generally helped performance when economic data surprised to the upside and bond prices fell, but dampened returns during rallies. We maintained Arizona Municipal Bond's emphasis on better-rated bonds, as shown by the accompanying table regarding the portfolio's composition by credit rating. However, we continued to look for lower-rated investment-grade bonds with what we felt were compelling credit stories with the help of our credit research team. Lastly, our interest rate and inflation expectations combined with what we felt was a significant difference between the yields of short- and long-term bonds led us to generally emphasize somewhat of a barbell bond maturity structure for the portfolio. Such a structure tends to perform best when the yield curve (a graphic representation of the relationship between bond yields and maturities) flattens. That is, when the difference between the yields of short- and long-term bonds decreases. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/03 5/31/03 - -------------------------------------------------------------------------------- AAA 61% 72% - -------------------------------------------------------------------------------- AA 20% 15% - -------------------------------------------------------------------------------- A 9% 4% - -------------------------------------------------------------------------------- BBB 10% 9% - -------------------------------------------------------------------------------- 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 NOVEMBER 30, 2003 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- GO 38% - -------------------------------------------------------------------------------- Higher Education 12% - -------------------------------------------------------------------------------- COPs/Leases 11% - -------------------------------------------------------------------------------- Water and Sewer Revenue 9% - -------------------------------------------------------------------------------- Special Tax Revenue 9% - -------------------------------------------------------------------------------- - ------ 4 Arizona Municipal Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 94.0% ARIZONA -- 89.2% - -------------------------------------------------------------------------------- $1,750,000 Arizona School Facilities Board Rev., (State School Improvement), 5.50%, 7/1/18 $ 1,958,003 - -------------------------------------------------------------------------------- 500,000 Arizona School Facilities Board Rev., (State School Improvement), 5.25%, 7/1/20 540,325 - -------------------------------------------------------------------------------- 1,000,000 Arizona State University Rev., 5.00%, 7/1/06 (FSA) 1,085,300 - -------------------------------------------------------------------------------- 1,000,000 Arizona Student Loan Acquisition Auth. Rev., Series 1999 A1, (Guaranteed Student Loans), 5.65%, 5/1/14 1,086,780 - -------------------------------------------------------------------------------- 1,880,000 Arizona Tourism & Sports Auth. Tax Rev., (Baseball Training Facilities), 5.00%, 7/1/13 1,978,700 - -------------------------------------------------------------------------------- 500,000 Cochise County Unified School District No. 9 Benson GO, 2.50%, 7/1/04 (FSA) 504,040 - -------------------------------------------------------------------------------- 510,000 Cochise County Unified School District No. 9 Benson GO, 2.75%, 7/1/05 (FSA) 522,383 - -------------------------------------------------------------------------------- 930,000 Cochise County Unified School District No. 68 Sierra Vista GO, 2.50%, 7/1/07 (FSA) 948,461 - -------------------------------------------------------------------------------- 2,060,000 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/11 (MBIA)(1) 2,236,273 - -------------------------------------------------------------------------------- 1,000,000 Glendale Industrial Development Auth. Rev., Series 1998 A, (Midwestern University), 5.375%, 5/15/28 1,021,300 - -------------------------------------------------------------------------------- 500,000 Glendale Industrial Development Auth. Rev., Series 2001 A, (Midwestern University), 5.75%, 5/15/21 533,250 - -------------------------------------------------------------------------------- 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) 1,759,656 - -------------------------------------------------------------------------------- 340,000 Maricopa County Industrial Development Auth. Hospital Facility Rev., Series 1990 A, (Samaritan Health Services), 7.15%, 12/1/04 (MBIA)(2) 350,237 - -------------------------------------------------------------------------------- 1,650,000 Maricopa County Stadium District Rev., 2.50%, 6/1/04 (AMBAC) 1,661,319 - -------------------------------------------------------------------------------- 1,445,000 Maricopa County Unified High School District No. 210 Phoenix GO, 4.75%, 7/1/11 (FSA) 1,595,887 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Unified High School District No. 210 Phoenix GO, Series 1992 E, 7.10%, 7/1/04 1,034,940 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Maricopa County Unified School District No. 1 Phoenix GO, 5.50%, 7/1/07, Prerefunded at 101% of par (MBIA)(2) $ 1,133,180 - -------------------------------------------------------------------------------- 1,040,000 Maricopa County Unified School District No. 28 Kyrene GO, Series 2001 B, 4.30%, 7/1/07 (MBIA)(3) 957,653 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Unified School District No. 48 Scottsdale GO, 6.60%, 7/1/12 1,234,550 - -------------------------------------------------------------------------------- 1,955,000 Maricopa County Unified School District No. 90 Saddle Mountain GO, Series 2003 A, 5.00%, 7/1/10 2,094,118 - -------------------------------------------------------------------------------- 2,145,000 Mesa Industrial Development Auth. Rev., Series 1998 A1, (Lutheran Health System), 4.75%, 1/1/05 (MBIA) 2,226,725 - -------------------------------------------------------------------------------- 1,265,000 Mohave County Community College District Rev., 5.75%, 3/1/14 (AMBAC) 1,427,439 - -------------------------------------------------------------------------------- 1,150,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/20 (MBIA) 1,322,098 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Rev., (Senior Lien), 5.00%, 7/1/05 1,055,400 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Wastewater System Rev., (Junior Lien), 6.25%, 7/1/10, Prerefunded at 101% of Par (FGIC)(2) 1,209,600 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 6.50%, 7/1/06 1,120,770 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 5.50%, 7/1/19 (FGIC) 1,106,740 - -------------------------------------------------------------------------------- 2,070,000 Phoenix GO, Series 1995 A, 6.25%, 7/1/17(1) 2,543,553 - -------------------------------------------------------------------------------- 1,000,000 Phoenix GO, Series 1995 B, 5.25%, 7/1/06, Prerefunded at 102% of Par(2) 1,109,980 - -------------------------------------------------------------------------------- 1,080,000 Phoenix Industrial Development Auth. Single Family Mortgage Rev., Series 1998 A, 6.60%, 12/1/29 (GNMA/FNMA/FHLMC) 1,100,693 - -------------------------------------------------------------------------------- 500,000 Pima County COP, 2.00%, 1/1/06 (AMBAC) 504,660 - -------------------------------------------------------------------------------- 1,710,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/18 (AMBAC) 1,923,271 - -------------------------------------------------------------------------------- 1,800,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/19 (AMBAC) 2,020,050 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 5 Arizona Municipal Bond - Schedule of Investments NOVEMBER 30, 2003 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 980,000 Pima County Unified School District No. 6 Marana GO, 4.50%, 7/1/12 (MBIA)(4) $ 1,057,057 - -------------------------------------------------------------------------------- 1,525,000 Pima County Unified School District No. 6 Marana GO, 4.50%, 7/1/13 (MBIA)(4) 1,637,362 - -------------------------------------------------------------------------------- 1,125,000 Pima County Unified School District No. 6 Marana GO, 5.50%, 7/1/15 (FGIC) 1,263,285 - -------------------------------------------------------------------------------- 1,550,000 Pima County Unified School District No. 10 GO, Series 1995 B, (Amphitheater), 5.05%, 7/1/05, Prerefunded at 101% of Par (MBIA)(2) 1,656,563 - -------------------------------------------------------------------------------- 1,000,000 Pima County Unified School District No. 10 GO, Series 1995 B, (Amphitheater), 7.00%, 7/1/05 (MBIA) 1,088,240 - -------------------------------------------------------------------------------- 1,000,000 Pima County Unified School District No. 12 Sunnyside GO, 5.50%, 7/1/05, Prerefunded at 101% of Par (MBIA)(2) 1,076,150 - -------------------------------------------------------------------------------- 560,000 Pinal County COP, 3.40%, 12/1/03 (AMBAC) 560,106 - -------------------------------------------------------------------------------- 820,000 Pinal County COP, 4.75%, 6/1/13 (AMBAC) 886,592 - -------------------------------------------------------------------------------- 435,000 Prescott Valley Municipal Property Corp. Rev., 3.00%, 1/1/05 (FGIC) 443,726 - -------------------------------------------------------------------------------- 1,500,000 Salt River Project Agricultural Improvement and Power District Electrical System Rev., Series 2001 A, 5.00%, 1/1/05 1,562,535 - -------------------------------------------------------------------------------- 1,345,000 Scottsdale GO, 4.00%, 7/1/04 1,368,215 - -------------------------------------------------------------------------------- 1,600,000 Scottsdale GO, 6.25%, 7/1/09, Prerefunded at 100% of Par(2) 1,902,512 - -------------------------------------------------------------------------------- 1,000,000 Sedona COP, 5.75%, 7/1/20 1,060,540 - -------------------------------------------------------------------------------- 1,645,000 University of Arizona COP, Series 2002 A, 5.50%, 6/1/17 (AMBAC) 1,829,618 - -------------------------------------------------------------------------------- 500,000 Yavapai County Unified School District No. 28 Camp Verde GO, 6.10%, 7/1/04 (FGIC) 514,470 - -------------------------------------------------------------------------------- 60,814,305 - -------------------------------------------------------------------------------- PUERTO RICO -- 3.3% - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, (Public Improvement), 5.25%, 7/1/10 1,113,390 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.50%, 7/1/10 1,128,080 - -------------------------------------------------------------------------------- 2,241,470 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 1.5% - -------------------------------------------------------------------------------- $1,000,000 Virgin Islands Public Finance Auth. Rev., Series 1999 A, (Gross Receipts Taxes), 5.00%, 10/1/04 $ 1,026,770 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $60,570,200) 64,082,545 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 6.0% ARIZONA -- 6.0% - -------------------------------------------------------------------------------- 1,500,000 Phoenix Industrial Development Auth. Rev., Series 2003 A, (Sunrise Vista Apartments), VRDN, 1.25%, 12/4/03 (LOC: Wells Fargo Bank N.A.) 1,500,000 - -------------------------------------------------------------------------------- 1,115,000 Pima County Industrial Development Auth. Rev., (Lease Purchase), VRDN, 1.25%, 12/4/03 1,115,000 - -------------------------------------------------------------------------------- 1,485,000 Pinal County Industrial Development Auth. Pollution Control Rev., (Newmont), VRDN, 1.10%, 12/1/03 (LOC: ABN AMRO Bank N.V.) 1,485,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $4,100,000) 4,100,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 100.0% (Cost $64,670,200) $68,182,545 ================================================================================ 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. Rate shown is effective November 30, 2003. (1) Security, or a portion thereof, has been segregated for a 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) When-issued security. See Notes to Financial Statements. - ------ 6 Statement of Assets and Liabilities NOVEMBER 30, 2003 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $64,670,200) $68,182,545 - ----------------------------------------------------------------- Receivable for capital shares sold 4,740 - ----------------------------------------------------------------- Interest receivable 1,182,011 - -------------------------------------------------------------------------------- 69,369,296 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 12,236 - ----------------------------------------------------------------- Payable for investments purchased 2,677,584 - ----------------------------------------------------------------- Accrued management fees 27,318 - ----------------------------------------------------------------- Dividends payable 38,860 - -------------------------------------------------------------------------------- 2,755,998 - -------------------------------------------------------------------------------- NET ASSETS $66,613,298 ================================================================================ CAPITAL SHARES - -------------------------------------------------------------------------------- Outstanding (unlimited number of shares authorized) 5,980,868 ================================================================================ NET ASSET VALUE PER SHARE $11.14 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $62,814,982 - ----------------------------------------------------------------- Undistributed net realized gain on investment transactions 285,971 - ----------------------------------------------------------------- Net unrealized appreciation on investments 3,512,345 - -------------------------------------------------------------------------------- $66,613,298 ================================================================================ See Notes to Financial Statements. - ------ 7 Statement of Operations FOR THE SIX MONTHS ENDED NOVEMBER 30, 2003 (UNAUDITED) - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ----------------------------------------------------------------- Interest $1,456,142 - -------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------- Management fees 172,844 - ----------------------------------------------------------------- Trustees' fees and expenses 1,915 - ----------------------------------------------------------------- Other expenses 148 - -------------------------------------------------------------------------------- 174,907 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 1,281,235 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------- Net realized gain on investment transactions 72,815 - ----------------------------------------------------------------- Change in net unrealized appreciation on investments (1,813,574) - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS (1,740,759) - -------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(459,524) ================================================================================ See Notes to Financial Statements. - ------ 8 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2003 (UNAUDITED) AND YEAR ENDED MAY 31, 2003 - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS NOVEMBER 30, MAY 31, 2003 2003 - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income $1,281,235 $2,652,679 - ---------------------------------------------- Net realized gain 72,815 436,649 - ---------------------------------------------- Change in net unrealized appreciation (1,813,574) 3,257,820 - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (459,524) 6,347,148 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income (1,281,235) (2,652,679) - ---------------------------------------------- From net realized gains -- (485,706) - -------------------------------------------------------------------------------- Decrease in net assets from distributions (1,281,235) (3,138,385) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Proceeds from shares sold 7,441,110 26,659,951 - ---------------------------------------------- Proceeds from reinvestment of distributions 1,009,718 2,545,075 - ---------------------------------------------- Payments for shares redeemed (15,884,178) (22,952,939) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (7,433,350) 6,252,087 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (9,174,109) 9,460,850 NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 75,787,407 66,326,557 - -------------------------------------------------------------------------------- End of period $66,613,298 $75,787,407 ================================================================================ TRANSACTIONS IN SHARES OF THE FUND - -------------------------------------------------------------------------------- Sold 670,276 2,401,588 - ---------------------------------------------- Issued in reinvestment of distributions 91,077 228,851 - ---------------------------------------------- Redeemed (1,431,296) (2,068,611) - -------------------------------------------------------------------------------- Net increase (decrease) in shares of the fund (669,943) 561,828 ================================================================================ See Notes to Financial Statements. - ------ 9 Notes to Financial Statements NOVEMBER 30, 2003 (UNAUDITED) 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 six months ended November 30, 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 JPMorgan Chase Bank (JPMCB). JPMCB is a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. (continued) - ------ 10 Notes to Financial Statements NOVEMBER 30, 2003 (UNAUDITED) 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities, excluding short-term investments, for the six months ended November 30, 2003, were $6,462,364 and $16,037,116, 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 JPMCB, which was renewed to $650,000,000 effective December 17, 2003. 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 six months ended November 30, 2003. 5. FEDERAL TAX INFORMATION On December 9, 2003, the fund declared and paid a per-share distribution of $0.0390 from net realized gains to shareholders of record on December 8, 2003. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. As of November 30, 2003, the components of investments for federal income tax purposes were as follows: - -------------------------------------------------------------------------------- Federal tax cost of investments $64,670,200 ================================================================================ Gross tax appreciation of investments $3,582,403 - ----------------------------------------------------------- Gross tax depreciation of investments (70,058) - -------------------------------------------------------------------------------- Net tax appreciation of investments $3,512,345 ================================================================================ The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. The fund had net capital losses of $17,310 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. - ------ 11 Arizona Municipal Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - --------------------------------------------------------------------------------------------- 2003(1) 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $11.40 $10.89 $10.69 $10.12 $10.62 $10.67 - --------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------- Net Investment Income 0.21 0.41 0.44 0.48 0.48 0.46 - ------------------------------------- Net Realized and Unrealized Gain (Loss) (0.26) 0.59 0.27 0.57 (0.47) 0.01 - --------------------------------------------------------------------------------------------- Total From Investment Operations (0.05) 1.00 0.71 1.05 0.01 0.47 - --------------------------------------------------------------------------------------------- Distributions - ------------------------------------- From Net Investment Income (0.21) (0.41) (0.44) (0.48) (0.48) (0.46) - ------------------------------------- From Net Realized Gains -- (0.08) (0.07) -- (0.03) (0.06) - --------------------------------------------------------------------------------------------- Total Distributions (0.21) (0.49) (0.51) (0.48) (0.51) (0.52) - --------------------------------------------------------------------------------------------- Net Asset Value, End of Period $11.14 $11.40 $10.89 $10.69 $10.12 $10.62 ============================================================================================= TOTAL RETURN(2) (0.44)% 9.36% 6.74% 10.57% 0.20% 4.51% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51%(3) 0.51% 0.51% 0.51% 0.51% 0.51% - ------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.71%(3) 3.70% 4.04% 4.57% 4.71% 4.30% - ------------------------------------- Portfolio Turnover Rate 10% 50% 77% 104% 117% 70% - ------------------------------------- Net Assets, End of Period (in thousands) $66,613 $75,787 $66,327 $50,309 $40,594 $45,410 - --------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2003 (unaudited). (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. (3) Annualized. See Notes to Financial Statements. - ------ 12 Additional Information INDEX DEFINITIONS The following index is used to illustrate investment market, sector, or style performance or to serve as a fund performance comparison. It is not an investment product available for purchase. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. PROXY VOTING GUIDELINES American Century Investment Management, Inc., the fund's manager, is responsible for exercising the voting rights associated with the securities purchased and/or held by the fund. A description of the policies and procedures the manager uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's Web site at www.americancentury.com and on the Securities and Exchange Commission's Web site at www.sec.gov. - ------ 13 Notes - ------ 14 Notes - ------ 15 Notes - ------ 16 [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. 0401 American Century Investment Services, Inc. SH-SAN-36709N (c)2004 American Century Services Corporation
ITEM 2. CODE OF ETHICS. Not applicable for semiannual report filings. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semiannual report filings. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semiannual report filings. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED]. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable prior to the first reporting period ending after January 1, 2004. ITEM 10. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a)(1) Not applicable for semiannual report filings. (a)(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are filed and attached hereto as Exhibit 99.302CERT. (a)(3) Not applicable. (b) A certification by the registrant's chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is furnished and attached hereto as Exhibit 99.906CERT.SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: American Century Municipal Trust By: /s/ William M. Lyons ------------------------------------------- Name: William M. Lyons Title: President Date: January 29, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William M. Lyons -------------------------------------------- Name: William M. Lyons Title: President (principal executive officer) Date: January 29, 2004 By: /s/ Maryanne L. Roepke --------------------------------------------- Name: Maryanne L. Roepke Title: Sr. Vice President, Treasurer, and Chief Accounting Officer (principal financial officer) Date: January 29, 2004