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: 05-31 ------------------------------------------------------- Date of reporting period: November 30, 2004 ------------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. NOVEMBER 30, 2004 American Century Investments Semiannual Report [photo of market line chart] [photo of starfish] [photo of bridge] Tax-Free Money Market Fund Tax-Free Bond Fund [american century investments logo and text logo] 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................................................................ 8 Portfolio Commentary....................................................... 10 Yields.................................................................. 10 Portfolio Composition by Credit Rating.................................. 11 Top Five States......................................................... 11 Schedule of Investments.................................................... 12 Shareholder Fee Examples................................................... 21 FINANCIAL STATEMENTS Statement of Assets and Liabilities........................................ 23 Statement of Operations.................................................... 24 Statement of Changes in Net Assets......................................... 25 Notes to Financial Statements.............................................. 26 Financial Highlights....................................................... 30 OTHER INFORMATION Share Class Information.................................................... 33 Additional Information..................................................... 34 The opinions expressed in each of the Portfolio Commentaries reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo of James E. Stowers III and James E. Stowers, Jr.] JAMES E. STOWERS III WITH JAMES E. STOWERS, JR. We are pleased to provide you with the semiannual report for the American Century Tax-Free Money Market and Tax-Free Bond funds for the six months ended November 30, 2004. This report contains information that can help you monitor your investment. You'll find details about your fund's return and holdings as well as data and analysis that provide insight into the market conditions affecting the fund's performance. Through our Web site, americancentury.com, we provide quarterly commentaries on all American Century portfolios, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. We also have many informative resources available in the Education & Planning section of our site to help you with your investment strategy. Your next shareholder report for these funds will be the annual report dated May 31, 2005, available in approximately six months. As always, we deeply appreciate your investment with American Century Investments. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER 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, 2004 ------------------------------------ AVERAGE ANNUAL RETURNS - ------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS(1) INCEPTION(1) DATE - ------------------------------------------------------------------------------- INVESTOR CLASS 0.82% 1.85% 2.54% 3.39% 7/31/84 - ------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S TAX-EXEMPT MONEY MARKET FUNDS 0.51% 1.56% 2.32% 3.22%(2) -- - ------------------------------------------------------------------------------- Fund's Lipper Ranking as of 11/30/04(3) 8 of 135 10 of 107 11 of 81 5 of 32(2) -- - ------------------------------------------------------------------------------- Fund's Lipper Ranking as of 12/31/04(3) 8 of 132 7 of 106 10 of 81 5 of 32(2) -- - ------------------------------------------------------------------------------- (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 11/30/04 5/31/04 - -------------------------------------------------------------------------------- A-1+ 67% 73% - -------------------------------------------------------------------------------- A-1 33% 27% - -------------------------------------------------------------------------------- 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 11/30/04 5/31/04 - -------------------------------------------------------------------------------- 1-30 days 77% 89% - -------------------------------------------------------------------------------- 31-90 days -- -- - -------------------------------------------------------------------------------- 91-180 days 5% 5% - -------------------------------------------------------------------------------- More than 180 days 18% 6% - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2004 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 1.27% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 1.27% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS* - -------------------------------------------------------------------------------- 25.0% Tax Bracket 1.69% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 1.76% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 1.90% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 1.95% - -------------------------------------------------------------------------------- *The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. The 7-day current yield more closely reflects the current earnings of the fund than the total return. - ------ 2 Tax-Free Money Market - Portfolio Commentary PORTFOLIO MANAGER: ALAN KRUSS PERFORMANCE SUMMARY & PERSPECTIVE Tax-Free Money Market returned 0.49% for the six months ended November 30, 2004, outperforming the 0.33% average return of the 136 funds in Lipper's "Tax-Exempt Money Market Funds" category, and ranking the fund in the top 6% (8 of 136) of the Lipper peers. Tax-Free Money Market also ranks in the top 10% for the 5-year period, and in the top 14% for the 10-year period ended November 30 (see the previous page for performance numbers). ECONOMIC & MARKET PERSPECTIVE The six months ended November 30, 2004, spanned a period when U.S. economic growth was decelerating--real annualized GDP growth was 3.3% and 4.0% in the second and third quarters of 2004 compared with 4.2% and 4.5% in the previous two quarters, and fourth-quarter 2004 GDP was projected to be around 3%. The economy slowed as oil prices soared and the Federal Reserve (the Fed) raised short-term interest rates. The price of crude oil jumped 23% during the six months, from approximately $40 a barrel to almost $50 (after hitting a high of $55) and the Fed raised its overnight interest rate target four times, from 1% to 2%. PORTFOLIO POSITIONING & STRATEGY As the Fed raised interest rates, Tax-Free Money Market's 7-day current yield rose as well, climbing from 0.71% on May 31, to 1.27% by November 30. Tax-Free Money Market's WAM (weighted average maturity) also rose, starting off at 35 days on May 31, and ending the period at 55 days on November 30. We continued to hold the bulk of the portfolio's assets in variable rate demand notes (VRDNs)-- very short-term, floating-rate municipal notes, whose yields in recent years have been very competitive with those of one-year muni notes. Most VRDNs have weekly yield resets (though some are daily or monthly). These frequent resets are an advantage when interest rates are rising (as they were during the period), or when demand for very short-term securities drops, sending yields higher. VRDNs can capture higher yields more quickly than many other short-term securities, giving Tax-Free Money Market's yield a boost. As of November 30, VRDNs made up 76.7% of the portfolio's holdings. The remainder was invested in municipal notes and bonds, municipal mandatory put bonds, and municipal commercial paper. OUR COMMITMENT We remain committed to seeking safety of principal along with high levels of federal tax-exempt current income, by investing in high-quality, very short-term debt securities issued by cities, counties, and other municipalities. - ------ 3 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 104.2% ALABAMA - 3.4% - -------------------------------------------------------------------------------- $2,900 Anniston Industrial Development Board Rev., (Hunjan Moulded Products Ltd.), VRDN, 1.92%, 12/2/04 (LOC: AmSouth Bank) $ 2,900 - -------------------------------------------------------------------------------- 4,105 Brundidge Combined Utilities Rev., Series 2002 A, VRDN, 1.77%, 12/2/04 (LOC: SouthTrust Bank N.A.) 4,105 - -------------------------------------------------------------------------------- 2,165 Tuscaloosa Health Care Auth. Rev., (Pine Valley), VRDN, 1.82%, 12/2/04 (LOC: Amsouth Bank) 2,165 - -------------------------------------------------------------------------------- 9,170 - -------------------------------------------------------------------------------- ARIZONA -- 1.2% - -------------------------------------------------------------------------------- 3,325 Pinal County Industrial Development Auth. Solid Waste Disposal Rev., (S & T Dairy LLC), VRDN, 1.92%, 12/2/04 (LOC: Wells Fargo Bank N.A.) 3,325 - -------------------------------------------------------------------------------- CALIFORNIA -- 6.1% - -------------------------------------------------------------------------------- 1,555 Alameda County Industrial Development Auth. Rev., (Design Workshops), VRDN, 1.94%, 12/2/04 (LOC: Wells Fargo Bank N.A.) 1,555 - -------------------------------------------------------------------------------- 12,000 San Bernardino County Housing Auth. Rev., Series 2002 C, VRDN, 1.99%, 12/1/04 12,000 - -------------------------------------------------------------------------------- 3,000 San Bernardino County Multifamily Housing Auth. Rev., Series 1990 A, (Highland Hills), VRDN, 1.625%, 2/11/05 (Acquired 4/23/04, Cost $3,003)(1) 3,003 - -------------------------------------------------------------------------------- 16,558 - -------------------------------------------------------------------------------- COLORADO -- 4.1% - -------------------------------------------------------------------------------- 3,235 Arvada Water Enterprise Rev., VRDN, 1.85%, 12/1/04 (FSA) (SBBPA: Dexia Credit Local) 3,235 - -------------------------------------------------------------------------------- 2,000 Colorado Health Facilities Auth. Rev., (Boulder Coumunity Hospital), VRDN, 1.81%, 12/1/04 (LOC: Bank One Colorado N.A.)(2) 2,000 - -------------------------------------------------------------------------------- 5,800 Colorado Housing & Finance Auth. Rev., (Kroger Co.), VRDN, 1.77%, 12/2/04 (LOC: U.S. Bank Trust N.A.) 5,800 - -------------------------------------------------------------------------------- 11,035 - -------------------------------------------------------------------------------- FLORIDA -- 11.6% - -------------------------------------------------------------------------------- 1,550 Broward County Educational Facilities Auth. Rev., Series 2004 A, (Nova Southeastern), 2.00%, 4/1/05 (AMBAC) 1,554 - -------------------------------------------------------------------------------- 745 Broward County Health Facilities Auth. Rev., (John Knox Village), VRDN, 1.79%, 12/1/04 (RADIAN) (SBBPA: LaSalle Bank N.A.) 745 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $2,200 Collier County Industrial Development Auth. Rev., Series 1999 C, (Community Health Care), VRDN, 2.14%, 12/2/04 (LOC: Wachovia Bank N.A.) $ 2,200 - -------------------------------------------------------------------------------- 1,400 Florida Higher Educational Facilities Financial Auth. Rev., (St. Thomas University), VRDN, 1.69%, 12/1/04 (LOC: SunTrust Bank) 1,400 - -------------------------------------------------------------------------------- 3,700 Florida Housing Finance Agency Multifamily Rev., (Woodlands), VRDN, 1.74%, 12/1/04 (LOC: Northern Trust Company) 3,700 - -------------------------------------------------------------------------------- 4,965 Florida Housing Finance Agency Rev., VRDN, 1.81%, 12/2/04 (SBBPA: Merrill Lynch Capital Services) (Acquired 2/6/04- 4/19/04, Cost $4,965)(1) 4,965 - -------------------------------------------------------------------------------- 1,900 Hillsborough County Industrial Development Auth. Rev., (Seaboard Tampa), VRDN, 1.89%, 12/1/04 (LOC: Wachovia Bank N.A.) 1,900 - -------------------------------------------------------------------------------- 5,000 Jacksonville Health Rev., Series 2004 A, 1.93%, 7/27/05 (LOC: Bank of America N.A.) (Acquired 11/4/04, Cost $5,000)(1) 5,000 - -------------------------------------------------------------------------------- 6,100 Miami Health Facilities Auth. Rev., VRDN, 1.77%, 12/2/04 (SBBPA: Westdeutsche Landesbank AG) (Acquired 1/29/04-4/19/04, Cost $6,100)(1) 6,100 - -------------------------------------------------------------------------------- 1,650 Orange County Housing Finance Auth. Multifamily Guaranteed Mortgage Rev., Series 1989 A, (Sundown Association II), VRDN, 1.76%, 12/1/04 (LOC: Northern Trust Company) 1,650 - -------------------------------------------------------------------------------- 1,350 Pinellas County Health Facilities Auth. Rev., (Hospital Facilities - Bayfront), VRDN, 1.69%, 12/1/04 (LOC: SunTrust Bank) 1,350 - -------------------------------------------------------------------------------- 1,000 Seminole County Industrial Development Auth. Rev., VRDN, 1.87%, 12/2/04 (LOC: Bank of America N.A.) 1,000 - -------------------------------------------------------------------------------- 31,564 - -------------------------------------------------------------------------------- GEORGIA -- 0.7% - -------------------------------------------------------------------------------- 765 Fulton County Development Auth. Rev., (Darby Printing Co.), VRDN, 2.00%, 12/1/04 (LOC: Wachovia Bank N.A.) 765 - -------------------------------------------------------------------------------- 1,000 Fulton Dekalb Hospital Auth. Rev., 4.00%, 1/1/05 1,002 - -------------------------------------------------------------------------------- 1,767 - -------------------------------------------------------------------------------- IDAHO -- 3.0% - -------------------------------------------------------------------------------- 5,000 Idaho Tax Anticipation Notes GO, 3.00%, 6/30/05 5,039 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 4 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $3,000 Lincoln County Industrial Development Corp. Rev., (Double A Dairy), VRDN, 1.92%, 12/2/04 (LOC: Bank of America N.A.) $ 3,000 - -------------------------------------------------------------------------------- 8,039 - -------------------------------------------------------------------------------- INDIANA -- 10.6% - -------------------------------------------------------------------------------- 1,545 Elkhart County Rev., (Corrections Complex), 2.00%, 6/1/05 (MBIA) 1,546 - -------------------------------------------------------------------------------- 2,800 Jasper County Industrial Development Rev., (Newberry Farms LLC), VRDN, 1.92%, 12/2/04 (LOC: Bank of the West) 2,800 - -------------------------------------------------------------------------------- 6,500 La Porte Industrial Development Rev., (KKO Realty), VRDN, 1.92%, 12/2/04 (LOC: Bank of New York) 6,500 - -------------------------------------------------------------------------------- 1,655 Morgan County Rev., Series 2002 A, (Morgan Hospital & Medical Center), VRDN, 1.80%, 12/2/04 (LOC: Fifth Third Bank) 1,655 - -------------------------------------------------------------------------------- 12,330 Morgan County Rev., Series 2002 B, (Morgan Hospital & Medical Center), VRDN, 1.80%, 12/2/04 (LOC: Fifth Third Bank) 12,330 - -------------------------------------------------------------------------------- 4,000 Vincennes Economic Development Rev., (Grandview Care Inc.), VRDN, 1.88%, 12/2/04 (LOC: Bank One N.A.) 4,000 - -------------------------------------------------------------------------------- 28,831 - -------------------------------------------------------------------------------- KENTUCKY -- 0.7% - -------------------------------------------------------------------------------- 1,000 Murray Industrial Building Rev., (Kroger Co.), VRDN, 1.77%, 12/2/04 (LOC: U.S. Bank N.A.) 1,000 - -------------------------------------------------------------------------------- 1,000 Winchester Industrial Building Rev., (Kroger Co.), VRDN, 1.77%, 12/2/04 (LOC: U.S. Bank N.A.) 1,000 - -------------------------------------------------------------------------------- 2,000 - -------------------------------------------------------------------------------- LOUISIANA -- 2.2% - -------------------------------------------------------------------------------- 3,140 Louisiana Housing Finance Agency Rev., (Multifamily Housing -- Palmetto), VRDN, 1.82%, 12/2/04 (FNMA) 3,140 - -------------------------------------------------------------------------------- 2,800 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Trinity Episcopal School), VRDN, 1.78%, 12/1/04 (LOC: SunTrust Bank) 2,800 - -------------------------------------------------------------------------------- 5,940 - -------------------------------------------------------------------------------- MICHIGAN -- 1.1% - -------------------------------------------------------------------------------- 3,000 Michigan Municipal Bond Auth. GO, (Local Government Loan Program -- State Qualified), 3.00%, 5/1/05 (AMBAC) 3,021 - -------------------------------------------------------------------------------- MINNESOTA -- 2.7% - -------------------------------------------------------------------------------- 7,340 Dakota County Community Development Agency Rev., (Catholic Finance Corp.), VRDN, 1.81%, 12/1/04 (LOC: U.S. Bank N.A.) 7,340 - -------------------------------------------------------------------------------- MISSOURI -- 7.6% - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $2,610 Kansas City Industrial Development Auth. Rev., (Plaza Manor Nursing), VRDN, 1.82%, 12/2/04 (LOC: Comerica Bank) $ 2,610 - -------------------------------------------------------------------------------- 7,355 Kansas City Tax Allocation Rev., Series 2003 A, (Chouteau I-35), VRDN, 1.87%, 12/2/04 (MBIA) (SBBPA: JPMorgan Chase Bank) 7,355 - -------------------------------------------------------------------------------- 9,550 Missouri State Health & Educational Facilities Auth. COP, (Pembroke Hill School), VRDN, 1.82%, 12/2/04 (LOC: Commerce Bank N.A.) 9,550 - -------------------------------------------------------------------------------- 1,000 Platte County COP, 4.00%, 3/1/05 1,007 - -------------------------------------------------------------------------------- 20,522 - -------------------------------------------------------------------------------- MULTI-STATE -- 8.1% - -------------------------------------------------------------------------------- 13,096 Koch Floating Rate Trust Various States Rev., Series 2000-1, VRDN, 1.92%, 12/2/04 (AMBAC) (SBBPA: State Street Bank & Trust Co.) (Acquired 5/2/00-7/7/00, Cost $13,096)(1)(3) 13,096 - -------------------------------------------------------------------------------- 8,764 Koch Floating Rate Trust Various States Rev., Series 2001-1, VRDN, 1.92%, 12/2/04 (AMBAC) (SBBPA: State Street Bank & Trust Co.) (Acquired 11/4/02-10/12/04, Cost $8,764)(1) 8,764 - -------------------------------------------------------------------------------- 21,860 - -------------------------------------------------------------------------------- NEVADA -- 2.4% - -------------------------------------------------------------------------------- 3,600 Clark County Economic Development Rev., (Lutheran Secondary School Association), VRDN, 1.89%, 12/2/04 (LOC: Allied Irish Bank plc) 3,600 - -------------------------------------------------------------------------------- 2,895 Clark County School District GO, 4.00%, 6/15/05 (FSA) 2,932 - -------------------------------------------------------------------------------- 6,532 - -------------------------------------------------------------------------------- NEW JERSEY -- 0.5% - -------------------------------------------------------------------------------- 1,400 New Jersey Economic Development Auth. Rev., (Erasteel Inc.), VRDN, 1.94%, 12/2/04 (LOC: Svenska Handelsbanken AB) 1,400 - -------------------------------------------------------------------------------- NEW MEXICO -- 0.6% - -------------------------------------------------------------------------------- 1,500 New Mexico Finance Auth. Rev., Series 2004 A, (University of New Mexico Health), 2.00%, 4/1/05 (MBIA) 1,505 - -------------------------------------------------------------------------------- NEW YORK -- 3.2% - -------------------------------------------------------------------------------- 3,600 Erie County GO, (Revenue Anticipation Notes), 3.00%, 7/13/05 (LOC: Citigroup Global Markets) 3,632 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 5 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $5,000 Metropolitan Transportation Auth. Rev., Series 2004-1B, 1.83%, 3/10/05 (LOC: ABN Amro Bank N.V.) (Acquired 11/2/04, Cost $5,000)(1) $ 5,000 - -------------------------------------------------------------------------------- 8,632 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 2.9% - -------------------------------------------------------------------------------- 6,000 North Carolina COP, Series 2004 B, (Repair & Renovation), 2.00%, 6/1/05 6,016 - -------------------------------------------------------------------------------- 1,900 North Carolina Medical Care Commission Retirement Facilities First Mortgage Rev., Series 2001 C, (Village at Brookwood), VRDN, 1.76%, 12/1/04 (LOC: Branch Banking & Trust) 1,900 - -------------------------------------------------------------------------------- 7,916 - -------------------------------------------------------------------------------- OREGON -- 4.8% - -------------------------------------------------------------------------------- 13,100 Port of Portland Public Grain Elevator Rev., (Columbia Grain Inc.), VRDN, 1.90%, 12/2/04 (LOC: Wachovia Bank, N.A.) 13,100 - -------------------------------------------------------------------------------- TENNESSEE -- 7.0% - -------------------------------------------------------------------------------- 7,880 Bradley County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.77%, 12/2/04 (LOC: U.S. Bank N.A.) 7,880 - -------------------------------------------------------------------------------- 700 Cookeville Industrial Development Board Rev., Series 2001 A, (Advocacy & Resources Project), VRDN, 1.82%, 12/2/04 (LOC: AmSouth Bank) 700 - -------------------------------------------------------------------------------- 2,300 Knox County Industrial Development Board Rev., (Kroger Co.), VRDN, 1.77%, 12/2/04 (LOC: U.S. Bank Trust N.A.) 2,300 - -------------------------------------------------------------------------------- 8,200 Shelby County Health Educational & Housing Facilities Board Rev., (Kings Daughter & Sons), VRDN, 1.82%, 12/2/04 (LOC: AmSouth Bank) 8,200 - -------------------------------------------------------------------------------- 19,080 - -------------------------------------------------------------------------------- TEXAS -- 18.4% - -------------------------------------------------------------------------------- 10,000 Crawford Education Facilities Corp. Rev., (University Package System A), VRDN, 1.77%, 1/3/05 (LOC: BNP Paribas Group) 10,000 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $5,090 Galveston County Housing Finance Corp. Rev., (Village by the Apartments), VRDN, 1.75%, 12/2/04 (FNMA) $ 5,090 - -------------------------------------------------------------------------------- 5,500 Gulf Coast Industrial Development Auth. Rev., (Petrounited Term Inc.), VRDN, 1.78%, 12/2/04 (LOC: Bank One Texas N.A.) 5,500 - -------------------------------------------------------------------------------- 4,000 Hale County Industrial Development Corp. Rev., (White River Ranch), VRDN, 1.92%, 12/2/04 (LOC: Wells Fargo Bank Bank N.A.) 4,000 - -------------------------------------------------------------------------------- 9,165 Houston Higher Education Finance Corp. Rev., Series 2004 A, (University Parking Systems), VRDN, 1.79%, 12/2/04 (LOC: BNP Paribas Group) 9,165 - -------------------------------------------------------------------------------- 4,180 San Antonio Education Facilities Corp. Rev., Series 2004 A, (Phase 1 Dormitory), VRDN, 1.75%, 12/2/04 (LOC: Allied Irish Bank plc) 4,180 - -------------------------------------------------------------------------------- 12,000 Texas Tax and Rev. Anticipation Notes, 3.00%, 8/31/05 12,123 - -------------------------------------------------------------------------------- 50,058 - -------------------------------------------------------------------------------- VERMONT -- 0.9% - -------------------------------------------------------------------------------- 2,485 Vermont Educational & Health Buildings Financing Agency Rev., Series 2004 B, (Landmark College), VRDN, 1.77%, 12/2/04 (RADIAN) (LOC: SunTrust Bank) 2,485 - -------------------------------------------------------------------------------- WASHINGTON -- 0.4% - -------------------------------------------------------------------------------- 965 Pierce County Economic Development Corporate Rev., (K & M Holdings II), VRDN, 1.98%, 12/1/04 (LOC: Wells Fargo Bank, N.A.) (Acquired 11/17/97, Cost $965)(1) 965 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 104.2% 282,645 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (4.2)% (11,375) - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $271,270 ================================================================================ See Notes to Financial Statements. (continued) - ------ 6 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FNMA = Federal National Mortgage Association FSA = Financial Security Assurance, Inc. GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corporation RADIAN = Radian Asset Assurance, Inc. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand No te. Interest reset date is indicated. Rate shown is effective November 30, 2004. (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, 2004, was $46,893 (Amounts In Thousands), which represented 17.3% of net assets. Restricted securities considered illiquid represent 1.1% of net assets. (2) When-issued security. (3) Security, or a portion thereof, has been segregated for a when-issued security. See Notes to Financial Statements. - ------ 7 Tax-Free Bond - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2004 ---------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 2.14% 5.86% 5.89% 5.65% 3/2/87 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 2.36% 5.67% 5.86% 5.88%(1) -- - -------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S INTERMEDIATE MUNICIPAL DEBT FUNDS 2.23% 5.45% 5.75% 5.92%(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 11/30/04(3) 89 of 153 18 of 97 25 of 71 8 of 11(2) -- - -------------------------------------------------------------------------------- Fund's Lipper Ranking as of 12/31/04(3) 76 of 154 20 of 93 23 of 68 8 of 11(2) -- - -------------------------------------------------------------------------------- Institutional Class 2.34% -- -- 3.32% 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. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. (continued) - ------ 8 Tax-Free Bond - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made November 30, 1994
ONE-YEAR RETURNS OVER 10 YEARS Periods ended November 30 - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 - -------------------------------------------------------------------------------- Investor Class 12.80% 4.99% 5.66% 6.77% -0.24% 7.29% 8.25% 6.02% 5.72% 2.14% - -------------------------------------------------------------------------------- Lehman Bros. Muni 5-Year GO Index 11.99% 5.36% 5.38% 6.32% 1.49% 5.62% 8.24% 6.47% 5.72% 2.36% - -------------------------------------------------------------------------------- Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the index are provided for comparison. The fund's total returns include operating expenses (such as transaction costs and management fees) that reduce returns, while the total returns of the index do not. - ------ 9 Tax-Free Bond - Portfolio Commentary PORTFOLIO MANAGER: KENNETH SALINGER PERFORMANCE SUMMARY Tax-Free Bond returned 2.76%* for the six months ended November 30, 2004, as prices rose and yields fell on all but the shortest-maturity municipal securities. By comparison, the average return of the 162 Intermediate Municipal Debt Funds tracked by Lipper was 2.86%. (Please see page 8 for additional information.) And based on five- and 10-year performances, Tax-Free Bond continued to stand out among its Lipper peers. YIELD SUMMARY & PERSPECTIVE Our investment objective is to seek safety of principal and high current income that is exempt from federal income tax. Along those lines, Tax-Free Bond's 30-day SEC yield was 2.85% as of November 30, 2004, compared with the Lipper average 30-day SEC yield of 2.69%. Tax-Free Bond's attractive 30-day SEC yield also translated into a tax-equivalent yield of 3.80% for investors in a 25.00% federal tax bracket, while equating to 4.38% for investors in a 35.00% bracket. (Please see the table at bottom right.) ECONOMIC & MARKET PERSPECTIVE The six months ended November 30, 2004, spanned a period when U.S. economic growth was decelerating -- real annualized GDP growth was 3.3% and 3.9% in the second and third quarters of 2004 compared with 4.2% and 4.5% in the previous two quarters, and fourth quarter 2004 GDP was projected to be around 3%. The economy slowed as oil prices soared and the Federal Reserve (the Fed) raised short-term interest rates. The price of crude oil jumped 23% during the six months, from approximately $40 a barrel to almost $50 (after hitting a high of $55) and the Fed raised its overnight interest rate target four times, from 1% to 2%. Bonds rallied despite the Fed's rate hikes. The Treasury and investment-grade municipal yield curves "twisted" -- yields at the short-maturity ends of the curves rose as the Fed raised its overnight interest rate target, but yields at the longer-maturity ends fell. Declining yields and rising prices at the longer end of the maturity spectrum helped most longer-maturity/duration bonds outperform their shorter-maturity/ duration counterparts. Lehman's Long-Term Municipal Bond Index (which had a modified duration of 7.55 years as of November 30, 2004) returned 6.14%, compared with 4.30% for the broader, shorter-duration Lehman Brothers Municipal Bond Index (which had a modified duration of 5.45 years on the same date, relatively close to the fund's 5.57 years). YIELDS AS OF NOVEMBER 30, 2004 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 2.85% - -------------------------------------------------------------------------------- Institutional Class 3.05% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS* - -------------------------------------------------------------------------------- 25.0% Tax Bracket 3.80% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 3.96% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 4.25% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 4.38% - -------------------------------------------------------------------------------- *The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. *All fund returns referenced in this commentary are for Investor Class shares. (continued) - ------ 10 Tax-Free Bond - Portfolio Commentary PORTFOLIO POSITIONING & STRATEGIES We employed several key strategies during the six months. In particular, we continued to concentrate the portfolio in bonds rated triple-A and double-A, which represented approximately 83% of the portfolio at the end of November. While keeping the bulk of the portfolio in top-quality bonds, we attempted to boost Tax-Free Bond's yield by conservatively increasing the portfolio's percentage of triple-B securities, which tend to offer higher yields than like-maturity bonds with stronger credit ratings. (Please see the table at top right.) We also emphasized a bond maturity structure that we thought would perform well if the yield gap between short- and long-term bonds decreased. We believed such an outcome to be possible if the Fed began raising short-term interest rates while long-term inflation concerns remained largely in check; and that's exactly what happened. In addition, we looked for attractive opportunities based on supply and demand fluctuations within and between the various states. Over the last six months, for example, we increased the portfolio's exposure to bonds from states such as Illinois and Texas (which we felt would perform well going forward), while selling bonds from states such as California and Washington. Lastly, we kept Tax-Free Bond's duration--a widely used gauge of interest rate sensitivity--within a fairly narrow band, starting at 4.4 years at the end of May and finishing at 4.6 years at the end of November. OUR COMMITMENT We remain committed to seeking safety of principal while providing a high level of federal tax-exempt current income by investing at least 80% of Tax-Free Bond's assets in debt securities that are exempt from federal income tax. We also plan to continue closely monitoring economic and market conditions while attempting to adjust the fund's weighted average maturity accordingly. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/04 5/31/04 - -------------------------------------------------------------------------------- AAA 74% 72% - -------------------------------------------------------------------------------- AA 9% 13% - -------------------------------------------------------------------------------- A 8% 8% - -------------------------------------------------------------------------------- BBB 9% 7% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. TOP FIVE STATES AS OF NOVEMBER 30, 2004 - -------------------------------------------------------------------------------- % OF NET % OF NET ASSETS ASSETS AS OF AS OF 11/30/04 5/31/04 - -------------------------------------------------------------------------------- Illinois 9.6% 6.1% - -------------------------------------------------------------------------------- Texas 8.5% 7.2% - -------------------------------------------------------------------------------- Arizona 8.2% 9.0% - -------------------------------------------------------------------------------- California 7.8% 9.3% - -------------------------------------------------------------------------------- Washington 7.3% 8.4% - -------------------------------------------------------------------------------- - ------ 11 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.7% - -------------------------------------------------------------------------------- ALABAMA -- 3.0% - -------------------------------------------------------------------------------- $ 865 Alabama Water Pollution Control Auth. GO, 5.75%, 8/15/18 (AMBAC) $ 966 - -------------------------------------------------------------------------------- 9,500 Birmingham Baptist Medical Centers Special Care Facilities Financing Auth. Rev., Series 2000 C, (Baptist Health System), 4.35%, 11/15/16 9,500 - -------------------------------------------------------------------------------- 190 East Central Industrial Development Auth. Rev., 5.25%, 9/1/08 Prerefunded at 100% of Par (AMBAC)(1) 208 - -------------------------------------------------------------------------------- 810 East Central Industrial Development Auth. Rev., 5.25%, 9/1/13 (AMBAC) 878 - -------------------------------------------------------------------------------- 1,075 Fairfield GO, (Refunding Warrants), 5.25%, 2/1/23 (AMBAC) 1,143 - -------------------------------------------------------------------------------- 1,875 Helena Utilities Board Water & Sewer Rev., 5.75%, 4/1/20 (MBIA) 2,120 - -------------------------------------------------------------------------------- 1,435 Helena Utilities Board Water & Sewer Rev., 5.75%, 4/1/22 (MBIA) 1,614 - -------------------------------------------------------------------------------- 1,250 Huntsville Health Care Auth. Rev., Series 2002 A, 3.80%, 6/1/06 (MBIA) 1,276 - -------------------------------------------------------------------------------- 17,705 - -------------------------------------------------------------------------------- ALASKA -- 0.2% - -------------------------------------------------------------------------------- 1,000 Alaska Energy Auth. Power Rev., Series 2000-4, (Bradley Lake), 5.50%, 7/1/05 (FSA) 1,020 - -------------------------------------------------------------------------------- ARIZONA -- 8.2% - -------------------------------------------------------------------------------- 2,680 Arizona School Facilities Board COP, Series 2004 B, 5.25%, 9/1/14 (FSA) 2,993 - -------------------------------------------------------------------------------- 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 1,055 - -------------------------------------------------------------------------------- 2,925 Chandler Water & Sewer Rev., 4.50%, 7/1/06 (FSA) 3,026 - -------------------------------------------------------------------------------- 2,130 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/12 (MBIA) 2,273 - -------------------------------------------------------------------------------- 1,930 Gilbert Water Resource Municipal Property Corp. Rev., (Development Fee & Sub Lien), 4.25%, 4/1/11(2) 1,925 - -------------------------------------------------------------------------------- 3,000 Gilbert Water Resource Municipal Property Corp. Rev., (Development Fee & Sub Lien), 4.90%, 4/1/19(2) 2,960 - -------------------------------------------------------------------------------- 1,000 Glendale Water & Sewer Rev., 5.00%, 7/1/06 (FGIC) 1,042 - -------------------------------------------------------------------------------- 1,770 Marana Municipal Property Corp. COP, 5.25%, 7/1/25 (AMBAC) 1,882 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $4,000 Maricopa County Community College District GO, Series 1997 B, 5.00%, 7/1/12 $ 4,213 - -------------------------------------------------------------------------------- 1,780 Maricopa County Elementary School District No. 3 -- Tempe Elementary GO, 5.00%, 7/1/15 (FSA) 1,954 - -------------------------------------------------------------------------------- 1,710 Maricopa County Elementary School District No. 3 -- Tempe Elementary GO, 5.00%, 7/1/16 (FSA) 1,873 - -------------------------------------------------------------------------------- 1,155 Maricopa County Gilbert Unified School District No. 41 GO, 5.75%, 7/1/11 (FSA) 1,322 - -------------------------------------------------------------------------------- 2,415 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/11 2,608 - -------------------------------------------------------------------------------- 2,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/12 2,153 - -------------------------------------------------------------------------------- 1,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/20 (MBIA) 1,123 - -------------------------------------------------------------------------------- 4,490 Mohave County Industrial Development Auth. COP, Series 2004 A, (Mohave Prison), 5.00%, 4/1/13 (XLCA) 4,885 - -------------------------------------------------------------------------------- 1,655 Mohave County Industrial Development Auth. GO, Series 2004 A, (Mohave Prison), 5.00%, 4/1/14 (XLCA) 1,797 - -------------------------------------------------------------------------------- 1,200 Pima County Indian Oasis- Baboquivari Unified School District No. 40 GO, Series 2002 A, 4.60%, 7/1/13 (MBIA) 1,275 - -------------------------------------------------------------------------------- 2,600 Pima County Tucson Unified School District No. 1 GO, 4.625%, 7/1/13 (FSA) 2,771 - -------------------------------------------------------------------------------- 1,500 Salt River Project Agricultural Improvement and Power District Electrical System Rev., Series 2001 A, 5.00%, 1/1/05 1,504 - -------------------------------------------------------------------------------- 3,085 South Tucson Municipal Property Corp. Rev., 5.50%, 6/1/24 3,157 - -------------------------------------------------------------------------------- 48,852 - -------------------------------------------------------------------------------- ARKANSAS -- 0.4% - -------------------------------------------------------------------------------- 2,000 Fort Smith Sales and Use Tax Rev., Series 2001 A, 4.375%, 12/1/11 2,117 - -------------------------------------------------------------------------------- CALIFORNIA -- 7.7% - -------------------------------------------------------------------------------- 5,000 California GO, 5.625%, 5/1/20 5,473 - -------------------------------------------------------------------------------- 1,000 California Public Works Board Lease COP, Series 1994 A, (Various University of California Projects), 6.20%, 10/1/08 1,023 - -------------------------------------------------------------------------------- 1,100 California Public Works Board Lease COP, Series 1994 A, (Various University of California Projects), 6.15%, 11/1/09 1,126 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 12 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $3,890 California Public Works Board Lease COP, Series 2004 E, (Department of Corrections), 3.00%, 6/1/05 $ 3,906 - -------------------------------------------------------------------------------- 1,000 California Statewide Communities Development Auth. Rev., Series 2002 E, (Kaiser Permanente), 4.70%, 6/1/09 1,057 - -------------------------------------------------------------------------------- 1,000 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.00%, 10/1/11 (FSA) 1,105 - -------------------------------------------------------------------------------- 1,075 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.00%, 10/1/12 (FSA) 1,186 - -------------------------------------------------------------------------------- 2,000 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.25%, 10/1/19 (FSA) 2,187 - -------------------------------------------------------------------------------- 1,615 Campbell COP, (Civic Center), 5.83%, 10/1/31 (AMBAC)(3) 367 - -------------------------------------------------------------------------------- 1,615 Campbell COP, (Civic Center), 5.83%, 10/1/32 (AMBAC)(3) 347 - -------------------------------------------------------------------------------- 3,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (AMBAC) 3,192 - -------------------------------------------------------------------------------- 5,000 Los Angeles Department of Water & Power Rev., Series 2001 AA3, (Power Systems), 5.25%, 7/1/24(4) 5,185 - -------------------------------------------------------------------------------- 2,200 Manteca Unified School District GO, 5.25%, 8/1/23 (FSA) 2,366 - -------------------------------------------------------------------------------- 2,145 San Francisco Uptown Parking Corporation Rev., (Union Square), 5.50%, 7/1/15 (MBIA) 2,388 - -------------------------------------------------------------------------------- 1,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/20 (MBIA) 1,149 - -------------------------------------------------------------------------------- 2,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/31 (MBIA) 2,222 - -------------------------------------------------------------------------------- 3,400 Santa Barbara Redevelopment Agency Tax Allocation Rev., Series 1995 A, (Central City Redevelopment), 6.00%, 3/1/08 (AMBAC) 3,685 - -------------------------------------------------------------------------------- 5,325 Sweetwater Union High School District GO, Series 2004 S, (Election 2000), 4.62%, 8/1/18 (FSA)(3) 2,775 - -------------------------------------------------------------------------------- 5,000 University of California Rev., Series 2002 O, (Multiple Purpose Projects), 4.50%, 9/1/15 (FGIC) 5,213 - -------------------------------------------------------------------------------- 45,952 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- COLORADO -- 4.2% - -------------------------------------------------------------------------------- $1,100 Arapahoe County Water & Wastewater Public Improvement District GO, Series 2002 B, 5.75%, 12/1/17 (MBIA) $ 1,252 - -------------------------------------------------------------------------------- 1,350 Colorado Educational & Cultural Facilities Auth. Rev., (University Laboratory School), 5.25%, 6/1/24 (XLCA) 1,424 - -------------------------------------------------------------------------------- 325 Colorado Health Facilities Auth. Rev., (Vail Valley Medical Center), 4.00%, 1/15/06(2) 329 - -------------------------------------------------------------------------------- 500 Colorado Health Facilities Auth. Rev., (Vail Valley Medical Center), 4.00%, 1/15/07(2) 509 - -------------------------------------------------------------------------------- 685 Colorado Health Facilities Auth. Rev., (Vail Valley Medical Center), 4.50%, 1/15/09(2) 705 - -------------------------------------------------------------------------------- 1,500 Colorado Health Facilities Auth. Rev., Series 2004 B, (Evangelical Lutheran), 3.75%, 6/1/34 1,495 - -------------------------------------------------------------------------------- 500 Colorado Water Resources & Power Development Auth. Clean Water Rev., Series 2000 A, 6.25%, 9/1/16 573 - -------------------------------------------------------------------------------- 1,430 Denver West Metropolitan District GO, 5.25%, 12/1/24 1,425 - -------------------------------------------------------------------------------- 1,000 Douglas & Elbert Counties School District No. Re-1 GO, 5.50%, 12/15/14 (FGIC/State Aid Withholding) 1,146 - -------------------------------------------------------------------------------- 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) 3,286 - -------------------------------------------------------------------------------- 1,100 Eagle Bend Metropolitan District No. 2 GO, 5.25%, 12/1/23 (RADIAN) 1,144 - -------------------------------------------------------------------------------- 1,950 Superior Metropolitan District No. 1 Water & Sewer Rev., Series 2000 A, 5.45%, 12/1/20 (LOC: Banque Nationale de Paris SA) 1,950 - -------------------------------------------------------------------------------- 3,925 Superior Metropolitan District No. 1 Water & Sewer Rev., Series 2000 B, 5.45%, 12/1/20 (LOC: Allied Irish Bank plc) 3,925 - -------------------------------------------------------------------------------- 5,000 University of Colorado Regents COP, 6.00%, 12/1/22 (MBIA-IBC) 5,618 - -------------------------------------------------------------------------------- 24,781 - -------------------------------------------------------------------------------- CONNECTICUT -- 1.1% - -------------------------------------------------------------------------------- 2,150 City of Bridgeport GO, Series 2004 A, 5.25%, 8/15/22 (MBIA) 2,304 - -------------------------------------------------------------------------------- 2,215 New Haven Air Rights Package Facility Rev., 5.00%, 12/1/10 (AMBAC) 2,432 - -------------------------------------------------------------------------------- 770 West Haven GO, 3.85%, 1/15/16 (AMBAC) 752 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 13 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 860 West Haven GO, 4.00%, 1/15/17 (AMBAC) $ 846 - -------------------------------------------------------------------------------- 6,334 - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA -- 0.5% - -------------------------------------------------------------------------------- 1,385 District of Columbia GO, Series 1999 B, 5.50%, 6/1/09 (FSA) 1,531 - -------------------------------------------------------------------------------- 1,155 District of Columbia Rev., (Gonzaga College High School), 5.20%, 7/1/12 (FSA) 1,259 - -------------------------------------------------------------------------------- 2,790 - -------------------------------------------------------------------------------- FLORIDA -- 1.4% - -------------------------------------------------------------------------------- 2,585 Greater Orlando Aviation Auth. Rev., Series 2003 A, 5.00%, 10/1/13 (FSA) 2,831 - -------------------------------------------------------------------------------- 1,465 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 3.60%, 11/15/05 1,474 - -------------------------------------------------------------------------------- 1,500 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 4.00%, 11/15/06 1,525 - -------------------------------------------------------------------------------- 1,000 Orlando Utilities Commission Water & Electric Rev., Series 1989 D, 6.75%, 10/1/17 1,237 - -------------------------------------------------------------------------------- 1,000 University Athletic Association Inc. Rev., 3.00%, 10/1/31 (LOC: SunTrust Bank) 987 - -------------------------------------------------------------------------------- 8,054 - -------------------------------------------------------------------------------- GEORGIA -- 1.2% - -------------------------------------------------------------------------------- 3,150 Atlanta Airport Rev., Series 2003 RF-A, 4.50%, 1/1/05 (MBIA) 3,157 - -------------------------------------------------------------------------------- 1,000 City of Augusta Rev., 5.25%, 10/1/39 (FSA)(2) 1,040 - -------------------------------------------------------------------------------- 255 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/09, Prerefunded at 100% of Par (MBIA-IBC)(1) 288 - -------------------------------------------------------------------------------- 110 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC)(1) 129 - -------------------------------------------------------------------------------- 635 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC) 733 - -------------------------------------------------------------------------------- 2,030 La Grange Water & Sewer Rev., 3.00%, 1/1/06 (AMBAC) 2,046 - -------------------------------------------------------------------------------- 7,393 - -------------------------------------------------------------------------------- HAWAII -- 1.9% - -------------------------------------------------------------------------------- 10,000 Hawaii GO, Series 1997 CN, 6.25%, 3/1/06 (FGIC)(4) 10,488 - -------------------------------------------------------------------------------- 500 Maui County GO, Series 2000 A, 6.50%, 3/1/10, Prerefunded at 101% of Par (FGIC)(1) 587 - -------------------------------------------------------------------------------- 11,075 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- IDAHO -- 0.2% - -------------------------------------------------------------------------------- $1,000 Blaine County Hailey School District No. 61 GO, 5.00%, 7/30/10 (AMBAC) $ 1,096 - -------------------------------------------------------------------------------- ILLINOIS -- 9.6% - -------------------------------------------------------------------------------- 2,000 Bedford Park GO, Series 2004 A, 5.25%, 12/15/20 (FSA) 2,163 - -------------------------------------------------------------------------------- 13,355 Chicago Board of Education GO, 5.50%, 12/1/10, Prerefunded at 100% of Par (FGIC)(1)(4) 15,064 - -------------------------------------------------------------------------------- 170 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 4.80%, 1/1/05 170 - -------------------------------------------------------------------------------- 4,000 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 5.00%, 1/1/12 (MBIA-IBC) 4,360 - -------------------------------------------------------------------------------- 6,055 Chicago O'Hare International Airport Rev., Series 1996 A, (Passenger Facilities Charge), 5.375%, 1/1/07 (AMBAC) 6,365 - -------------------------------------------------------------------------------- 12,500 Chicago O'Hare International Airport Rev., Series 2004 A, (General 3rd Lien), 5.00%, 1/1/08 (MBIA)(2) 13,370 - -------------------------------------------------------------------------------- 1,000 Chicago Wastewater Transmission Rev., Series 2004 B, (Second Lien), 3.00%, 1/1/08 (MBIA) 1,013 - -------------------------------------------------------------------------------- 2,170 Du Page Airport Auth. Rev., Series 2002 A, 3.00%, 2/1/06 (FGIC) 2,189 - -------------------------------------------------------------------------------- 2,000 Illinois Dedicated Tax Rev., (Civic Center), 6.25%, 12/15/20 (AMBAC) 2,425 - -------------------------------------------------------------------------------- 595 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.00%, 5/15/08 630 - -------------------------------------------------------------------------------- 655 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.125%, 5/15/10 701 - -------------------------------------------------------------------------------- 400 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.75%, 5/15/16 430 - -------------------------------------------------------------------------------- 1,140 Illinois Health Facilities Auth. Rev., Series 1992 C, (Evangelical Hospital), 6.75%, 4/15/12(1) 1,339 - -------------------------------------------------------------------------------- 1,100 Illinois Health Facilities Auth. Rev., Series 2002 A, (Lake Forest Hospital), 5.00%, 7/1/05 1,116 - -------------------------------------------------------------------------------- 1,000 Illinois Regional Transportation Auth. Rev., Series 1990 A, 7.20%, 11/1/20 (AMBAC) 1,302 - -------------------------------------------------------------------------------- 930 Kane County Geneva Community Unit School District No. 304 GO, 6.20%, 1/1/24 (FSA) 1,082 - -------------------------------------------------------------------------------- 1,105 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/17 (MBIA) 1,269 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 14 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,220 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/18 (MBIA) $ 1,401 - -------------------------------------------------------------------------------- 1,000 University of Illinois COP, (Utility Infrastructure), 5.75%, 8/15/08 (MBIA) 1,105 - -------------------------------------------------------------------------------- 57,494 - -------------------------------------------------------------------------------- INDIANA -- 1.5% - -------------------------------------------------------------------------------- 1,005 Hamilton County Public Building Corp. GO, (First Mortgage), 4.00%, 1/20/05 (AMBAC) 1,008 - -------------------------------------------------------------------------------- 1,900 Indiana Health Facilities Financing Auth. Hospital Rev., (Holy Cross Health System Corp.), 5.375%, 12/2/12 (MBIA) 2,065 - -------------------------------------------------------------------------------- 780 Indiana Transportation Finance Auth. GO, Series 1990 A, 7.25%, 6/1/15 977 - -------------------------------------------------------------------------------- 220 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15(1) 264 - -------------------------------------------------------------------------------- 1,500 Mount Vernon of Hancock County Multi-School Building Corp. GO, Series 2001 B, (First Mortgage), 5.75%, 7/15/15 (AMBAC) 1,697 - -------------------------------------------------------------------------------- 1,650 Valparaiso Middle Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/11, Prerefunded at 100% of Par (FGIC)(1) 1,890 - -------------------------------------------------------------------------------- 1,000 Zionsville Community Schools Building Corp. GO, (First Mortgage), 5.75%, 7/15/15 (FGIC/State Aid Withholding) 1,125 - -------------------------------------------------------------------------------- 9,026 - -------------------------------------------------------------------------------- KANSAS -- 0.4% - -------------------------------------------------------------------------------- 1,280 Wichita Hospital Facilities Rev., Series 2001 III, 5.25%, 11/15/13 1,372 - -------------------------------------------------------------------------------- 1,195 Wichita Hospital Facilities Rev., Series 2001 III, 5.50%, 11/15/16 1,279 - -------------------------------------------------------------------------------- 2,651 - -------------------------------------------------------------------------------- LOUISIANA -- 0.6% - -------------------------------------------------------------------------------- 3,800 Louisiana Public Facilities Auth. Rev., (University Hospital Facilities), 3.00%, 10/15/05 (FGIC) 3,829 - -------------------------------------------------------------------------------- MARYLAND -- 1.8% - -------------------------------------------------------------------------------- 10,000 Maryland GO, (State and Local Facilities Loan of 2003, Second Series), 5.00%, 8/1/07(4) 10,694 - -------------------------------------------------------------------------------- MASSACHUSSETTS -- 2.0% - -------------------------------------------------------------------------------- 10,000 Commonwealth of Massachusetts GO, Series 2003 C, 5.00%, 12/1/07 (XLCA)(4) 10,719 - -------------------------------------------------------------------------------- 1,000 Massachusetts Health & Educational Facilities Auth. Rev., Series 1992 F, 6.25%, 7/1/12 (AMBAC) 1,138 - -------------------------------------------------------------------------------- 11,857 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MICHIGAN -- 2.7% - -------------------------------------------------------------------------------- $3,500 Detroit GO, Series 2004 A-1, 5.25%, 4/1/23 (AMBAC) $ 3,728 - -------------------------------------------------------------------------------- 1,485 Grand Valley State University Rev., 5.75%, 12/1/15 (FGIC) 1,673 - -------------------------------------------------------------------------------- 2,440 Michigan Building Auth. COP, (State Police Communications System), 2.50%, 10/1/05 2,449 - -------------------------------------------------------------------------------- 1,000 Michigan Hospital Finance Auth. Rev., Series 1999 A, (Ascension Health Credit), 5.25%, 11/15/05 (MBIA) 1,030 - -------------------------------------------------------------------------------- 2,010 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/11 (FGIC) 2,201 - -------------------------------------------------------------------------------- 2,215 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/13 (FGIC) 2,462 - -------------------------------------------------------------------------------- 2,335 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/14 (FGIC) 2,581 - -------------------------------------------------------------------------------- 16,124 - -------------------------------------------------------------------------------- MISSOURI -- 1.8% - -------------------------------------------------------------------------------- 1,145 Jackson County Public Building Corp. COP, Series 2000 A, 6.00%, 11/1/18 1,253 - -------------------------------------------------------------------------------- 2,775 Missouri Development Finance Board COP, Series 2000 A, (Midtown Redevelopment), 5.75%, 4/1/22 (MBIA) 3,076 - -------------------------------------------------------------------------------- 3,000 Missouri Health & Educational Facilities Auth. Rev., Series 1998 A, (Park Lane Medical Center), 5.60%, 1/1/15 (MBIA) 3,321 - -------------------------------------------------------------------------------- 3,210 Springfield COP, (Greene County Park), 3.50%, 12/1/04 3,210 - -------------------------------------------------------------------------------- 10,860 - -------------------------------------------------------------------------------- NEVADA -- 1.4% - -------------------------------------------------------------------------------- 1,000 Clark County School District GO, Series 1997 B, (Building & Renovation), 5.25%, 6/15/17, Prerefunded at 101% of Par (FGIC)(1) 1,081 - -------------------------------------------------------------------------------- 3,295 Las Vegas Redevelopment Agency Tax Increment Rev., Series 2003 A, (Fremont Street), 4.50%, 6/15/10 3,401 - -------------------------------------------------------------------------------- 1,550 Reno Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), (Senior Lien), 5.50%, 6/1/19 (AMBAC) 1,707 - -------------------------------------------------------------------------------- 1,865 Reno Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), (Senior Lien), 5.50%, 6/1/20 (AMBAC) 2,054 - -------------------------------------------------------------------------------- 8,243 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 15 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- NEW HAMPSHIRE -- 2.2% - -------------------------------------------------------------------------------- $ 540 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 2.50%, 10/1/05 $ 540 - -------------------------------------------------------------------------------- 675 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 3.00%, 10/1/06 675 - -------------------------------------------------------------------------------- 765 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 3.25%, 10/1/07 766 - -------------------------------------------------------------------------------- 1,660 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/11 1,748 - -------------------------------------------------------------------------------- 680 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/12 714 - -------------------------------------------------------------------------------- 1,030 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/13 1,071 - -------------------------------------------------------------------------------- 3,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/18 2,989 - -------------------------------------------------------------------------------- 4,470 New Hampshire Municipal Bond Bank GO, Series 2004 B, 4.00%, 8/15/06 (FSA) 4,599 - -------------------------------------------------------------------------------- 13,102 - -------------------------------------------------------------------------------- NEW JERSEY -- 1.8% - -------------------------------------------------------------------------------- 4,235 New Jersey Transit Corporation COP, 5.00%, 10/1/12 (FSA) 4,644 - -------------------------------------------------------------------------------- 5,595 New Jersey Transit Corporation COP, 5.00%, 10/1/13 (FSA) 6,123 - -------------------------------------------------------------------------------- 10,767 - -------------------------------------------------------------------------------- NEW MEXICO -- 1.2% - -------------------------------------------------------------------------------- 5,090 Los Alamos County Utilities System Rev., Series 2004 A, 4.00%, 7/1/07 (FSA) 5,288 - -------------------------------------------------------------------------------- 1,415 San Juan County Gross Receipts Tax Rev., Series 2001 A, 5.75%, 9/15/21 (AMBAC) 1,597 - -------------------------------------------------------------------------------- 6,885 - -------------------------------------------------------------------------------- NEW YORK -- 5.7% - -------------------------------------------------------------------------------- 2,975 City of New York GO, Series 2002 B, 5.25%, 8/1/09 (CIFG) 3,276 - -------------------------------------------------------------------------------- 2,885 City of New York GO, Series 2002 C, 5.25%, 8/1/09 (CIFG) 3,176 - -------------------------------------------------------------------------------- 4,000 City of New York GO, Series 2002 C, 5.25%, 8/1/10 4,389 - -------------------------------------------------------------------------------- 5,000 City of New York GO, Series 2003 I, 5.75%, 3/1/20 5,499 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $5,790 Long Island Power Auth. Rev., Series 2003 B, 5.00%, 12/1/06 (XLCA) $ 6,085 - -------------------------------------------------------------------------------- 1,000 New York Dormitory Auth. COP, Series 1995 A, (State University Educational Facilities), 6.50%, 5/15/06 1,058 - -------------------------------------------------------------------------------- 2,000 New York Dormitory Auth. COP, Series 2002 A, (School Districts Financing Program), 5.25%, 10/1/11 (MBIA) 2,234 - -------------------------------------------------------------------------------- 3,250 New York Dormitory Auth. COP, Series 2002 A, (School Districts Financing Program), 5.25%, 10/1/12 (MBIA) 3,636 - -------------------------------------------------------------------------------- 1,100 New York Dormitory Auth. COP, Series 2002 A, (United Cerebral Palsy Affiliate No. 1), 5.75%, 7/1/18 (AMBAC) 1,227 - -------------------------------------------------------------------------------- 1,105 New York Dormitory Auth. COP, Series 2002 H, (School District Financing Program), 5.00%, 10/1/11 (MBIA) 1,217 - -------------------------------------------------------------------------------- 1,160 New York Thruway Auth. Service Contract COP, 5.50%, 4/1/06 1,207 - -------------------------------------------------------------------------------- 1,000 Niagara Falls Bridge Commission Toll Rev., Series 1993 B, 5.25%, 10/1/15 (FGIC) 1,106 - -------------------------------------------------------------------------------- 34,110 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 1.8% - -------------------------------------------------------------------------------- 1,300 Charlotte Airport Rev., Series 2004 A, 5.25%, 7/1/24 (MBIA) 1,379 - -------------------------------------------------------------------------------- 2,000 North Carolina Eastern Municipal Power Agency System Rev., Series 1993 B, 6.00%, 1/1/06 (FSA) 2,079 - -------------------------------------------------------------------------------- 2,500 North Carolina Medical Care Commission Rev., Series 2004 A, (Health Care Housing -- ARC Projects), 5.50%, 10/1/24 2,478 - -------------------------------------------------------------------------------- 1,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., 6.00%, 1/1/10 (MBIA) 1,133 - -------------------------------------------------------------------------------- 1,500 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 3.00%, 1/1/05 1,501 - -------------------------------------------------------------------------------- 2,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 5.50%, 1/1/13 2,195 - -------------------------------------------------------------------------------- 10,765 - -------------------------------------------------------------------------------- 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 -- 2.8% - -------------------------------------------------------------------------------- 1,500 Bowling Green State University General Receipts Rev., 4.75%, 6/1/09 (FGIC) 1,618 - -------------------------------------------------------------------------------- 2,000 Cleveland State University Rev., 5.25%, 6/1/24 (FGIC) 2,137 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 16 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 500 Erie County Hospital Facilities Rev., Series 2002 A, (Firelands Regional Medical Center), 4.50%, 8/15/07 $ 518 - -------------------------------------------------------------------------------- 1,150 Mad River Local School District GO, (Classroom Facilities), 5.75%, 12/1/19 (FGIC) 1,303 - -------------------------------------------------------------------------------- 1,700 Milford Exempt Village School District GO, (School Improvement), 6.00%, 12/1/18 (FSA) 1,954 - -------------------------------------------------------------------------------- 1,200 Ohio Higher Educational Facility Commission Rev., (University of Dayton), 5.55%, 12/1/07 (FGIC) 1,227 - -------------------------------------------------------------------------------- 750 Ohio Higher Educational Facility Commission Rev., Series 1990 B, (Case Western Reserve University), 6.50%, 10/1/20 923 - -------------------------------------------------------------------------------- 3,320 Ohio Water Development Auth. Pollution Control Facilities Rev., 6.00%, 12/1/05, Prerefunded at 101% of Par (MBIA)(1) 3,420 - -------------------------------------------------------------------------------- 1,505 Summit County GO, 5.75%, 12/1/19, Prerefunded at 101% of Par (FGIC)(1) 1,755 - -------------------------------------------------------------------------------- 1,550 Tri Valley Local School District GO, 5.75%, 12/1/21 (FGIC) 1,751 - -------------------------------------------------------------------------------- 16,606 - -------------------------------------------------------------------------------- OKLAHOMA -- 0.3% - -------------------------------------------------------------------------------- 1,730 Durant Community Facilities Auth. GO, 5.75%, 11/1/24 (XLCA) 1,937 - -------------------------------------------------------------------------------- OREGON -- 2.2% - -------------------------------------------------------------------------------- 2,215 Deschutes & Jefferson Counties Redmond School District No. 2J GO, 5.50%, 6/1/09 (FGIC) 2,462 - -------------------------------------------------------------------------------- 1,805 Lane County School District No. 19 Springfield GO, 6.375%, 10/15/05 (MBIA) 1,852 - -------------------------------------------------------------------------------- 8,200 Portland Rev., Series 2003 A, (Second Lien), 4.00%, 6/1/08 (FSA) 8,583 - -------------------------------------------------------------------------------- 12,897 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 1.0% - -------------------------------------------------------------------------------- 1,000 Oxford Area School District GO, Series 2001 A, 5.50%, 2/15/17 (FGIC/State Aid Withholding) 1,107 - -------------------------------------------------------------------------------- 2,975 Philadelphia School District GO, Series 2002 A, 5.25%, 2/1/11 (FSA/State Aid Withholding) 3,300 - -------------------------------------------------------------------------------- 1,500 Pittsburgh School District GO, 5.25%, 9/1/09 (FSA) 1,650 - -------------------------------------------------------------------------------- 6,057 - -------------------------------------------------------------------------------- PUERTO RICO -- 0.5% - -------------------------------------------------------------------------------- 2,500 Puerto Rico Highway & Transportation Auth. Rev., 5.00%, 7/1/08 (CIFG) 2,708 - -------------------------------------------------------------------------------- RHODE ISLAND -- 1.0% - -------------------------------------------------------------------------------- 1,000 Cranston GO, 6.375%, 11/15/17 (FGIC) 1,153 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,100 Rhode Island Clean Water Finance Agency Rev., Series 1994 A, (Safe Drinking Water -- Providence), 6.70%, 1/1/15 (AMBAC) $ 1,126 - -------------------------------------------------------------------------------- 2,000 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 A, 6.25%, 8/1/16 (MBIA)(1) 2,442 - -------------------------------------------------------------------------------- 1,300 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 B, 6.00%, 8/1/17 (MBIA)(1) 1,329 - -------------------------------------------------------------------------------- 6,050 - -------------------------------------------------------------------------------- SOUTH CAROLINA -- 5.2% - -------------------------------------------------------------------------------- 1,700 Florence Water & Sewer Rev., 7.50%, 3/1/18 (AMBAC) 2,047 - -------------------------------------------------------------------------------- 7,110 Greenville County School District COP, (Building Equity Sooner Tomorrow), 5.25%, 12/1/24 7,426 - -------------------------------------------------------------------------------- 1,170 Greenwood County Hospital Facilities Rev., Series 2004 A, (Self Regional Healthcare), 4.00%, 10/1/10 (FSA) 1,217 - -------------------------------------------------------------------------------- 1,000 Greenwood County Hospital Facilities Rev., Series 2004 A, (Self Regional Healthcare), 4.00%, 10/1/11 (FSA) 1,038 - -------------------------------------------------------------------------------- 2,300 Lancaster Educational Assistance Program Inc. Rev., (School District Lanncaster County), 5.00%, 12/1/26 2,249 - -------------------------------------------------------------------------------- 140 Piedmont Municipal Power Agency Electric Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1) 172 - -------------------------------------------------------------------------------- 625 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC)(1) 800 - -------------------------------------------------------------------------------- 875 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC) 1,097 - -------------------------------------------------------------------------------- 485 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1) 599 - -------------------------------------------------------------------------------- 375 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC) 453 - -------------------------------------------------------------------------------- 2,920 Piedmont Municipal Power Agency Rev., Series 2002 A, 4.00%, 1/1/07, Prerefunded at 100% of Par (FGIC)(1) 2,925 - -------------------------------------------------------------------------------- 3,115 Piedmont Municipal Power Agency Rev., Series 2002 A, 4.00%, 1/1/07 (FGIC) 3,119 - -------------------------------------------------------------------------------- 3,035 South Carolina Jobs Economic Development Auth. Hospital Facilities Rev., Series 2003 C, (Palmetto Health), 5.00%, 8/1/08 (ACA) 3,212 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 17 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $3,195 South Carolina Jobs Economic Development Auth. Hospital Facilities Rev., Series 2003 C, (Palmetto Health), 5.50%, 8/1/09 (ACA) $ 3,459 - -------------------------------------------------------------------------------- 1,095 Spartanburg County Health Services District Inc. Hospital Rev., 5.50%, 4/15/16 (FSA) 1,195 - -------------------------------------------------------------------------------- 31,008 - -------------------------------------------------------------------------------- TENNESSEE -- 0.5% - -------------------------------------------------------------------------------- 1,050 Clarksville Water Sewer & Gas Rev., 4.25%, 2/1/07 (FSA) 1,093 - -------------------------------------------------------------------------------- 1,685 Clarksville Water Sewer & Gas Rev., 4.85%, 2/1/15 (FSA) 1,773 - -------------------------------------------------------------------------------- 2,866 - -------------------------------------------------------------------------------- TEXAS -- 8.5% - -------------------------------------------------------------------------------- 2,035 Cash Special Utility District Rev., 5.25%, 9/1/24 (MBIA) 2,163 - -------------------------------------------------------------------------------- 1,815 Clint Independent School District GO, 6.00%, 2/15/17 (PSF) 2,053 - -------------------------------------------------------------------------------- 1,000 Corpus Christi Utility System Rev., 5.50%, 7/15/07 (FSA) 1,078 - -------------------------------------------------------------------------------- 1,000 Dallas-Fort Worth Regional Airport Rev., Series 1994 A, 5.90%, 11/1/08 (MBIA) 1,003 - -------------------------------------------------------------------------------- 770 Denison Hospital Auth. Rev., (Texoma Medical Center), 5.90%, 8/15/07 (ACA) 826 - -------------------------------------------------------------------------------- 1,000 Denton Utility System Rev., Series 1996 A, 5.95%, 12/1/14 (MBIA) 1,072 - -------------------------------------------------------------------------------- 4,000 Fort Bend Independent School District GO, Series 2004 A, 5.25%, 8/15/26 (PSF) 4,205 - -------------------------------------------------------------------------------- 1,240 Harris County Housing Finance Corporation Rev., (Las Americas Apartments), 4.90%, 3/1/11 (FNMA) 1,310 - -------------------------------------------------------------------------------- 3,000 Hays Consolidated Independent School District GO, 5.20%, 8/15/11 (PSF)(3) 2,318 - -------------------------------------------------------------------------------- 1,295 Hidalgo County GO, 5.50%, 8/15/19 (FGIC) 1,423 - -------------------------------------------------------------------------------- 1,750 Hidalgo County GO, 5.50%, 8/15/21 (FGIC) 1,913 - -------------------------------------------------------------------------------- 574 Houston Participation Interest COP, 6.40%, 6/1/27 624 - -------------------------------------------------------------------------------- 500 Houston Water & Sewer System Rev., Series 1992 C, (Junior Lien), 5.90%, 12/1/05 (MBIA) 519 - -------------------------------------------------------------------------------- 1,500 Houston Water & Sewer System Rev., Series 1997 C, (Junior Lien), 5.375%, 12/1/27 (FGIC) 1,643 - -------------------------------------------------------------------------------- 1,000 Laredo Independent School District COP, Series 2004 A, 5.00%, 8/1/24 (AMBAC)(2) 1,013 - -------------------------------------------------------------------------------- 1,630 Live Oak GO, 5.25%, 8/1/22 (MBIA) 1,739 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,000 Lubbock Health Facilities Development Corp. Rev., (Lutheran Retirement), 6.00%, 3/20/29 (GNMA) $ 1,066 - -------------------------------------------------------------------------------- 2,055 Midland Independent School District GO, 5.00%, 2/15/22 (PSF) 2,140 - -------------------------------------------------------------------------------- 1,740 Montgomery County GO, 5.50%, 3/1/24 (AMBAC) 1,888 - -------------------------------------------------------------------------------- 550 Pasadena Independent School District GO, Series 2001 A, 6.05%, 2/15/16 (PSF) 648 - -------------------------------------------------------------------------------- 1,500 Pearland Independent School District GO, 6.00%, 2/15/15 (PSF) 1,662 - -------------------------------------------------------------------------------- 1,085 Rowlett Rev., Series 2004 A, 5.00%, 3/1/19 (MBIA) 1,147 - -------------------------------------------------------------------------------- 1,140 Rowlett Rev., Series 2004 A, 5.00%, 3/1/20 (MBIA) 1,200 - -------------------------------------------------------------------------------- 2,000 San Antonio Electric and Gas Rev., 7.10%, 2/1/09 (FGIC)(1)(3) 1,745 - -------------------------------------------------------------------------------- 2,120 Southside Independent School District GO, Series 2004 A, 5.25%, 8/15/25 (PSF) 2,238 - -------------------------------------------------------------------------------- 1,000 Tarrant County Health Facility Development Corp. Rev., (Ft. Worth Osteopathic), 6.00%, 5/15/11 (MBIA)(5)(7) 1,021 - -------------------------------------------------------------------------------- 2,345 Texas Municipal Power Agency COP, (Sub-Lien), 4.00%, 9/1/09 (FGIC) 2,409 - -------------------------------------------------------------------------------- 1,500 Texas Public Finance Auth. Building Rev., (Technical College), 6.25%, 8/1/09 (MBIA) 1,647 - -------------------------------------------------------------------------------- 1,000 Texas Technical University Rev., 5.00%, 8/15/08 (MBIA) 1,082 - -------------------------------------------------------------------------------- 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)(1) 1,140 - -------------------------------------------------------------------------------- 1,000 Tyler Health Facilities Development Corp. Rev., (Mother Frances Hospital), 4.50%, 7/1/06 1,029 - -------------------------------------------------------------------------------- 2,000 Tyler Health Facilities Development Corp. Rev., (Mother Frances Hospital), 5.00%, 7/1/08 2,119 - -------------------------------------------------------------------------------- 1,265 West Oso Independent School District GO, 5.50%, 8/15/26 (PSF) 1,352 - -------------------------------------------------------------------------------- 50,435 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS -- 0.4% - -------------------------------------------------------------------------------- 2,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, (Senior Lien), 5.20%, 10/1/09 2,151 - -------------------------------------------------------------------------------- UTAH -- 2.0% - -------------------------------------------------------------------------------- 1,000 Salt Lake City Hospital Rev., Series 1988 A, (Intermountain Health Corporation), 8.125%, 5/15/15(1) 1,259 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 18 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,000 Utah County Municipal Building Auth. Lease COP, 4.00%, 11/1/05 (AMBAC) $ 1,017 - -------------------------------------------------------------------------------- 1,495 Utah County Municipal Building Auth. Lease COP, 5.00%, 11/1/09 (AMBAC) 1,627 - -------------------------------------------------------------------------------- 1,820 Utah County Municipal Building Auth. Lease COP, 5.25%, 11/1/13 (AMBAC) 2,005 - -------------------------------------------------------------------------------- 1,915 Utah County Municipal Building Auth. Lease COP, 5.25%, 11/1/14 (AMBAC) 2,113 - -------------------------------------------------------------------------------- 1,000 Utah County Municipal Building Auth. Lease COP, 5.50%, 11/1/16 (AMBAC) 1,112 - -------------------------------------------------------------------------------- 1,130 West Valley City Municipal Building Auth. COP, Series 2002 A, 5.00%, 8/1/10 (AMBAC) 1,234 - -------------------------------------------------------------------------------- 1,305 West Valley City Utility Sales Tax Rev., Series 2001 A, 5.50%, 7/15/16 (MBIA) 1,448 - -------------------------------------------------------------------------------- 11,815 - -------------------------------------------------------------------------------- VIRGINIA -- 0.7% - -------------------------------------------------------------------------------- 1,500 Fairfax County COP, 5.30%, 4/15/23 1,588 - -------------------------------------------------------------------------------- 1,000 Hampton Industrial Development Auth. Rev., Series 1994 A, (Sentara General Hospital), 6.50%, 11/1/06, Prerefunded at 100% of Par(1) 1,079 - -------------------------------------------------------------------------------- 1,115 Pittsylvania County GO, Series 2001 B, 5.75%, 3/1/18 (MBIA) 1,270 - -------------------------------------------------------------------------------- 3,937 - -------------------------------------------------------------------------------- WASHINGTON -- 7.3% - -------------------------------------------------------------------------------- 1,000 Benton County Public Utility District No. 1 Rev., Series 2001 A, 5.625%, 11/1/19 (FSA) 1,111 - -------------------------------------------------------------------------------- 1,000 Cowlitz County Kelso School District No. 458 GO, 5.75%, 12/1/18 (FSA) 1,133 - -------------------------------------------------------------------------------- 3,500 Energy Northwest Electrical Rev., Series 2002 A, (Columbia Generating), 5.75%, 7/1/18 (MBIA) 3,934 - -------------------------------------------------------------------------------- 9,000 Energy Northwest Electrical Rev., Series 2002 B, (Columbia Generating), 6.00%, 7/1/18 (AMBAC)(4) 10,276 - -------------------------------------------------------------------------------- 7,145 King County GO, 5.50%, 12/1/12 8,083 - -------------------------------------------------------------------------------- 2,000 King County GO, Series 1997 D, 5.75%, 12/1/11 2,212 - -------------------------------------------------------------------------------- 1,555 King County Lake Washington School District No. 414 GO, 5.75%, 12/1/15 1,768 - -------------------------------------------------------------------------------- 1,260 Mason County Shelton School District No. 309 GO, 5.625%, 12/1/17 (FGIC) 1,408 - -------------------------------------------------------------------------------- 1,120 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/16 (AMBAC) 1,285 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/18 (AMBAC) $ 1,145 - -------------------------------------------------------------------------------- 305 Tacoma Electrical Systems Rev., 6.10%, 1/1/07 (FGIC) 312 - -------------------------------------------------------------------------------- 1,720 University of Washington Rev., (Student Facilities Fee), 5.875%, 6/1/18 (FSA) 1,940 - -------------------------------------------------------------------------------- 1,000 Washington GO, Series 1990 A, 6.75%, 2/1/15 1,214 - -------------------------------------------------------------------------------- 1,000 Washington Public Power Supply System Rev., Series 1996 A, (Nuclear Project No. 1), 5.75%, 7/1/12 (MBIA) 1,070 - -------------------------------------------------------------------------------- 4,570 Washington Public Power Supply System Rev., Series 1998 A, (Nuclear Project No. 2), 5.00%, 7/1/12 (FSA) 4,926 - -------------------------------------------------------------------------------- 1,500 Whitman County Pullman School District No. 267 GO, 5.625%, 12/1/16 (FSA) 1,681 - -------------------------------------------------------------------------------- 43,498 - -------------------------------------------------------------------------------- WISCONSIN -- 1.5% - -------------------------------------------------------------------------------- 1,180 Winneconne Community School District GO, 6.75%, 4/1/06, Prerefunded at 100% of Par (FGIC)(1) 1,251 - -------------------------------------------------------------------------------- 1,990 Wisconsin Clean Water Rev., 6.875%, 6/1/11 2,342 - -------------------------------------------------------------------------------- 2,590 Wisconsin Health & Educational Facilities Auth. Rev., (Aurora Medical Group), 6.00%, 11/15/10 (FSA) 2,954 - -------------------------------------------------------------------------------- 500 Wisconsin Health & Educational Facilities Auth. Rev., (Blood Center Southeastern), 5.50%, 6/1/24 515 - -------------------------------------------------------------------------------- 750 Wisconsin Health & Educational Facilities Auth. Rev., (Blood Center Southeastern), 5.75%, 6/1/34 779 - -------------------------------------------------------------------------------- 1,225 Wisconsin Health & Educational Facilities Auth. Rev., (Wheaton Franciscan Services), 4.00%, 8/15/06 1,254 - -------------------------------------------------------------------------------- 9,095 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $564,014) 586,271 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 3.4% - -------------------------------------------------------------------------------- ARIZONA(6) - -------------------------------------------------------------------------------- 115 Pima County Industrial Development Auth. COP, (Lease Purchase), VRDN, 1.83%, 12/2/04 (SBBPA: Societe Generale) 115 - -------------------------------------------------------------------------------- CALIFORNIA -- 0.1% - -------------------------------------------------------------------------------- 775 California Economic Recovery Rev., Series 2004 C1, VRDN, 1.74%, 12/1/04 (SBBPA: Landesbank Baden-Wuerttemberg) 775 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 19 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- FLORIDA -- 0.6% - -------------------------------------------------------------------------------- $3,750 Broward County Health Facilities Auth. Rev., (John Knox Village), VRDN, 1.79%, 12/1/04 (RADIAN) (SBBPA: LaSalle Bank N.A.) $ 3,750 - -------------------------------------------------------------------------------- GEORGIA -- 0.5% - -------------------------------------------------------------------------------- 2,800 City of Atlanta Rev., Series 2002 C, VRDN, 1.68%, 12/1/04 (FSA) (SBBPA: Dexia Credit Local) 2,800 - -------------------------------------------------------------------------------- NEW YORK -- 1.3% - -------------------------------------------------------------------------------- 7,225 New York City Municipal Water Finance Auth. Rev., Series 1994 G, VRDN, 1.64%, 12/1/04 (FGIC) 7,225 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- PENNSYLVANIA -- 0.9% - -------------------------------------------------------------------------------- $5,375 Delaware County Industrial Development Auth. Rev., (Exelon), VRDN, 1.74%, 12/1/04 (LOC: Wachovia Bank N.A.) $ 5,375 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $20,040) 20,040 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 102.1% (Cost $584,054) 606,311 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (2.1)% (12,524) - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $593,787 ================================================================================ SHORT FUTURES CONTRACTS* ($ IN THOUSANDS) Underlying Face Contracts Sold Expiration Date Amount at Value Unrealized Gain - -------------------------------------------------------------------------------- 250 U.S. Treasury 10-Year Notes March 2005 $27,863 $52 ====================================== *SHORT FUTURES CONTRACTS typically are based on an index and tend to track the performance of the index or specific securities while remaining very liquid (easy to buy and sell). By selling futures, the fund hedges its investments against price fluctuations. NOTES TO SCHEDULE OF INVESTMENTS 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. GNMA = Government National Mortgage Association GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corporation 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, 2004. XLCA = XL Capital Ltd. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) When-issued security. (3) Security is a zero-coupon municipal bond. The rate indicated is the yield to maturity at purchase. Zero-coupon securities are issued at a substantial discount from their value at maturity. (4) Security, or a portion thereof, has been segregated for a when-issued security and/or futures contracts. (5) Non-imcome producing. (6) Category is less than 0.05% of net assets. (7) Security is in default. See Notes to Financial Statements. - ------ 20 Shareholder Fee Examples (Unaudited) Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from June 1, 2004 to November 30, 2004. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century account (i.e., not a financial intermediary or retirement plan account), American Century may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. (continued) - ------ 21 Shareholder Fee Examples (Unaudited) Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. EXPENSES PAID BEGINNING ENDING DURING PERIOD* ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE 6/1/04 - EXPENSE 6/1/04 11/30/04 11/30/04 RATIO* TAX-FREE MONEY MARKET SHAREHOLDER FEE EXAMPLE - ----------------------------------------------------------------------------------------------------------- ACTUAL: - ----------------------------------------------------------------------------------------------------------- Tax-Free Money Market $1,000 $1,004.90 $2.56 0.51% - ----------------------------------------------------------------------------------------------------------- HYPOTHETICAL: - ----------------------------------------------------------------------------------------------------------- Tax-Free Money Market $1,000 $1,022.51 $2.59 0.51% - ----------------------------------------------------------------------------------------------------------- TAX-FREE BOND SHAREHOLDER FEE EXAMPLE - ----------------------------------------------------------------------------------------------------------- ACTUAL: - ----------------------------------------------------------------------------------------------------------- Investor Class $1,000 $1,027.60 $2.54 0.50% - ----------------------------------------------------------------------------------------------------------- Institutional Class $1,000 $1,028.60 $1.53 0.30% - ----------------------------------------------------------------------------------------------------------- HYPOTHETICAL: - ----------------------------------------------------------------------------------------------------------- Investor Class $1,000 $1,022.56 $2.54 0.50% - ----------------------------------------------------------------------------------------------------------- Institutional Class $1,000 $1,023.56 $1.52 0.30% - ----------------------------------------------------------------------------------------------------------- *Expenses are equal to the fund's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. - ------ 22 Statement of Assets and Liabilities NOVEMBER 30, 2004 (UNAUDITED) - -------------------------------------------------------------------------------- TAX-FREE (AMOUNTS IN THOUSANDS EXCEPT PER-SHARE AMOUNTS) MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- ASSETS - ----------------------------------------------- Investment securities, at value (cost of $282,645 and $584,054, respectively) $282,645 $606,311 - ----------------------------------------------- Cash -- 576 - ----------------------------------------------- Receivable for capital shares sold -- 453 - ----------------------------------------------- Interest receivable 814 9,009 - ----------------------------------------------- Prepaid portfolio insurance 8 -- - -------------------------------------------------------------------------------- 283,467 616,349 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 82 -- - ----------------------------------------------- Payable for investments purchased 12,000 21,918 - ----------------------------------------------- Accrued management fees 110 238 - ----------------------------------------------- Dividends payable 5 406 - -------------------------------------------------------------------------------- 12,197 22,562 - -------------------------------------------------------------------------------- NET ASSETS $271,270 $593,787 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $271,329 $574,089 - ----------------------------------------------- Accumulated net realized loss on investment transactions (59) (2,611) - ----------------------------------------------- Net unrealized appreciation on investments -- 22,309 - -------------------------------------------------------------------------------- $271,270 $593,787 ================================================================================ INVESTOR CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets $271,270,401 $587,069,443 - ----------------------------------------------- Shares outstanding 271,329,210 54,259,657 - ----------------------------------------------- Net asset value per share $1.00 $10.82 - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets N/A $6,717,556 - ----------------------------------------------- Shares outstanding N/A 620,867 - ----------------------------------------------- Net asset value per share N/A $10.82 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 23 Statement of Operations FOR THE SIX MONTHS ENDED NOVEMBER 30, 2004 (UNAUDITED) - -------------------------------------------------------------------------------- TAX-FREE (AMOUNTS IN THOUSANDS) MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ---------------------------------------------- Interest $2,037 $11,582 - -------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------- Management fees 676 1,460 - ---------------------------------------------- Trustees' fees and expenses 8 14 - ---------------------------------------------- Portfolio insurance 23 -- - ---------------------------------------------- Other expenses -- 2 - -------------------------------------------------------------------------------- 707 1,476 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 1,330 10,106 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------- Net realized loss on investment transactions (1) (1,624) - ---------------------------------------------- Change in net unrealized appreciation on investments -- 7,875 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (1) 6,251 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,329 $16,357 ================================================================================ See Notes to Financial Statements. - ------ 24 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2004 (UNAUDITED) AND YEAR ENDED MAY 31, 2004 - ------------------------------------------------------------------------------------------------------------- (AMOUNTS IN THOUSANDS) TAX-FREE MONEY MARKET TAX-FREE BOND - ------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS NOV. 30, 2004 MAY 31, 2004 NOV. 30, 2004 MAY 31, 2004 - ------------------------------------------------------------------------------------------------------------- OPERATIONS - ------------------------------------------------------------------------------------------------------------- Net investment income $ 1,330 $ 1,684 $ 10,106 $ 20,646 - -------------------------------------------- Net realized loss (1) (4) (1,624) (1,078) - -------------------------------------------- Change in net unrealized appreciation -- -- 7,875 (26,026) - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,329 1,680 16,357 (6,458) - ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ------------------------------------------------------------------------------------------------------------- From net investment income: - --------------------------------- Investor Class (1,330) (1,684) (9,978) (20,395) - -------------------------------------------- Institutional Class -- -- (131) (251) - -------------------------------------------- From net realized gains: - --------------------------------- Investor Class -- -- -- (1,450) - -------------------------------------------- Institutional Class -- -- -- (16) - ------------------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (1,330) (1,684) (10,109) (22,112) - ------------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (4,974) 3,993 (3,861) (7,639) - ------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (4,975) 3,989 2,387 (36,209) - ------------------------------------------------------------------------------------------------------------- NET ASSETS - ------------------------------------------------------------------------------------------------------------- Beginning of period 276,245 272,256 591,400 627,609 - ------------------------------------------------------------------------------------------------------------- End of period $271,270 $276,245 $593,787 $591,400 ============================================================================================================= Undistributed net investment income -- -- -- $3 ============================================================================================================= See Notes to Financial Statements. - ------ 25 Notes to Financial Statements NOVEMBER 30, 2004 (AMOUNTS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Municipal Trust (the trust), is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. Tax-Free Money Market Fund (Tax-Free Money Market) and Tax-Free Bond Fund (Tax-Free Bond) (collectively, the funds) are two funds in a series issued by the trust. The funds are diversified under the 1940 Act. The funds' investment objective is to seek safety of principal and high current income that is exempt from federal income tax. Tax-Free Money Market invests primarily in cash-equivalent, high-quality municipal obligations. Tax-Free Bond invests primarily in high-quality municipal obligations. 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 are valued through a commercial pricing service or at the mean of the most recent bid and asked prices. Debt securities maturing within 60 days may be valued at cost, plus or minus any amortized discount or premium. If the fund determines that the market price of a portfolio security is not readily available, or that the valuation methods mentioned above do not reflect the security's fair value, such security is valued at its fair value as determined by, or in accordance with procedures adopted by, the Board of Trustees or its designee if such fair value determination would materially impact a fund's net asset value. Circumstances that may cause the fund to fair value a security include: an event occurred after the close of the exchange on which a portfolio security principally trades (but before the close of the New York Stock Exchange) that was likely to have changed the value of the security; a security has been declared in default; or trading in a security has been halted during the trading day. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes paydown gain/loss and 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 substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually. Tax-Free Money Market does not expect to realize any long-term capital gains, and accordingly, does not expect to pay any capital gains distributions. (continued) - ------ 26 Notes to Financial Statements NOVEMBER 30, 2004 (AMOUNTS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with 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 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 and accrued daily based on the daily net assets of each specific class of shares of each fund and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the funds and certain other accounts managed by the investment manager that are in the same broad investment category as each fund and (2) a Complex Fee based on the assets of all the funds in the American Century family of funds. The rates for the Investment Category Fee range from 0.1570% to 0.2700% for Tax-Free Money Market. 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 0.2500% to 0.3100% for the Investor Class. The Institutional Class is 0.2000% less at each point within the Complex Fee Range. The effective annual management fee for the Investor Class of Tax-Free Money Market and Tax-Free Bond for the six months ended November 30, 2004 was 0.49%. The effective annual management fee for the Institutional Class of Tax-Free Bond for the six months ended November 30, 2004 was 0.29%. MONEY MARKET INSURANCE -- Tax-Free Money Market, along with other money market funds managed by ACIM, have entered into an insurance agreement with MBIA Insurance Corporation (MBIA). MBIA provides limited coverage for certain loss events including issuer defaults as to payment of principal or interest and insolvency of a credit enhancement provider. Tax-Free Money Market pays annual premiums equal to 0.018% to MBIA based on participating money market funds' market value at January 31, 2004. The premiums are amortized daily over one year. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust's investment manager, ACIM, the distributor of the trust, American Century Investment Services, Inc., and the trust's transfer agent, American Century Services Corporation. Tax-Free Bond has a bank line of credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the funds and a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities for Tax-Free Bond, excluding short-term investments, for the six months ended November 30, 2004, were $179,133 and $181,626, respectively. All investment transactions for Tax-Free Money Market were considered short-term during the six months ended November 30, 2004. (continued) - ------ 27 Notes to Financial Statements NOVEMBER 30, 2004 (AMOUNTS IN THOUSANDS) 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows (unlimited number of shares authorized): TAX-FREE MONEY MARKET TAX-FREE BOND - ---------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT - ---------------------------------------------------------------------------------------------------- INVESTOR CLASS - ---------------------------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ------------------------------------------ Sold 76,460 $76,460 5,721 $61,919 - ------------------------------------------ Issued in reinvestment of distributions 1,300 1,300 700 7,590 - ------------------------------------------ Redeemed (82,734) (82,734) (6,682) (72,295) - ---------------------------------------------------------------------------------------------------- Net decrease (4,974) $(4,974) (261) $(2,786) ==================================================================================================== YEAR ENDED MAY 31, 2004 - ------------------------------------------ Sold 218,652 $218,652 20,630 $226,578 - ------------------------------------------ Issued in reinvestment of distributions 1,634 1,634 1,525 16,643 - ------------------------------------------ Redeemed (216,293) (216,293) (23,030) (251,285) - ---------------------------------------------------------------------------------------------------- Net increase (decrease) 3,993 $ 3,993 (875) $ (8,064) ==================================================================================================== INSTITUTIONAL CLASS - ---------------------------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ------------------------------------------ Issued in reinvestment of distributions N/A N/A 12 $ 131 - ------------------------------------------ Redeemed (111) (1,206) - ---------------------------------------------------------------------------------------------------- Net decrease (99) $(1,075) ==================================================================================================== YEAR ENDED MAY 31, 2004 - ------------------------------------------ Sold N/A N/A 138 $1,492 - ------------------------------------------ Issued in reinvestment of distributions 24 267 - ------------------------------------------ Redeemed (122) (1,334) - ---------------------------------------------------------------------------------------------------- Net increase 40 $ 425 ==================================================================================================== (continued) - ------ 28 Notes to Financial Statements NOVEMBER 30, 2004 (AMOUNTS IN THOUSANDS) 5. BANK LINE OF CREDIT Tax-Free Bond, along with certain other funds managed by ACIM, have a $650 million unsecured bank line of credit agreement with JPMCB, which was renewed to $575 million effective December 15, 2004. 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, 2004. 6. RISK FACTORS The funds may concentrate their investments in certain states and therefore may have more exposure to credit risk related to those states of than a fund with a broader geographical diversification. Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. 7. SUBSEQUENT EVENT Effective January 1, 2005, American Century Services Corporation's name will change to American Century Services, LLC. 8. 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 paydown losses, 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, 2004, the components of investments for federal income tax purposes were as follows: - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- Federal tax cost of investments $282,645 $584,054 ================================================================================ Gross tax appreciation of investments -- $22,860 - --------------------------------------------- Gross tax depreciation of investments -- (603) - -------------------------------------------------------------------------------- Net tax appreciation of investments -- $22,257 ================================================================================ Net tax appreciation of derivatives -- $ 52 - -------------------------------------------------------------------------------- Net tax appreciation -- $22,309 ================================================================================ The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. Following are the capital loss carryovers and capital loss deferral amounts as of May 31, 2004: TAX-FREE MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- Accumulated capital losses $(58) $(663) - -------------------------------------------------------------------------------- Capital loss deferral $ -- $(324) - -------------------------------------------------------------------------------- The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire as follows: 2008 2009 2010 2011 - -------------------------------------------------------------------------------- Tax-Free Money Market $(6) $(39) $(9) $(4) - -------------------------------------------------------------------------------- Tax-Free Bond -- -- -- $(663) - -------------------------------------------------------------------------------- The capital loss deferrals represent net capital losses incurred in the seven-month period ended May 31, 2004. Tax-Free Bond has elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. - ------ 29 Tax-Free Money Market - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - --------------------------------------------------------------------------------------------- INVESTOR CLASS - --------------------------------------------------------------------------------------------- 2004(1) 2004 2003 2002 2001 2000 - --------------------------------------------------------------------------------------------- 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 0.01 0.02 0.04 0.03 - --------------------------------------------------------------------------------------------- Distributions - ------------------------ From Net Investment Income --(2) (0.01) (0.01) (0.02) (0.04) (0.03) - --------------------------------------------------------------------------------------------- Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ============================================================================================= TOTAL RETURN(3) 0.49% 0.64% 1.05% 1.64% 3.71% 3.30% - --------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.51%(4) 0.51% 0.51% 0.51% 0.50% 0.50% - ------------------------ Ratio of Net Investment Income to Average Net Assets 0.97%(4) 0.65% 1.04% 1.62% 3.64% 3.23% - ------------------------ Net Assets, End of Period (in thousands) $271,270 $276,245 $272,256 $250,035 $249,461 $233,852 - --------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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. - ------ 30 Tax-Free Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - -------------------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------------------- 2004(1) 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.71 $11.19 $10.63 $10.50 $9.93 $10.39 - -------------------------------------------------------------------------------------------- Income From Investment Operations - ----------------------- Net Investment Income 0.18 0.37 0.39 0.44 0.48 0.48 - ----------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.45) 0.58 0.22 0.57 (0.44) - -------------------------------------------------------------------------------------------- Total From Investment Operations 0.29 (0.08) 0.97 0.66 1.05 0.04 - -------------------------------------------------------------------------------------------- Distributions - ----------------------- From Net Investment Income (0.18) (0.37) (0.39) (0.44) (0.48) (0.48) - ----------------------- From Net Realized Gains -- (0.03) (0.02) (0.09) -- (0.02) - -------------------------------------------------------------------------------------------- Total Distributions (0.18) (0.40) (0.41) (0.53) (0.48) (0.50) - -------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.82 $10.71 $11.19 $10.63 $10.50 $9.93 ============================================================================================ TOTAL RETURN(2) 2.76% (0.79)% 9.31% 6.45% 10.77% 0.44% - -------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.50%(3) 0.51% 0.51% 0.51% 0.51% 0.51% - ----------------------- Ratio of Net Investment Income to Average Net Assets 3.40%(3) 3.34% 3.62% 4.14% 4.65% 4.75% - ----------------------- Portfolio Turnover Rate 32% 60% 57% 86% 106% 107% - ----------------------- Net Assets, End of Period (in thousands) $587,069 $583,689 $620,000 $382,447 $188,186 $149,511 - -------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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 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. See Notes to Financial Statements. - ------ 31 Tax-Free Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2004(1) 2004 2003(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.71 $11.19 $10.90 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------------------------- Net Investment Income 0.20 0.39 0.05 - ------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.45) 0.29 - -------------------------------------------------------------------------------- Total From Investment Operations 0.31 (0.06) 0.34 - -------------------------------------------------------------------------------- Distributions - ------------------------------------------- From Net Investment Income (0.20) (0.39) (0.05) - ------------------------------------------- From Net Realized Gains -- (0.03) -- - -------------------------------------------------------------------------------- Total Distributions (0.20) (0.42) (0.05) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.82 $10.71 $11.19 ================================================================================ TOTAL RETURN(3) 2.86% (0.60)% 3.14% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.30%(4) 0.31% 0.30%(4) - ------------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.60%(4) 3.54% 3.68%(4) - ------------------------------------------- Portfolio Turnover Rate 32% 60% 57%(5) - ------------------------------------------- Net Assets, End of Period (in thousands) $6,718 $7,711 $7,609 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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 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. - ------ 32 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. - ------ 33 Additional Information 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. 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. QUARTERLY PORTFOLIO DISCLOSURE The funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q are available on the SEC's Web site at sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make their complete schedule of portfolio holdings for the most recent quarter of their fiscal year available on their Web site at americancentury.com and, upon request, by calling 1-800-345-2021. - ------ 34 Notes - ------ 35 Notes - ------ 36 CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR RELATIONS: 1-800-345-2021 or 816-531-5575 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY 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. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Proprietary Holdings, Inc. 0501 SH-SAN-41367N American Century Investment Services, Inc. (c)2005 American Century Proprietary Holdings, Inc. All rights reserved.
[front cover] NOVEMBER 30, 2004 American Century Investments Semiannual Report [photo of market line chart] [photo of starfish] [photo of bridge] Arizona Municipal Bond Fund Florida Municipal Bond Fund High-Yield Municipal Fund [american century investments logo and text logo] [inside front cover] Table of Contents Our Message to You.......................................................... 1 ARIZONA MUNICIPAL BOND Performance................................................................. 2 Portfolio Commentary........................................................ 4 Portfolio at a Glance.................................................... 4 Yields................................................................... 4 Portfolio Composition by Credit Rating................................... 5 Top Five Sectors......................................................... 5 Schedule of Investments..................................................... 6 FLORIDA MUNICIPAL BOND Performance................................................................. 9 Portfolio Commentary........................................................ 11 Portfolio at a Glance.................................................... 11 Yields................................................................... 11 Portfolio Composition by Credit Rating................................... 12 Top Five Sectors......................................................... 12 Schedule of Investments..................................................... 13 HIGH-YIELD MUNICIPAL Performance................................................................. 16 Portfolio Commentary........................................................ 18 Portfolio at a Glance.................................................... 18 Yields................................................................... 18 Portfolio Composition by Credit Rating................................... 19 Top Five States.......................................................... 19 Schedule of Investments..................................................... 20 Shareholder Fee Examples.................................................... 25 FINANCIAL STATEMENTS Statement of Assets and Liabilities......................................... 28 Statement of Operations..................................................... 29 Statement of Changes in Net Assets.......................................... 30 Notes to Financial Statements............................................... 32 Financial Highlights........................................................ 38 OTHER INFORMATION Share Class Information..................................................... 50 Additional Information...................................................... 51 The opinions expressed in each of the Portfolio Commentaries reflect those of the portfolio management team as of the date of the report, and do not necessarily represent the opinions of American Century or any other person in the American Century organization. Any such opinions are subject to change at any time based upon market or other conditions and American Century disclaims any responsibility to update such opinions. These opinions may not be relied upon as investment advice and, because investment decisions made by American Century funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any American Century fund. Security examples are used for representational purposes only and are not intended as recommendations to purchase or sell securities. Performance information for comparative indices and securities is provided to American Century by third party vendors. To the best of American Century's knowledge, such information is accurate at the time of printing. Our Message to You [photo of James E. Stowers III and James E. Stowers, Jr.] JAMES E. STOWERS III WITH JAMES E. STOWERS, JR. To help you monitor your investment, we are pleased to provide the semiannual report for the Arizona Municipal Bond, Florida Municipal Bond, and High-Yield Municipal funds for the six months ended November 30, 2004. You'll find details about your fund's return and holdings as well as data and analysis that provide insight into the market conditions affecting the fund's performance. Through our Web site, americancentury.com, we provide quarterly commentaries on all American Century portfolios, the views of our senior investment officers, and other communications about investments, portfolio strategy, and the markets. We also have many resources available in the Education & Planning section of our site to help you with your investment strategy. Your next shareholder report for these funds will be the annual report dated May 31, 2005, available in approximately six months. We remain committed to our guiding belief that the ultimate measure of our performance is our customers' success. Thank you for investing with us. Sincerely, /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER AND CHAIRMAN /s/James E. Stowers III James E. Stowers III CO-CHAIRMAN OF THE BOARD WITH JAMES E. STOWERS, JR. - ------ 1 Arizona Municipal Bond - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2004 --------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS(1) INCEPTION(1) DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 2.31% 5.85% 5.92% 5.63% 4/11/94 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 2.36% 5.67% 5.86% 5.58%(2) -- - -------------------------------------------------------------------------------- LIPPER OTHER STATES INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS 1.88% 5.04% 5.31% 4.89%(3) -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 11/30/04(4) 32 of 116 5 of 87 6 of 60 2 of 45(3) -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 12/31/04(4) 27 of 114 6 of 85 5 of 61 2 of 45(3) -- - -------------------------------------------------------------------------------- A Class 2/27/04 No sales charge* -- -- -- -0.13%(5) With sales charge* -- -- -- -4.63%(5) - -------------------------------------------------------------------------------- B Class 2/27/04 No sales charge* -- -- -- -0.69%(5) With sales charge* -- -- -- -5.69%(5) - -------------------------------------------------------------------------------- C Class 2/27/04 No sales charge* -- -- -- -0.70%(5) With sales charge* -- -- -- -1.67%(5) - -------------------------------------------------------------------------------- *Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 4.50% maximum initial sales charge for fixed income funds and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. Please see the Share Class Information pages for more about the applicable sales charges for each share class. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Investor Class 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. (2) Since 3/31/94, the date nearest the fund's inception for which data are available. (3) Since 4/14/94, the date nearest the fund's inception for which data are available. (4) Lipper rankings are based on average annual total returns for the Investor Class in a given category for the periods indicated. (5) Returns for periods less than one year are not annualized. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices 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 indices do not. (continued) - ------ 2 Arizona Municipal Bond - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made November 30, 1994
ONE-YEAR RETURNS OVER 10 YEARS Periods ended November 30 - ---------------------------------------------------------------------------------------------------- 1995* 1996* 1997 1998 1999 2000 2001 2002 2003 2004 - ---------------------------------------------------------------------------------------------------- Investor Class 13.73% 4.91% 5.02% 6.83% -0.09% 6.96% 8.37% 5.99% 5.72% 2.31% - ---------------------------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 11.99% 5.36% 5.38% 6.32% 1.49% 5.62% 8.24% 6.47% 5.72% 2.36% - ---------------------------------------------------------------------------------------------------- *Investor Class returns 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. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices 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 indices do not. - ------ 3 Arizona Municipal Bond - Portfolio Commentary PORTFOLIO MANAGER: KENNETH SALINGER PERFORMANCE SUMMARY Arizona Municipal Bond returned 2.95%* for the six months ended November 30, 2004, as prices rose and yields fell on all but the shortest-maturity municipal securities. The fund's return also outpaced the average return of Lipper's 120 Other States Intermediate Municipal Debt Funds was 2.73%. Long-term performance stacked up well, too. Arizona Municipal Bond's one-year return ranked the fund among the top 30% of its Lipper group, while five- and 10-year returns were among the top 10%. (Please see pages 2 and 3 for additional information.) YIELD SUMMARY & PERSPECTIVE Our investment objective is to seek safety of principal and high current income that is exempt from federal and Arizona income taxes. Along those lines, Arizona Municipal Bond's 30-day SEC yield was 2.68% as of November 30, 2004, compared with the Lipper average 30-day SEC yield of 2.33%. Arizona Municipal Bond's attractive 30-day SEC yield also translated into a tax-equivalent yield of 3.75% for investors in a 28.54% combined federal and state tax bracket, while equating to 4.34% for investors in a 38.28% bracket. (Please see the table above.) ECONOMIC & MARKET PERSPECTIVE The six months ended November 30, 2004, spanned a period when U.S. economic growth was decelerating--real annualized GDP growth was 3.3% and 4.0% in the second and third quarters of 2004 compared with 4.2% and 4.5% in the previous two quarters, and fourth quarter 2004 GDP is also expected to be around 3%. The economy slowed as oil prices soared and the Federal Reserve (the Fed) raised short-term interest rates. The price of crude oil jumped 23% during the six months, from approximately $40 a barrel to almost $50 (after hitting a high of $55) and the Fed raised its overnight rate target four times, from 1% to 2%. Bonds rallied despite the Fed's rate hikes. The Treasury and investment-grade municipal yield curves "twisted"--yields at the short-maturity ends of the PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 11/30/04 5/31/04 - -------------------------------------------------------------------------------- Weighted Average Maturity 7.6 yrs 7.4 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 4.2 yrs 4.4 yrs - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2004 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 2.68% - -------------------------------------------------------------------------------- A Class 2.32% - -------------------------------------------------------------------------------- B Class 1.71% - -------------------------------------------------------------------------------- C Class 1.68% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 28.54% Tax Bracket 3.75% - -------------------------------------------------------------------------------- 31.40% Tax Bracket 3.91% - -------------------------------------------------------------------------------- 36.38% Tax Bracket 4.21% - -------------------------------------------------------------------------------- 38.28% Tax Bracket 4.34% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are combined federal and state tax brackets. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. *All fund returns and yields referenced in this commentary are for Investor Class shares. (continued) - ------ 4 Arizona Municipal Bond - Portfolio Commentary curves ROSE as the Fed raised its overnight interest rate target, but yields at the longer-maturity ends FELL. Declining yields and rising prices at the longer end of the maturity spectrum helped most longer-maturity/duration bonds outperform their shorter-maturity/ duration counterparts--the shorter-duration Lehman Brothers Municipal Bond Index returned 4.30% compared with 6.14% for Lehman's Long-Term Municipal Bond Index. PORTFOLIO POSITIONING & STRATEGIES We employed several key strategies during the six months. In particular, we primarily concentrated the portfolio in bonds rated triple-A and double-A (please see the table below). However, we also attempted to boost Arizona Municipal Bond's yield by conservatively increasing the portfolio's percentage of single-A bonds, which tend to offer higher yields than like-maturity bonds with higher credit ratings. In addition, we emphasized a bond maturity structure that we thought would perform well if the yield gap between short- and long-term bonds decreased. We believed such an outcome to be possible if the Fed began raising short-term interest rates while long-term inflation concerns remained largely in check; and that's exactly what happened. Lastly, we conservatively shortened Arizona Municipal Bond's duration--a widely used gauge of interest rate sensitivity--from 4.4 years at the end of May to 4.2 years at the end of November. OUR COMMITMENT We remain committed to seeking safety of principal while providing a high level of Arizona and federal tax-exempt current income by investing at least 80% of the fund's assets in municipal securities exempt from regular federal and Arizona income taxes. And we plan to continue closely monitoring economic and market conditions while attempting to adjust the fund's weighted average maturity accordingly. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/04 5/31/04 - -------------------------------------------------------------------------------- AAA 66% 67% - -------------------------------------------------------------------------------- AA 15% 15% - -------------------------------------------------------------------------------- A 14% 11% - -------------------------------------------------------------------------------- BBB 5% 7% - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. TOP FIVE SECTORS AS OF NOVEMBER 30, 2004 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- General Obligation (GO) 34% - -------------------------------------------------------------------------------- Certificates of Participation (COPs)/Leases 14% - -------------------------------------------------------------------------------- Housing Revenue 12% - -------------------------------------------------------------------------------- Water and Sewer Revenue 12% - -------------------------------------------------------------------------------- Special Tax Revenue 6% - -------------------------------------------------------------------------------- - ------ 5 Arizona Municipal Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 97.9% ARIZONA -- 94.2% - -------------------------------------------------------------------------------- $ 795,000 Arizona School Facilities Board COP, Series 2004 C, 5.00%, 9/1/10 (FSA)(1) $ 868,212 - -------------------------------------------------------------------------------- 1,750,000 Arizona School Facilities Board Rev., (State School Improvement), 5.50%, 7/1/18 1,946,613 - -------------------------------------------------------------------------------- 1,000,000 Arizona Student Loan Acquisition Auth. Rev., Series 1999 A1, (Guaranteed Student Loans), 5.65%, 5/1/14 1,081,780 - -------------------------------------------------------------------------------- 1,880,000 Arizona Tourism & Sports Auth. Tax Rev., (Baseball Training Facilities), 5.00%, 7/1/13 1,978,399 - -------------------------------------------------------------------------------- 1,000,000 Arizona Transportation Board Rev., Series 2004 B, (Grant Anticipation Notes), 5.00%, 7/1/09 (AMBAC) 1,090,670 - -------------------------------------------------------------------------------- 1,910,000 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/11 (MBIA) 2,045,209 - -------------------------------------------------------------------------------- 1,000,000 Gilbert Water Resource Municipal Property Corp. Rev., (Development Fee & Sub Lien), 4.90%, 4/1/19(1) 986,770 - -------------------------------------------------------------------------------- 460,000 Glendale Industrial Development Auth. Rev., Series 1998 A, (Midwestern University), 5.375%, 5/15/08, Prerefunded at 101% of Par(2) 507,044 - -------------------------------------------------------------------------------- 540,000 Glendale Industrial Development Auth. Rev., Series 1998 A, (Midwestern University), 5.375%, 5/15/28 552,533 - -------------------------------------------------------------------------------- 500,000 Glendale Industrial Development Auth. Rev., Series 2001 A, (Midwestern University), 5.75%, 5/15/21 540,330 - -------------------------------------------------------------------------------- 1,125,000 Greater Arizona Development Auth. Rev., Series 2004 A, 4.25%, 8/1/10 1,175,074 - -------------------------------------------------------------------------------- 1,000,000 Marana Municipal Property Corp. COP, 5.25%, 7/1/25 (AMBAC) 1,063,040 - -------------------------------------------------------------------------------- 1,105,000 Maricopa County Dysart Unified School District No. 89 GO, Series 2004 B, (School Improvement Project of 2002), 5.25%, 7/1/21 (FSA) 1,244,506 - -------------------------------------------------------------------------------- 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) 1,702,985 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 175,000 Maricopa County Industrial Development Auth. Hospital Facility Rev., Series 1990 A, (Samaritan Health Services), 7.15%, 12/1/04 (MBIA)(2) $ 175,025 - -------------------------------------------------------------------------------- 1,445,000 Maricopa County Unified High School District No. 210 Phoenix GO, 4.75%, 7/1/11 (FSA) 1,569,415 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Unified School District No. 1 Phoenix GO, 5.50%, 7/1/07 (MBIA) 1,088,380 - -------------------------------------------------------------------------------- 1,040,000 Maricopa County Unified School District No. 28 Kyrene GO, Series 2001 B, 4.30%, 7/1/07 (MBIA)(3) 973,045 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Unified School District No. 48 Scottsdale GO, 6.60%, 7/1/12 1,206,790 - -------------------------------------------------------------------------------- 1,955,000 Maricopa County Unified School District No. 90 Saddle Mountain GO, Series 2003 A, 5.00%, 7/1/10 2,083,658 - -------------------------------------------------------------------------------- 2,145,000 Mesa Industrial Development Auth. Rev., Series 1998 A1, (Lutheran Health System), 4.75%, 1/1/05 (MBIA) 2,149,997 - -------------------------------------------------------------------------------- 1,265,000 Mohave County Community College District Rev., 5.75%, 3/1/14 (AMBAC) 1,412,954 - -------------------------------------------------------------------------------- 1,150,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/20 (MBIA) 1,291,473 - -------------------------------------------------------------------------------- 2,000,000 Northern Arizona University Rev., 4.00%, 6/1/06 (FGIC) 2,051,580 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Rev., (Senior Lien), 5.00%, 7/1/05 1,017,170 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Wastewater System Rev., (Junior Lien), 6.25%, 7/1/10, Prerefunded at 101% of Par (FGIC)(2) 1,169,660 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 6.50%, 7/1/06 1,064,460 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 5.50%, 7/1/19 (FGIC) 1,101,820 - -------------------------------------------------------------------------------- 2,070,000 Phoenix GO, Series 1995 A, 6.25%, 7/1/17(4) 2,516,643 - -------------------------------------------------------------------------------- 1,000,000 Phoenix GO, Series 1995 B, 5.25%, 7/1/06(4) 1,066,670 - -------------------------------------------------------------------------------- 640,000 Phoenix Industrial Development Auth. Single Family Mortgage Rev., Series 1998 A , 6.60%, 12/1/29 (GNMA) 644,813 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 6 Arizona Municipal Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $1,710,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/18 (AMBAC) $ 1,919,885 - -------------------------------------------------------------------------------- 1,800,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/19 (AMBAC)(4) 2,020,230 - -------------------------------------------------------------------------------- 1,550,000 Pima County Unified School District No. 10 GO, Series 1995 B, (Amphitheater), 5.05%, 7/1/05 (MBIA) 1,592,749 - -------------------------------------------------------------------------------- 1,000,000 Pima County Unified School District No. 10 GO, Series 1995 B, (Amphitheater), 7.00%, 7/1/05 (MBIA) 1,028,460 - -------------------------------------------------------------------------------- 1,000,000 Pima County Unified School District No. 12 Sunnyside GO, 5.50%, 7/1/05 (MBIA) 1,030,190 - -------------------------------------------------------------------------------- 1,125,000 Pima County Unified School District No. 6 Marana GO, 5.50%, 7/1/15 (FGIC) 1,244,543 - -------------------------------------------------------------------------------- 820,000 Pinal County COP, 4.75%, 6/1/13 (AMBAC) 876,408 - -------------------------------------------------------------------------------- 435,000 Prescott Valley Municipal Property Corp. Rev., 3.00%, 1/1/05 (FGIC) 435,370 - -------------------------------------------------------------------------------- 1,500,000 Salt River Project Agricultural Improvement and Power District Electrical System Rev., Series 2001 A, 5.00%, 1/1/05 1,503,885 - -------------------------------------------------------------------------------- 1,600,000 Scottsdale GO, 6.25%, 7/1/09, Prerefunded at 100% of Par(2) 1,832,640 - -------------------------------------------------------------------------------- 1,000,000 Sedona COP, 5.75%, 7/1/20 1,129,610 - -------------------------------------------------------------------------------- 1,645,000 University of Arizona COP, Series 2002 A, 5.50%, 6/1/17 (AMBAC) 1,818,155 - -------------------------------------------------------------------------------- 55,798,843 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- PUERTO RICO -- 3.7% - -------------------------------------------------------------------------------- $1,000,000 Puerto Rico Commonwealth GO, (Public Improvement), 5.25%, 7/1/10 $ 1,098,170 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Public Buildings Auth. Rev., Series 2002 C, (Government Facilities), 5.50%, 7/1/10 1,110,830 - -------------------------------------------------------------------------------- 2,209,000 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $55,222,098) 58,007,843 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 3.7% ARIZONA -- 3.7% - -------------------------------------------------------------------------------- 400,000 Coconino County Pollution Control Corp. Rev., (Arizona Public Service Co.), VRDN, 1.68%, 12/1/04 (LOC: KBC Bank N.V.) 400,000 - -------------------------------------------------------------------------------- 1,000,000 Pima County Industrial Development Auth. Rev., (Lease Purchase), VRDN, 1.83%, 12/2/04 (SBBPA: Societe Generale) 1,000,000 - -------------------------------------------------------------------------------- 800,000 Pima County Industrial Development Auth. Rev., (Tucson Electric), VRDN, 1.68%, 12/1/04 (LOC: Bank of New York) 800,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $2,200,000) 2,200,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 101.6% (Cost $57,422,098) 60,207,843 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (1.6)% (951,480) - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $59,256,363 ================================================================================ SHORT FUTURES CONTRACTS* Underlying Face Unrealized Contracts Sold Expiration Date Amount at Value Gain - -------------------------------------------------------------------------------- 20 U.S. Treasury 10-Year Notes March 2005 $2,229,062 $4,129 ============================== *SHORT FUTURES CONTRACTS typically are based on an index or specific securities and tend to track the performance of the index or specific securities while remaining very liquid (easy to buy and sell). By selling futures, the fund hedges its investments against price fluctuations. See Notes to Financial Statements. (continued) - ------ 7 Arizona Municipal Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance, Inc. GNMA = Government National Mortgage Association GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corporation SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2004. (1) When-issued security. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) Security is a zero-coupon municipal bond. The rate indicated is the yield to maturity at purchase. Zero-coupon securities are issued at a substantial discount from their value at maturity. (4) Security, or a portion thereof, has been segregated for a when-issued security and/or futures contract. See Notes to Financial Statements. - ------ 8 Florida Municipal Bond - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2004 --------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS(1) INCEPTION(1) DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 2.10% 5.78% 6.16% 5.74% 4/11/94 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 2.36% 5.67% 5.86% 5.58%(2) -- - -------------------------------------------------------------------------------- LIPPER FLORIDA INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS 1.50% 4.89% 5.19% 4.73%(3) -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 11/30/04(4) 5 of 19 1 of 16 1 of 11 1 of 10(3) -- - -------------------------------------------------------------------------------- Investor Class's Lipper Rankingas of 12/31/04(4) 2 of 19 1 of 16 1 of 11 1 of 10(3) -- - -------------------------------------------------------------------------------- A Class 2/27/04 No sales charge* -- -- -- -0.51%(5) With sales charge* -- -- -- -4.96%(5) - -------------------------------------------------------------------------------- B Class 2/27/04 No sales charge* -- -- -- -1.07%(5) With sales charge* -- -- -- -6.07%(5) - -------------------------------------------------------------------------------- C Class 2/27/04 No sales charge* -- -- -- -1.08%(5) With sales charge* -- -- -- -2.05%(5) - -------------------------------------------------------------------------------- *Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 4.50% maximum initial sales charge for fixed income funds and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. Please see the Share Class Information pages for more about the applicable sales charges for each share class. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Investor Class 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. (2) Since 3/31/94, the date nearest the fund's inception for which data are available. (3) Since 4/14/94, the date nearest the fund's inception for which data are available. (4) Lipper rankings are based on average annual total returns for the Investor Class in a given category for the periods indicated. (5) Returns for periods less than one year are not annualized. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices 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 indices do not. (continued) - ------ 9 Florida Municipal Bond - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made November 30, 1994
ONE-YEAR RETURNS OVER 10 YEARS Periods ended November 30 - ---------------------------------------------------------------------------------------------------- 1995* 1996* 1997 1998 1999 2000 2001 2002 2003 2004 - ---------------------------------------------------------------------------------------------------- Investor Class 14.39% 4.61% 6.78% 7.39% 0.00% 7.09% 7.82% 6.35% 5.62% 2.10% - ---------------------------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 11.99% 5.36% 5.38% 6.32% 1.49% 5.62% 8.24% 6.47% 5.72% 2.36% - ---------------------------------------------------------------------------------------------------- *Investor Class returns 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. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices 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 indices do not. - ------ 10 Florida Municipal Bond - Portfolio Commentary PORTFOLIO MANAGER: KENNETH SALINGER PERFORMANCE SUMMARY Florida Municipal Bond returned 2.79%* for the six months ended November 30, 2004, as prices rose and yields fell on all but the shortest-maturity municipal securities. By comparison, the average return of Lipper's 22 Florida Intermediate Municipal Debt Funds was 2.45%. Long-term performance stacked up well, too. Florida Municipal Bond's one-year return ranked the fund among the top 27% of its Lipper group, while five- and 10-year returns ranked Florida Municipal Bond as the group's top performer. (Please see pages 9 and 10 for additional information.) YIELD SUMMARY & PERSPECTIVE Our investment objective is to seek safety of principal and high current income that is exempt from federal income tax. (The fund also seeks to be exempt from Florida's Intangible Personal Property Tax). Along those lines, Florida Municipal Bond's 30-day SEC yield was 2.66% as of November 30, 2004, compared with the Lipper average 30-day SEC yield of 2.21%. Florida Municipal Bond's attractive 30-day SEC yield also translated into a tax-equivalent yield of 3.55% for investors in a 25.00% federal tax bracket, while equating to 4.09% for investors in a 35.00% bracket. (Please see the table above.) ECONOMIC & MARKET PERSPECTIVE The six months ended November 30, 2004, spanned a period when U.S. economic growth was decelerating--real annualized GDP growth was 3.3% and 4.0% in the second and third quarters of 2004 compared with 4.2% and 4.5% in the previous two quarters, and fourth quarter 2004 GDP is also expected to be around 3%. The economy slowed as oil prices soared and the Federal Reserve (the Fed) raised short-term interest rates. The price of crude oil jumped 23% during the six months, from approximately $40 a barrel to almost $50 (after hitting a high of $55) and the Fed raised its overnight rate target four times, from 1% to 2%. Bonds rallied despite the Fed's rate hikes. The Treasury and investment-grade municipal yield curves "twisted"--yields at the short-maturity ends of the PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 11/30/04 5/31/04 - -------------------------------------------------------------------------------- Weighted Average Maturity 7.6 yrs 7.4 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 4.3 yrs 4.5 yrs - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2004 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 2.66% - -------------------------------------------------------------------------------- A Class 2.31% - -------------------------------------------------------------------------------- B Class 1.68% - -------------------------------------------------------------------------------- C Class 1.64% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.00% Tax Bracket 3.55% - -------------------------------------------------------------------------------- 28.00% Tax Bracket 3.69% - -------------------------------------------------------------------------------- 33.00% Tax Bracket 3.97% - -------------------------------------------------------------------------------- 35.00% Tax Bracket 4.09% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. *All fund returns and yields referenced in this commentary are for Investor Class shares. (continued) - ------ 11 Florida Municipal Bond - Portfolio Commentary curves ROSE as the Fed raised its overnight interest rate target, but yields at the longer-maturity ends FELL. Declining yields and rising prices at the longer end of the maturity spectrum helped most longer-maturity/duration bonds outperform their shorter-maturity/ duration counterparts--the shorter-duration Lehman Brothers Municipal Bond Index returned 4.30% compared with 6.14% for Lehman's Long-Term Municipal Bond Index. PORTFOLIO POSITIONING & STRATEGIES We employed several key strategies during the six months. In particular, we continued to concentrate the portfolio in bonds rated triple-A and double-A (please see the table below), which represented approximately 84% of the portfolio at the end of November, little changed compared with six months ago. In addition, we emphasized a bond maturity structure that we thought would perform well if the yield gap between short- and long-term bonds decreased. We believed such an outcome to be possible if the Fed began raising short-term interest rates while long-term inflation concerns remained largely in check; and that's exactly what happened. Lastly, we conservatively shortened Florida Municipal Bond's duration--a widely used gauge of interest rate sensitivity--from 4.5 years at the end of May to 4.3 years at the end of November. OUR COMMITMENT We remain committed to seeking safety of principal while providing a high level of federal tax-exempt current income by investing at least 80% of the fund's assets in municipal securities that are exempt from Florida's intangibles tax. And we plan to continue closely monitoring economic and market conditions while attempting to adjust the fund's weighted average maturity accordingly. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/04 5/31/04 - -------------------------------------------------------------------------------- AAA 79% 78% - -------------------------------------------------------------------------------- AA 5% 4% - -------------------------------------------------------------------------------- A 5% 5% - -------------------------------------------------------------------------------- BBB 11% 13% - -------------------------------------------------------------------------------- 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, 2004 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Water and Sewer Revenue 18% - -------------------------------------------------------------------------------- Certificates of Participation (COPs)/Leases 14% - -------------------------------------------------------------------------------- General Obligation (GO) 9% - -------------------------------------------------------------------------------- Transportation Revenue 8% - -------------------------------------------------------------------------------- Hospital Revenue 8% - -------------------------------------------------------------------------------- - ------ 12 Florida Municipal Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 95.6% FLORIDA -- 93.8% - -------------------------------------------------------------------------------- $1,110,000 Broward County Airport Systems Rev., (Passenger Facility), (Conventional Lien H1), 5.25%, 10/1/12 (AMBAC) $ 1,187,345 - -------------------------------------------------------------------------------- 400,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.00%, 4/1/14 418,968 - -------------------------------------------------------------------------------- 500,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/15 539,325 - -------------------------------------------------------------------------------- 525,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/16 563,388 - -------------------------------------------------------------------------------- 500,000 Broward County School Board COP, Series 2002 B, 5.375%, 7/1/13 (FSA) 561,735 - -------------------------------------------------------------------------------- 1,570,000 Callaway/Bay County Wastewater System Rev., 5.00%, 9/1/20 (MBIA)(1) 1,663,760 - -------------------------------------------------------------------------------- 1,230,000 Callaway/Bay County Wastewater System Rev., 5.00%, 9/1/23 (MBIA)(1) 1,282,472 - -------------------------------------------------------------------------------- 2,000,000 City of Lakeland Rev., Series 2000 B, 5.50%, 10/1/10, Prerefunded at 100% of Par (MBIA)(2) 2,250,379 - -------------------------------------------------------------------------------- 1,475,000 Collier County School Board COP, 5.50%, 2/15/12 (FSA) 1,666,440 - -------------------------------------------------------------------------------- 715,000 Crossings at Fleming Island Community Development District Special Assessment Rev., Series 2000 B, 5.25%, 5/1/05 (MBIA) 724,667 - -------------------------------------------------------------------------------- 250,000 Dade County Aviation Rev., Series 1995 E, 5.50%, 10/1/10 (AMBAC) 261,410 - -------------------------------------------------------------------------------- 1,200,000 Daytona Beach Rev., Series 2002 D, 5.25%, 11/15/16 (FSA) 1,313,256 - -------------------------------------------------------------------------------- 1,150,000 Duval County School Board COP, 5.75%, 7/1/16 (FSA) 1,273,349 - -------------------------------------------------------------------------------- 1,010,000 Emerald Coast Utilities System Auth. Rev., 5.00%, 1/1/25 (FGIC) 1,041,583 - -------------------------------------------------------------------------------- 110,000 Escambia County Housing Finance Auth. Single Family Mortgage Rev., Series 1998 A, (Multi-County Program), 4.80%, 4/1/06 (GNMA/FNMA) 112,959 - -------------------------------------------------------------------------------- 170,000 Escambia County Housing Finance Auth. Single Family Mortgage Rev., Series 1998 A, (Multi-County Program), 4.85%, 4/1/07 (GNMA/FNMA) 176,956 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,050,000 Florida Board of Education Capital Outlay GO, Series 1995 C, 5.50%, 6/1/12, Prerefunded at 101% of Par (MBIA)(2) $ 1,078,802 - -------------------------------------------------------------------------------- 2,320,000 Florida Division of Bond Finance Rev., Series 1998 B, (Environmental Protection -- Preservation 2000), 5.25%, 7/1/10 (FSA)(3) 2,527,523 - -------------------------------------------------------------------------------- 450,000 Florida Housing Finance Agency Rev., Series 1995 E, (Williamsburg Village Apartments), 5.60%, 12/1/07 (AMBAC) 467,361 - -------------------------------------------------------------------------------- 500,000 Florida Housing Finance Corp. Rev., Series 1999-2, (Homeowner Mortgage), 4.60%, 1/1/21 (FSA) 501,405 - -------------------------------------------------------------------------------- 1,000,000 Florida Municipal Loan Council Rev., Series 2002 C, 5.25%, 11/1/21 (MBIA) 1,074,870 - -------------------------------------------------------------------------------- 350,000 Gainesville Utilities System Rev., Series 1996 A, 5.75%, 10/1/09 394,272 - -------------------------------------------------------------------------------- 675,000 Greater Orlando Aviation Auth. Rev., Series 1999 A, 5.25%, 10/1/09 (FGIC) 733,833 - -------------------------------------------------------------------------------- 445,000 Hollywood Community Redevelopment Agency Rev., (Beach), 3.50%, 3/1/05 446,046 - -------------------------------------------------------------------------------- 610,000 Hollywood Community Redevelopment Agency Rev., (Beach), 4.00%, 3/1/06 618,400 - -------------------------------------------------------------------------------- 635,000 Hollywood Community Redevelopment Agency Rev., (Beach), 4.50%, 3/1/07 653,993 - -------------------------------------------------------------------------------- 690,000 Hollywood Community Redevelopment Agency Rev., (Beach), 5.00%, 3/1/08 725,735 - -------------------------------------------------------------------------------- 2,010,000 Hollywood Water & Sewer Rev., 3.00%, 10/1/06 (FSA)(3) 2,036,391 - -------------------------------------------------------------------------------- 1,235,000 Indian River County Rev., (Spring Training Facility), 5.25%, 4/1/15 (FGIC) 1,351,819 - -------------------------------------------------------------------------------- 295,000 Julington Creek Plantation Community Development District Assessment Rev., 2.75%, 5/1/06 (MBIA) 296,820 - -------------------------------------------------------------------------------- 295,000 Julington Creek Plantation Community Development District Assessment Rev., 3.10%, 5/1/07 (MBIA) 299,767 - -------------------------------------------------------------------------------- 330,000 Julington Creek Plantation Community Development District Assessment Rev., 3.65%, 5/1/09 (MBIA) 339,761 - -------------------------------------------------------------------------------- 350,000 Julington Creek Plantation Community Development District Assessment Rev., 3.85%, 5/1/10 (MBIA) 361,267 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 13 Florida Municipal Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 625,000 Julington Creek Plantation Community Development District Assessment Rev., 4.00%, 5/1/11 (MBIA) $ 647,619 - -------------------------------------------------------------------------------- 850,000 Lee County Industrial Development Health Care Facilities Auth. Rev., Series 1999 A, (Shell Point Village), 5.50%, 11/15/09 908,591 - -------------------------------------------------------------------------------- 1,290,000 Lee County Rev., Series 2001 A, 4.80%, 10/1/12 (AMBAC) 1,391,523 - -------------------------------------------------------------------------------- 1,325,000 Martin County Health Facilities Auth. Rev., Series 2002 A, (Martin Memorial Medical Center), 4.25%, 11/15/07 1,357,476 - -------------------------------------------------------------------------------- 1,000,000 Miami Beach Stormwater Rev., 5.75%, 9/1/17 (FGIC) 1,126,680 - -------------------------------------------------------------------------------- 1,910,000 Miami Beach Water & Sewer Rev., 5.625%, 9/1/16 (AMBAC) 2,142,256 - -------------------------------------------------------------------------------- 650,000 Miami Parking Facilities Rev., 5.25%, 10/1/15 (MBIA) 723,567 - -------------------------------------------------------------------------------- 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/16 (FSA) 1,133,280 - -------------------------------------------------------------------------------- 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/17 (FSA) 1,133,280 - -------------------------------------------------------------------------------- 1,875,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/19 (MBIA) 2,068,706 - -------------------------------------------------------------------------------- 450,000 Orlando and Orange County Expressway Auth. Rev., 6.50%, 7/1/11 (FGIC) 534,456 - -------------------------------------------------------------------------------- 1,000,000 Palm Beach County Airport Systems Rev., 4.00%, 10/1/06 (MBIA) 1,029,180 - -------------------------------------------------------------------------------- 1,000,000 Palm Beach County Airport Systems Rev., 5.75%, 10/1/14 (MBIA) 1,154,560 - -------------------------------------------------------------------------------- 1,000,000 Palm Beach County School Board COP, Series 2002 A, 5.375%, 8/1/17 (FSA) 1,095,240 - -------------------------------------------------------------------------------- 2,000,000 Pasco County Solid Waste Disposal & Resource Recovery System Rev., 6.00%, 4/1/10 (AMBAC) 2,224,879 - -------------------------------------------------------------------------------- 445,000 Pensacola Airport Rev., Series 1997 B, 5.40%, 10/1/07 (MBIA) 467,495 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.45%, 12/1/04 300,018 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.55%, 12/1/05 305,106 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.70%, 12/1/07 312,174 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Polk County Finance Auth. Multifamily Housing Rev., Series 1997 A, (Winter Oaks Apartments), 5.25%, 7/1/07 (FNMA) $ 1,025,320 - -------------------------------------------------------------------------------- 1,015,000 St. Lucie County Public Improvement Rev., Series 2000 A, (800 MHZ Radio System), 5.50%, 4/1/10 (MBIA) 1,134,445 - -------------------------------------------------------------------------------- 1,000,000 Sumter County School Board COP, 5.50%, 1/1/21 (MBIA) 1,099,270 - -------------------------------------------------------------------------------- 1,000,000 Sunrise Utility System Rev., 5.20%, 10/1/22 (AMBAC) 1,095,360 - -------------------------------------------------------------------------------- 1,000,000 Tampa Bay Water Utility System Rev., Series 1998 B, 5.125%, 10/1/08 (FGIC) 1,100,060 - -------------------------------------------------------------------------------- 400,000 Tampa Guaranteed Entitlement Rev., 6.00%, 10/1/18 (AMBAC) 466,228 - -------------------------------------------------------------------------------- 1,000,000 Tampa Water & Sewer Rev., 6.00%, 10/1/17 (FSA) 1,196,410 - -------------------------------------------------------------------------------- 910,000 Village Center Community Development District Recreational Rev., Series 2001 A, 3.75%, 11/1/05 (MBIA) 923,969 - -------------------------------------------------------------------------------- 1,545,000 West Orange Healthcare District Rev., Series 1999 A, 5.10%, 2/1/05 1,552,677 - -------------------------------------------------------------------------------- 58,595,882 - -------------------------------------------------------------------------------- PUERTO RICO -- 1.8% - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Public Buildings Auth. GO, Series 2002 C, (Government Facilities), 5.50%, 7/1/10 1,110,841 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $57,249,366) 59,706,723 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 6.1% FLORIDA -- 6.1% - -------------------------------------------------------------------------------- 2,800,000 Florida Higher Educational Facilities Financial Auth. Rev., (St. Thomas University), VRDN, 1.69%, 12/1/04 (LOC: SunTrust Bank)(3) 2,800,000 - -------------------------------------------------------------------------------- 425,000 Pinellas County Health Facilities Auth. Rev., (Pooled Hospital Loan Program), VRDN, 1.67%, 12/1/04 (AMBAC) (SBBPA: SunTrust Bank) 425,000 - -------------------------------------------------------------------------------- 550,000 Sarasota County Public Hospital Board Rev., Series 2003 A, (Sarasota Memorial Hospital), VRDN, 1.74%, 12/1/04 (AMBAC) 550,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $3,775,000) 3,775,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 14 Florida Municipal Bond - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS -- 2.2% $1,350,000 Federated Florida Municipal Cash Trust (Cost $1,350,000) $ 1,350,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 103.9% (Cost $62,374,366) 64,831,723 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (3.9)% (2,444,389) - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $62,387,334 ================================================================================ SHORT FUTURES CONTRACTS* Underlying Face Unrealized Contracts Sold Expiration Date Amount at Value Gain - -------------------------------------------------------------------------------- 15 U.S. Treasury 10-Year Notes March 2005 $1,671,797 $3,214 ============================== *SHORT FUTURES CONTRACTS typically are based on an index or specific securities and tend to track the performance of the index or specific securities while remaining very liquid (easy to buy and sell). By selling futures, the fund hedges its investments against price fluctuations. NOTES TO SCHEDULE OF INVESTMENTS AMBAC = AMBAC Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. 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 Corporation SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2004. (1) When-issued security. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) Security, or a portion thereof, has been segregated for a when-issued security and/or futures contract. See Notes to Financial Statements. - ------ 15 High-Yield Municipal - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2004 ------------------------ AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 5 YEARS(1) INCEPTION(1) DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 6.23% 6.83% 5.90% 3/31/98 - -------------------------------------------------------------------------------- LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX 5.53% 8.01% 5.98% -- - -------------------------------------------------------------------------------- LIPPER HIGH-YIELD MUNICIPAL DEBT FUNDS AVERAGE RETURNS 5.42% 5.16% 3.79% -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 11/30/04(2) 19 of 80 8 of 61 2 of 50 -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 12/31/04(2) 32 of 79 8 of 60 2 of 49 -- - -------------------------------------------------------------------------------- A Class 1/31/03 No sales charge* 5.96% -- 6.07% With sales charge* 1.18% -- 3.46% - -------------------------------------------------------------------------------- B Class 1/31/03 No sales charge* 5.17% -- 5.35% With sales charge* 1.17% -- 3.24% - -------------------------------------------------------------------------------- C Class 5.19% -- 5.35% 7/24/02 - -------------------------------------------------------------------------------- *Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 4.50% maximum initial sales charge for fixed income funds and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. Please see the Share Class Information pages for more about the applicable sales charges for each share class. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Investor Class 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 Investor Class in a given category for the periods indicated. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. In addition, the lower rated securities in which the fund invests are subject to greater credit risk, default risk, and liquidity risk. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices 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 indices do not. (continued) - ------ 16 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 2004 - -------------------------------------------------------------------------------- Investor Class 6.08%** -0.70%** 4.33% 8.64% 7.99% 7.03% 6.23% - -------------------------------------------------------------------------------- Lehman Brothers Long-Term Municipal Bond Index 5.56% -5.10% 10.70% 10.30% 6.09% 7.55% 5.53% - -------------------------------------------------------------------------------- * From 3/31/98 (the class's inception date) to 11/30/98. Not annualized. **Investor Class returns 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. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. In addition, the lower rated securities in which the fund invests are subject to greater credit risk, default risk, and liquidity risk. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. Unless otherwise indicated, performance reflects Investor Class shares; performance for other share classes will vary due to differences in fee structure. For information about other share classes available, please consult the prospectus. Data assumes reinvestment of dividends and capital gains, and none of the charts reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns for the indices 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 indices do not. - ------ 17 High-Yield Municipal - Portfolio Commentary PORTFOLIO MANAGER: STEVEN PERMUT RETURN SUMMARY & PERSPECTIVE High-Yield Municipal returned 4.73%* for the six months ended November 30, 2004. The fund and its comparative benchmarks performed well as the U.S. bond market rallied and yields fell--the Lehman Brothers Long-Term Municipal Bond Index returned 6.14% and the Lipper High-Yield Municipal Debt Funds average return was 4.76%. Municipal investments with longer maturities and durations generally outperformed those with shorter. That helps explain why the fund trailed the Lehman index. ECONOMIC & MARKET PERSPECTIVE The six months ended November 30, 2004, spanned a period when U.S. economic growth was decelerating--real annualized GDP growth was 3.3% and 4.0% in the second and third quarters of 2004 compared with 4.2% and 4.5% in the previous two quarters, and fourth quarter 2004 GDP was projected to be around 3%. The economy slowed as oil prices soared and the Federal Reserve (the Fed) raised short-term interest rates. The price of crude oil jumped 23% during the six months, from approximately $40 a barrel to almost $50 (after hitting a high of $55) and the Fed raised its overnight interest rate target four times, from 1% to 2%. Bonds rallied despite the Fed's rate hikes. The Treasury and investment-grade municipal yield curves "twisted"--yields at the short-maturity ends of the curves ROSE as the Fed raised its overnight interest rate target, but yields at the longer-maturity ends FELL. Declining yields and rising prices at the longer end of the maturity spectrum helped most longer-maturity/duration bonds outperform their shorter-maturity/ duration counterparts. Lehman's Long-Term Municipal Bond Index (which had a modified duration of 7.55 years as of November 30, 2004) returned 6.14%, compared with 4.30% for the broader, shorter-duration Lehman Brothers Municipal Bond Index (which had a modified duration of 5.45 years on the same date, relatively close to the fund's 5.57 years). PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 11/30/04 5/31/04 - -------------------------------------------------------------------------------- Weighted Average Maturity 17.9 yrs 18.4 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 5.6 yrs 7.0 yrs - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2004 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 4.69% - -------------------------------------------------------------------------------- A Class 4.24% - -------------------------------------------------------------------------------- B Class 3.69% - -------------------------------------------------------------------------------- C Class 3.68% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.00% Tax Bracket 6.25% - -------------------------------------------------------------------------------- 28.00% Tax Bracket 6.51% - -------------------------------------------------------------------------------- 33.00% Tax Bracket 7.00% - -------------------------------------------------------------------------------- 35.00% Tax Bracket 7.22% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. *All fund returns and yields referenced in this commentary are for Investor Class shares. (continued) - ------ 18 High-Yield Municipal - Portfolio Commentary YIELD SUMMARY & PERSPECTIVE Our investment objective is to seek high current income that is exempt from federal income tax. As of November 30, 2004, we'd invested 75% of the portfolio in below-investment-grade debt (either rated below BBB or unrated but determined by us to be of equivalent quality). These bonds offer higher yields as compensation for their perceived risk, which produces more income and helps reduce the portfolio's price sensitivity to interest rate changes. The fund's 30-day SEC yield declined from 4.97% on May 31, 2004 to 4.69% on November 30, 2004 as the bond market rallied. That still translated to attractive tax-equivalent yields for investors (see the yield table at the top of page 18). PORTFOLIO POSITIONING & STRATEGY We continued to focus on our approach to portfolio investing and management, the foundations of which are thorough credit reviews and careful security selection. Though past performance is no guarantee of future results, we believe our process reduces the risks of potential downgrades and defaults inherent to the high-yield sector; there have been no defaults in the portfolio since the fund's inception. Our investment approach includes techniques designed to realize capital appreciation as well as high income, including investments in land-secured bonds, which represented the portfolio's largest sector position at the beginning and end (see the table above) of the reporting period. Land-secured bonds have potential for price appreciation as economic conditions improve and/or the projects are developed and their finances solidify. Given expectations of higher interest rates, we reduced the portfolio's average duration (price sensitivity to interest rate changes)--see the table at the bottom of page 18. OUR COMMITMENT We remain committed to seeking high levels of federal tax-exempt current income, as well as capital appreciation, by investing at least 80% of the fund's assets in municipal securities, including securities rated below investment-grade or that are unrated. We attempt to keep the weighted average maturity of the fund at 10 years or longer. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/04 5/31/04 - -------------------------------------------------------------------------------- AAA 17% 19% - -------------------------------------------------------------------------------- AA 2% 2% - -------------------------------------------------------------------------------- A -- 1% - -------------------------------------------------------------------------------- BBB 6% 5% - -------------------------------------------------------------------------------- BB 3% 4% - -------------------------------------------------------------------------------- Unrated 72% 69% - -------------------------------------------------------------------------------- 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, 2004 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Land Secured 49% - -------------------------------------------------------------------------------- General Obligation (GO) 7% - -------------------------------------------------------------------------------- Project Finance Revenue 7% - -------------------------------------------------------------------------------- Hospital Revenue 6% - -------------------------------------------------------------------------------- Housing Revenue 5% - -------------------------------------------------------------------------------- - ------ 19 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 93.1% ALASKA -- 0.5% - -------------------------------------------------------------------------------- $ 500,000 Anchorage Schools GO, Series 2000 A, 5.75%, 12/1/16 (MBIA) $ 571,040 - -------------------------------------------------------------------------------- ARIZONA -- 6.2% - -------------------------------------------------------------------------------- 1,000,000 Gilbert Water Resource Municipal Property Corp. Rev., (Development Fee & Sub Lien), 4.90%, 4/1/19(1) 986,770 - -------------------------------------------------------------------------------- 1,125,000 Maricopa County Industrial Development Auth. Education Rev., (Horizon Community Learning Center), 7.95%, 6/15/23 1,180,418 - -------------------------------------------------------------------------------- 3,015,000 Pronghorn Ranch Community Facilities District GO, 6.40%, 7/15/29 3,017,924 - -------------------------------------------------------------------------------- 1,120,000 Sundance Community Facilities Assessment District No. 2 Rev., 7.125%, 7/1/27 1,168,787 - -------------------------------------------------------------------------------- 1,025,000 Sundance Community Facilities Assessment District No. 3 Rev., 6.50%, 7/1/29 1,026,005 - -------------------------------------------------------------------------------- 395,000 Sundance Community Facilities Assessment District GO, 6.25%, 7/15/29 395,387 - -------------------------------------------------------------------------------- 7,775,291 - -------------------------------------------------------------------------------- CALIFORNIA -- 16.2% - -------------------------------------------------------------------------------- 2,000,000 Beaumont Financing Auth. Rev., Series 2003 A, 6.875%, 9/1/27 2,128,300 - -------------------------------------------------------------------------------- 750,000 California Communities Development Auth. Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/31 805,185 - -------------------------------------------------------------------------------- 2,000,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B, (Palomar Estates E&W), 7.00%, 9/15/36 2,108,460 - -------------------------------------------------------------------------------- 930,000 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/23 993,175 - -------------------------------------------------------------------------------- 2,235,000 Independent Cities Lease Finance Auth. Rev., Series 2004 A, (Morgan Hill - Hacienda Various Projects), 5.90%, 11/15/34 2,255,853 - -------------------------------------------------------------------------------- 2,000,000 Indio Redevelopment Agency Tax Allocation Rev., Series 2004 B, (Sub-Merged Project Area), 6.50%, 8/15/34 2,052,580 - -------------------------------------------------------------------------------- 3,000,000 Perris Public Financing Auth. Special Tax Rev., Series 2003 A, 6.25%, 9/1/33 3,105,329 - -------------------------------------------------------------------------------- 1,000,000 Soledad Special Assessment, (Diamond Ridge Assessment District No. 02-01), 6.75%, 9/2/33 1,048,990 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $4,000,000 Vallejo COP, (Marine World Foundation), 7.00%, 2/1/17 $ 4,101,519 - -------------------------------------------------------------------------------- 1,605,000 Vallejo Multifamily Housing Rev., Series 1998 B, (Solano Affordable Housing), 8.25%, 4/1/39 (Acquired 12/12/02, Cost $1,737,236)(2) 1,728,168 - -------------------------------------------------------------------------------- 20,327,559 - -------------------------------------------------------------------------------- COLORADO -- 6.9% - -------------------------------------------------------------------------------- 3,000,000 Denver Health & Hospital Auth. Healthcare Rev., Series 2004 A, 6.25%, 12/1/33 3,196,290 - -------------------------------------------------------------------------------- 640,000 Douglas County School District No. Re-1 GO, Series 2002 B, (Douglas & Elbert Counties), 5.75%, 12/15/19 (FSA/State Aid Withholding) 741,862 - -------------------------------------------------------------------------------- 3,000,000 One Horse Business Improvement District Rev., 6.00%, 6/1/24(3) 3,108,750 - -------------------------------------------------------------------------------- 1,500,000 Plaza Metropolitan District No. 1 Rev., 8.00%, 12/1/25 1,564,140 - -------------------------------------------------------------------------------- 8,611,042 - -------------------------------------------------------------------------------- CONNECTICUT -- 0.8% - -------------------------------------------------------------------------------- 1,000,000 Connecticut Development Auth. Industrial Rev., (Afco Cargo BDL-LLC), 8.00%, 4/1/30 1,040,300 - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA -- 1.5% - -------------------------------------------------------------------------------- 1,000,000 District of Columbia COP, (Public Safety & Emergency), 5.50%, 1/1/19 (AMBAC) 1,089,040 - -------------------------------------------------------------------------------- 750,000 Metropolitan Washington D.C. Airports Auth. General Rev., Series 2001 A, 5.50%, 10/1/18 (MBIA) 807,683 - -------------------------------------------------------------------------------- 1,896,723 - -------------------------------------------------------------------------------- FLORIDA -- 18.5% - -------------------------------------------------------------------------------- 55,000 Arbor Greene Community Development District Special Assessment, 5.75%, 5/1/06 55,612 - -------------------------------------------------------------------------------- 10,000 Arbor Greene Community Development District Special Assessment, 6.50%, 5/1/07 10,160 - -------------------------------------------------------------------------------- 3,500,000 Concorde Estates Community Development District Rev., Series 2004 B, 5.00%, 5/1/11 3,495,099 - -------------------------------------------------------------------------------- 2,710,000 Covington Park Community Development District Rev., Series 2004 B, (Capital Improvement), 5.30%, 11/1/09 2,754,281 - -------------------------------------------------------------------------------- 1,000,000 Double Branch Community Development District Special Assessment, Series 2002 A, 6.70%, 5/1/34 1,066,270 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 20 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $1,615,000 Double Branch Community Development District Special Assessment, Series 2003 C, 5.125%, 5/1/08 $ 1,631,360 - -------------------------------------------------------------------------------- 520,000 Fleming Island Plantation Community Development District Special Assessment, Series 2000 B, 7.375%, 5/1/31 557,024 - -------------------------------------------------------------------------------- 1,145,000 Gateway Services Community Development District Special Assessment, Series 2003 B, (Sun City Center - Fort Meyers), 5.50%, 5/1/10 1,158,076 - -------------------------------------------------------------------------------- 855,000 Heritage Harbor South Community Development District Rev., Series 2002 B, 5.40%, 11/1/08 862,396 - -------------------------------------------------------------------------------- 1,000,000 Middle Village Community Development District Special Assessment, Series 2004 B, 5.00%, 5/1/09 1,003,690 - -------------------------------------------------------------------------------- 1,500,000 Midtown Miami Community Development District Special Assessment, Series 2004 A, 6.25%, 5/1/37 1,548,480 - -------------------------------------------------------------------------------- 1,000,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/19 (MBIA) 1,103,310 - -------------------------------------------------------------------------------- 400,000 Reunion East Community Development District Special Assessment Rev., Series 2002 B, 5.90%, 11/1/07 405,112 - -------------------------------------------------------------------------------- 1,245,000 South-Dade Venture Community Development District Rev., 6.125%, 5/1/34 1,259,741 - -------------------------------------------------------------------------------- 2,815,000 Sterling Hill Community Development District Special Assessment, Series 2003 B, (Capital Improvement Revenue), 5.50%, 11/1/10 2,858,125 - -------------------------------------------------------------------------------- 380,000 Stoneybrook West Community Development District Special Assessment, Series 2000 A, 7.00%, 5/1/32 405,810 - -------------------------------------------------------------------------------- 975,000 Waterchase Community Development District Rev., Series 2001 A, 6.70%, 5/1/32 1,028,138 - -------------------------------------------------------------------------------- 2,000,000 Westchester Community Development District No. 1 Special Assessment, (Community Infrastructure), 6.125%, 5/1/35 2,027,000 - -------------------------------------------------------------------------------- 23,229,684 - -------------------------------------------------------------------------------- GEORGIA -- 0.5% - -------------------------------------------------------------------------------- 500,000 Atlanta Water & Wastewater Rev., Series 1999 A, 5.50%, 11/1/18 (FGIC) 574,530 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- GUAM -- 0.9% - -------------------------------------------------------------------------------- $ 390,000 Guam International Airport Auth. Rev., Series 2003 A, 4.00%, 10/1/10 (MBIA) $ 406,688 - -------------------------------------------------------------------------------- 690,000 Guam International Airport Auth. Rev., Series 2003 A, 4.00%, 10/1/11 (MBIA) 716,317 - -------------------------------------------------------------------------------- 1,123,005 - -------------------------------------------------------------------------------- ILLINOIS -- 2.4% - -------------------------------------------------------------------------------- 3,000,000 Chicago Tax Increment Allocation Rev., Series 2004 B, (Pilsen Redevelopment), (Junior Lien), 6.75%, 6/1/22(3) 3,038,820 - -------------------------------------------------------------------------------- MARYLAND -- 3.2% - -------------------------------------------------------------------------------- 1,250,000 Anne Arundel County Special Obligation Rev., (Arundel Mills), 7.10%, 7/1/29, Prerefunded at 102% of Par(4) 1,492,625 - -------------------------------------------------------------------------------- 1,000,000 Anne Arundel County Special Obligation Rev., (National Business Park), 7.375%, 7/1/28, Prerefunded at 102% of Par(4) 1,225,890 - -------------------------------------------------------------------------------- 1,238,000 Prince Georges County Rev., (Woodview Village Phase II - Subdistrict), 7.00%, 7/1/32 1,277,987 - -------------------------------------------------------------------------------- 3,996,502 - -------------------------------------------------------------------------------- MISSOURI -- 1.2% - -------------------------------------------------------------------------------- 860,000 Missouri Bottom Transportation Development District Hazelwood Rev., 7.20%, 5/1/33 895,957 - -------------------------------------------------------------------------------- 585,000 Missouri Housing Development Commission Mortgage Rev., Series 1998 B2, (Single Family), 6.40%, 9/1/29 603,246 - -------------------------------------------------------------------------------- 1,499,203 - -------------------------------------------------------------------------------- NEVADA -- 13.4% - -------------------------------------------------------------------------------- 955,000 Clark County Improvement District No. 121 Special Assessment, (Southern Highlands Area), 7.50%, 12/1/19 1,040,501 - -------------------------------------------------------------------------------- 3,000,000 Clark County Improvement District No. 142 Special Assessment, 5.50%, 8/1/12 3,091,859 - -------------------------------------------------------------------------------- 715,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.25%, 2/1/12 734,491 - -------------------------------------------------------------------------------- 755,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.375%, 2/1/13 776,548 - -------------------------------------------------------------------------------- 725,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.40%, 2/1/14 747,192 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 21 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $1,575,000 Henderson Local Improvement Districts No. T14 Special Assessment, 5.25%, 3/1/13 $ 1,623,635 - -------------------------------------------------------------------------------- 1,560,000 Henderson Local Improvement Districts No. T15 Special Assessment, 6.10%, 3/1/24 1,611,870 - -------------------------------------------------------------------------------- 1,105,000 Henderson Redevelopment Agency Tax Allocation, Series 2002 B, 7.10%, 10/1/22 1,204,583 - -------------------------------------------------------------------------------- 350,000 Henderson Redevelopment Agency Tax Allocation, Series 2002 B, 7.20%, 10/1/25 380,426 - -------------------------------------------------------------------------------- 1,275,000 Las Vegas Improvement District No. 607 Special Assessment, 5.50%, 6/1/13 1,317,407 - -------------------------------------------------------------------------------- 500,000 Las Vegas Improvement District No. 808-Summerlin Area Special Assessment, 5.40%, 6/1/06 514,520 - -------------------------------------------------------------------------------- 495,000 Las Vegas Improvement District No. 808-Summerlin Area Special Assessment, 5.70%, 6/1/08 515,033 - -------------------------------------------------------------------------------- 1,165,000 North Las Vegas Improvement District No. 60-Aliante Special Assessment, 5.25%, 12/1/10 1,200,940 - -------------------------------------------------------------------------------- 500,000 North Las Vegas Improvement District No. 60-Aliante Special Assessment, 5.60%, 12/1/12 516,115 - -------------------------------------------------------------------------------- 755,000 Reno Special Assessment District No. 4, (Somersett Parkway), 5.20%, 12/1/10 777,907 - -------------------------------------------------------------------------------- 795,000 Reno Special Assessment District No. 4, (Somersett Parkway), 5.45%, 12/1/11 819,112 - -------------------------------------------------------------------------------- 16,872,139 - -------------------------------------------------------------------------------- NEW JERSEY -- 0.9% - -------------------------------------------------------------------------------- 1,000,000 New Jersey Economic Development Auth. COP, Series 1999 A, (Transportation Sublease), 6.00%, 5/1/09, Prerefunded at 100% of Par (FSA)(4) 1,129,370 - -------------------------------------------------------------------------------- NEW MEXICO -- 0.8% - -------------------------------------------------------------------------------- 1,000,000 Ventana West Public Improvement District Special Levy Rev., 6.875%, 8/1/33 1,015,730 - -------------------------------------------------------------------------------- NEW YORK -- 0.8% - -------------------------------------------------------------------------------- 1,000,000 Onondaga County Industrial Development Auth. Rev., (Air Cargo), 7.25%, 1/1/32 1,017,310 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 1.4% - -------------------------------------------------------------------------------- 1,565,000 North Carolina GO, Series 2002 A, (Public Improvement), 5.50%, 3/1/08 1,711,860 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- NORTHERN MARIANA ISLANDS -- 1.6% - -------------------------------------------------------------------------------- $2,000,000 Northern Mariana Islands Commonwealth GO, Series 2003 A, 6.75%, 10/1/33 $ 2,046,860 - -------------------------------------------------------------------------------- OHIO -- 4.3% - -------------------------------------------------------------------------------- 1,160,000 Hebron Waterworks Rev., 5.875%, 12/1/25 1,168,480 - -------------------------------------------------------------------------------- 745,000 Hebron Waterworks Rev., 6.125%, 12/1/29 761,681 - -------------------------------------------------------------------------------- 1,800,000 Pinnacle Community Infrastructure Financing Facilities Auth. Rev., Series 2004 A, 6.25%, 12/1/36 1,838,033 - -------------------------------------------------------------------------------- 500,000 Plain Local School District GO, 5.50%, 12/1/19 (FGIC) 553,080 - -------------------------------------------------------------------------------- 1,100,000 Port of Greater Cincinnati Development Auth. Special Assessment, (Cooperative Public Parking Infrastructure), 6.40%, 2/15/34 1,111,341 - -------------------------------------------------------------------------------- 5,432,615 - -------------------------------------------------------------------------------- OKLAHOMA -- 0.6% - -------------------------------------------------------------------------------- 750,000 Oklahoma City Industrial & Cultural Facilities Trust Rev., 6.75%, 1/1/23 724,613 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 1.7% - -------------------------------------------------------------------------------- 1,325,000 Chartiers Valley School District GO, Series 2004 A, 5.00%, 10/15/20 (FSA/State Aid Withholding) 1,407,150 - -------------------------------------------------------------------------------- 685,000 New Morgan Municipal Auth. Office Rev., Series 1999 A, (Commonwealth Office), 5.375%, 6/1/08 666,943 - -------------------------------------------------------------------------------- 2,074,093 - -------------------------------------------------------------------------------- RHODE ISLAND -- 0.5% - -------------------------------------------------------------------------------- 500,000 Cranston GO, 6.375%, 11/15/17 (FGIC) 576,640 - -------------------------------------------------------------------------------- SOUTH CAROLINA -- 1.1% - -------------------------------------------------------------------------------- 1,425,000 South Carolina Jobs Economic Development Auth. Hospital Facilities Rev., Series 2003 C, (Palmetto Health), 4.25%, 8/1/05 1,438,538 - -------------------------------------------------------------------------------- TEXAS -- 3.4% - -------------------------------------------------------------------------------- 805,000 Abia Development Corp. Airport Facilities Rev., (Aero Austin L.P.), 6.75%, 1/1/11 791,903 - -------------------------------------------------------------------------------- 400,000 Bexar County Health Facilities Development Corp. Rev., (Army Retirement Residence), 6.125%, 7/1/22 423,212 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 22 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2004 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Bexar County Health Facilities Development Corp. Rev., (Army Retirement Residence), 6.30%, 7/1/32 $ 1,048,810 - -------------------------------------------------------------------------------- 2,000,000 Pearland Development Auth. Rev., 5.50%, 9/1/28(1) 1,991,940 - -------------------------------------------------------------------------------- 4,255,865 - -------------------------------------------------------------------------------- UTAH -- 1.3% - -------------------------------------------------------------------------------- 305,000 Bountiful Hospital Rev., (South Davis Community Hospital), 5.125%, 12/15/05 (Acquired 9/24/98, Cost $302,722)(2) 308,111 - -------------------------------------------------------------------------------- 1,235,000 West Valley City Rev., Series 2001 A, 5.50%, 7/15/15 (MBIA) 1,372,925 - -------------------------------------------------------------------------------- 1,681,036 - -------------------------------------------------------------------------------- WASHINGTON -- 1.0% - -------------------------------------------------------------------------------- 860,000 Cowlitz County Kelso School District No. 458 GO, 5.75%, 12/1/18(FSA) 973,984 - -------------------------------------------------------------------------------- 250,000 Port of Seattle Rev., Series 2000 B, 6.00%, 2/1/15 (MBIA) 285,028 - -------------------------------------------------------------------------------- 1,259,012 - -------------------------------------------------------------------------------- WISCONSIN -- 1.5% - -------------------------------------------------------------------------------- 2,000,000 Wisconsin State Health & Educational Facilities Auth. Rev., Series 2004 A, (Southwest Health Center), 6.25%, 4/1/34 1,941,752 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $113,181,222) 116,861,132 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 4.3% ARIZONA -- 1.1% - -------------------------------------------------------------------------------- $1,400,000 Pima County Industrial Development Auth. Rev., (Tucson Electric), VRDN, 1.68%, 12/1/04 (LOC: Bank of New York) $ 1,400,000 - -------------------------------------------------------------------------------- NEW YORK -- 1.2% - -------------------------------------------------------------------------------- 1,525,000 New York City Municipal Water Finance Auth. Rev., Series 1994 G, VRDN, 1.64%, 12/1/04 (FGIC) 1,525,000 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 2.0% - -------------------------------------------------------------------------------- 725,000 Allegheny County Industrial Development Auth. Rev., Series 2001 A, (Longwood), VRDN, 1.69%, 12/1/04 (RADIAN) 725,000 - -------------------------------------------------------------------------------- 1,790,000 Delaware County Industrial Development Auth. Rev., (Exelon), VRDN, 1.74%, 12/1/04 (LOC: Wachovia Bank N.A.) 1,790,000 - -------------------------------------------------------------------------------- 2,515,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $5,440,000) 5,440,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 97.4% (Cost $118,621,222) 122,301,132 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 2.6% 3,301,012 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $125,602,144 ================================================================================ SHORT FUTURES CONTRACTS* Underlying Face Unrealized Contracts Sold Expiration Date Amount at Value Gain - -------------------------------------------------------------------------------- 15 U.S. Treasury 10-Year Notes March 2005 $1,671,797 $3,214 ============================== *SHORT FUTURES CONTRACTS typically are based on an index or specific securities and tend to track the performance of the index or specific securities while remaining very liquid (easy to buy and sell). By selling futures, the fund hedges its investments against price fluctuations. See Notes to Financial Statements. (continued) - ------ 23 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2004 (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. GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corporation RADIAN = Radian Asset Assurance, Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2004. (1) 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, 2004, was $2,036,279, which represented 1.6% of net assets. (3) Security, or a portion thereof, has been segregated for a when-issued security and/or futures contract. (4) Escrowed to maturity in U.S. government securities or state and local government securities. See Notes to Financial Statements. - ------ 24 Shareholder Fee Examples (Unaudited) Fund shareholders may incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption/exchange fees; and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in your fund and to compare these costs with the ongoing cost of investing in other mutual funds. The example is based on an investment of $1,000 made at the beginning of the period and held for the entire period from June 1, 2004 to November 30, 2004. ACTUAL EXPENSES The table provides information about actual account values and actual expenses for each class. You may use the information, together with the amount you invested, to estimate the expenses that you paid over the period. First, identify the share class you own. Then simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. If you hold Investor Class shares of any American Century fund, or Institutional Class shares of the American Century Diversified Bond Fund, in an American Century account (i.e., not a financial intermediary or retirement plan account), American Century may charge you a $12.50 semiannual account maintenance fee if the value of those shares is less than $10,000. We will redeem shares automatically in one of your accounts to pay the $12.50 fee. In determining your total eligible investment amount, we will include your investments in all PERSONAL ACCOUNTS (including American Century Brokerage accounts) registered under your Social Security number. PERSONAL ACCOUNTS include individual accounts, joint accounts, UGMA/UTMA accounts, personal trusts, Coverdell Education Savings Accounts and IRAs (including traditional, Roth, Rollover, SEP-, SARSEP- and SIMPLE-IRAs), and certain other retirement accounts. If you have only business, business retirement, employer-sponsored or American Century Brokerage accounts, you are currently not subject to this fee. We will not charge the fee as long as you choose to manage your accounts exclusively online. If you are subject to the Account Maintenance Fee, your account value could be reduced by the fee amount. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table also provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio of each class of your fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of a fund's share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. (continued) - ------ 25 Shareholder Fee Examples (Unaudited) Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) or redemption/exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE 6/1/04 - EXPENSE 6/1/04 11/30/04 11/30/04 RATIO* - -------------------------------------------------------------------------------- ARIZONA MUNICIPAL BOND SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,029.50 $2.54 0.50% - -------------------------------------------------------------------------------- A Class $1,000 $1,028.20 $3.81 0.75% - -------------------------------------------------------------------------------- B Class $1,000 $1,024.40 $7.61 1.50% - -------------------------------------------------------------------------------- C Class $1,000 $1,024.30 $7.61 1.50% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.56 $2.54 0.50% - -------------------------------------------------------------------------------- A Class $1,000 $1,021.31 $3.80 0.75% - -------------------------------------------------------------------------------- B Class $1,000 $1,017.55 $7.59 1.50% - -------------------------------------------------------------------------------- C Class $1,000 $1,017.55 $7.59 1.50% - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL BOND SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,027.90 $2.54 0.50% - -------------------------------------------------------------------------------- A Class $1,000 $1,026.70 $3.81 0.75% - -------------------------------------------------------------------------------- B Class $1,000 $1,022.90 $7.61 1.50% - -------------------------------------------------------------------------------- C Class $1,000 $1,022.80 $7.61 1.50% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.56 $2.54 0.50% - -------------------------------------------------------------------------------- A Class $1,000 $1,021.31 $3.80 0.75% - -------------------------------------------------------------------------------- B Class $1,000 $1,017.55 $7.59 1.50% - -------------------------------------------------------------------------------- C Class $1,000 $1,017.55 $7.59 1.50% - -------------------------------------------------------------------------------- *Expenses are equal to the fund's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. (continued) - ------ 26 Shareholder Fee Examples (Unaudited) - -------------------------------------------------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE 6/1/04 - EXPENSE 6/1/04 11/30/04 11/30/04 RATIO* - -------------------------------------------------------------------------------- HIGH-YIELD MUNICIPAL SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,047.30 $3.23 0.63% - -------------------------------------------------------------------------------- A Class $1,000 $1,046.00 $4.51 0.88% - -------------------------------------------------------------------------------- B Class $1,000 $1,042.10 $8.34 1.63% - -------------------------------------------------------------------------------- C Class $1,000 $1,042.10 $8.34 1.63% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,021.91 $3.19 0.63% - -------------------------------------------------------------------------------- A Class $1,000 $1,020.66 $4.46 0.88% - -------------------------------------------------------------------------------- B Class $1,000 $1,016.90 $8.24 1.63% - -------------------------------------------------------------------------------- C Class $1,000 $1,016.90 $8.24 1.63% - -------------------------------------------------------------------------------- *Expenses are equal to the fund's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. - ------ 27 Statement of Assets and Liabilities NOVEMBER 30, 2004 (UNAUDITED) - -------------------------------------------------------------------------------- ARIZONA FLORIDA HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $57,422,098, $62,374,366, and $118,621,222, respectively) $60,207,843 $64,831,723 $122,301,132 - ---------------------------------- Cash -- -- 396,880 - ---------------------------------- Receivable for investments sold -- -- 5,241,231 - ---------------------------------- Receivable for capital shares sold 5,060 4,170 232,135 - ---------------------------------- Interest receivable 1,064,369 636,202 1,956,754 - -------------------------------------------------------------------------------- 61,277,272 65,472,095 130,128,132 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash 89,462 42,799 -- - ---------------------------------- Payable for investments purchased 1,865,982 2,947,880 4,267,650 - ---------------------------------- Accrued management fees 23,837 25,000 62,579 - ---------------------------------- Distribution fees payable 277 926 9,353 - ---------------------------------- Service fees (and distribution fees -- A Class) payable 783 639 13,132 - ---------------------------------- Dividends payable 40,568 67,517 173,274 - -------------------------------------------------------------------------------- 2,020,909 3,084,761 4,525,988 - -------------------------------------------------------------------------------- NET ASSETS $59,256,363 $62,387,334 $125,602,144 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $56,617,070 $60,418,268 $124,633,462 - ---------------------------------- Accumulated net realized loss on investment transactions (150,581) (491,505) (2,714,442) - ---------------------------------- Net unrealized appreciation on investments 2,789,874 2,460,571 3,683,124 - -------------------------------------------------------------------------------- $59,256,363 $62,387,334 $125,602,144 ================================================================================ INVESTOR CLASS - -------------------------------------------------------------------------------- Net assets $55,340,003 $59,117,097 $59,487,983 - ---------------------------------- Shares outstanding 5,056,215 5,476,431 5,798,393 - ---------------------------------- Net asset value per-share $10.94 $10.79 $10.26 - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- Net assets $3,468,112 $1,660,698 $50,449,022 - ---------------------------------- Shares outstanding 316,869 153,842 4,917,360 - ---------------------------------- Net asset value per-share $10.94 $10.79 $10.26 - ---------------------------------- Maximum offering price (net asset value divided by 0.955) $11.46 $11.30 $10.74 - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- Net assets $2,484 $13,597 $3,123,654 - ---------------------------------- Shares outstanding 227 1,260 304,468 - ---------------------------------- Net asset value per-share $10.94 $10.79 $10.26 - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- Net assets $445,764 $1,595,942 $12,541,485 - ---------------------------------- Shares outstanding 40,728 147,843 1,222,440 - ---------------------------------- Net asset value per-share $10.94 $10.79 $10.26 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 28 Statement of Operations FOR THE SIX MONTHS ENDED NOVEMBER 30, 2004 (UNAUDITED) - -------------------------------------------------------------------------------- ARIZONA FLORIDA HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL - -------------------------------------------------------------------------------- INVESTMENT INCOME - -------------------------------------------------------------------------------- INCOME: - ---------------------------------- Interest $1,286,215 $1,240,838 $3,096,147 - -------------------------------------------------------------------------------- EXPENSES: - ---------------------------------- Management fees 147,571 154,406 347,239 - ---------------------------------- Distribution fees: - ---------------------------------- B Class 9 61 10,754 - ---------------------------------- C Class 992 4,792 38,544 - ---------------------------------- Service fees: - ---------------------------------- B Class 3 20 3,585 - ---------------------------------- C Class 331 1,598 12,848 - ---------------------------------- Service and distribution fees -- A Class 2,934 1,431 51,482 - ---------------------------------- Trustees' fees and expenses 3,941 3,999 4,850 - ---------------------------------- Other expenses 85 80 139 - -------------------------------------------------------------------------------- 155,866 166,387 469,441 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 1,130,349 1,074,451 2,626,706 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------- Net realized gain (loss) on investment transactions (162,839) (195,934) 91,174 - ---------------------------------- Change in net unrealized appreciation on investments 798,583 855,262 2,185,459 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN 635,744 659,328 2,276,633 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,766,093 $1,733,779 $4,903,339 ================================================================================ See Notes to Financial Statements. - ------ 29 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2004 (UNAUDITED) AND YEAR ENDED MAY 31, 2004 - -------------------------------------------------------------------------------------------- ARIZONA MUNICIPAL BOND FLORIDA MUNICIPAL BOND - -------------------------------------------------------------------------------------------- DECREASE IN NET ASSETS NOV. 30, 2004 MAY 31, 2004 NOV. 30, 2004 MAY 31, 2004 - -------------------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------------------- Net investment income $ 1,130,349 $ 2,479,760 $ 1,074,451 $ 2,390,053 - ----------------------------- Net realized gain (loss) (162,839) 31,189 (195,934) (295,541) - ----------------------------- Change in net unrealized appreciation 798,583 (3,334,628) 855,262 (3,291,538) - -------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,766,093 (823,679) 1,733,779 (1,197,026) - -------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------------------- From net investment income - ----------------------------- Investor Class (1,085,181) (2,475,048) (1,040,105) (2,383,929) - ----------------------------- A Class (41,558) (4,663) (18,492) (1,775) - ----------------------------- B Class (35) (17) (202) (55) - ----------------------------- C Class (3,575) (32) (15,652) (4,294) - ----------------------------- From net realized gains - ----------------------------- Investor Class -- (232,087) -- (240,945) - -------------------------------------------------------------------------------------------- Decrease in net assets from distributions (1,130,349) (2,711,847) (1,074,451) (2,630,998) - -------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------------------- Net decrease in net assets from capital share transactions (3,119,972) (10,511,290) (3,223,378) (1,298,103) - -------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS (2,484,228) (14,046,816) (2,564,050) (5,126,127) NET ASSETS - -------------------------------------------------------------------------------------------- Beginning of period 61,740,591 75,787,407 64,951,384 70,077,511 - -------------------------------------------------------------------------------------------- End of period $59,256,363 $ 61,740,591 $62,387,334 $64,951,384 ============================================================================================ See Notes to Financial Statements. (continued) - ------ 30 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2004 (UNAUDITED) AND YEAR ENDED MAY 31, 2004 - -------------------------------------------------------------------------------- HIGH-YIELD MUNICIPAL - -------------------------------------------------------------------------------- INCREASE IN NET ASSETS NOV. 30, 2004 MAY 31, 2004 - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income $ 2,626,706 $ 3,730,694 - ------------------------------------------ Net realized gain (loss) 91,174 (995,135) - ------------------------------------------ Change in net unrealized appreciation 2,185,459 (903,953) - -------------------------------------------------------------------------------- Net increase in net assets resulting from operations 4,903,339 1,831,606 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income - ------------------------------------------ Investor Class (1,402,367) (2,750,692) - ------------------------------------------ A Class (966,222) (704,142) - ------------------------------------------ B Class (56,444) (72,484) - ------------------------------------------ C Class (201,673) (203,376) - -------------------------------------------------------------------------------- Decrease in net assets from distributions (2,626,706) (3,730,694) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Net increase in net assets from capital share transactions 24,652,681 42,671,909 - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS 26,929,314 40,772,821 NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 98,672,830 57,900,009 - -------------------------------------------------------------------------------- End of period $125,602,144 $98,672,830 ================================================================================ See Notes to Financial Statements. - ------ 31 Notes to Financial Statements NOVEMBER 30, 2004 (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 (Arizona Municipal), Florida Municipal Bond Fund (Florida Municipal) and High-Yield Municipal Fund (High-Yield Municipal) (collectively, the funds) are three funds in a series issued by the trust. The funds are non-diversified under the 1940 Act. Arizona Municipal's 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 Arizona. Florida Municipal's investment objective is to seek safety of principal and high current income that is exempt from federal income tax and exempt from the Florida intangible personal property tax. Arizona Municipal and Florida Municipal invest primarily in Arizona and Florida municipal obligations, respectively. High-Yield Municipal's investment objective is to seek high current income exempt from federal income taxes. Capital appreciation is a secondary objective. High-Yield Municipal invests primarily in long-term and intermediate-term municipal obligations. The following is a summary of the funds' significant accounting policies. MULTIPLE CLASS -- The funds are 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 funds 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. Arizona Municipal and Florida Municipal's A Class, B Class and C Class commenced on February 27, 2004, at which time the Investor Class was no longer available to new investors. High-Yield Municipal A Class and B Class commenced on January 31, 2003, at which time the Investor Class was no longer available to new investors. High-Yield Municipal C Class commenced on July 24, 2002. SECURITY VALUATIONS -- Securities are valued through a commercial pricing service or at the mean of the most recent bid and asked prices. Debt securities maturing within 60 days may be valued at cost, plus or minus any amortized discount or premium. If the fund determines that the market price of a portfolio security is not readily available, or that the valuation methods mentioned above do not reflect the security's fair value, such security is valued at its fair value as determined by, or in accordance with procedures adopted by, the Board of Trustees or its designee if such fair value determination would materially impact a fund's net asset value. Circumstances that may cause the fund to fair value a security include: an event occurred after the close of the exchange on which a portfolio security principally trades (but before the close of the New York Stock Exchange) that was likely to have changed the value of the security; a security has been declared in default; or trading in a security has been halted during the trading day. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. WHEN-ISSUED AND FORWARD COMMITMENTS -- The 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 records in amounts sufficient to meet the purchase price. FUTURES CONTRACTS -- The funds may enter into futures contracts in order to manage the funds exposure to changes in market conditions. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the funds are required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by (continued) - ------ 32 Notes to Financial Statements NOVEMBER 30, 2004 (UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the funds. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. The funds recognize a realized gain or loss when the contract is closed or expires. Net realized and unrealized gains or losses occurring during the holding period of futures contracts are a component of realized gain (loss) on investment transactions and unrealized appreciation (depreciation) on investments, respectively. INCOME TAX STATUS -- It is each fund's policy to distribute substantially all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually. 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 funds with investment advisory and management services in exchange for a single, unified management fee (the fee) per class. The Agreement provides that all expenses of the funds, except brokerage commissions, taxes, interest, fees and expenses of those trustees who are not considered "interested persons" as defined in the 1940 Act (including counsel fees) and extraordinary expenses, will be paid by ACIM. The fee is computed and accrued daily based on the daily net assets of each specific class of shares of each fund and paid monthly in arrears. The fee consists of (1) an Investment Category Fee based on the daily net assets of the funds and certain other accounts managed by the investment manager that are in the same broad investment category as each fund and (2) a Complex Fee based on the assets of all the funds in the American Century family of funds. The rates for the Investment Category Fee range from 0.1625% to 0.2800% for Arizona and Florida, and from 0.2925% to 0.4100% for High-Yield. The rates for the Complex Fee range from 0.2500% to 0.3100%. For the six months ended November 30, 2004, the effective annual management fee for each class of Arizona Municipal, Florida Municipal, and High-Yield Municipal was 0.49%, 0.49% and 0.62%, respectively. DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a separate Master Distribution and Individual Shareholder Services Plan for each of the A Class, B Class and C Class (collectively, the plans), pursuant to Rule 12b-1 of the 1940 Act. The plans provide that the B Class and C Class will pay American Century Investment Services, Inc. (ACIS) the following annual distribution and service fees: - -------------------------------------------------------------------------------- B & C - -------------------------------------------------------------------------------- Distribution Fee 0.75% - -------------------------------------------------------------------------------- Service Fee 0.25% - -------------------------------------------------------------------------------- The plans provide that the A Class will pay ACIS an annual distribution and service fee of 0.25%. The fees are computed and accrued daily based on each class's daily net assets, and paid monthly in arrears. The distribution fee provides compensation for expenses incurred in connection with distributing shares of the classes including, but not limited to, payments to brokers, dealers, and financial institutions that have entered into sales agreements with respect to shares of the funds. 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, 2004, are detailed in the Statement of Operations. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust's investment manager, ACIM, the distributor of the trust, ACIS, and the trust's transfer agent, American Century Services Corporation. The funds have a bank line of credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the funds and a wholly owned subsidiary of J.P. Morgan Chase & Co. (JPM). JPM is an equity investor in ACC. (continued) - ------ 33 Notes to Financial Statements NOVEMBER 30, 2004 (UNAUDITED) 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the six months ended November 30, 2004, were as follows: - -------------------------------------------------------------------------------- ARIZONA FLORIDA HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL - -------------------------------------------------------------------------------- Purchases $13,591,122 $13,589,719 $38,523,639 - -------------------------------------------------------------------------------- Proceeds from sales $16,257,814 $14,228,652 $23,443,262 - -------------------------------------------------------------------------------- 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows (unlimited number of shares authorized): - -------------------------------------------------------------------------------- ARIZONA MUNICIPAL BOND FLORIDA MUNICIPAL BOND - -------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ----------------------- Sold 254,836 $ 2,794,120 283,586 $ 3,070,795 - ----------------------- Issued in reinvestment of distributions 77,530 850,045 59,729 646,280 - ----------------------- Redeemed (834,920) (9,133,756) (779,236) (8,386,658) - -------------------------------------------------------------------------------- Net decrease (502,554) $(5,489,591) (435,921) $(4,669,583) ================================================================================ YEAR ENDED MAY 31, 2004 - ----------------------- Sold 1,104,061 $ 12,270,490 2,239,701 $ 24,609,125 - ----------------------- Issued in reinvestment of distributions 194,526 2,153,394 163,544 1,785,188 - ----------------------- Redeemed (2,390,629) (26,478,887) (2,699,299) (29,538,071) - -------------------------------------------------------------------------------- Net decrease (1,092,042) $(12,055,003) (296,054) $ (3,143,758) ================================================================================ A CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ----------------------- Sold 214,563 $2,356,923 85,148 $922,645 - ----------------------- Issued in reinvestment of distributions 3,462 37,982 1,305 14,131 - ----------------------- Redeemed (41,771) (459,725) (3,834) (41,213) - -------------------------------------------------------------------------------- Net increase 176,254 $1,935,180 82,619 $895,563 ================================================================================ PERIOD ENDED MAY 31, 2004(1) - ----------------------- Sold 140,335 $1,525,844 75,652 $812,437 - ----------------------- Issued in reinvestment of distributions 423 4,580 135 1,442 - ----------------------- Redeemed (143) (1,548) (4,564) (49,461) - -------------------------------------------------------------------------------- Net increase 140,615 $1,528,876 71,223 $764,418 ================================================================================ (1) February 27, 2004 (commencement of sale) through May 31, 2004. (continued) - ------ 34 Notes to Financial Statements NOVEMBER 30, 2004 (UNAUDITED) 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - -------------------------------------------------------------------------------- ARIZONA MUNICIPAL BOND FLORIDA MUNICIPAL BOND - -------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ----------------------- Sold -- -- 183 $ 1,975 - ----------------------- Issued in reinvestment of distributions 3 $35 12 129 - ----------------------- Redeemed -- -- (557) (6,081) - -------------------------------------------------------------------------------- Net increase (decrease) 3 $35 (362) $(3,977) ================================================================================ PERIOD ENDED MAY 31, 2004(1) - ----------------------- Sold 222 $2,501 1,618 $17,589 - ----------------------- Issued in reinvestment of distributions 2 17 4 44 - -------------------------------------------------------------------------------- Net increase 224 $2,518 1,622 $17,633 ================================================================================ C CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ----------------------- Sold 39,473 $433,143 70,474 $ 761,950 - ----------------------- Issued in reinvestment of distributions 115 1,261 287 3,111 - ----------------------- Redeemed -- -- (19,524) (210,442) - -------------------------------------------------------------------------------- Net increase 39,588 $434,404 51,237 $ 554,619 ================================================================================ PERIOD ENDED MAY 31, 2004(1) - ----------------------- Sold 1,136 $12,287 96,560 $1,063,114 - ----------------------- Issued in reinvestment of distributions 4 32 46 490 - -------------------------------------------------------------------------------- Net increase 1,140 $12,319 96,606 $1,063,604 ================================================================================ (1) February 27, 2004 (commencement of sale) through May 31, 2004. - -------------------------------------------------------------------------------- HIGH-YIELD MUNICIPAL - -------------------------------------------------------------------------------- SHARES AMOUNT - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ---------------------------------------- Sold 730,576 $ 7,440,104 - ---------------------------------------- Issued in reinvestment of distributions 83,587 853,694 - ---------------------------------------- Redeemed (428,143) (4,350,563) - -------------------------------------------------------------------------------- Net increase 386,020 $ 3,943,235 ================================================================================ YEAR ENDED MAY 31, 2004 - ---------------------------------------- Sold 2,105,766 $ 21,372,933 - ---------------------------------------- Issued in reinvestment of distributions 172,654 1,748,659 - ---------------------------------------- Redeemed (2,096,608) (21,123,641) - -------------------------------------------------------------------------------- Net increase 181,812 $ 1,997,951 ================================================================================ (continued) - ------ 35 Notes to Financial Statements NOVEMBER 30, 2004 (UNAUDITED) 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - -------------------------------------------------------------------------------- HIGH-YIELD MUNICIPAL - -------------------------------------------------------------------------------- SHARES AMOUNT - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ---------------------------------------- Sold 1,822,985 $18,598,708 - ---------------------------------------- Issued in reinvestment of distributions 77,252 789,660 - ---------------------------------------- Redeemed (303,067) (3,084,511) - -------------------------------------------------------------------------------- Net increase 1,597,170 $16,303,857 ================================================================================ YEAR ENDED MAY 31, 2004 - ---------------------------------------- Sold 3,322,531 $33,809,734 - ---------------------------------------- Issued in reinvestment of distributions 58,748 596,254 - ---------------------------------------- Redeemed (267,633) (2,706,887) - -------------------------------------------------------------------------------- Net increase 3,113,646 $31,699,101 ================================================================================ B CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ---------------------------------------- Sold 54,750 $557,250 - ---------------------------------------- Issued in reinvestment of distributions 1,586 16,208 - ---------------------------------------- Redeemed (4,977) (51,015) - -------------------------------------------------------------------------------- Net increase 51,359 $522,443 ================================================================================ YEAR ENDED MAY 31, 2004 - ---------------------------------------- Sold 190,141 $1,926,243 - ---------------------------------------- Issued in reinvestment of distributions 1,944 19,717 - ---------------------------------------- Redeemed (8,032) (81,096) - -------------------------------------------------------------------------------- Net increase 184,053 $1,864,864 ================================================================================ C CLASS - -------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2004 - ---------------------------------------- Sold 416,526 $4,254,883 - ---------------------------------------- Issued in reinvestment of distributions 4,661 47,666 - ---------------------------------------- Redeemed (41,051) (419,403) - -------------------------------------------------------------------------------- Net increase 380,136 $3,883,146 ================================================================================ YEAR ENDED MAY 31, 2004 - ---------------------------------------- Sold 747,335 $7,588,614 - ---------------------------------------- Issued in reinvestment of distributions 3,584 36,339 - ---------------------------------------- Redeemed (50,448) (514,960) - -------------------------------------------------------------------------------- Net increase 700,471 $7,109,993 ================================================================================ 5. BANK LINE OF CREDIT The funds, along with certain other funds managed by ACIM, have a $650,000,000 unsecured bank line of credit agreement with JPMCB, which was renewed at $575,000,000 effective December 15, 2004. 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%. The funds did not borrow from the line during the six months ended November 30, 2004. (continued) - ------ 36 Notes to Financial Statements NOVEMBER 30, 2004 (UNAUDITED) 6. RISK FACTORS Arizona Municipal and Florida Municipal concentrate their investments in a single state and therefore may have more exposure to credit risk related to the state of Arizona and Florida, respectively, than a fund with a broader geographical diversification. Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. High-Yield Municipal may concentrate its investments in certain states and therefore may have more exposure to credit risk related to those states than a fund with a broader geographical diversification. High-Yield Municipal invests primarily in lower-rated debt securities, which are subject to substantial risks including price volatility, liquidity risk, and default risk. Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. 7. FEDERAL TAX INFORMATION The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate 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, 2004, the components of investments for federal income tax purposes were as follows: - -------------------------------------------------------------------------------- ARIZONA FLORIDA HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL - -------------------------------------------------------------------------------- Federal tax cost of investments $57,422,098 $62,374,366 $118,621,222 ================================================================================ Gross tax appreciation of investments $2,903,789 $2,518,862 $3,781,020 - ------------------------------- Gross tax depreciation of investments (118,044) (61,505) (101,110) - -------------------------------------------------------------------------------- Net tax appreciation of investments $2,785,745 $2,457,357 $3,679,910 ================================================================================ The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. Following are the capital loss carryovers and capital loss deferral amounts as of May 31, 2004: - -------------------------------------------------------------------------------- ARIZONA FLORIDA HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND MUNICIPAL - -------------------------------------------------------------------------------- Accumulated capital losses -- $(144,503) $(1,956,410) - -------------------------------------------------------------------------------- Capital loss deferral -- $(151,068) $(849,206) - -------------------------------------------------------------------------------- The accumulated capital losses listed above represent net capital loss carryovers that may be used to offset future realized capital gains for federal income tax purposes. The capital loss carryovers expire as follows: - -------------------------------------------------------------------------------- 2008 2009 2010 2011 - -------------------------------------------------------------------------------- Florida Municipal -- -- -- $(144,503) - -------------------------------------------------------------------------------- High-Yield Municipal $(396,804) $(1,090,034) $(323,643) $(145,929) - -------------------------------------------------------------------------------- The capital loss deferrals represent net capital losses incurred in the seven-month period ended May 31, 2004. The funds have elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. 8. SUBSEQUENT EVENT Effective January 1, 2005, American Century Services Corporation's name will change to American Century Services, LLC. - ------ 37 Arizona Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------------------- 2004(1) 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.83 $11.40 $10.89 $10.69 $10.12 $10.62 - -------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.21 0.41 0.41 0.44 0.48 0.48 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.53) 0.59 0.27 0.57 (0.47) - -------------------------------------------------------------------------------------------- Total From Investment Operations 0.32 (0.12) 1.00 0.71 1.05 0.01 - -------------------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.21) (0.41) (0.41) (0.44) (0.48) (0.48) - ------------------------- From Net Realized Gains -- (0.04) (0.08) (0.07) -- (0.03) - -------------------------------------------------------------------------------------------- Total Distributions (0.21) (0.45) (0.49) (0.51) (0.48) (0.51) - -------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.94 $10.83 $11.40 $10.89 $10.69 $10.12 ============================================================================================ TOTAL RETURN(2) 2.95% (1.06)% 9.36% 6.74% 10.57% 0.20% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.50%(3) 0.51% 0.51% 0.51% 0.51% 0.51% - ------------------------- Ratio of Net Investment Income to Average Net Assets 3.80%(3) 3.70% 3.70% 4.04% 4.57% 4.71% - ------------------------- Portfolio Turnover Rate 24% 26% 50% 77% 104% 117% - ------------------------- Net Assets, End of Period (in thousands) $55,340 $60,203 $75,787 $66,327 $50,309 $40,594 - -------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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. See Notes to Financial Statements. - ------ 38 Arizona Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2004(1) 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.83 $11.25 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------- Net Investment Income 0.19 0.10 - ---------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.42) - -------------------------------------------------------------------------------- Total From Investment Operations 0.30 (0.32) - -------------------------------------------------------------------------------- Distributions - ---------------------------------------------------- From Net Investment Income (0.19) (0.10) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.94 $10.83 ================================================================================ TOTAL RETURN(3) 2.82% (2.87)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.75%(4) 0.76%(4) - ---------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.55%(4) 3.63%(4) - ---------------------------------------------------- Portfolio Turnover Rate 24% 26%(5) - ---------------------------------------------------- Net Assets, End of Period (in thousands) $3,468 $1,523 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 39 Arizona Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2004(1) 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.83 $11.25 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------- Net Investment Income 0.15 0.08 - ---------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.42) - -------------------------------------------------------------------------------- Total From Investment Operations 0.26 (0.34) - -------------------------------------------------------------------------------- Distributions - --------------------------------------------------- From Net Investment Income (0.15) (0.08) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.94 $10.83 ================================================================================ TOTAL RETURN(3) 2.44% (3.06)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.50%(4) 1.51%(4) - ---------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 2.80%(4) 2.88%(4) - ---------------------------------------------------- Portfolio Turnover Rate 24% 26%(5) - ---------------------------------------------------- Net Assets, End of Period (in thousands) $2 $2 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 40 Arizona Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2004(1) 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.83 $11.25 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------- Net Investment Income 0.15 0.08 - ---------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.42) - -------------------------------------------------------------------------------- Total From Investment Operations 0.26 (0.34) - -------------------------------------------------------------------------------- Distributions - ---------------------------------------------------- From Net Investment Income (0.15) (0.08) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.94 $10.83 ================================================================================ TOTAL RETURN(3) 2.43% (3.06)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.50%(4) 1.51%(4) - ---------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 2.80%(4) 2.88%(4) - ---------------------------------------------------- Portfolio Turnover Rate 24% 26%(5) - ---------------------------------------------------- Net Assets, End of Period (in thousands) $446 $12 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 41 Florida Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------------------- 2004(1) 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.68 $11.29 $10.73 $10.67 $10.08 $10.50 - -------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.19 0.42 0.42 0.44 0.47 0.45 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.56) 0.62 0.19 0.59 (0.41) - -------------------------------------------------------------------------------------------- Total From Investment Operations 0.30 (0.14) 1.04 0.63 1.06 0.04 - -------------------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.19) (0.42) (0.42) (0.44) (0.47) (0.45) - ------------------------- From Net Realized Gains -- (0.05) (0.06) (0.13) -- (0.01) - -------------------------------------------------------------------------------------------- Total Distributions (0.19) (0.47) (0.48) (0.57) (0.47) (0.46) - -------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.79 $10.68 $11.29 $10.73 $10.67 $10.08 ============================================================================================ TOTAL RETURN(2) 2.79% (1.30)% 9.90% 5.98% 10.70% 0.49% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.50%(3) 0.51% 0.51% 0.51% 0.51% 0.51% - ------------------------- Ratio of Net Investment Income to Average Net Assets 3.47%(3) 3.82% 3.78% 4.03% 4.49% 4.49% - ------------------------- Portfolio Turnover Rate 23% 59% 45% 75% 138% 155% - ------------------------- Net Assets, End of Period (in thousands) $59,117 $63,142 $70,078 $54,565 $53,860 $46,077 - -------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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. See Notes to Financial Statements. - ------ 42 Florida Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2004(1) 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.68 $11.11 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------- Net Investment Income 0.17 0.09 - ---------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.43) - -------------------------------------------------------------------------------- Total From Investment Operations 0.28 (0.34) - -------------------------------------------------------------------------------- Distributions - ---------------------------------------------------- From Net Investment Income (0.17) (0.09) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.79 $10.68 ================================================================================ TOTAL RETURN(3) 2.67% (3.10)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.75%(4) 0.76%(4) - ---------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.22%(4) 3.34%(4) - ---------------------------------------------------- Portfolio Turnover Rate 23% 59%(5) - ---------------------------------------------------- Net Assets, End of Period (in thousands) $1,661 $761 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 43 Florida Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2004(1) 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.68 $11.11 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------- Net Investment Income 0.13 0.07 - ---------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.43) - -------------------------------------------------------------------------------- Total From Investment Operations 0.24 (0.36) - -------------------------------------------------------------------------------- Distributions - ---------------------------------------------------- From Net Investment Income (0.13) (0.07) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.79 $10.68 ================================================================================ TOTAL RETURN(3) 2.29% (3.28)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.50%(4) 1.51%(4) - ---------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 2.47%(4) 2.59%(4) - ---------------------------------------------------- Portfolio Turnover Rate 23% 59%(5) - ---------------------------------------------------- Net Assets, End of Period (in thousands) $14 $17 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 44 Florida Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2004(1) 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.68 $11.11 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------------------- Net Investment Income 0.13 0.07 - ---------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.11 (0.43) - -------------------------------------------------------------------------------- Total From Investment Operations 0.24 (0.36) - -------------------------------------------------------------------------------- Distributions - ---------------------------------------------------- From Net Investment Income (0.13) (0.07) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.79 $10.68 ================================================================================ TOTAL RETURN(3) 2.28% (3.28)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.50%(4) 1.51%(4) - ---------------------------------------------------- Ratio of Net Investment Income to Average Net Assets 2.47%(4) 2.59%(4) - ---------------------------------------------------- Portfolio Turnover Rate 23% 59%(5) - ---------------------------------------------------- Net Assets, End of Period (in thousands) $1,596 $1,032 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any, and does not include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (4) Annualized. (5) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 45 High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------------------- 2004(1) 2004 2003 2002 2001 2000 - -------------------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.04 $10.25 $9.87 $9.62 $9.32 $10.12 - -------------------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income 0.25 0.52 0.53 0.53 0.53 0.51 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.22 (0.21) 0.38 0.25 0.30 (0.79) - -------------------------------------------------------------------------------------------- Total From Investment Operations 0.47 0.31 0.91 0.78 0.83 (0.28) - -------------------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.25) (0.52) (0.53) (0.53) (0.53) (0.51) - ------------------------- From Net Realized Gains -- -- -- -- -- (0.01) - -------------------------------------------------------------------------------------------- Total Distributions (0.25) (0.52) (0.53) (0.53) (0.53) (0.52) - -------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.26 $10.04 $10.25 $9.87 $9.62 $9.32 ============================================================================================ TOTAL RETURN(2) 4.73% 3.07% 9.40% 8.25% 9.13% (2.81)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.63%(3) 0.64% 0.64% 0.64% 0.64% 0.52%(4) - ------------------------- Ratio of Net Investment Income to Average Net Assets 4.92%(3) 5.06% 5.22% 5.39% 5.59% 5.31%(4) - ------------------------- Portfolio Turnover Rate 22% 27% 43% 28% 50% 60% - ------------------------- Net Assets, End of Period (in thousands) $59,488 $54,340 $53,621 $36,162 $29,342 $28,189 - -------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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 ratio of operating expenses to average net assets would have been 0.64% and the ratio of net investment income to average net assets would have been 5.19%. See Notes to Financial Statements. - ------ 46 High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2004(1) 2004 2003(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.04 $10.25 $10.06 - -------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------------- Net Investment Income 0.24 0.49 0.17 - ----------------------------------------- Net Realized and Unrealized Gain (Loss) 0.22 (0.21) 0.19 - -------------------------------------------------------------------------------- Total From Investment Operations 0.46 0.28 0.36 - -------------------------------------------------------------------------------- Distributions - ----------------------------------------- From Net Investment Income (0.24) (0.49) (0.17) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.26 $10.04 $10.25 ================================================================================ TOTAL RETURN(3) 4.60% 2.81% 3.57% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.88%(4) 0.89% 0.88%(4) - ----------------------------------------- Ratio of Net Investment Income to Average Net Assets 4.67%(4) 4.81% 5.03%(4) - ----------------------------------------- Portfolio Turnover Rate 22% 27% 43%(5) - ----------------------------------------- Net Assets, End of Period (in thousands) $50,449 $33,335 $2,117 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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 include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (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. - ------ 47 High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2004(1) 2004 2003(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.04 $10.25 $10.06 - -------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------------- Net Investment Income 0.20 0.42 0.15 - ----------------------------------------- Net Realized and Unrealized Gain (Loss) 0.22 (0.21) 0.19 - -------------------------------------------------------------------------------- Total From Investment Operations 0.42 0.21 0.34 - -------------------------------------------------------------------------------- Distributions - ----------------------------------------- From Net Investment Income (0.20) (0.42) (0.15) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.26 $10.04 $10.25 ================================================================================ TOTAL RETURN(3) 4.21% 2.05% 3.44% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.63%(4) 1.64% 1.63%(4) - ----------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.92%(4) 4.06% 4.35%(4) - ----------------------------------------- Portfolio Turnover Rate 22% 27% 43%(5) - ----------------------------------------- Net Assets, End of Period (in thousands) $3,124 $2,541 $708 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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 include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (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. - ------ 48 High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2004(1) 2004 2003(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.04 $10.25 $10.03 - -------------------------------------------------------------------------------- Income From Investment Operations - ----------------------------------------- Net Investment Income 0.20 0.43 0.39 - ----------------------------------------- Net Realized and Unrealized Gain (Loss) 0.22 (0.21) 0.22 - -------------------------------------------------------------------------------- Total From Investment Operations 0.42 0.22 0.61 - -------------------------------------------------------------------------------- Distributions - ----------------------------------------- From Net Investment Income (0.20) (0.43) (0.39) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.26 $10.04 $10.25 ================================================================================ TOTAL RETURN(3) 4.21% 2.20% 6.15% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.63%(4) 1.54% 1.39%(4) - ----------------------------------------- Ratio of Net Investment Income to Average Net Assets 3.92%(4) 4.16% 4.55%(4) - ----------------------------------------- Portfolio Turnover Rate 22% 27% 43%(5) - ----------------------------------------- Net Assets, End of Period (in thousands) $12,541 $8,457 $1,454 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2004 (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 include any applicable sales charges. Total returns for periods less than one year are not annualized. The total return of the classes may not precisely reflect the class expense differences because of the impact of calculating the net asset values to two decimal places. If net asset values were calculated to three decimal places, the total return differences would more closely reflect the class expense differences. The calculation of net asset values to two decimal places is made in accordance with SEC guidelines and does not result in any gain or loss of value between one class and another. (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. - ------ 49 Share Class Information Four classes of shares are authorized for sale by the funds: Investor Class, A Class, B Class, and C Class. The total expense ratios of A Class, B Class, and C Class shares are higher than that of Investor Class shares. ON JANUARY 31, 2003, INVESTOR CLASS SHARES BECAME UNAVAILABLE TO NEW INVESTORS OF HIGH-YIELD MUNICIPAL. ON FEBRUARY 27, 2004, INVESTOR CLASS SHARES BECAME UNAVAILABLE TO NEW INVESTORS OF ARIZONA MUNICIPAL AND FLORIDA MUNICIPAL. 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, 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 funds and generally have the same rights and preferences. - ------ 50 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 funds' investment manager, is responsible for exercising the voting rights associated with the securities purchased and/or held by the funds. A description of the policies and procedures the manager uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's Web site at americancentury.com and on the Securities and Exchange Commission's Web site at sec.gov. Information regarding how the investment manager voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. (continued) - ------ 51 Additional Information QUARTERLY PORTFOLIO DISCLOSURE The funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q are available on the SEC's Web site at sec.gov, and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The funds also make their complete schedule of portfolio holdings for the most recent quarter of their fiscal year available on their Web site at americancentury.com and, upon request, by calling 1-800-345-2021. INDEX DEFINITIONS The following indices are used to illustrate investment market, sector, or style performance or to serve as fund performance comparisons. They are not investment products available for purchase. The LEHMAN BROTHERS MUNICIPAL BOND INDEX is a market-value-weighted index designed for the long-term tax-exempt bond market. THE LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. - ------ 52 [inside back cover - blank] [back cover] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR RELATIONS: 1-800-345-2021 or 816-531-5575 INVESTORS USING ADVISORS: 1-800-378-9878 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL ADVISORS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY 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. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Proprietary Holdings, Inc. 0501 American Century Investment Services, Inc. SH-SAN-41366N (c)2005 American Century Proprietary Holdings, Inc. All rights reserved. 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. SCHEDULE OF INVESTMENTS. The schedule of investments is included as part of the report to stockholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. As of the end of the reporting period, the registrant did not have in place procedures by which shareholders may recommend nominees to the registrant's board. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) 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 28, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William M. Lyons ------------------------------------------------------- Name: William M. Lyons Title: President (principal executive officer) Date: January 28, 2005 By: /s/ Maryanne L. Roepke ------------------------------------------------------- Name: Maryanne L. Roepke Title: Sr. Vice President, Treasurer, and Chief Accounting Officer (principal financial officer) Date: January 28, 2005