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) WILLIAM M. LYONS, 4500 MAIN STREET, 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: 11-30-2006 ------------------------------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. Semiannual Report November 30, 2006 [photo of winter scene] Tax-Free Money Market Fund Tax-Free Bond Fund [american century investments logo and text logo] Our Message to You [photo of James E. Stowers III and James E. Stowers, Jr.] /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER AMERICAN CENTURY COMPANIES, INC. /s/James E. Stowers III James E. Stowers III CHAIRMAN OF THE BOARD AMERICAN CENTURY COMPANIES, INC. We are pleased to provide you with the semiannual report for the American Century Tax-Free Money Market and Tax-Free Bonds funds for the six months ended November 30, 2006. We hope you find this information helpful in monitoring your investment. Another useful resource we offer is our website, americancentury.com, where we post quarterly portfolio commentaries, the views of senior investment officers and analysts, and other communications about investments, portfolio strategy, personal finance, and the markets. In its most recent rankings, Dalbar -- which issues customer satisfaction ratings and rankings based on website functionality -- ranked americancentury.com seventh out of the sites provided by the top 25 fund companies that it believes lead the industry in web-based technology. Our website earned an "Excellent" rating, Dalbar's highest designation. For most of 2006, our website linked visitors to information explaining our strategic collaboration with Lance Armstrong and the Lance Armstrong Foundation (LAF). This campaign, featuring Lance, is designed to encourage investors to take a more active role in planning their financial futures and make every investment decision count. To learn more about the collaboration and the LAF, please visit americancentury.com or www.lanceface.com on the Web and click on the links to related sites. With the approach of the 2006 tax season, you can also find out more about tax information via a link from our website. We've posted online descriptions of all of the tax information we provide to investors. If you haven't visited americancentury.com yet, we encourage you to do so . . . it's there to serve you. And so are we. As always, we deeply appreciate your commitment to American Century Investments. Table of Contents Market Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 U.S. Fixed-Income Total Returns . . . . . . . . . . . . . . . . . . . . 2 TAX-FREE MONEY MARKET Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Portfolio Composition by Credit Rating . . . . . . . . . . . . . . . . . 5 Portfolio Composition by Maturity . . . . . . . . . . . . . . . . . . . 5 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 6 TAX-FREE BOND Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Portfolio Composition by Credit Rating . . . . . . . . . . . . . . . . 13 Top Five States . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . 14 Shareholder Fee Examples . . . . . . . . . . . . . . . . . . . . . . . . . 25 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . 27 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 28 Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . 29 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . 30 Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 OTHER INFORMATION Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . 39 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 The opinions expressed in the Market Perspective and 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. Market Perspective [photo of David MacEwen] BY DAVID MACEWEN, CHIEF INVESTMENT OFFICER, FIXED INCOME INFLECTION POINTS FOR ECONOMIC GROWTH & FED POLICY U.S. economic growth slowed during the six months ended November 30, 2006, stifled by high energy costs, the highest short-term interest rates in five years, and a weakening housing market. After expanding at an unsustainable 5.6% rate in the first quarter of 2006, growth dropped into the 2-3% range. Despite inflation threats from the volatile energy sector and possible rising labor costs (particularly in the service sector), the Federal Reserve heeded the housing slump (and its threat to consumer spending) and finally snapped its long string of interest rate hikes in August. The Fed remained on hold for the rest of the period to assess mixed economic conditions, reflected in the fact that the current situation was strong enough to support a stock market rally, but the outlook was weak enough to trigger falling yields and higher bond prices. TREASURY YIELDS INVERTED, LONG-DURATION SECURITIES OUTPERFORMED Forecasts of slow growth and lower interest rates in 2007 rekindled demand for longer-term fixed-income securities and "inverted" the Treasury yield curve, as the two-year Treasury yield (4.62%) remained higher than the 10- and 30-year yields (4.46% and 4.56%, respectively). All Treasury yields stayed well below the Fed's 5.25% interest rate target, anticipating future rate cuts. Inverted yield curves typically precede economic downturns. MUNICIPALS TRAILED TAXABLES IN RALLY While both generated attractive absolute returns, the broad investment-grade municipal market underperformed the broad investment-grade taxable market, which is typical in Treasury rallies. Though the municipal yield curve flattened somewhat, it maintained its upward slope, continuing to offer additional yield for additional maturity risk, unlike the Treasury market. Also, high-yield municipals, which tend to underperform their investment-grade counterparts in rallies, outperformed during the reporting period. Increasing numbers of yield-seeking investors turned to high-yield municipals as yield spreads in the taxable market remained tight. U.S. FIXED-INCOME TOTAL RETURNS - -------------------------------------------------------------------------------- For the 6 months ended November 30, 2006 - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL MARKET INDICES - -------------------------------------------------------------------------------- Municipal Bond 4.53% - -------------------------------------------------------------------------------- 3-Year Municipal Bond 2.41% - -------------------------------------------------------------------------------- 5-Year General Obligation (GO) 2.96% - -------------------------------------------------------------------------------- Long-Term Municipal Bond (22+ years) 6.28% - -------------------------------------------------------------------------------- Non-Investment-Grade (High-Yield) 6.29% - -------------------------------------------------------------------------------- TAXABLE MARKET RETURNS - -------------------------------------------------------------------------------- Lehman Bros. U.S. Aggregate Index 5.93% - -------------------------------------------------------------------------------- Lehman Bros. U.S. Treasury Index 5.63% - -------------------------------------------------------------------------------- 3-Month Treasury Bill 2.58% - -------------------------------------------------------------------------------- 10-Year Treasury Note 6.02% - -------------------------------------------------------------------------------- - ------ 2 Tax-Free Money Market - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2006 ------------------------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------------------------- SINCE INCEPTION 6 MONTHS(1) 1 YEAR 5 YEARS 10 YEARS(2) INCEPTION(2) DATE - -------------------------------------------------------------------------------------------------- INVESTOR CLASS 1.60% 3.03% 1.54% 2.40% 3.31% 7/31/84 - -------------------------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S TAX-EXEMPT MONEY MARKET FUNDS(3) 1.44% 2.71% 1.25% 2.12% 3.15%(4) -- - -------------------------------------------------------------------------------------------------- Fund's Lipper Ranking as of 11/30/06(3) 14 of 119 13 of 118 7 of 97 5 of 79 5 of 28(4) -- - -------------------------------------------------------------------------------------------------- Fund's Lipper Ranking as of 12/31/06(3) 13 of 117 13 of 116 7 of 96 5 of 78 5 of 28(4) -- - -------------------------------------------------------------------------------------------------- (1) Total returns for periods less than one year are not annualized. (2) 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. (3) Data provided by Lipper Inc. - A Reuters Company. (c) 2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown and are based on average annual total returns. This listing might not represent the complete universe of funds tracked by Lipper. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (4) Since 8/31/84, the date nearest the fund's inception for which data are available. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. The 7-day current yield more closely reflects the current earnings of the fund than the total return. - ------ 3 Tax-Free Money Market - Portfolio Commentary PORTFOLIO MANAGERS: TODD PARDULA AND STEVEN PERMUT PERFORMANCE SUMMARY Tax-Free Money Market returned 1.60%* for the six months ended November 30, 2006, surpassing the 1.44% average return of the 119 funds in Lipper Inc.'s tax-exempt money market funds category. The fund remains a consistently strong performer--its six-month return ranked in the top 12% of the Lipper group, comparable to its rankings over longer time horizons (see the previous page). MUNICIPAL MONEY MARKET RATES ROSE MODESTLY Municipal money market rates experienced some volatility during the six-month period but ended up slightly higher overall. The modest increase was due in part to the Federal Reserve's shift to a more stable interest rate policy. After raising short-term interest rates in June--for the 17th time in two years--the Fed chose to keep rates steady through the end of the period. The Fed took note of slowing economic activity, exemplified by a notable downturn in the housing market, and the likelihood that inflation will moderate over time as the economy softens. The three-month Treasury bill yield, a broad benchmark for money market rates, rose from 4.86% to 5.03% during the period. Tax-Free Money Market's yield advanced from 3.02% to 3.20%, but it ranged between 2.82% and 3.51%. Much of this volatility resulted from seasonal fluctuations--yields spiked higher in June and September as dealers attempted to clear out their inventory at quarter-end, then dropped significantly in the following weeks as a new quarter began. Frequent and abrupt changes in expectations for Fed interest rate policy also had an impact on municipal money market rates, though to a lesser extent. PORTFOLIO STRATEGY Within the portfolio, we continued to emphasize floating-rate municipal notes, which comprised more than 90% of the portfolio throughout the six-month period. Most of the portfolio's floating-rate notes reset their interest rates on a weekly basis, though some have daily or monthly resets. Although the yields of floating-rate notes tend to be more volatile than their fixed-rate counterparts, the securities we own also offer the most attractive yields in the municipal money market. Our focus on floating-rate notes has been the key to the fund's outperformance during the past six months and over the long term. YIELDS AS OF NOVEMBER 30, 2006 - -------------------------------------------------------------------------------- 7-DAY CURRENT YIELD - -------------------------------------------------------------------------------- 3.20% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE YIELD - -------------------------------------------------------------------------------- 3.25% - -------------------------------------------------------------------------------- 7-DAY TAX-EQUIVALENT CURRENT YIELDS(1) - -------------------------------------------------------------------------------- 25.0% Tax Bracket 4.27% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 4.44% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 4.78% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 4.92% - -------------------------------------------------------------------------------- (1) The tax brackets indicated are for federal taxes only. Actual tax-equivalent yields may be lower, if alternative minimum tax is applicable. *Total returns for periods less than one year are not annualized. (continued) - ------ 4 Tax-Free Money Market - Portfolio Commentary The fund's weighted average maturity remained relatively short during the period, reflecting the substantial floating-rate position. The average maturity fluctuated between 10 and 15 days until the end of June, when we invested in one-year tax and revenue anticipation notes issued by the Philadelphia School District. This transaction caused the fund's average maturity to extend from 10 days to 25 days. The average maturity hovered around 20 days for the remainder of the period. STARTING POINT FOR THE NEXT SIX MONTHS Despite ample evidence of slowing economic growth, the rhetoric from the Fed in late 2006 suggested that lingering inflation concerns remained, which could lead the Fed to resume its program of short-term interest rate hikes. However, the market told a different story--federal funds rate futures indicated that market participants expected the Fed to lower interest rates sometime in the first quarter of 2007. Given the uncertain environment, we planned to maintain our current positioning as of November 30, 2006, while keeping a close eye on inflation data in the coming months. Regardless of market conditions, a municipal money market fund like Tax-Free Money Market can help preserve capital, provide tax-free income, and add stability to a diversified portfolio. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- A-1+ 67% 71% - -------------------------------------------------------------------------------- A-1 33% 29% - -------------------------------------------------------------------------------- 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 11/30/06 5/31/06 - -------------------------------------------------------------------------------- 1-30 days 93% 95% - -------------------------------------------------------------------------------- 31-90 days -- 1% - -------------------------------------------------------------------------------- 91-180 days -- 4% - -------------------------------------------------------------------------------- More than 180 days 7% -- - -------------------------------------------------------------------------------- - ------ 5 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 99.9% ALABAMA - 2.2% - -------------------------------------------------------------------------------- $ 840 Birmingham Public Park & Recreation Board Rev., (Children's Zoo), VRDN, 3.60%, 12/7/06 (LOC: AmSouth Bank) $ 840 - -------------------------------------------------------------------------------- 2,500 Birmingham Special Care Facilities Financing Auth. Rev., (United Cerebral Palsy Project), VRDN, 3.60%, 12/7/06 (LOC: AmSouth Bank) 2,500 - -------------------------------------------------------------------------------- 800 Mobile Industrial Development Board Rev., (Holnam Inc.), VRDN, 3.76%, 12/6/06 (LOC: Bayerische Landesbank) 800 - -------------------------------------------------------------------------------- 1,985 Tuscaloosa Health Care Auth. Rev., (Pine Valley), VRDN, 3.60%, 12/7/06 (LOC: AmSouth Bank) 1,985 - -------------------------------------------------------------------------------- 6,125 - -------------------------------------------------------------------------------- ALASKA - 1.2% - -------------------------------------------------------------------------------- 3,320 Northern Tobacco Securitization Corp. Rev., (MT 279), VRDN, 3.54%, 12/7/06 (LOC: Merril Lynch Capital Services) 3,320 - -------------------------------------------------------------------------------- ARIZONA - 2.8% - -------------------------------------------------------------------------------- 6,750 Maricopa County Industrial Development Auth. Rev., (Michael Pylman Dairies), VRDN, 3.64%, 12/7/06 (LOC: LaSalle Bank N.A) 6,750 - -------------------------------------------------------------------------------- 900 Pima County Industrial Development Auth. Rev., (Tucson Electric), VRDN, 3.55%, 12/6/06 (LOC: Bank of New York) 900 - -------------------------------------------------------------------------------- 7,650 - -------------------------------------------------------------------------------- CALIFORNIA - 3.4% - -------------------------------------------------------------------------------- 1,331 Alameda County Industrial Development Auth. Rev., (Design Workshops), VRDN, 3.68%, 12/7/06 (LOC: Wells Fargo Bank N.A.) 1,331 - -------------------------------------------------------------------------------- 1,022 California Economic Development Financing Auth. Rev., (Wesflex Pipe Manufacturing), VRDN, 3.80%, 12/7/06 (LOC: Wells Fargo Bank N.A.) 1,022 - -------------------------------------------------------------------------------- 7,000 Puttable Floating Option Tax-Exempt Receipts, VRDN, 4.27%, 12/7/06 (LOC: Lloyds Bank plc) 7,000 - -------------------------------------------------------------------------------- 9,353 - -------------------------------------------------------------------------------- COLORADO - 5.8% - -------------------------------------------------------------------------------- 2,985 Arvada Water Enterprise Rev., VRDN, 3.65%, 12/1/06 (FSA) (SBBPA: Dexia Credit Local) 2,985 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $3,625 Colorado Educational & Cultural Facilities Auth. Rev., (Emmanuel School Religion), VRDN, 3.60%, 12/7/06 (LOC: AmSouth Bank) $ 3,625 - -------------------------------------------------------------------------------- 2,100 Colorado Health Facilities Auth. Rev., (Boulder Community Hospital), VRDN, 3.65%, 12/6/06 (LOC: JP Morgan Chase Bank) 2,100 - -------------------------------------------------------------------------------- 5,800 Colorado Housing & Finance Auth. Rev., (Kroger Co.), VRDN, 3.58%, 12/7/06 (LOC: U.S. Bank Trust N.A.) 5,800 - -------------------------------------------------------------------------------- 1,500 Hotchkiss Rev., (Kroger Co.), VRDN, 3.58%, 12/7/06 (LOC: U.S. Bank N.A.) 1,500 - -------------------------------------------------------------------------------- 16,010 - -------------------------------------------------------------------------------- FLORIDA - 6.7% - -------------------------------------------------------------------------------- 6,825 Broward County Health Facilities Auth. Rev., (John Knox Village), VRDN, 3.80%, 12/1/06 (RADIAN) (SBBPA: SunTrust Bank) 6,825 - -------------------------------------------------------------------------------- 4,915 Florida Housing Finance Agency Rev., VRDN, 3.59%, 12/7/06 (LOC: Merrill Lynch Capital Services) (Acquired 2/6/04- 4/19/04, Cost $4,915)(1) 4,915 - -------------------------------------------------------------------------------- 4,300 Miami-Dade County Industrial Development Auth. Rev., (Palmer Trinity Private College), VRDN, 3.55%, 12/7/06 (LOC: Keybank N.A.) 4,300 - -------------------------------------------------------------------------------- 800 Seminole County Industrial Development Auth. Rev., VRDN, 3.68%, 12/7/06 (LOC: Bank of America N.A.) 800 - -------------------------------------------------------------------------------- 1,750 Sunshine State Governmental Financing Commission Rev., VRDN, 3.75%, 12/1/06 (Ambac) (SBBPA: Dexia Credit Local) 1,750 - -------------------------------------------------------------------------------- 18,590 - -------------------------------------------------------------------------------- GEORGIA - 2.7% - -------------------------------------------------------------------------------- 400 City of Atlanta Rev., Series 2002 C, VRDN, 3.60%, 12/1/06 (FSA) (SBBPA: Dexia Credit Local) 400 - -------------------------------------------------------------------------------- 5,495 Fulton County Development Auth. Rev., (Automatic Data Processing), VRDN, 3.63%, 12/15/06 5,495 - -------------------------------------------------------------------------------- 1,450 Macon-Bibb County Hospital Auth. Rev., (Central Georgia Senior Health, Inc. - Carlyle Place), VRDN, 3.65%, 12/1/06 (LOC: SunTrust Bank) 1,450 - -------------------------------------------------------------------------------- 7,345 - -------------------------------------------------------------------------------- HAWAII - 1.8% - -------------------------------------------------------------------------------- 3,000 Hawaii Pacific Health Rev., Series 2004 B, (Department Budget & Finance), VRDN, 3.60%, 12/6/06 (RADIAN) (SBBPA: Bank of Nova Scotia) 3,000 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 6 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $2,000 Hawaii Pacific Health Rev., Series 2004 B2, (Department Budget & Finance), VRDN, 3.60%, 12/6/06 (RADIAN) (SBBPA: Bank of Nova Scotia) $ 2,000 - -------------------------------------------------------------------------------- 5,000 - -------------------------------------------------------------------------------- IDAHO - 1.1% - -------------------------------------------------------------------------------- 3,000 Lincoln County Industrial Development Corp. Rev., (Double A Dairy), VRDN, 3.64%, 12/7/06 (LOC: Bank of America N.A.) 3,000 - -------------------------------------------------------------------------------- INDIANA - 8.9% - -------------------------------------------------------------------------------- 2,800 Jasper County Industrial Development Rev., (Newberry Farms LLC), VRDN, 3.64%, 12/7/06 (LOC: Bank of the West) 2,800 - -------------------------------------------------------------------------------- 5,370 La Porte Industrial Development Rev., (KKO Realty), VRDN, 3.64%, 12/7/06 (LOC: Bank of New York) 5,370 - -------------------------------------------------------------------------------- 1,565 Morgan County Rev., Series 2002 A, (Morgan Hospital & Medical Center), VRDN, 3.61%, 12/7/06 (LOC: Fifth Third Bank) 1,565 - -------------------------------------------------------------------------------- 11,815 Morgan County Rev., Series 2002 B, (Morgan Hospital & Medical Center), VRDN, 3.56%, 12/7/06 (LOC: Fifth Third Bank) 11,815 - -------------------------------------------------------------------------------- 3,250 Vincennes Economic Development Rev., (Grandview Care Inc.), VRDN, 3.75%, 12/7/06 (LOC: JP Morgan Chase Bank) 3,250 - -------------------------------------------------------------------------------- 24,800 - -------------------------------------------------------------------------------- KENTUCKY - 0.7% - -------------------------------------------------------------------------------- 1,000 Murray Industrial Building Rev., (Kroger Co.), VRDN, 3.58%, 12/7/06 (LOC: U.S. Bank N.A.) 1,000 - -------------------------------------------------------------------------------- 1,000 Winchester Industrial Building Rev., (Kroger Co.), VRDN, 3.58%, 12/7/06 (LOC: U.S. Bank N.A.) 1,000 - -------------------------------------------------------------------------------- 2,000 - -------------------------------------------------------------------------------- LOUISIANA - 4.6% - -------------------------------------------------------------------------------- 2,800 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Trinity Episcopal School), VRDN, 3.59%, 12/6/06 (LOC: SunTrust Bank) 2,800 - -------------------------------------------------------------------------------- 10,000 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., Series 2006 A, VRDN, 3.58%, 12/7/06 (Ambac) (SBBPA: BNP Paribas) 10,000 - -------------------------------------------------------------------------------- 12,800 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MARYLAND - 0.3% - -------------------------------------------------------------------------------- $ 725 Maryland Economic Development Corp. Rev., Series 2002 B, (Federation of American Societies), VRDN, 3.59%, 12/6/06 (LOC: SunTrust Bank) $ 725 - -------------------------------------------------------------------------------- MASSACHUSSETTS - 2.5% - -------------------------------------------------------------------------------- 4,900 Massachusetts Development Finance Agency Rev., (Wentworth Technology Institute), VRDN, 3.55%, 12/7/06 (RADIAN) (SBBPA: Bank of New York) 4,900 - -------------------------------------------------------------------------------- 2,000 Massachusetts Development Finance Agency Rev., Series 2004 A, (Northfield Mount Hermon), VRN, 3.55%, 12/7/06 (RADIAN) (SBBPA: Bank of America N.A.) 2,000 - -------------------------------------------------------------------------------- 6,900 - -------------------------------------------------------------------------------- MICHIGAN - 0.5% - -------------------------------------------------------------------------------- 1,440 Detroit GO, 4.50%, 3/1/07 (LOC: Bank of Nova Scotia) 1,443 - -------------------------------------------------------------------------------- MINNESOTA - 4.9% - -------------------------------------------------------------------------------- 6,940 Dakota County Community Development Agency Rev., (Catholic Finance Corp.), VRDN, 3.65%, 12/6/06 (LOC: U.S. Bank N.A.) 6,940 - -------------------------------------------------------------------------------- 6,500 East Grand Forks Rev., (American Crystal Sugar Co.), VRDN, 3.64%, 12/7/06 (LOC: Wachovia Bank N.A.) 6,500 - -------------------------------------------------------------------------------- 13,440 - -------------------------------------------------------------------------------- MISSISSIPPI - 0.9% - -------------------------------------------------------------------------------- 2,570 Mississippi Business Finance Corp. Rev., Series 2004 B, VRDN, 3.75%, 12/7/06 (LOC: Wells Fargo Bank N.A.) 2,570 - -------------------------------------------------------------------------------- MISSOURI - 7.1% - -------------------------------------------------------------------------------- 6,700 Jackson County Industrial Development Auth. Rev., (Linda Hall Library), VRDN, 3.59%, 12/7/06 (LOC: Commerce Bank N.A.) 6,700 - -------------------------------------------------------------------------------- 2,480 Kansas City Industrial Development Auth. Rev., (Plaza Manor Nursing), VRDN, 3.63%, 12/7/06 (LOC: Comerica Bank) 2,480 - -------------------------------------------------------------------------------- 1,060 Missouri Development Finance Board Rev., (J & J Enterprises), VRDN, 3.57%, 12/6/06 (LOC: Commerce Bank N.A.) 1,060 - -------------------------------------------------------------------------------- 9,250 Missouri State Health & Educational Facilities Auth. COP, (Pembroke Hill School), VRDN, 3.59%, 12/7/06 (LOC: Commerce Bank N.A.) 9,250 - -------------------------------------------------------------------------------- 19,490 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 7 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- NEVADA - 1.3% - -------------------------------------------------------------------------------- $3,600 Clark County Economic Development Rev., (Lutheran Secondary School Association), VRDN, 3.70%, 12/7/06 (LOC: Allied Irish Bank plc) $ 3,600 - -------------------------------------------------------------------------------- NEW YORK - 2.6% - -------------------------------------------------------------------------------- 7,300 TSASC Inc. Rev., PA-1356, VRDN, 3.54%, 12/7/06 (LOC: Merrill Lynch Capital Services) 7,300 - -------------------------------------------------------------------------------- NORTH CAROLINA - 6.4% - -------------------------------------------------------------------------------- 1,480 North Carolina Medical Care Commission Retirement Facilities Rev., (Aldersgate), VRDN, 3.50%, 12/6/06 (LOC: Branch Banking & Trust) 1,480 - -------------------------------------------------------------------------------- 11,900 North Carolina Medical Care Commission Retirement Facilities Rev., Series 2001 C, (Village at Brookwood), VRDN, 3.60%, 12/6/06 (LOC: Branch Banking & Trust)(2) 11,900 - -------------------------------------------------------------------------------- 3,100 North Carolina Medical Care Commission Rev., (Carol Woods), VRDN, 3.69%, 12/1/06 (RADIAN) (SBBPA: Branch Banking & Trust) 3,100 - -------------------------------------------------------------------------------- 1,310 University of North Carolina System Pool Rev., Series 2006 A, 4.00%, 10/1/07 (MBIA) 1,315 - -------------------------------------------------------------------------------- 17,795 - -------------------------------------------------------------------------------- OHIO - 0.5% - -------------------------------------------------------------------------------- 1,435 County of Hamilton Rev., Series 2006 A, (Sales Tax), 4.00%, 12/1/07(3) 1,440 - -------------------------------------------------------------------------------- PENNSYLVANIA - 4.0% - -------------------------------------------------------------------------------- 10,750 Philadelphia School District Tax & Revenue Anticipation Notes GO, Series 2006 A, 4.50%, 6/29/07 (State Aid Withholding) (LOC: Bank of America N.A.) 10,792 - -------------------------------------------------------------------------------- SOUTH CAROLINA - 3.0% - -------------------------------------------------------------------------------- 8,150 South Carolina Jobs Economic Development Auth Rev., (Greenville Technical College), VRDN, 3.55%, 12/7/06 (LOC: SunTrust Bank) 8,150 - -------------------------------------------------------------------------------- TENNESSEE - 7.6% - -------------------------------------------------------------------------------- 7,880 Bradley County Industrial Development Board Rev., (Kroger Co.), VRDN, 3.58%, 12/7/06 (LOC: U.S. Bank N.A.) 7,880 - -------------------------------------------------------------------------------- 8,040 Shelby County Health Educational & Housing Facilities Board Rev., (Kings Daughter & Sons), VRDN, 3.60%, 12/7/06 (LOC: AmSouth Bank) 8,040 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $5,000 Springfield Health & Educational Facilities Board Rev., Series 2006 A, (NorthCrest Medical Center), VRDN, 3.58%, 12/7/06 (LOC: AmSouth Bank) $ 5,000 - -------------------------------------------------------------------------------- 20,920 - -------------------------------------------------------------------------------- TEXAS - 13.0% - -------------------------------------------------------------------------------- 10,000 Crawford Education Facilities Corp. Rev., (University Package System A), VRDN, 3.57%, 12/7/06 (LOC: BNP Paribas) 10,001 - -------------------------------------------------------------------------------- 5,500 Gulf Coast Industrial Development Auth. Rev., (Petrounited Term Inc.), VRDN, 3.53%, 12/7/06 (LOC: BNP Paribas) 5,500 - -------------------------------------------------------------------------------- 3,000 Hale County Industrial Development Corp. Rev., (Struikmans), VRDN, 3.64%, 12/7/06 (LOC: Bank of the West) 3,000 - -------------------------------------------------------------------------------- 4,000 Hale County Industrial Development Corp. Rev., (White River Ranch), VRDN, 3.64%, 12/7/06 (LOC: Wells Fargo Bank N.A.) 4,000 - -------------------------------------------------------------------------------- 5,500 Muleshoe Economic Development Corp. Rev., (John Lyle & Grace Ajean), VRDN, 3.64%, 12/7/06 (LOC: Wells Fargo Bank N.A.) 5,500 - -------------------------------------------------------------------------------- 3,355 San Antonio Education Facilities Corp. Rev., Series 2004 A, (Phase 1 Dormitory), VRDN, 3.73%, 12/7/06 (LOC: Allied Irish Bank plc) 3,355 - -------------------------------------------------------------------------------- 2,500 Texas Tax & Revenue Anticipation Notes Rev., 4.50%, 8/31/07 2,517 - -------------------------------------------------------------------------------- 2,000 Upper Trinity Regional Water District, 3.65%, 6/18/07 (LOC: Bank of America N.A.) 2,000 - -------------------------------------------------------------------------------- 35,873 - -------------------------------------------------------------------------------- VIRGINIA - 0.8% - -------------------------------------------------------------------------------- 2,100 Bristol Industrial Development Auth. Rev., (Bristol Health Care Center Inc.), VRDN, 3.65%, 12/1/06 (LOC: Regions Bank) 2,100 - -------------------------------------------------------------------------------- WEST VIRGINIA - 1.4% - -------------------------------------------------------------------------------- 4,000 West Virginia Economic Development Auth. Rev., (Collins Hardwood Co.), VRDN, 3.64%, 12/7/06 (LOC: Bank of America N.A.) 4,000 - -------------------------------------------------------------------------------- WISCONSIN - 0.7% - -------------------------------------------------------------------------------- 1,905 Wisconsin Health & Educational Facilities Auth. Rev., Series 2006 A, (Marshfield Clinic), VRDN, 3.56%, 12/7/06 (LOC: Merrill Lynch Capital Services) 1,905 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 8 Tax-Free Money Market - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- WYOMING - 0.5% - -------------------------------------------------------------------------------- $1,500 City of Gillette Pollution Control Rev., (PacifiCorp), VRDN, 3.56%, 12/6/06 (LOC: Barclay's Bank plc) $ 1,500 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 99.9% 275,936 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 0.1% 154 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $276,090 ================================================================================ NOTES TO SCHEDULE OF INVESTMENTS Ambac = Ambac Assurance Corporation COP = Certificates of Participation 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 Note. Interest reset date is indicated. Rate shown is effective November 30, 2006. (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, 2006 was $4,915 (in thousands), which represented 1.8% of total net assets. (2) Security, or a portion thereof, has been segregated for a when-issued security. (3) When-issued security. See Notes to Financial Statements. - ------ 9 Tax-Free Bond - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2006 ---------------------------------- AVERAGE ANNUAL RETURNS - ---------------------------------------------------------------------------------------------------- SINCE INCEPTION 6 MONTHS(1) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - ---------------------------------------------------------------------------------------------------- INVESTOR CLASS 3.88% 5.23% 4.39% 4.94% 5.49% 3/2/87 - ---------------------------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 2.96% 4.07% 4.01% 4.70% 5.57%(2) -- - ---------------------------------------------------------------------------------------------------- AVERAGE RETURN OF LIPPER'S INTERMEDIATE MUNICIPAL DEBT FUNDS(3) 3.48% 4.58% 4.00% 4.55% 5.63%(4) -- - ---------------------------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 11/30/06(3) -- 28 of 158 32 of 107 14 of 71 8 of 12(4) -- - ---------------------------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 12/31/06(3) -- 29 of 159 32 of 107 15 of 70 8 of 12(4) -- - ---------------------------------------------------------------------------------------------------- Institutional Class 3.98% 5.44% -- -- 3.84% 4/15/03 - ---------------------------------------------------------------------------------------------------- Advisor Class 3.75% 4.98% -- -- 3.94% 7/29/05 - ---------------------------------------------------------------------------------------------------- (1) Total returns for periods less than one year are not annualized. (2) Since 2/28/87, the date nearest the Investor Class's inception for which data are available. (3) Data provided by Lipper Inc. - A Reuters Company. (c) 2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown and are based on average annual total returns. This listing might not represent the complete universe of funds tracked by Lipper. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (4) Since 3/31/87, the date nearest the Investor Class's inception for which data are available. Data presented reflect past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, and redemption value may be more or less than original cost. To obtain performance data current to the most recent month end, please call 1-800-345-2021 or visit americancentury.com. As interest rates rise, bond values will decline. Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax. 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) - ------ 10 Tax-Free Bond - Performance GROWTH OF $10,000 OVER 10 YEARS
$10,000 investment made November 30, 1996 ONE-YEAR RETURNS OVER 10 YEARS Periods ended November 30 - ------------------------------------------------------------------------------------------------- 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 - ------------------------------------------------------------------------------------------------- Investor Class 5.66% 6.77% -0.24% 7.29% 8.25% 6.02% 5.72% 2.14% 2.90% 5.23% - ------------------------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 5.38% 6.32% 1.49% 5.62% 8.24% 6.47% 5.72% 2.36% 1.52% 4.07% - ------------------------------------------------------------------------------------------------- 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. - ------ 11 Tax-Free Bond - Portfolio Commentary LEAD PORTFOLIO MANAGERS: ROBERT MILLER AND STEVEN PERMUT PERFORMANCE SUMMARY Tax-Free Bond returned 3.88%* for the six months ended November 30, 2006, the fund's best semiannual-report return since November 30, 2000. The fund's peer group -- represented by the average return of Lipper's Intermediate Municipal Debt Funds -- returned 3.48%. The Lehman Brothers Municipal 5-Year GO Index--indicative of the performance of intermediate-term municipal bonds--returned 2.96%. As discussed in the Market Perspective on page 2, slower U.S. economic growth, the Fed's interest rate pause, and forecasts of slow growth and lower interest rates in 2007 drove these returns. Municipal bonds finished the reporting period with flair, posting their second-biggest November gains since 1999, according to Lehman Brothers. Seeking yield, investors gravitated toward lower-rated and longer-maturity municipal securities. As a result, the yield gap (spread) between short- and long-term securities decreased, and spreads between investment- and non-investment-grade municipals remained relatively narrow. Several of our strategies capitalized on these trends, helping to explain Tax-Free Bond's relative outperformance. Over time, our repeatable, multi-layered investment approach has provided investors with relative outperformance. For the period ended November 30, 2006, Tax-Free Bond ranked among the top 20% of its Lipper peer group for the past one and 10 years, and among the top 30% based on five-year performance. DURATION MATTERED MOST We extended Tax-Free Bond's duration (interest rate sensitivity) near the beginning of the reporting period in anticipation of a municipal market rally. We believe we extended duration approximately two-tenths of a year longer than the Lipper group average for much of the period. A bond rally from the end of June to the end of November rewarded this position -- the portfolio's greater sensitivity to interest rate changes translated to more bond price appreciation. Part of the duration extension took place in June, the start of what has traditionally been a strong technical period for municipal bonds. Unfortunately, the greater interest rate sensitivity worked against us when bonds slumped that month, tempering performance as the duration extended further. However, our strategy paid off in the third quarter of 2006 and in November as municipal bonds rallied. YIELDS AS OF NOVEMBER 30, 2006 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 3.42% - -------------------------------------------------------------------------------- Institutional Class 3.62% - -------------------------------------------------------------------------------- Advisor Class 3.17% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.0% Tax Bracket 4.56% - -------------------------------------------------------------------------------- 28.0% Tax Bracket 4.75% - -------------------------------------------------------------------------------- 33.0% Tax Bracket 5.10% - -------------------------------------------------------------------------------- 35.0% Tax Bracket 5.26% - -------------------------------------------------------------------------------- (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 referenced in this commentary are for Investor Class shares. Total returns for periods less than one year are not annualized. (continued) - ------ 12 Tax-Free Bond - Portfolio Commentary OTHER EFFECTIVE STRATEGIES We also believe we concentrated more of the portfolio in short- and long-term bonds than what was typical in the fund's Lipper peer group. We expected the spread between two- and 30-year AAA municipal bonds to contract further. Our "barbell strategy" was rewarded by a nearly 50 basis-point spread narrowing, which boosted performance. Also, anticipating that lower-rated (BBB) investment-grade bonds would prop up Tax-Free Bond's yield while enhancing the fund's return, we maintained what we considered to be a relatively overweight position in these securities. According to Lehman Brothers, BBB municipal bonds outperformed AAA equivalents by approximately 117 basis points (1.17% -- a basis point equals 0.01%) during the reporting period, rewarding this strategy in June and October in particular. Lastly, we continued to monitor seasonal fluctuations in bond supply among the various states. Reflecting these efforts, our larger portfolio shifts included selling some of our New Jersey bonds into what we considered above-average demand, adding Illinois securities at what seemed attractive prices, and liquidating Florida municipal bonds ahead of the elimination of Florida's Intangible Personal Property Tax. OUR STARTING POINT FOR THE NEXT SIX MONTHS As of November 30, 2006, we still expected most of the portfolio strategies outlined in this commentary to generate favorable results. However, municipal bond issuance increased toward the end of the reporting period--partially reversing the dearth of new municipal bond supply that supported prices through much of 2006--so we trimmed the fund's duration. Also, we expect the Treasury yield curve to "steepen" in 2007, where long-term yields revert to more typical levels above short-term yields (Treasury yields were in an "inverted" position on November 30, with short-term higher than long-term). In a move we believe will help fund performance, we established a "Treasury overlay" (using Treasury futures contracts), a relatively small position that will perform well if the Treasury yield curve steepens as anticipated. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- AAA 66% 73% - -------------------------------------------------------------------------------- AA 10% 3% - -------------------------------------------------------------------------------- A 7% 5% - -------------------------------------------------------------------------------- BBB 17% 19% - -------------------------------------------------------------------------------- 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, 2006 - -------------------------------------------------------------------------------- % OF NET % OF NET ASSETS ASSETS AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- Washington 8.7% 7.0% - -------------------------------------------------------------------------------- Texas 7.8% 10.8% - -------------------------------------------------------------------------------- Illinois 7.6% 3.6% - -------------------------------------------------------------------------------- Arizona 5.7% 8.8% - -------------------------------------------------------------------------------- New Jersey 5.6% 10.6% - -------------------------------------------------------------------------------- - ------ 13 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.9% ALABAMA - 0.9% - -------------------------------------------------------------------------------- $ 865 Alabama Water Pollution Control Auth. GO, 5.75%, 8/15/18 (Ambac)(1) $ 932 - -------------------------------------------------------------------------------- 190 East Central Industrial Development Auth. Rev., 5.25%, 9/1/08, Prerefunded at 100% of Par (Ambac)(2) 196 - -------------------------------------------------------------------------------- 810 East Central Industrial Development Auth. Rev., 5.25%, 9/1/13 (Ambac) 833 - -------------------------------------------------------------------------------- 840 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(2) 936 - -------------------------------------------------------------------------------- 645 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(2) 719 - -------------------------------------------------------------------------------- 1,035 Helena Utilities Board Rev., 5.75%, 4/1/20 (MBIA) 1,148 - -------------------------------------------------------------------------------- 790 Helena Utilities Board Rev., 5.75%, 4/1/22 (MBIA) 874 - -------------------------------------------------------------------------------- 5,638 - -------------------------------------------------------------------------------- ALASKA - 0.2% - -------------------------------------------------------------------------------- 1,125 Borough of Aleutians East Rev., (Aleutian Pribilof Islands Inc.), 5.00%, 6/1/20 (ACA) 1,181 - -------------------------------------------------------------------------------- ARIZONA - 5.5% - -------------------------------------------------------------------------------- 935 Arizona Board of Regents COP, Series 2006 A, (University of Arizona), 5.00%, 6/1/18 (Ambac) 1,025 - -------------------------------------------------------------------------------- 1,275 Arizona Health Facilities Auth. Rev., (Blood Systems Incorporated), 4.00%, 4/1/12 1,279 - -------------------------------------------------------------------------------- 1,175 Arizona Health Facilities Auth. Rev., (Blood Systems Incorporated), 4.50%, 4/1/16 1,204 - -------------------------------------------------------------------------------- 1,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/11 1,039 - -------------------------------------------------------------------------------- 1,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/12 1,044 - -------------------------------------------------------------------------------- 2,000 Arizona Tourism & Sports Auth. Rev., Series 2003 A, (Multipurpose Stadium Facility), 5.25%, 7/1/17 (MBIA) 2,182 - -------------------------------------------------------------------------------- 2,130 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/12 (MBIA) 2,237 - -------------------------------------------------------------------------------- 340 Gilbert Water Resource Municipal Property Corp. Rev., 4.25%, 4/1/11 339 - -------------------------------------------------------------------------------- 3,000 Gilbert Water Resource Municipal Property Corp. Rev., (Development Fee & Sub-Lien), 4.90%, 4/1/19 3,054 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,155 Maricopa County Gilbert Unified School District No. 41 GO, 5.75%, 7/1/11 (FSA) $ 1,265 - -------------------------------------------------------------------------------- 2,415 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/11 2,541 - -------------------------------------------------------------------------------- 2,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/12 2,119 - -------------------------------------------------------------------------------- 1,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/20 (MBIA) 1,073 - -------------------------------------------------------------------------------- 2,155 Mohave County Industrial Development Auth. GO, Series 2004 A, (Mohave Prison), 5.00%, 4/1/14 (XLCA) 2,335 - -------------------------------------------------------------------------------- 1,200 Pima County Indian Oasis-Baboquivari Unified School District No. 40 GO, Series 2002 A, 4.60%, 7/1/13 (MBIA) 1,264 - -------------------------------------------------------------------------------- 2,600 Pima County Tucson Unified School District No. 1 GO, 4.625%, 7/1/13 (FSA) 2,745 - -------------------------------------------------------------------------------- 3,970 Pinal County COP, 5.00%, 12/1/25 4,171 - -------------------------------------------------------------------------------- 1,000 Queen Creek Improvement District No. 1 Special Tax Rev., 5.00%, 1/1/16 1,037 - -------------------------------------------------------------------------------- 3,085 South Tucson Municipal Property Corp. Rev., 5.50%, 6/1/24 3,235 - -------------------------------------------------------------------------------- 35,188 - -------------------------------------------------------------------------------- CALIFORNIA - 4.7% - -------------------------------------------------------------------------------- 7,500 California GO, 5.00%, 6/1/26(1) 8,001 - -------------------------------------------------------------------------------- 1,000 California Public Works Board Lease COP, Series 1994 A, (Various University of California Projects), 6.20%, 10/1/08 1,002 - -------------------------------------------------------------------------------- 1,000 California Statewide Communities Auth. Rev., Series 2002 E, (Kaiser Permanente), 4.70%, 6/1/09 1,025 - -------------------------------------------------------------------------------- 1,075 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.00%, 10/1/12 (FSA) 1,161 - -------------------------------------------------------------------------------- 2,000 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.25%, 10/1/19 (FSA)(1) 2,197 - -------------------------------------------------------------------------------- 3,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (Ambac) 3,248 - -------------------------------------------------------------------------------- 2,200 Manteca Unified School District GO, 5.25%, 8/1/14, Prerefunded at 100% of Par (FSA)(2) 2,463 - -------------------------------------------------------------------------------- 1,000 Plumas Unified School District GO, 5.25%, 8/1/20 (FSA) 1,149 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 14 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $2,145 San Francisco Uptown Parking Corporation Rev., (Union Square), 5.50%, 7/1/15 (MBIA) $ 2,341 - -------------------------------------------------------------------------------- 1,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/20 (MBIA) 1,114 - -------------------------------------------------------------------------------- 2,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/31 (MBIA) 2,210 - -------------------------------------------------------------------------------- 1,575 San Marcos Public Facilities Auth. Tax Allocation Rev., Series 2006 A (Project Area No. 3), 5.00%, 8/1/20 (Ambac) 1,723 - -------------------------------------------------------------------------------- 2,055 Westlands Water District COP, Series 2005 A, 5.00%, 9/1/24 (MBIA) 2,197 - -------------------------------------------------------------------------------- 29,831 - -------------------------------------------------------------------------------- COLORADO - 2.7% - -------------------------------------------------------------------------------- 1,100 Arapahoe County Water & Wastewater Public Improvement District GO, Series 2002 B, 5.75%, 12/1/17 (MBIA) 1,225 - -------------------------------------------------------------------------------- 530 Colorado Educational & Cultural Facilities Auth. Rev., (University Facilities-Northwest Nazarene), 4.50%, 11/1/09 531 - -------------------------------------------------------------------------------- 900 Colorado Educational & Cultural Facilities Auth. Rev., (University Facilities-Northwest Nazarene), 4.75%, 11/1/10 912 - -------------------------------------------------------------------------------- 800 Colorado Educational & Cultural Facilities Auth. Rev., (University Facilities-Northwest Nazarene), 4.60%, 11/1/16 800 - -------------------------------------------------------------------------------- 1,000 Colorado Health Facilities Auth. Rev., (The Evangelical Lutheran Good Samaritan Society), 5.25%, 6/1/20 1,076 - -------------------------------------------------------------------------------- 1,300 Colorado Health Facilities Auth. Rev., (The Evangelical Lutheran Good Samaritan Society), 5.25%, 6/1/21 1,397 - -------------------------------------------------------------------------------- 500 Colorado Health Facilities Auth. Rev., (Vail Valley Medical Center), 4.00%, 1/15/07 500 - -------------------------------------------------------------------------------- 335 Colorado Health Facilities Auth. Rev., (Vail Valley Medical Center), 4.50%, 1/15/09 339 - -------------------------------------------------------------------------------- 450 Colorado Water Resources & Power Development Auth. Rev., Series 2000 A, 6.25%, 9/1/10, Prerefunded at 100% of Par(2) 493 - -------------------------------------------------------------------------------- 50 Colorado Water Resources & Power Development Auth. Rev., Series 2000 A, 6.25%, 9/1/16 55 - -------------------------------------------------------------------------------- 1,430 Denver West Metropolitan District GO, 5.25%, 12/1/24 1,485 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,000 Douglas & Elbert Counties School District No. Re-1 GO, Series 2002 B, 5.75%, 12/15/12, Prerefunded at 100% of Par (FSA/State Aid Withholding)(2) $ 1,119 - -------------------------------------------------------------------------------- 1,100 Eagle Bend Metropolitan District No. 2 GO, 5.25%, 12/1/23 (RADIAN) 1,177 - -------------------------------------------------------------------------------- 1,020 El Paso County School District No. 8 & Fountain-Fort Carson School District Finance Corp. COP, 4.25%, 12/15/13 (Ambac) 1,051 - -------------------------------------------------------------------------------- 5,000 University of Colorado Regents COP, 6.00%, 12/1/22 (MBIA-IBC)(1) 5,453 - -------------------------------------------------------------------------------- 17,613 - -------------------------------------------------------------------------------- CONNECTICUT - 2.0% - -------------------------------------------------------------------------------- 2,150 City of Bridgeport GO, Series 2004 A, 5.25%, 8/15/14, Prerefunded at 100% of Par (MBIA)(1)(2) 2,396 - -------------------------------------------------------------------------------- 5,000 Connecticut GO, Series 2006 C, 5.00%, 6/1/14(1) 5,469 - -------------------------------------------------------------------------------- 2,595 Connecticut GO, Series 2006 D, 5.00%, 1/1/15(1) 2,868 - -------------------------------------------------------------------------------- 2,000 Connecticut GO, Series 2006 D, 5.00%, 11/1/26(1) 2,184 - -------------------------------------------------------------------------------- 12,917 - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA - 0.4% - -------------------------------------------------------------------------------- 1,385 District of Columbia GO, Series 1999 B, 5.50%, 6/1/09 (FSA) 1,450 - -------------------------------------------------------------------------------- 1,155 District of Columbia Rev., (Gonzaga College High School), 5.20%, 7/1/12 (FSA) 1,210 - -------------------------------------------------------------------------------- 2,660 - -------------------------------------------------------------------------------- FLORIDA - 1.1% - -------------------------------------------------------------------------------- 1,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/16 1,087 - -------------------------------------------------------------------------------- 3,495 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/17 3,784 - -------------------------------------------------------------------------------- 500 Highlands County Health Facilities Auth. Rev., Series 2005 B, (Adventist Health), 5.00%, 11/15/09 517 - -------------------------------------------------------------------------------- 500 Highlands County Health Facilities Auth. Rev., Series 2005 B, (Adventist Health), 5.00%, 11/15/10 522 - -------------------------------------------------------------------------------- 1,000 Orlando Utilities Commission Water & Electric Rev., Series 1989 D, 6.75%, 10/1/17(2) 1,208 - -------------------------------------------------------------------------------- 7,118 - -------------------------------------------------------------------------------- GEORGIA - 0.4% - -------------------------------------------------------------------------------- 1,250 Fulton County Development Auth. Rev., Series 2001 A, (TUFF/Atlanta Housing, LLC Project at Georgia State University), 5.50%, 9/1/18 (Ambac) 1,371 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 15 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 255 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/09, Prerefunded at 100% of Par (MBIA-IBC)(2) $ 266 - -------------------------------------------------------------------------------- 20 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/11 (MBIA-IBC) 22 - -------------------------------------------------------------------------------- 110 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12, Prerefunded at 100% of Par (MBIA-IBC)(2) 122 - -------------------------------------------------------------------------------- 615 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC) 671 - -------------------------------------------------------------------------------- 2,452 - -------------------------------------------------------------------------------- HAWAII - 0.1% - -------------------------------------------------------------------------------- 500 Maui County GO, Series 2000 A, 6.50%, 3/1/10, Prerefunded at 101% of Par (FGIC)(2) 550 - -------------------------------------------------------------------------------- IDAHO - 0.2% - -------------------------------------------------------------------------------- 1,000 Blaine County Hailey School District No. 61 GO, 5.00%, 7/30/10 (Ambac) 1,053 - -------------------------------------------------------------------------------- ILLINOIS - 7.6% - -------------------------------------------------------------------------------- 2,000 Bedford Park GO, Series 2004 A, 5.25%, 12/15/20 (FSA)(1) 2,201 - -------------------------------------------------------------------------------- 4,000 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 5.00%, 1/1/12 (MBIA-IBC)(1) 4,250 - -------------------------------------------------------------------------------- 1,015 City of Chicago Rev., Series 2006 A, 5.00%, 11/1/13 (Ambac) 1,101 - -------------------------------------------------------------------------------- 3,310 City of Chicago Rev., Series 2006 A, 5.00%, 11/1/14 (Ambac)(1) 3,619 - -------------------------------------------------------------------------------- 2,000 Illinois Dedicated Tax Rev., (Civic Center), 6.25%, 12/15/20 (Ambac) 2,431 - -------------------------------------------------------------------------------- 595 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.00%, 5/15/08 604 - -------------------------------------------------------------------------------- 655 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.125%, 5/15/10 678 - -------------------------------------------------------------------------------- 400 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.75%, 5/15/16 428 - -------------------------------------------------------------------------------- 1,775 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/09 1,812 - -------------------------------------------------------------------------------- 1,000 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/10 1,030 - -------------------------------------------------------------------------------- 2,785 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/11 2,894 - -------------------------------------------------------------------------------- 3,535 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/13 3,724 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $3,895 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/14 $ 4,116 - -------------------------------------------------------------------------------- 4,095 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/15 4,335 - -------------------------------------------------------------------------------- 1,000 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.25%, 5/1/19 1,071 - -------------------------------------------------------------------------------- 1,140 Illinois Health Facilities Auth. Rev., Series 1992 C, (Evangelical Hospital), 6.75%, 4/15/12(2) 1,257 - -------------------------------------------------------------------------------- 1,000 Illinois Regional Transportation Auth. Rev., Series 1990 A, 7.20%, 11/1/20 (Ambac) 1,263 - -------------------------------------------------------------------------------- 930 Kane County Community Unit School District No. 304 GO, 6.20%, 1/1/24 (FSA) 1,092 - -------------------------------------------------------------------------------- 1,145 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (MBIA)(2) 1,273 - -------------------------------------------------------------------------------- 1,035 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (MBIA)(2) 1,151 - -------------------------------------------------------------------------------- 70 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/17 (MBIA) 78 - -------------------------------------------------------------------------------- 75 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/18 (MBIA) 83 - -------------------------------------------------------------------------------- 2,165 Southwestern Illinois Development Auth. Rev., (Anderson Hospital), 5.125%, 8/15/16(3) 2,313 - -------------------------------------------------------------------------------- 1,000 Southwestern Illinois Development Auth. Rev., (Triad School District No. 2), 5.00%, 10/1/18 (MBIA/GO of District) 1,098 - -------------------------------------------------------------------------------- 1,250 Town of Cicero GO, Series 2005 A, 5.25%, 1/1/20 (XLCA) 1,370 - -------------------------------------------------------------------------------- 1,000 Town of Cicero GO, Series 2005 A, 5.25%, 1/1/21 (XLCA) 1,095 - -------------------------------------------------------------------------------- 1,000 University of Illinois COP, (Utility Infrastructure), 5.75%, 8/15/08 (MBIA) 1,035 - -------------------------------------------------------------------------------- 1,000 University of Illinois COP, Series 2006 A, (Academic Facilities), 5.00%, 3/15/16 (Ambac) 1,096 - -------------------------------------------------------------------------------- 48,498 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 16 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- INDIANA - 2.7% - -------------------------------------------------------------------------------- $1,405 Hammond Multi-School Building Corp. Rev., (First Mortgage), 5.00%, 7/15/14 (FGIC/State Aid Withholding) $ 1,531 - -------------------------------------------------------------------------------- 1,520 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/17 (FSA) 1,676 - -------------------------------------------------------------------------------- 1,600 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/18 (FSA) 1,759 - -------------------------------------------------------------------------------- 1,680 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/19 (FSA) 1,840 - -------------------------------------------------------------------------------- 1,075 Indiana Health & Educational Facilities Finance Auth. Rev., (Clarian Health Obligation Group B), 5.00%, 2/15/16 1,156 - -------------------------------------------------------------------------------- 1,900 Indiana Health Facilities Financing Auth. Hospital Rev., (Holy Cross Health System Corp.), 5.375%, 12/1/12 (MBIA) 1,963 - -------------------------------------------------------------------------------- 780 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15 940 - -------------------------------------------------------------------------------- 220 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15, Prerefunded at 100% of Par(2) 246 - -------------------------------------------------------------------------------- 1,435 Indianapolis Local Public Improvement Bond Bank Rev., Series 2002 A, 5.00%, 7/1/12 (MBIA) 1,539 - -------------------------------------------------------------------------------- 1,500 Mount Vernon of Hancock County Multi-School Building Corp. Rev., Series 2001 B, (First Mortgage), 5.75%, 7/15/11, Prerefunded at 100% of Par (Ambac)(2) 1,640 - -------------------------------------------------------------------------------- 1,650 Valparaiso Middle Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/11, Prerefunded at 100% of Par (FGIC)(2) 1,801 - -------------------------------------------------------------------------------- 1,000 Zionsville Community Schools Building Corp. GO, (First Mortgage), 5.75%, 1/15/12 (FGIC/State Aid Withholding) 1,101 - -------------------------------------------------------------------------------- 17,192 - -------------------------------------------------------------------------------- IOWA - 0.5% - -------------------------------------------------------------------------------- 1,485 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/13 1,555 - -------------------------------------------------------------------------------- 1,690 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/16 1,779 - -------------------------------------------------------------------------------- 3,334 - -------------------------------------------------------------------------------- KANSAS - 0.4% - -------------------------------------------------------------------------------- 1,280 Wichita Hospital Facilities Rev., Series 2001 III, 5.25%, 11/15/13 1,360 - -------------------------------------------------------------------------------- 1,195 Wichita Hospital Facilities Rev., Series 2001 III, 5.50%, 11/15/16 1,274 - -------------------------------------------------------------------------------- 2,634 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- LOUISIANA - 0.7% - -------------------------------------------------------------------------------- $1,740 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Ascension Parish Library), 5.25%, 4/1/23 (Ambac) $ 1,896 - -------------------------------------------------------------------------------- 1,105 Louisiana Public Facilities Auth. Rev., Series 2006 A, (Black & Gold Facilities), 4.00%, 7/1/13 (CIFG) 1,130 - -------------------------------------------------------------------------------- 1,205 Louisiana Public Facilities Auth. Rev., Series 2006 A, (Black & Gold Facilities), 5.00%, 7/1/15 (CIFG) 1,318 - -------------------------------------------------------------------------------- 4,344 - -------------------------------------------------------------------------------- MASSACHUSSETTS - 0.7% - -------------------------------------------------------------------------------- 2,500 Commonwealth of Massachusetts GO, Series 2006 D, 5.00%, 8/1/14 2,733 - -------------------------------------------------------------------------------- 1,000 Massachusetts Development Finance Agency Rev., Series 2006 A, (Emerson College), 5.00%, 1/1/23 1,076 - -------------------------------------------------------------------------------- 885 Massachusetts Health & Educational Facilities Auth. Rev., Series 1992 F, 6.25%, 7/1/12 (Ambac) 950 - -------------------------------------------------------------------------------- 4,759 - -------------------------------------------------------------------------------- MICHIGAN - 5.1% - -------------------------------------------------------------------------------- 3,500 Detroit GO, Series 2004 A-1, 5.25%, 4/1/23 (Ambac) 3,784 - -------------------------------------------------------------------------------- 1,485 Grand Valley State University Rev., 5.75%, 12/1/10, Prerefunded at 100% of Par (FGIC)(2) 1,608 - -------------------------------------------------------------------------------- 1,265 Kalamazoo Public Schools GO, 4.00%, 5/1/13 (FSA) 1,296 - -------------------------------------------------------------------------------- 1,250 Kalamazoo Public Schools GO, 5.00%, 5/1/15 (FSA) 1,373 - -------------------------------------------------------------------------------- 1,545 Kalamazoo Public Schools GO, 5.25%, 5/1/16 (FSA) 1,736 - -------------------------------------------------------------------------------- 5,000 Michigan Building Auth. Rev., Series 2003 I, (Facilities Program), 5.25%, 10/15/11 (FSA)(1) 5,383 - -------------------------------------------------------------------------------- 2,345 Michigan Higher Education Facilities Auth. Rev., (Limited Obligation - Hillsdale College), 5.00%, 3/1/26 2,459 - -------------------------------------------------------------------------------- 1,070 Pontiac City School District GO, 5.00%, 5/1/13 (XLCA) 1,157 - -------------------------------------------------------------------------------- 1,110 Pontiac City School District GO, 5.00%, 5/1/14 (XLCA) 1,211 - -------------------------------------------------------------------------------- 1,260 Pontiac City School District GO, 5.00%, 5/1/15 (XLCA) 1,384 - -------------------------------------------------------------------------------- 1,425 Pontiac City School District GO, 5.00%, 5/1/16 (XLCA) 1,573 - -------------------------------------------------------------------------------- 1,595 Pontiac City School District GO, 5.00%, 5/1/17 (XLCA) 1,756 - -------------------------------------------------------------------------------- 575 Taylor GO, 5.00%, 9/1/11 (MBIA) 612 - -------------------------------------------------------------------------------- 2,010 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/11 (FGIC) 2,136 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 17 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $2,215 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/13 (FGIC) $ 2,423 - -------------------------------------------------------------------------------- 2,335 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/14 (FGIC) 2,549 - -------------------------------------------------------------------------------- 32,440 - -------------------------------------------------------------------------------- MINNESOTA - 0.8% - -------------------------------------------------------------------------------- 1,500 Minnesota Higher Education Facilities Auth. Rev., Series 2005-6G, (Saint John University), 5.00%, 10/1/12 1,610 - -------------------------------------------------------------------------------- 3,000 St. Paul Housing & Redevelopment Auth. Health Care Facilities Rev., (Healthpartners Obligated Group), 5.25%, 5/15/36 3,195 - -------------------------------------------------------------------------------- 4,805 - -------------------------------------------------------------------------------- MISSISSIPPI - 2.6% - -------------------------------------------------------------------------------- 1,565 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Biloxi, Mississippi), 5.00%, 11/1/15 (Ambac) 1,718 - -------------------------------------------------------------------------------- 1,645 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Biloxi, Mississippi), 5.00%, 11/1/16 (Ambac) 1,814 - -------------------------------------------------------------------------------- 1,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Municipal Energy Agency Power Supply), 5.00%, 3/1/17 (XLCA) 1,092 - -------------------------------------------------------------------------------- 7,925 State of Mississippi GO, (Capital Improvement), 5.25%, 11/1/12, Prerefunded at 100% of Par (FGIC)(1)(2) 8,623 - -------------------------------------------------------------------------------- 1,195 University of Southern Mississippi Rev., Series 2006 A, 5.00%, 3/1/17 (FSA) 1,311 - -------------------------------------------------------------------------------- 1,940 University of Southern Mississippi Rev., Series 2006 A, 5.00%, 3/1/18 (FSA) 2,122 - -------------------------------------------------------------------------------- 16,680 - -------------------------------------------------------------------------------- MISSOURI - 2.5% - -------------------------------------------------------------------------------- 1,145 Jackson County Public Building Corp. COP, Series 2000 A, 6.00%, 11/1/08, Prerefunded at 101% of Par(2) 1,208 - -------------------------------------------------------------------------------- 1,425 Jackson County Public Building Corp. Rev., Series 2006 A, (Capital Improvements), 5.00%, 12/1/15 (MBIA) 1,567 - -------------------------------------------------------------------------------- 2,775 Missouri Development Finance Board COP, Series 2000 A, (Midtown Redevelopment), 5.75%, 4/1/22 (MBIA) 2,956 - -------------------------------------------------------------------------------- 2,650 Missouri Health & Educational Facilities Auth. Rev., Series 1998 A, (Park Lane Medical Center), 5.60%, 1/1/15 (MBIA) 2,823 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $3,145 Missouri Joint Municipal Electric Utility Commission Rev., (Plum Point), 5.00%, 1/1/16 (MBIA) $ 3,470 - -------------------------------------------------------------------------------- 3,030 Missouri State Highways & Transit Commission Rev., Series 2006 A, 5.00%, 5/1/13 3,285 - -------------------------------------------------------------------------------- 1,000 St. Louis Municipal Finance Corp. Rev., Series 2006 A, (Carnahan Courthouse), 4.00%, 2/15/17 (Ambac) 1,016 - -------------------------------------------------------------------------------- 16,325 - -------------------------------------------------------------------------------- NEVADA - 1.1% - -------------------------------------------------------------------------------- 3,295 Las Vegas Redevelopment Agency Tax Increment Rev., Series 2003 A, (Fremont Street), 4.50%, 6/15/10 3,337 - -------------------------------------------------------------------------------- 1,865 Reno Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), (Senior Lien), 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(2) 2,042 - -------------------------------------------------------------------------------- 1,550 Reno Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), (Senior Lien), 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(2) 1,697 - -------------------------------------------------------------------------------- 7,076 - -------------------------------------------------------------------------------- NEW HAMPSHIRE - 1.0% - -------------------------------------------------------------------------------- 1,660 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/11 1,727 - -------------------------------------------------------------------------------- 680 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/12 711 - -------------------------------------------------------------------------------- 1,030 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/13 1,080 - -------------------------------------------------------------------------------- 3,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/18 3,116 - -------------------------------------------------------------------------------- 6,634 - -------------------------------------------------------------------------------- NEW JERSEY - 5.6% - -------------------------------------------------------------------------------- 4,235 New Jersey Transit Corporation COP, 5.00%, 10/1/12 (FSA) 4,532 - -------------------------------------------------------------------------------- 5,595 New Jersey Transit Corporation COP, 5.00%, 10/1/13 (FSA)(1) 6,041 - -------------------------------------------------------------------------------- 7,400 New Jersey Transportation Trust Fund Auth. Rev., Series 2004 B, 5.25%, 12/15/12 (FGIC)(1) 8,068 - -------------------------------------------------------------------------------- 15,000 New Jersey Transportation Trust Fund Auth. Rev., Series 2006 A, 5.25%, 12/15/20(1) 17,147 - -------------------------------------------------------------------------------- 35,788 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 18 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- NEW MEXICO - 1.7% - -------------------------------------------------------------------------------- $2,340 City of Clayton Rev., (Jail Project), 5.00%, 11/1/10 (CIFG)(1) $ 2,449 - -------------------------------------------------------------------------------- 6,675 Los Alamos County Inc. Rev., Series 2004 A, 5.00%, 7/1/11 (FSA)(1) 7,082 - -------------------------------------------------------------------------------- 1,415 San Juan County Gross Receipts Tax Rev., Series 2001 A, 5.75%, 9/15/21 (Ambac) 1,557 - -------------------------------------------------------------------------------- 11,088 - -------------------------------------------------------------------------------- NEW YORK - 5.1% - -------------------------------------------------------------------------------- 2,975 City of New York GO, Series 2002 B, 5.25%, 8/1/09 (CIFG) 3,105 - -------------------------------------------------------------------------------- 2,885 City of New York GO, Series 2002 C, 5.25%, 8/1/09 (CIFG) 3,011 - -------------------------------------------------------------------------------- 5,000 City of New York GO, Series 2003 I, 5.75%, 3/1/13, Prerefunded at 100% of Par(1)(2) 5,619 - -------------------------------------------------------------------------------- 5,195 City of New York GO, Series 2004 D, 5.00%, 11/1/17 (FSA)(1) 5,656 - -------------------------------------------------------------------------------- 4,000 City of New York GO, Series 2006 J-1, 5.00%, 6/1/18(1) 4,355 - -------------------------------------------------------------------------------- 855 Monroe County Industrial Development Agency Rev., (Highland Hospital Rochester), 4.00%, 8/1/09 856 - -------------------------------------------------------------------------------- 710 Monroe County Industrial Development Agency Rev., (Highland Hospital Rochester), 4.00%, 8/1/10 711 - -------------------------------------------------------------------------------- 890 Monroe County Industrial Development Agency Rev., (Highland Hospital Rochester), 4.00%, 8/1/10 891 - -------------------------------------------------------------------------------- 920 Monroe County Industrial Development Agency Rev., (Highland Hospital Rochester), 5.00%, 8/1/11 959 - -------------------------------------------------------------------------------- 2,000 New York City Transitional Finance Auth. Rev., Series 2005 A1, 5.00%, 11/1/10 2,111 - -------------------------------------------------------------------------------- 1,440 New York Dormitory Auth. Rev., Series 1990 A, (UNIC Educational Facilities), 7.50%, 5/15/13 (MBIA-IBC) 1,757 - -------------------------------------------------------------------------------- 1,000 New York Dormitory Auth. Rev., Series 2005 F, 5.00%, 3/15/12 (FSA) 1,072 - -------------------------------------------------------------------------------- 1,125 New York Dormitory Auth. Rev., Series 2006 A, (Department of Education), 5.00%, 7/1/15 1,230 - -------------------------------------------------------------------------------- 1,000 Niagara Falls Bridge Commission Toll Rev., Series 1993 B, 5.25%, 10/1/15 (FGIC) 1,084 - -------------------------------------------------------------------------------- 32,417 - -------------------------------------------------------------------------------- NORTH CAROLINA - 2.3% - -------------------------------------------------------------------------------- 1,000 Charlotte Airport Rev., Series 2004 A, 5.25%, 7/1/24 (MBIA) 1,085 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $2,000 City of Raleigh Combined Enterprise System Rev., Series 2006 A, 5.00%, 3/1/17 $ 2,206 - -------------------------------------------------------------------------------- 1,000 North Carolina Medical Care Commission Rev., (Novant Health Obligated Group), 5.00%, 11/1/34(3) 1,063 - -------------------------------------------------------------------------------- 4,150 North Carolina Medical Care Commission Rev., Series 2004 A, (Health Care Housing - ARC Projects), 5.50%, 10/1/24 4,492 - -------------------------------------------------------------------------------- 1,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., 6.00%, 1/1/10 (MBIA) 1,071 - -------------------------------------------------------------------------------- 2,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 5.50%, 1/1/13 2,177 - -------------------------------------------------------------------------------- 1,560 University of North Carolina Rev., Series 2006 A, 5.00%, 10/1/16 (MBIA) 1,730 - -------------------------------------------------------------------------------- 1,000 University of North Carolina Rev., Series 2006 A, 5.00%, 10/1/33 (MBIA) 1,082 - -------------------------------------------------------------------------------- 14,906 - -------------------------------------------------------------------------------- NORTH DAKOTA - 0.3% - -------------------------------------------------------------------------------- 1,500 Grand Forks Health Care System Rev., (Altru Health System Obligation Group), 7.125%, 8/15/24 1,668 - -------------------------------------------------------------------------------- OHIO - 1.8% - -------------------------------------------------------------------------------- 1,000 Cincinnati City School District COP, 4.25%, 12/15/19 (FSA) 1,020 - -------------------------------------------------------------------------------- 500 Erie County Hospital Facilities Rev., Series 2002 A, (Firelands Regional Medical Center), 4.50%, 8/15/07 502 - -------------------------------------------------------------------------------- 1,150 Mad River Local School District GO, (Classroom Facilities), 5.75%, 12/1/12, Prerefunded at 100% of Par (FGIC)(2) 1,286 - -------------------------------------------------------------------------------- 1,700 Milford Exempt Village School District GO, (School Improvement), 6.00%, 12/1/11 (FSA) 1,892 - -------------------------------------------------------------------------------- 1,005 Ohio GO, Series 2005 A, (Infrastructure Improvement), 5.00%, 9/1/11 1,070 - -------------------------------------------------------------------------------- 1,365 Ohio GO, Series 2005 A, (Infrastructure Improvement), 5.00%, 9/1/12 1,469 - -------------------------------------------------------------------------------- 750 Ohio Higher Educational Facility Commission Rev., Series 1990 B, (Case Western Reserve University), 6.50%, 10/1/20 933 - -------------------------------------------------------------------------------- 1,505 Summit County GO, 5.75%, 12/1/12, Prerefunded at 101% of Par (FGIC)(2) 1,692 - -------------------------------------------------------------------------------- 1,550 Tri Valley Local School District GO, 5.75%, 12/1/21 (FGIC) 1,711 - -------------------------------------------------------------------------------- 11,575 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 19 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- OKLAHOMA - 3.3% - -------------------------------------------------------------------------------- $1,000 Comanche County Hospital Auth. Rev., 5.00%, 7/1/11 (RADIAN) $ 1,052 - -------------------------------------------------------------------------------- 1,525 Comanche County Hospital Auth. Rev., 5.00%, 7/1/12 (RADIAN) 1,618 - -------------------------------------------------------------------------------- 1,730 Durant Community Facilities Auth. GO, 5.75%, 11/1/24 (XLCA) 1,964 - -------------------------------------------------------------------------------- 1,135 McClain County Economic Development Auth. Rev, (Newcastle Public Schools), 5.00%, 9/1/10 1,175 - -------------------------------------------------------------------------------- 750 McClain County Economic Development Auth. Rev, (Newcastle Public Schools), 5.00%, 9/1/11 782 - -------------------------------------------------------------------------------- 500 McClain County Economic Development Auth. Rev, (Newcastle Public Schools), 5.00%, 9/1/12 526 - -------------------------------------------------------------------------------- 1,640 McClain County Economic Development Auth. Rev, (Newcastle Public Schools), 5.00%, 9/1/13 1,731 - -------------------------------------------------------------------------------- 1,300 Oklahoma County Finance Auth. Rev., (Western Heights Public Schools), 4.00%, 9/1/10 (Assured Guaranty) 1,319 - -------------------------------------------------------------------------------- 1,730 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/14 1,818 - -------------------------------------------------------------------------------- 1,710 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/15 1,794 - -------------------------------------------------------------------------------- 1,130 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/16 1,184 - -------------------------------------------------------------------------------- 1,000 Tulsa County Industrial Auth. Rev., (Owasso Public Schools), 4.00%, 9/1/09 (Assured Guaranty) 1,011 - -------------------------------------------------------------------------------- 5,225 Tulsa County Industrial Auth. Rev., Series 2005 C, 5.00%, 5/15/10 (FSA)(1) 5,474 - -------------------------------------------------------------------------------- 21,448 - -------------------------------------------------------------------------------- OREGON - 1.8% - -------------------------------------------------------------------------------- 1,000 City of Eugene GO, (Public Safety Park & Open Space), 4.00%, 6/1/14 (Ambac) 1,029 - -------------------------------------------------------------------------------- 2,015 Clackamas County School Distrist No. 62 GO, 5.50%, 6/15/10 (School Bond Guarantee)(1) 2,147 - -------------------------------------------------------------------------------- 2,000 Cow Creek Band of Umpqua Tribe of Indians Rev., Series 2006 C, 5.625%, 10/1/26 2,055 - -------------------------------------------------------------------------------- 400 Oregon State Facilities Auth. Rev., Series 2005 A, (Linfield College), 5.00%, 10/1/13 424 - -------------------------------------------------------------------------------- 925 Oregon State Facilities Auth. Rev., Series 2005 A, (Linfield College), 5.00%, 10/1/14 983 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $4,750 Tri-County Metropolitan Transportation District Rev., (Payroll Tax & Grant Receipt), 4.00%, 5/1/14 (MBIA)(1) $ 4,790 - -------------------------------------------------------------------------------- 11,428 - -------------------------------------------------------------------------------- PENNSYLVANIA - 5.3% - -------------------------------------------------------------------------------- 2,250 Allegheny County Industrial Development Auth. Rev., (Residential Resource Inc.), 4.75%, 9/1/14 2,305 - -------------------------------------------------------------------------------- 1,150 Central Dauphin School District GO, 7.00%, 2/1/27 (MBIA) 1,443 - -------------------------------------------------------------------------------- 15,805 City of Pittsburgh GO, Series 2006 B, 5.25%, 9/1/16 (FSA)(1) 17,770 - -------------------------------------------------------------------------------- 2,580 East Stroudsburg Area School District GO, 7.75%, 9/1/28 (FSA/State Aid Withholding)(3) 3,403 - -------------------------------------------------------------------------------- 1,000 Oxford Area School District GO, Series 2001 A, 5.50%, 2/15/12, Prerefunded at 100% of Par (FGIC/State Aid Withholding)(2) 1,093 - -------------------------------------------------------------------------------- 2,975 Philadelphia School District GO, Series 2002 A, 5.25%, 2/1/11 (FSA/State Aid Withholding) 3,167 - -------------------------------------------------------------------------------- 4,380 Philadelphia School District GO, Series 2002 A, 5.50%, 2/1/12, Prerefunded at 100% of Par (FSA/State Aid Withholding)(1)(2) 4,785 - -------------------------------------------------------------------------------- 33,966 - -------------------------------------------------------------------------------- PUERTO RICO - 2.0% - -------------------------------------------------------------------------------- 3,000 Puerto Rico Commonwealth GO, Series 2006 A, 5.25%, 7/1/26 3,280 - -------------------------------------------------------------------------------- 3,000 Puerto Rico Commonwealth GO, Series 2006 B, 5.25%, 7/1/17 3,312 - -------------------------------------------------------------------------------- 2,000 Puerto Rico Infrastructure Financing Auth. Special Tax Rev., Series 2006 B, 5.00%, 7/1/13 2,138 - -------------------------------------------------------------------------------- 3,700 Puerto Rico Municipal Finance Agency GO, Series 2005 A, 5.00%, 8/1/11 3,892 - -------------------------------------------------------------------------------- 12,622 - -------------------------------------------------------------------------------- RHODE ISLAND - 0.5% - -------------------------------------------------------------------------------- 1,000 Cranston GO, 6.375%, 11/15/09, Prerefunded at 101% of Par (FGIC)(2) 1,089 - -------------------------------------------------------------------------------- 2,000 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 A, 6.25%, 8/1/16 (MBIA)(2) 2,414 - -------------------------------------------------------------------------------- 3,503 - -------------------------------------------------------------------------------- SOUTH CAROLINA - 4.8% - -------------------------------------------------------------------------------- 5,455 Charleston Educational Excellence Finance Corp. Rev., (Charleston County School District), 5.00%, 12/1/19(1) 5,904 - -------------------------------------------------------------------------------- 1,700 Florence Water & Sewer Rev., 7.50%, 3/1/18 (Ambac) 1,920 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 20 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,060 Kershaw County Rev., (School Improvements), 5.00%, 12/1/17 (CIFG) $ 1,159 - -------------------------------------------------------------------------------- 2,260 Kershaw County Rev., (School Improvements), 5.00%, 12/1/18 (CIFG) 2,465 - -------------------------------------------------------------------------------- 2,000 Kershaw County Rev., (School Improvements), 5.00%, 12/1/19 (CIFG) 2,173 - -------------------------------------------------------------------------------- 3,000 Kershaw County Rev., (School Improvements), 5.00%, 12/1/20 (CIFG) 3,254 - -------------------------------------------------------------------------------- 2,300 Lancaster Educational Assistance Program Inc. Rev., (School District Lancaster County), 5.00%, 12/1/26 2,399 - -------------------------------------------------------------------------------- 3,500 Laurens County School District No. 55 Rev., 5.25%, 12/1/30 3,731 - -------------------------------------------------------------------------------- 875 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC) 1,107 - -------------------------------------------------------------------------------- 625 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC)(2) 803 - -------------------------------------------------------------------------------- 375 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC) 454 - -------------------------------------------------------------------------------- 140 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(2) 171 - -------------------------------------------------------------------------------- 485 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(2) 591 - -------------------------------------------------------------------------------- 3,195 South Carolina Jobs Economic Development Auth. Hospital Facilities Rev., Series 2003 C, (Palmetto Health), 5.50%, 8/1/09 (ACA) 3,329 - -------------------------------------------------------------------------------- 1,095 Spartanburg County Health Services District Inc. Hospital Rev., 5.50%, 4/15/16 (FSA) 1,189 - -------------------------------------------------------------------------------- 30,649 - -------------------------------------------------------------------------------- TENNESSEE - 0.7% - -------------------------------------------------------------------------------- 4,105 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 A, (Campus Development Foundation, Inc. Phase I LLC), 5.00%, 10/1/15 4,261 - -------------------------------------------------------------------------------- TEXAS - 7.8% - -------------------------------------------------------------------------------- 1,000 Canadian River Municipal Water Auth. Rev., (Conjunctive Use Groundwater), 5.00%, 2/15/19 (Ambac) 1,087 - -------------------------------------------------------------------------------- 2,035 Cash Special Utility District Rev., 5.25%, 9/1/24 (MBIA)(1) 2,223 - -------------------------------------------------------------------------------- 1,815 Clint Independent School District GO, 6.00%, 2/15/17 (PSF-GTD) 1,985 - -------------------------------------------------------------------------------- 500 Corpus Christi Independent School District GO, 4.00%, 8/15/13 (PSF-GTD) 502 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $ 270 Denison Hospital Auth. Rev., (Texoma Medical Center), 5.90%, 2/15/07, Prerefunded at 102% of Par (ACA)(2) $ 277 - -------------------------------------------------------------------------------- 2,000 Donna Independent School District GO, 5.00%, 2/15/15 (PSF-GTD) 2,185 - -------------------------------------------------------------------------------- 1,115 Edcouch-Elsa Independent School District GO, 5.00%, 2/15/14 (PSF-GTD) 1,211 - -------------------------------------------------------------------------------- 380 Garza County Public Facility Corp. Rev., 4.50%, 10/1/07 381 - -------------------------------------------------------------------------------- 400 Garza County Public Facility Corp. Rev., 4.75%, 10/1/08 403 - -------------------------------------------------------------------------------- 420 Garza County Public Facility Corp. Rev., 4.75%, 10/1/09 425 - -------------------------------------------------------------------------------- 585 Garza County Public Facility Corp. Rev., 4.75%, 10/1/10 594 - -------------------------------------------------------------------------------- 610 Garza County Public Facility Corp. Rev., 5.00%, 10/1/11 628 - -------------------------------------------------------------------------------- 2,015 Garza County Public Facility Corp. Rev., 5.00%, 10/1/13 2,088 - -------------------------------------------------------------------------------- 1,115 Garza County Public Facility Corp. Rev., 5.25%, 10/1/14 1,174 - -------------------------------------------------------------------------------- 1,225 Garza County Public Facility Corp. Rev., 5.25%, 10/1/15 1,294 - -------------------------------------------------------------------------------- 1,145 Garza County Public Facility Corp. Rev., 5.25%, 10/1/16 1,212 - -------------------------------------------------------------------------------- 1,000 Garza County Public Facility Corp. Rev., 5.50%, 10/1/16 1,072 - -------------------------------------------------------------------------------- 1,000 Gregg County Health Facilities Development Corp. Rev., Series 2006 A, (Good Shepherd Medical Center), 5.00%, 10/1/16 1,064 - -------------------------------------------------------------------------------- 815 Harris County Housing Finance Corporation Rev., (Las Americas Apartments), 4.90%, 3/1/11 (FNMA) 829 - -------------------------------------------------------------------------------- 700 Hays Consolidated Independent School District GO, 5.20%, 8/15/11 (PSF-GTD)(2)(4) 589 - -------------------------------------------------------------------------------- 2,300 Hays Consolidated Independent School District GO, 5.20%, 8/15/11 (PSF-GTD)(4) 1,930 - -------------------------------------------------------------------------------- 1,295 Hidalgo County GO, 5.50%, 8/15/19 (FGIC) 1,425 - -------------------------------------------------------------------------------- 1,750 Hidalgo County GO, 5.50%, 8/15/21 (FGIC) 1,925 - -------------------------------------------------------------------------------- 1,500 Houston Water & Sewer System Rev., Series 1997 C, (Junior Lien), 5.375%, 12/1/07, Prerefunded at 101% of Par (FGIC)(2) 1,542 - -------------------------------------------------------------------------------- 1,375 Kerrville Health Facilities Development Corp. Rev., (Sid Peterson Memorial Hospital), 5.00%, 8/15/11 1,425 - -------------------------------------------------------------------------------- 1,630 Live Oak GO, 5.25%, 8/1/22 (MBIA) 1,780 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 21 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,000 Lubbock Health Facilities Development Corp. Rev., (Lutheran Retirement), 6.00%, 3/20/29 (GNMA) $ 1,097 - -------------------------------------------------------------------------------- 1,740 Montgomery County GO, 5.50%, 3/1/24 (Ambac) 1,922 - -------------------------------------------------------------------------------- 550 Pasadena Independent School District GO, Series 2001 A, 6.05%, 2/15/16 (PSF-GTD) 645 - -------------------------------------------------------------------------------- 1,500 Pearland Independent School District GO, 6.00%, 2/15/09, Prerefunded at 100% of Par (PSF-GTD)(2) 1,579 - -------------------------------------------------------------------------------- 2,000 San Antonio Electric and Gas Rev., 7.10%, 2/1/09 (FGIC)(2)(4) 1,850 - -------------------------------------------------------------------------------- 1,505 Seguin Independent School District GO, 5.25%, 4/1/23(PSF-GTD) 1,647 - -------------------------------------------------------------------------------- 2,120 Southside Independent School District GO, Series 2004 A, 5.25%, 8/15/25 (PSF-GTD) 2,318 - -------------------------------------------------------------------------------- 2,345 Texas Municipal Power Agency COP, (Sub-Lien), 4.00%, 9/1/09 (FGIC) 2,352 - -------------------------------------------------------------------------------- 950 Texas Public Finance Auth. Building Rev., (Technical College), 6.25%, 8/1/09 (MBIA) 990 - -------------------------------------------------------------------------------- 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)(2) 1,074 - -------------------------------------------------------------------------------- 1,265 West Oso Independent School District GO, 5.50%, 8/15/26 (PSF-GTD) 1,387 - -------------------------------------------------------------------------------- 1,705 Williamson County GO, (Pass-Through Toll & Limited Tax), 4.25%, 2/15/20 (FSA) 1,723 - -------------------------------------------------------------------------------- 49,834 - -------------------------------------------------------------------------------- U.S. VIRGIN ISLANDS - 0.3% - -------------------------------------------------------------------------------- 2,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, (Senior Lien), 5.20%, 10/1/09 2,065 - -------------------------------------------------------------------------------- UTAH - 1.6% - -------------------------------------------------------------------------------- 1,000 Salt Lake City Hospital Rev., Series 1988 A, (Intermountain Health Corporation), 8.125%, 5/15/15(2) 1,187 - -------------------------------------------------------------------------------- 1,495 Utah County Municipal Building Auth. Lease Rev., 5.00%, 11/1/09 (Ambac)(2) 1,557 - -------------------------------------------------------------------------------- 1,915 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/11, Prerefunded at 100% of Par (Ambac)(2) 2,060 - -------------------------------------------------------------------------------- 1,820 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/11, Prerefunded at 100% of Par (Ambac)(2) 1,957 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,000 Utah County Municipal Building Auth. Lease Rev., 5.50%, 11/1/11, Prerefunded at 100% of Par (Ambac)(2) $ 1,087 - -------------------------------------------------------------------------------- 1,130 West Valley City Municipal Building Auth. Lease Rev., Series 2002 A, 5.00%, 8/1/10 (Ambac) 1,184 - -------------------------------------------------------------------------------- 1,305 West Valley City Utility Sales Tax Rev., Series 2001 A, 5.50%, 7/15/16 (MBIA) 1,414 - -------------------------------------------------------------------------------- 10,446 - -------------------------------------------------------------------------------- VIRGINIA - 0.4% - -------------------------------------------------------------------------------- 1,500 Fairfax County COP, 5.30%, 4/15/23 1,620 - -------------------------------------------------------------------------------- 1,115 Pittsylvania County GO, Series 2001 B, 5.75%, 3/1/18 (MBIA) 1,229 - -------------------------------------------------------------------------------- 2,849 - -------------------------------------------------------------------------------- WASHINGTON - 8.7% - -------------------------------------------------------------------------------- 1,000 Benton County Public Utility District No. 1 Rev., Series 2001 A, 5.625%, 11/1/19 (FSA) 1,087 - -------------------------------------------------------------------------------- 5,000 City of Tacoma Electric System Rev., Series 2001 A, 5.625%, 1/1/11, Prerefunded at 101% of Par (FSA)(1)(2) 5,437 - -------------------------------------------------------------------------------- 1,000 Cowlitz County Kelso School District No. 458 GO, 5.75%, 12/1/18 (FSA) 1,104 - -------------------------------------------------------------------------------- 500 Energy Northwest Rev., 5.00%, 7/1/10 (MBIA) 524 - -------------------------------------------------------------------------------- 1,750 Energy Northwest Rev., 4.75%, 7/1/20 (MBIA) 1,838 - -------------------------------------------------------------------------------- 3,500 Energy Northwest Rev., Series 2002 A, (Columbia Generating), 5.75%, 7/1/18 (MBIA) 3,867 - -------------------------------------------------------------------------------- 10,000 Energy Northwest Rev., Series 2002 B, (Columbia Generating), 6.00%, 7/1/18 (Ambac)(1) 11,174 - -------------------------------------------------------------------------------- 1,000 Grays Harbor County Public Utility District No. 1 Rev., 5.00%, 7/1/23 (FGIC)(3) 1,083 - -------------------------------------------------------------------------------- 1,555 King County Lake Washington School District No. 414 GO, 5.75%, 12/1/15, Prerefunded at 100% of Par(2) 1,739 - -------------------------------------------------------------------------------- 1,000 King County Public Hospital District No. 2 GO, (Evergreen Healthcare), 5.00%, 12/1/14 (MBIA) 1,091 - -------------------------------------------------------------------------------- 1,000 Kitsap County School District No. 303 Bainbridge Island GO, 5.00%, 12/1/17 (MBIA/School Bond Guarantee) 1,098 - -------------------------------------------------------------------------------- 1,260 Mason County Shelton School District No. 309 GO, 5.625%, 12/1/17 (FGIC) 1,373 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 22 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- $1,120 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (Ambac)(2) $ 1,246 - -------------------------------------------------------------------------------- 1,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (Ambac)(2) 1,112 - -------------------------------------------------------------------------------- 6,715 Snohomish County Edmonds School District No. 15 GO, 5.00%, 12/1/17 (FGIC/School Bond Guarantee)(1) 7,372 - -------------------------------------------------------------------------------- 1,720 University of Washington Rev., (Student Facilities Fee), 5.875%, 6/1/10, Prerefunded at 101% of Par (FSA)(2) 1,868 - -------------------------------------------------------------------------------- 3,240 Washington Economic Development Finance Auth. Rev., Series 2006 J, (Washington Biomedical Research Properties II), 5.00%, 6/1/23 (MBIA) 3,495 - -------------------------------------------------------------------------------- 1,000 Washington GO, Series 1990 A, 6.75%, 2/1/15 1,164 - -------------------------------------------------------------------------------- 4,570 Washington Public Power Supply System Rev., Series 1998 A, (Nuclear Project No. 2), 5.00%, 7/1/12 (FSA)(1) 4,752 - -------------------------------------------------------------------------------- 1,500 Whitman County Pullman School District No. 267 GO, 5.625%, 12/1/16 (FSA) 1,649 - -------------------------------------------------------------------------------- 1,675 Yakima County School District No. 208 West Valley GO, 5.00%, 12/1/18 (MBIA/School Bond Guaranty) 1,842 - -------------------------------------------------------------------------------- 55,915 - -------------------------------------------------------------------------------- WISCONSIN - 1.0% - -------------------------------------------------------------------------------- 1,990 Wisconsin Clean Water Rev., 6.875%, 6/1/11 2,203 - -------------------------------------------------------------------------------- 2,590 Wisconsin Health & Educational Facilities Auth. Rev., (Aurora Medical Group), 6.00%, 11/15/10 (FSA) 2,813 - -------------------------------------------------------------------------------- 500 Wisconsin Health & Educational Facilities Auth. Rev., (Blood Center Southeastern), 5.50%, 6/1/24 539 - -------------------------------------------------------------------------------- 750 Wisconsin Health & Educational Facilities Auth. Rev., (Blood Center Southeastern), 5.75%, 6/1/34 826 - -------------------------------------------------------------------------------- 6,381 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $609,935) 633,731 - -------------------------------------------------------------------------------- Principal Amount ($ IN THOUSANDS) Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 0.9% ALASKA - 0.2% - -------------------------------------------------------------------------------- $1,000 Northern Tobacco Securitization Corp. Rev., (MT 279), VRDN, 3.54%, 12/7/06 (LOC: Merril Lynch Capital Services) $ 1,000 - -------------------------------------------------------------------------------- ARIZONA - 0.2% - -------------------------------------------------------------------------------- 650 Phoenix Industrial Development Auth. Rev., Series 2003 A, (Southwest Human Development), VRDN, 3.46%, 12/7/06 650 - -------------------------------------------------------------------------------- 475 Pima County Industrial Development Auth. Rev., (Tucson Electric), VRDN, 3.55%, 12/6/06 (LOC: Bank of New York) 475 - -------------------------------------------------------------------------------- 1,125 - -------------------------------------------------------------------------------- FLORIDA - 0.4% - -------------------------------------------------------------------------------- 1,500 Alachua County Health Facilities Auth. Rev., Series 2002 A, (Shands Teaching Hospital and Clinics Inc. Revolving Loan Program), VRDN, 3.65%, 12/1/06 (LOC: SunTrust Bank) 1,500 - -------------------------------------------------------------------------------- 1,200 Sunshine State Governmental Financing Commission Rev., VRDN, 3.75%, 12/1/06 (Ambac) 1,200 - -------------------------------------------------------------------------------- 2,700 - -------------------------------------------------------------------------------- TENNESSEE - 0.1% - -------------------------------------------------------------------------------- 500 Clarksville Public Building Authority Rev., (Tennessee Municipal Bond Fund), VRDN, 3.65%, 12/1/06 (LOC: Bank of America N.A.) 500 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $5,325) 5,325 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 99.8% (Cost $615,260) 639,056 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 0.2% 1,443 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $640,499 ================================================================================ See Notes to Financial Statements. (continued) - ------ 23 Tax-Free Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) FUTURES CONTRACTS Underlying Face Unrealized Contracts Purchased Expiration Date Amount at Value Gain (Loss) - ---------------------------------------------------------------------------------- 484 U.S. Treasury 2-Year Notes March 2007 $99,220 $212 ============================= Underlying Face Unrealized Contracts Sold Expiration Date Amount at Value Gain (Loss) - ---------------------------------------------------------------------------------- 578 U.S. Treasury 10-Year Notes March 2007 $63,110 $(494) ============================= 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-GTD = Permanent School Fund - Guaranteed RADIAN = Radian Asset Assurance, Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2006. XLCA = XL Capital Ltd. (1) Security, or a portion thereof, has been segregated for futures contracts and/or when-issued securities. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) When-issued security. (4) 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. 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, 2006 to November 30, 2006. 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. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect (continued) - ------ 25 Shareholder Fee Examples (Unaudited) 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 6/1/06 - EXPENSE 6/1/06 11/30/06 11/30/06 RATIO* - -------------------------------------------------------------------------------- TAX-FREE MONEY MARKET SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,016.00 $2.63 0.52% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.46 $2.64 0.52% - -------------------------------------------------------------------------------- TAX-FREE BOND SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,038.80 $2.50 0.49% - -------------------------------------------------------------------------------- Institutional Class $1,000 $1,039.80 $1.48 0.29% - -------------------------------------------------------------------------------- Advisor Class $1,000 $1,037.50 $3.78 0.74% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.61 $2.48 0.49% - -------------------------------------------------------------------------------- Institutional Class $1,000 $1,023.61 $1.47 0.29% - -------------------------------------------------------------------------------- Advisor Class $1,000 $1,021.36 $3.75 0.74% - -------------------------------------------------------------------------------- *Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. - ------ 26 Statement of Assets and Liabilities NOVEMBER 30, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- TAX-FREE (AMOUNTS IN THOUSANDS EXCEPT AS NOTED) MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- Investment securities, at value (cost of $275,936 and $615,260, respectively) $275,936 $639,056 - ------------------------------------ Cash 269 64 - ------------------------------------ Receivable for investments sold -- 844 - ------------------------------------ Interest receivable 1,434 9,130 - ------------------------------------ Prepaid portfolio insurance 9 -- - -------------------------------------------------------------------------------- 277,648 649,094 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- Payable for investments purchased 1,440 7,816 - ------------------------------------ Payable for variation margin on futures contracts -- 129 - ------------------------------------ Accrued management fees 110 249 - ------------------------------------ Dividends payable 8 401 - -------------------------------------------------------------------------------- 1,558 8,595 - -------------------------------------------------------------------------------- Net Assets $276,090 $640,499 ================================================================================ NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Capital paid in $276,138 $619,367 - ------------------------------------ Accumulated net realized loss on investment transactions (48) (2,382) - ------------------------------------ Net unrealized appreciation on investments -- 23,514 - -------------------------------------------------------------------------------- $276,090 $640,499 ================================================================================ INVESTOR CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets $276,089,713 $631,397,919 - ------------------------------------ Shares outstanding 276,138,022 58,109,259 - ------------------------------------ Net asset value per share $1.00 $10.87 - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets N/A $8,764,095 - ------------------------------------ Shares outstanding N/A 806,583 - ------------------------------------ Net asset value per share N/A $10.87 - -------------------------------------------------------------------------------- ADVISOR CLASS ($ AND SHARES IN FULL) - -------------------------------------------------------------------------------- Net assets N/A $337,048 - ------------------------------------ Shares outstanding N/A 31,019 - ------------------------------------ Net asset value per share N/A $10.87 - -------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 27 Statement of Operations FOR THE SIX MONTHS ENDED NOVEMBER 30, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- TAX-FREE (AMOUNTS IN THOUSANDS) MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- INVESTMENT INCOME (LOSS) - -------------------------------------------------------------------------------- INCOME: - -------------------------------------- Interest $5,010 $13,989 - -------------------------------------------------------------------------------- EXPENSES: - -------------------------------------- Management fees 668 1,540 - -------------------------------------- Trustees' fees and expenses 7 18 - -------------------------------------- Portfolio insurance 27 -- - -------------------------------------------------------------------------------- 702 1,558 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 4,308 12,431 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - -------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) ON: - -------------------------------------- Investment transactions (1) (601) - -------------------------------------- Futures transactions -- (1,121) - -------------------------------------------------------------------------------- (1) (1,722) - -------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: - -------------------------------------- Investments -- 12,872 - -------------------------------------- Futures -- (282) - -------------------------------------------------------------------------------- -- 12,590 - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (1) 10,868 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $4,307 $23,299 ================================================================================ See Notes to Financial Statements. - ------ 28 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2006 (UNAUDITED) AND YEAR ENDED MAY 31, 2006 - --------------------------------------------------------------------------------------------------- (AMOUNTS IN THOUSANDS) TAX-FREE MONEY MARKET TAX-FREE BOND - --------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS NOV. 30, 2006 MAY 31, 2006 NOV. 30, 2006 MAY 31, 2006 - --------------------------------------------------------------------------------------------------- OPERATIONS - --------------------------------------------------------------------------------------------------- Net investment income (loss) $ 4,308 $ 7,010 $ 12,431 $ 24,108 - ---------------------------------------- Net realized gain (loss) (1) 12 (1,722) 1,187 - ---------------------------------------- Change in net unrealized appreciation (depreciation) -- -- 12,590 (13,084) - --------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 4,307 7,022 23,299 12,211 - --------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - --------------------------------------------------------------------------------------------------- From net investment income: - --------------------------------- Investor Class (4,308) (7,010) (12,260) (23,809) - ---------------------------------------- Institutional Class -- -- (169) (328) - ---------------------------------------- Advisor Class -- -- (2) (1) - ---------------------------------------- From net realized gains: - ---------------------------------------- Investor Class -- -- -- (451) - ---------------------------------------- Institutional Class -- -- -- (6) - ---------------------------------------- Advisor Class -- -- -- -- - --------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (4,308) (7,010) (12,431) (24,595) - --------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - --------------------------------- Net increase (decrease) in net assets from capital share transactions 3,883 (12,655) (43,668) 66,467 - --------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 3,882 (12,643) (32,800) 54,083 - --------------------------------------------------------------------------------------------------- NET ASSETS - --------------------------------------------------------------------------------------------------- Beginning of period 272,208 284,851 673,299 619,216 - --------------------------------------------------------------------------------------------------- End of period $276,090 $272,208 $640,499 $673,299 =================================================================================================== See Notes to Financial Statements. - ------ 29 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) (AMOUNTS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION -- American Century Municipal Trust (the trust), is registered under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. 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, the Institutional Class and the Advisor Class. The share classes differ principally in their respective distribution and shareholder servicing expenses and arrangements. All shares of each fund represent an equal pro rata interest in the assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the funds are allocated to each class of shares based on their relative net assets. The Advisor Class of Tax-Free Bond commenced operations on July 29, 2005. SECURITY VALUATIONS -- Securities of Tax-Free Money Market are valued at amortized cost, which approximates current market value. Securities of Tax-Free Bond are valued at current market value as provided by a commercial pricing service or at the mean of the most recent bid and ask prices. Debt securities maturing in greater than 60 days are valued at current market value as provided by a commercial pricing service or at the mean of the most recent bid and asked prices. Debt securities maturing within 60 days may be valued at cost, plus or minus any amortized discount or premium. If the funds determine that the market price of a portfolio security is not readily available, or that the valuation methods mentioned above do not reflect the security's fair value, such security is valued at its fair value as determined by, or in accordance with procedures adopted by, the Board of Trustees or its designee if such fair value determination would materially impact a fund's net asset value. Certain other circumstances may cause the funds to fair value a security such as: an event occurred after the close of the exchange on which a portfolio security principally trades (but before the close of the New York Stock Exchange) that was likely to have changed the value of the security; a security has been declared in default; trading in a security has been halted during the trading day; or there is a foreign market holiday and no trading will commence. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds may engage in securities transactions on a when-issued or forward commitment basis. Under these arrangements, the securities' prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The funds will segregate cash, cash equivalents or other appropriate liquid securities on their records in amounts sufficient to meet the purchase price. FUTURES CONTRACTS -- Tax-Free Bond may enter into futures contracts in order to manage the fund's exposure to changes in market conditions. One of the risks of entering into futures contracts is the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, Tax-Free Bond 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 Tax-Free Bond. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. Tax-Free Bond 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 futures transactions and unrealized appreciation (depreciation) on futures, 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 (continued) - ------ 30 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) (AMOUNTS IN THOUSANDS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) expect to realize any long-term capital gains, and accordingly, does not expect to pay any capital gains distributions. INDEMNIFICATIONS -- Under the trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business, the funds enter into contracts that provide general indemnifications. The funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. The risk of material loss from such claims is considered by management to be remote. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM) (the investment advisor), under which ACIM provides the funds with investment advisory and management services in exchange for a single, unified management fee (the fee) 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 advisor that are in the same broad investment category as each fund and (2) a Complex Fee based on the assets of all the funds in the American Century family of funds. The rates for the Investment Category Fee range from 0.1570% to 0.2700% for Tax-Free Money Market. 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 and the Advisor Class are 0.2000% and 0.2500%, respectively, 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, 2006 was 0.49% and 0.48%, respectively. The effective annual management fee for the Institutional Class and the Advisor Class of Tax-Free Bond for the six months ended November 30, 2006 was 0.28% and 0.23%, respectively. DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a Master Distribution and Shareholder Services Plan (the plan) for the Advisor Class, pursuant to Rule 12b-1 of the 1940 Act. The plan provides that the Advisor Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution fee equal to 0.25% and an annual service fee equal to 0.25%. The fees are computed and accrued daily based on the Advisor Class's daily net assets and paid monthly in arrears. The distribution fee provides compensation for expenses incurred by financial intermediaries in connection with distributing shares of the Advisor Class 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 shareholder and administrative services rendered by ACIS, its affiliates or independent third party providers. Fees incurred under the plan during the six months ended November 30, 2006, are detailed in the Statement of Operations. MONEY MARKET INSURANCE -- Tax-Free Money Market, along with other money market funds managed by ACIM, have entered into an insurance agreement with Ambac Assurance Corporation (Ambac). Ambac provides limited coverage for certain loss events including issuer defaults as to payment of principal or interest and insolvency of a credit enhancement provider. Tax-Free Money Market pays annual premiums to Ambac, which are amortized daily over one year. For the six months ended November 30, 2006, the annualized ratio of money market insurance expense to average net assets was 0.02%. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust's investment advisor, ACIM, the distributor of the trust, ACIS, and the trust's transfer agent, American Century Services, LLC. 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 JPMorgan Chase & Co. (JPM). JPM is an equity investor in ACC. (continued) - ------ 31 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) (AMOUNTS IN THOUSANDS) 3. INVESTMENT TRANSACTIONS Purchases and sales of investment securities for Tax-Free Bond, excluding short-term investments, for the six months ended November 30, 2006, were $192,395 and $166,730, respectively. All investment transactions for Tax-Free Money Market were considered short-term during the six months ended November 30, 2006. 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, 2006 - --------------------------------------- Sold 91,943 $91,943 8,840 $95,047 - --------------------------------------- Issued in reinvestment of distributions 4,242 4,242 875 9,408 - --------------------------------------- Redeemed (92,302) (92,302) (13,976) (149,229) - -------------------------------------------------------------------------------------- Net increase (decrease) 3,883 $3,883 (4,261) $(44,774) ====================================================================================== YEAR ENDED MAY 31, 2006 - --------------------------------------- Sold 215,988 $215,988 18,991 $204,384 - --------------------------------------- Issued in reinvestment of distributions 6,881 6,881 1,750 18,842 - --------------------------------------- Redeemed (235,524) (235,524) (14,501) (155,962) - -------------------------------------------------------------------------------------- Net increase (decrease) (12,655) $(12,655) 6,240 $67,264 ====================================================================================== INSTITUTIONAL CLASS - -------------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2006 - --------------------------------------- Sold N/A N/A 70 $760 - --------------------------------------- Issued in reinvestment of distributions 15 157 - --------------------------------------- Redeemed (11) (120) - -------------------------------------------------------------------------------------- Net increase (decrease) 74 $797 ====================================================================================== YEAR ENDED MAY 31, 2006 - --------------------------------------- Sold N/A N/A 9 $93 - --------------------------------------- Issued in reinvestment of distributions 30 321 - --------------------------------------- Redeemed (115) (1,237) - -------------------------------------------------------------------------------------- Net increase (decrease) (76) $(823) ====================================================================================== ADVISOR CLASS - -------------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2006 - --------------------------------------- Sold N/A N/A 29 $307 - --------------------------------------- Issued in reinvestment of distributions -- 2 - -------------------------------------------------------------------------------------- Net increase (decrease) 29 $309 ====================================================================================== PERIOD ENDED MAY 31, 2006(1) - --------------------------------------- Sold N/A N/A 2 $25 - --------------------------------------- Issued in reinvestment of distributions -- 1 - -------------------------------------------------------------------------------------- Net increase (decrease) 2 $26 ====================================================================================== (1) July 29, 2005 (commencement of sale) through May 31, 2006. (continued) - ------ 32 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) (AMOUNTS IN THOUSANDS) 5. BANK LINE OF CREDIT Tax-Free Bond, along with certain other funds managed by ACIM or American Century Global Investment Management, Inc., has a $500 million unsecured bank line of credit agreement with JPMCB. Tax-Free Bond may borrow money for temporary or emergency purposes to fund shareholder redemptions. Borrowings under the agreement bear interest at the Federal Funds rate plus 0.50%. Tax-Free Bond did not borrow from the line during the six months ended November 30, 2006. 6. FEDERAL TAX INFORMATION The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. As of November 30, 2006, the federal tax cost of investments were as follows: TAX-FREE MONEY MARKET TAX-FREE BOND - -------------------------------------------------------------------------------- Federal tax cost of investments $275,936 $615,260 ================================================================================ Gross tax appreciation of investments -- $23,900 - ------------------------------------------------- Gross tax depreciation of investments -- (104) - -------------------------------------------------------------------------------- Net tax appreciation (depreciation) of investments -- $23,796 ================================================================================ The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. As of May 31, 2006, Tax-Free Money Market had accumulated capital losses of $(47), which 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: 2009 2010 2011 2012 2013 - ----------------------------------------------------------------------------- Tax-Free Money Market $(33) $(9) -- $(4) $(1) - ----------------------------------------------------------------------------- Tax-Free Bond had $(659) of capital loss deferrals, which represent net capital losses incurred in the seven-month period ended May 31, 2006. Tax-Free Bond has elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. 7. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. FIN 48 is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in September 2006, which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands the required financial statement disclosures about fair value measurements. Management is currently evaluating the impact of adopting FIN 48 and FAS 157. - ------ 33 Tax-Free Money Market - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - ------------------------------------------------------------------------------------------------- INVESTOR CLASS - ------------------------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003 2002 - ------------------------------------------------------------------------------------------------- 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 (Loss) 0.02 0.02 0.01 0.01 0.01 0.02 - ------------------------------------------------------------------------------------------------- Distributions - ------------------------------- From Net Investment Income (0.02) (0.02) (0.01) (0.01) (0.01) (0.02) - ------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ================================================================================================= TOTAL RETURN(2) 1.60% 2.51% 1.33% 0.64% 1.05% 1.64% - ------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - ------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.52%(3) 0.52% 0.51% 0.51% 0.51% 0.51% - ------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.17%(3) 2.47% 1.31% 0.65% 1.04% 1.62% - ------------------------------- Net Assets, End of Period (in thousands) $276,090 $272,208 $284,851 $276,245 $272,256 $250,035 - ------------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total returns for periods less than one year are not annualized. (3) Annualized. See Notes to Financial Statements. - ------ 34 Tax-Free Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - --------------------------------------------------------------------------------------------------------- INVESTOR CLASS - --------------------------------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003 2002 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.67 $10.88 $10.71 $11.19 $10.63 $10.50 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income (Loss) 0.21 0.40 0.38 0.37 0.39 0.44 - --------------------------------- Net Realized and Unrealized Gain (Loss) 0.20 (0.20) 0.17 (0.45) 0.58 0.22 - --------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.41 0.20 0.55 (0.08) 0.97 0.66 - --------------------------------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income (0.21) (0.40) (0.38) (0.37) (0.39) (0.44) - --------------------------------- From Net Realized Gains -- (0.01) -- (0.03) (0.02) (0.09) - --------------------------------------------------------------------------------------------------------- Total Distributions (0.21) (0.41) (0.38) (0.40) (0.41) (0.53) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.87 $10.67 $10.88 $10.71 $11.19 $10.63 ========================================================================================================= TOTAL RETURN(2) 3.88% 1.87% 5.16% (0.79)% 9.31% 6.45% - --------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.49%(3) 0.49% 0.50% 0.51% 0.51% 0.51% - --------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.89%(3) 3.73% 3.46% 3.34% 3.62% 4.14% - --------------------------------- Portfolio Turnover Rate 27% 79% 77% 60% 57% 86% - --------------------------------- Net Assets, End of Period (in thousands) $631,398 $665,458 $610,420 $583,689 $620,000 $382,447 - --------------------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (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. - ------ 35 Tax-Free Bond - Financial Highlights For a Share Outstanding Throughout the Years Ended May 31 (except as noted) - --------------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS - --------------------------------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003(2) - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.67 $10.88 $10.71 $11.19 $10.90 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income (Loss) 0.22 0.42 0.40 0.39 0.05 - --------------------------------- Net Realized and Unrealized Gain (Loss) 0.20 (0.20) 0.17 (0.45) 0.29 - --------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.42 0.22 0.57 (0.06) 0.34 - --------------------------------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income (0.22) (0.42) (0.40) (0.39) (0.05) - --------------------------------- From Net Realized Gains -- (0.01) -- (0.03) -- - --------------------------------------------------------------------------------------------------------- Total Distributions (0.22) (0.43) (0.40) (0.42) (0.05) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.87 $10.67 $10.88 $10.71 $11.19 ========================================================================================================= TOTAL RETURN(3) 3.98% 2.07% 5.37% (0.60)% 3.14% - --------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.29%(4) 0.29% 0.30% 0.31% 0.30%(4) - --------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 4.09%(4) 3.93% 3.66% 3.54% 3.68%(4) - --------------------------------- Portfolio Turnover Rate 27% 79% 77% 60% 57%(5) - --------------------------------- Net Assets, End of Period (in thousands) $8,764 $7,815 $8,796 $7,711 $7,609 - --------------------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (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. - ------ 36 Tax-Free Bond - Financial Highlights For a Share Outstanding Throughout the Periods Indicated - -------------------------------------------------------------------------------- ADVISOR CLASS - -------------------------------------------------------------------------------- 2006(1) 2006(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.67 $10.83 - -------------------------------------------------------------------------------- Income From Investment Operations - ---------------------------------------- Net Investment Income (Loss) 0.20 0.31 - ---------------------------------------- Net Realized and Unrealized Gain (Loss) 0.20 (0.15) - -------------------------------------------------------------------------------- Total From Investment Operations 0.40 0.16 - -------------------------------------------------------------------------------- Distributions - ---------------------------------------- From Net Investment Income (0.20) (0.31) - ---------------------------------------- From Net Realized Gains -- (0.01) - -------------------------------------------------------------------------------- Total Distributions (0.20) (0.32) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.87 $10.67 ================================================================================ TOTAL RETURN(3) 3.75% 1.51% - -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.74%(4) 0.74%(4) - ---------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.64%(4) 3.52%(4) - ---------------------------------------- Portfolio Turnover Rate 27% 79%(5) - ---------------------------------------- Net Assets, End of Period (in thousands) $337 $25 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) July 29, 2005 (commencement of sale) through May 31, 2006. (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, 2006. See Notes to Financial Statements. - ------ 37 Additional Information PROXY VOTING GUIDELINES American Century Investment Management, Inc., the funds' investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the funds. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q are available on the SEC's website 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 website at americancentury.com and, upon request, by calling 1-800-345-2021. - ------ 38 Share Class Information One class of shares is authorized for sale by Tax-Free Money Market: Investor Class. Three classes of shares are authorized for sale by Tax-Free Bond: Investor Class, Institutional Class, and Advisor Class. The total expense ratio for Institutional Class shares is lower than that of Investor Class shares. The total expense ratio for Advisor Class shares is higher 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 certain financial intermediaries (such as banks, broker-dealers, insurance companies and investment advisors), which may require payment of a transaction fee to the financial intermediary. 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 unified management fee of Institutional Class shares is 0.20% less than the unified management fee of Investor Class shares. ADVISOR CLASS shares are sold primarily through institutions such as investment advisors, banks, broker-dealers, insurance companies, and financial advisors. Advisor Class shares are subject to a 0.50% annual Rule 12b-1 distribution and service fee. The total expense ratio of Advisor Class shares is 0.25% higher 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. - ------ 39 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 3-YEAR MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities of 2-4 years. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. The LEHMAN BROTHERS MUNICIPAL BOND INDEX is a market value-weighted index designed for the long-term tax-exempt bond market. The LEHMAN BROTHERS NON-INVESTMENT-GRADE MUNICIPAL BOND INDEX is composed of non-investment grade U.S. municipal securities with a remaining maturity of one year or more. The LEHMAN BROTHERS U.S. AGGREGATE INDEX represents securities that are taxable, registered with the Securities and Exchange Commission, and U.S. dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The LEHMAN BROTHERS U.S. TREASURY INDEX is composed of those securities included in the Lehman Brothers U.S. Aggregate Index that are public obligations of the U.S. Treasury with a remaining maturity of one year or more. - ------ 40 CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE: 1-800-345-2021 or 816-531-5575 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL PROFESSIONALS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY MUNICIPAL TRUST INVESTMENT ADVISOR: American Century Investment Management, Inc. Kansas City, Missouri THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Proprietary Holdings, Inc. American Century Investment Services, Inc., Distributor ©2007 American Century Proprietary Holdings, Inc. All rights reserved. 0612 SH-SAN-52637N [front cover] American Century Investments Semiannual Report November 30, 2006 [photo of winter scene] Arizona Municipal Bond Fund Florida Municipal Bond Fund Long-Term Tax-Free Fund High-Yield Municipal Fund [american century investments logo and text logo] Our Message to You [photo of James E. Stowers III and James E. Stowers, Jr.] /s/James E. Stowers, Jr. James E. Stowers, Jr. FOUNDER AMERICAN CENTURY COMPANIES, INC. /s/James E. Stowers III James E. Stowers III CHAIRMAN OF THE BOARD AMERICAN CENTURY COMPANIES, INC. We are pleased to provide you with the semiannual report for the American Century Arizona Municipal Bond, Florida Municipal Bond, Long-Term Tax-Free, and High-Yield Municipal funds for the six months ended November 30, 2006. We hope you find this information helpful in monitoring your investment. Another useful resource we offer is our website, americancentury.com, where we post quarterly portfolio commentaries, the views of senior investment officers and analysts, and other communications about investments, portfolio strategy, personal finance, and the markets. In its most recent rankings, Dalbar--which issues customer satisfaction ratings and rankings based on website functionality--ranked americancentury.com seventh out of the sites provided by the top 25 fund companies that it believes lead the industry in web-based technology. Our website earned an "Excellent" rating, Dalbar's highest designation. For most of 2006, our website linked visitors to information explaining our strategic collaboration with Lance Armstrong and the Lance Armstrong Foundation (LAF). This campaign, featuring Lance, is designed to encourage investors to take a more active role in planning their financial futures and make every investment decision count. To learn more about the collaboration and the LAF, please visit americancentury.com or www.lanceface.com on the Web and click on the links to related sites. With the approach of the 2006 tax season, you can also find out more about tax information via a link from our website. We've posted online descriptions of all of the tax information we provide to investors. If you haven't visited americancentury.com yet, we encourage you to do so . . . it's there to serve you. And so are we. As always, we deeply appreciate your commitment to American Century Investments. Table of Contents Market Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 U.S. Fixed-Income Total Returns . . . . . . . . . . . . . . . . . . . . . . 2 ARIZONA MUNICIPAL BOND Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 FLORIDA MUNICIPAL BOND Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 LONG-TERM TAX-FREE Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 HIGH-YIELD MUNICIPAL Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Portfolio Commentary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Shareholder Fee Examples . . . . . . . . . . . . . . . . . . . . . . . . . . .35 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 38 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Statement of Changes in Net Assets . . . . . . . . . . . . . . . . . . . . . .41 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 44 Financial Highlights 53 OTHER INFORMATION Share Class Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 The opinions expressed in the Market Perspective and 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. Market Perspective [photo of David MacEwen] BY DAVID MACEWEN, CHIEF INVESTMENT OFFICER, FIXED INCOME INFLECTION POINTS FOR ECONOMIC GROWTH & FED POLICY U.S. economic growth slowed during the six months ended November 30, 2006, stifled by high energy costs, the highest short-term interest rates in five years, and a weakening housing market. After expanding at an unsustainable 5.6% rate in the first quarter of 2006, growth dropped into the 2-3% range. Despite inflation threats from the volatile energy sector and possible rising labor costs (particularly in the service sector), the Federal Reserve heeded the housing slump (and its threat to consumer spending) and finally snapped its long string of interest rate hikes in August. The Fed remained on hold for the rest of the period to assess mixed economic conditions, reflected in the fact that the current situation was strong enough to support a stock market rally, but the outlook was weak enough to trigger falling yields and higher bond prices. TREASURY YIELDS INVERTED, LONG-DURATION SECURITIES OUTPERFORMED Forecasts of slow growth and lower interest rates in 2007 rekindled demand for longer-term fixed-income securities and "inverted" the Treasury yield curve, as the two-year Treasury yield (4.62%) remained higher than the 10- and 30-year yields (4.46% and 4.56%, respectively). All Treasury yields stayed well below the Fed's 5.25% interest rate target, anticipating future rate cuts. Inverted yield curves typically precede economic downturns. MUNICIPALS TRAILED TAXABLES IN RALLY While both generated attractive absolute returns, the broad investment-grade municipal market underperformed the broad investment-grade taxable market, which is typical in Treasury rallies. Though the municipal yield curve flattened somewhat, it maintained its upward slope, continuing to offer additional yield for additional maturity risk, unlike the Treasury market. Also, high-yield municipals, which tend to underperform their investment-grade counterparts in rallies, outperformed during the reporting period. Increasing numbers of yield-seeking investors turned to high-yield municipals as yield spreads in the taxable market remained tight. U.S. FIXED-INCOME TOTAL RETURNS For the six months ended November 30, 2006* - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL MARKET INDICES - -------------------------------------------------------------------------------- Municipal Bond 4.53% - -------------------------------------------------------------------------------- 3-Year Municipal Bond 2.41% - -------------------------------------------------------------------------------- 5-Year General Obligation (GO) 2.96% - -------------------------------------------------------------------------------- Long-Term Municipal Bond (22+ years) 6.28% - -------------------------------------------------------------------------------- Non-Investment-Grade (High-Yield) 6.29% - -------------------------------------------------------------------------------- TAXABLE MARKET RETURNS - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Index 5.93% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Treasury Index 5.63% - -------------------------------------------------------------------------------- 3-Month Treasury Bill 2.58% - -------------------------------------------------------------------------------- 10-Year Treasury Note 6.02% - -------------------------------------------------------------------------------- *Total returns for periods less than one year are not annualized. - ------ 2 THIS PAGE INTENTIONALLY LEFT BLANK - ------ 3 Arizona Municipal Bond - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2006 ------------------------------ AVERAGE ANNUAL RETURNS - ------------------------------------------------------------------------------------------ SINCE INCEPTION 6 MONTHS(1) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - ------------------------------------------------------------------------------------------ INVESTOR CLASS 3.77% 4.98% 4.31% 4.84% 5.34% 4/11/94 - ------------------------------------------------------------------------------------------ LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 2.96% 4.07% 4.01% 4.70% 5.13%(2) -- - ------------------------------------------------------------------------------------------ LIPPER OTHER STATES INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS(3) 3.57% 4.47% 3.82% 4.24% 4.71%(4) -- - ------------------------------------------------------------------------------------------ Investor Class's Lipper Ranking as of 11/30/06(3) -- 26 of 120 15 of 95 5 of 67 6 of 44(4) -- - ------------------------------------------------------------------------------------------ Investor Class's Lipper Ranking as of 12/31/06(3) -- 21 of 120 15 of 95 5 of 67 6 of 44(4) -- - ------------------------------------------------------------------------------------------ A Class 2/27/04 No sales charge* 3.64% 4.72% -- -- 2.50% With sales charge* -1.00% -0.01% -- -- 0.80% - ------------------------------------------------------------------------------------------ B Class 2/27/04 No sales charge* 3.25% 3.95% -- -- 1.76% With sales charge* -1.75% -0.05% -- -- 0.69% - ------------------------------------------------------------------------------------------ C Class 2/27/04 No sales charge* 3.25% 3.94% -- -- 1.73% With sales charge* 2.25% 3.94% -- -- 1.73% - ------------------------------------------------------------------------------------------ *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) Total returns for periods less than one year are not annualized. (2) Since 3/31/94, the date nearest the Investor Class's inception for which data are available. (3) Data provided by Lipper Inc. -- A Reuters Company. (c)2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown and are based on average annual total returns. This listing might not represent the complete universe of funds tracked by Lipper. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (4) Since 4/14/94, the date nearest the Investor Class's inception for which data are available. (continued) - ------ 4 Arizona Municipal Bond - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made November 30, 1996
ONE-YEAR RETURNS OVER 10 YEARS Periods ended November 30 - ----------------------------------------------------------------------------------------------- 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 - ----------------------------------------------------------------------------------------------- Investor Class 5.02% 6.83% -0.09% 6.96% 8.37% 5.99% 5.72% 2.31% 2.62% 4.98% - ----------------------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 5.38% 6.32% 1.49% 5.62% 8.24% 6.47% 5.72% 2.36% 1.52% 4.07% - ----------------------------------------------------------------------------------------------- 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. - ------ 5 Arizona Municipal Bond - Portfolio Commentary LEAD PORTFOLIO MANAGERS: ALAN KRUSS AND STEVEN PERMUT PERFORMANCE SUMMARY Arizona Municipal Bond returned 3.77%* for the six months ended November 30, 2006, the fund's best semiannual-report return since November 30, 2000. The fund's peer group--represented by the average return of Lipper's Other States Intermediate Municipal Debt Funds--returned 3.57%. The Lehman Brothers Municipal 5-Year GO Index--indicative of the performance of intermediate-term municipal bonds--returned 2.96%. As discussed in the Market Perspective on page 2, slower U.S. economic growth, the Fed's interest rate pause, and forecasts of slow growth and lower interest rates in 2007 drove these returns. Municipal bonds finished the reporting period with flair, posting their second-biggest November gains since 1999, according to Lehman Brothers. Seeking yield, investors gravitated toward lower-rated and longer-maturity municipal securities. As a result, the yield gap (spread) between short- and long-term securities decreased, and spreads between investment- and non-investment-grade municipals remained relatively narrow. Several of our strategies capitalized on these trends, helping to explain Arizona Municipal Bond's relative outperformance. Over time, our repeatable, multi-layered investment approach has provided investors with relative outperformance. For periods ended November 30, 2006, Arizona Municipal Bond ranked among the top 25% of its Lipper peer group for the past year, among the top 20% for the past five years, and among the top 10% based on 10-year performance. In addition, the fund outperformed the Lehman Brothers Municipal 5-Year GO Index for each of those time frames. DURATION MATTERED MOST We extended Arizona Municipal Bond's duration (interest rate sensitivity) near the beginning of the reporting period in anticipation of a municipal market rally. We believe that was approximately two-tenths of a year longer than the Lipper group average for much of the period. A bond rally from the end of June to the end of November rewarded this position--the portfolio's greater sensitivity to interest rate changes translated to more bond price appreciation. PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- Weighted Average Maturity 8.1 yrs 8.3 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 4.8 yrs 4.4 yrs - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2006 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 3.39% - -------------------------------------------------------------------------------- A Class 3.00% - -------------------------------------------------------------------------------- B Class 2.39% - -------------------------------------------------------------------------------- C Class 2.39% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 28.54% Tax Bracket 4.74% - -------------------------------------------------------------------------------- 31.40% Tax Bracket 4.94% - -------------------------------------------------------------------------------- 36.38% Tax Bracket 5.33% - -------------------------------------------------------------------------------- 38.28% Tax Bracket 5.49% - -------------------------------------------------------------------------------- (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. Total returns for periods less than one year are not annualized. (continued) - ------ 6 Arizona Municipal Bond - Portfolio Commentary Part of the duration extension took place in June, the start of what has traditionally been a strong technical period for municipal bonds. Unfortunately, the greater interest rate sensitivity worked against us when bonds slumped that month, tempering performance as the duration extended further. However, our strategy paid off in the third quarter of 2006 and in November as municipal bonds rallied. BOND MATURITY STRUCTURE & CREDIT QUALITY COUNTED We also implemented a "barbell strategy," as we expected the spread between two- and 30-year AAA municipal bonds to contract further. The barbell refers to the fact that we believe we concentrated more of the portfolio in short- and long-term bonds than what was typical in the fund's Lipper peer group. This strategy was rewarded by a nearly 50 basis-point (0.50%--a basis point equals 0.01%) spread narrowing, which boosted performance. In addition, anticipating that lower-rated (BBB) investment-grade bonds would prop up Arizona Municipal Bond's yield while enhancing the fund's return, we selectively increased BBB holdings from 13% to 16% of the portfolio. According to Lehman Brothers, BBB municipal bonds outperformed AAA equivalents by approximately 117 basis points during the reporting period, rewarding this strategy in June and October in particular. OUR STARTING POINT FOR THE NEXT SIX MONTHS As of November 30, 2006, we still expected most of the portfolio strategies outlined in this commentary to generate favorable results. However, municipal bond issuance increased toward the end of the reporting period--partially reversing the dearth of new municipal bond supply that supported prices through much of 2006--so we trimmed the fund's duration. Also, we expect the Treasury yield curve to "steepen" in 2007, where long-term yields revert to more typical levels above short-term yields (Treasury yields were in an "inverted" position on November 30, with short-term higher than long-term). In a move we believe will help fund performance, we established a "Treasury overlay" (using Treasury futures contracts), a relatively small position that will perform well if the Treasury yield curve steepens as anticipated. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- AAA 71% 70% - -------------------------------------------------------------------------------- AA 4% 8% - -------------------------------------------------------------------------------- A 9% 9% - -------------------------------------------------------------------------------- BBB 16% 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, 2006 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- General Obligation (GO) 37% - -------------------------------------------------------------------------------- Prerefunded 13% - -------------------------------------------------------------------------------- Water and Sewer Revenue 13% - -------------------------------------------------------------------------------- Certificates of Participation (COPs)/Leases 12% - -------------------------------------------------------------------------------- Higher Education 10% - -------------------------------------------------------------------------------- - ------ 7 Arizona Municipal Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 97.1% ARIZONA -- 88.4% - -------------------------------------------------------------------------------- $1,000,000 Arizona Board of Regents COP, Series 2006 A, (University of Arizona), 5.00%, 6/1/18 (Ambac) $ 1,095,890 - -------------------------------------------------------------------------------- 1,000,000 Arizona Health Facilities Auth. Rev., (Blood Systems Incorporated), 5.00%, 4/1/21 1,044,230 - -------------------------------------------------------------------------------- 1,750,000 Arizona School Facilities Board Rev., (State School Improvement), 5.50%, 7/1/11, Prerefunded at 100% of Par(1) 1,894,358 - -------------------------------------------------------------------------------- 1,000,000 Arizona Student Loan Acquisition Auth. Rev., Series 1999 A1, (Guaranteed Student Loans), 5.65%, 5/1/14 1,067,860 - -------------------------------------------------------------------------------- 1,880,000 Arizona Tourism & Sports Auth. Tax Rev., (Baseball Training Facilities), 5.00%, 7/1/13(2) 1,970,654 - -------------------------------------------------------------------------------- 1,910,000 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/11 (MBIA)(2) 1,991,462 - -------------------------------------------------------------------------------- 1,000,000 Gilbert Water Resource Municipal Property Corp. Rev., (Development Fee & Sub-Lien), 4.90%, 4/1/19 1,018,340 - -------------------------------------------------------------------------------- 460,000 Glendale Industrial Development Auth. Rev., Series 1998 A, (Midwestern University), 5.38%, 5/15/08, Prerefunded at 101% of Par(1) 476,555 - -------------------------------------------------------------------------------- 540,000 Glendale Industrial Development Auth. Rev., Series 1998 A, (Midwestern University), 5.38%, 5/15/28 555,077 - -------------------------------------------------------------------------------- 500,000 Glendale Industrial Development Auth. Rev., Series 2001 A, (Midwestern University), 5.75%, 5/15/21 540,120 - -------------------------------------------------------------------------------- 1,740,000 Greater Arizona Development Auth. Rev., Series 2005 A, 5.00%, 8/1/23 (MBIA)(2) 1,873,580 - -------------------------------------------------------------------------------- 1,040,000 Maricopa County Kyrene Elementary School District No. 28 GO, Series 2001 B, 4.30%, 7/1/07 (MBIA)(3) 1,018,774 - -------------------------------------------------------------------------------- 1,615,000 Maricopa County Litchfield Elementary School District No. 79 GO, Series 2000 A, (Projects of 1998), 4.55%, 7/1/07 (FSA) 1,623,915 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Peoria Unified School District No. 11 GO, (School Improvement), 5.00%, 7/1/24 (MBIA) 1,085,990 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Maricopa County Phoenix Elementary School District No. 1 GO, 5.50%, 7/1/07, Prerefunded at 101% of Par (MBIA)(1) $ 1,021,240 - -------------------------------------------------------------------------------- 1,445,000 Maricopa County Phoenix Union High School District No. 210 GO, 4.75%, 7/1/11 (FSA) 1,521,816 - -------------------------------------------------------------------------------- 1,955,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.00%, 7/1/10(2) 2,021,293 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Scottsdale Elementary School District No. 48 GO, 6.60%, 7/1/12 1,154,100 - -------------------------------------------------------------------------------- 1,000,000 Maricopa County Scottsdale Unified School District No. 48 GO, Series 2006 B, 4.00%, 7/1/16 (FSA) 1,025,220 - -------------------------------------------------------------------------------- 1,265,000 Mohave County Community College District COP, 5.75%, 3/1/14 (Ambac) 1,348,427 - -------------------------------------------------------------------------------- 1,150,000 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/20 (MBIA) 1,233,387 - -------------------------------------------------------------------------------- 1,815,000 Navajo County Unified School District No. 20 Rev., Series 2006 A, 5.00%, 7/1/17 (MBIA)(2) 2,014,177 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Rev., (Junior Lien), 5.00%, 7/1/21 (MBIA) 1,083,750 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 6.25%, 7/1/10, Prerefunded at 101% of Par (FGIC)(1) 1,099,830 - -------------------------------------------------------------------------------- 1,000,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 5.50%, 7/1/19 (FGIC) 1,092,960 - -------------------------------------------------------------------------------- 1,070,000 Phoenix GO, Series 1995 A, 6.25%, 7/1/17 1,309,787 - -------------------------------------------------------------------------------- 240,000 Phoenix Industrial Development Auth. Single Family Mortgage Rev., Series 1998 A, 6.60%, 12/1/29 (GNMA/FNMA/FHLMC) 246,053 - -------------------------------------------------------------------------------- 1,710,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/18 (Ambac)(2) 1,951,794 - -------------------------------------------------------------------------------- 1,800,000 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/19 (Ambac)(2) 2,067,875 - -------------------------------------------------------------------------------- 1,125,000 Pima County Unified School District No. 6 Marana GO, 5.50%, 7/1/15 (FGIC) 1,204,988 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 8 Arizona Municipal Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 820,000 Pinal County COP, 4.75%, 6/1/13 (Ambac) $ 864,985 - -------------------------------------------------------------------------------- 1,000,000 Pinal County COP, 5.00%, 12/1/26 1,050,780 - -------------------------------------------------------------------------------- 1,100,000 Pinal County Unified School District No. 43 Apache Junction GO, Series 2005 A, (School Improvement), 5.00%, 7/1/23 (MBIA) 1,188,781 - -------------------------------------------------------------------------------- 775,000 Pinal County Unified School District No. 43 Apache Junction GO, Series 2006 B, (School Improvement), 5.00%, 7/1/24 (FGIC) 842,293 - -------------------------------------------------------------------------------- 1,000,000 Queen Creek Improvement District No. 1 Special Tax Rev., 5.00%, 1/1/11 1,045,570 - -------------------------------------------------------------------------------- 1,600,000 Scottsdale GO, 6.25%, 7/1/09, Prerefunded at 100% of Par(1) 1,707,632 - -------------------------------------------------------------------------------- 1,000,000 Sedona COP, 5.75%, 7/1/09, Prerefunded at 101% of Par(1) 1,063,890 - -------------------------------------------------------------------------------- 1,645,000 University of Arizona COP, Series 2002 A, 5.50%, 6/1/17 (Ambac) 1,794,202 - -------------------------------------------------------------------------------- 500,000 University of Arizona COP, Series 2005 B, 5.00%, 6/1/24 (Ambac) 537,045 - -------------------------------------------------------------------------------- 725,000 Westpark Community Facility District GO, 5.25%, 7/15/31 739,500 - -------------------------------------------------------------------------------- 49,488,180 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- PUERTO RICO -- 8.7% - -------------------------------------------------------------------------------- $1,000,000 Government Development Bank of Puerto Rico Rev., 4.00%, 1/24/07 $ 999,750 - -------------------------------------------------------------------------------- 1,000,000 Government Development Bank of Puerto Rico Rev., Series 2006 B, 5.00%, 12/1/16 1,090,130 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2006 B, 5.25%, 7/1/17 1,104,130 - -------------------------------------------------------------------------------- 1,500,000 Puerto Rico Commonwealth GO, Series 2006 B, 5.25%, 7/1/22 1,646,145 - -------------------------------------------------------------------------------- 4,840,155 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $51,864,140) 54,328,335 - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 1.3% ARIZONA -- 1.3% - -------------------------------------------------------------------------------- 700,000 Pima County Industrial Development Auth. Rev., (Tucson Electric), VRDN, 3.55%, 12/6/06 (LOC: Bank of New York) (Cost $700,000) 700,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 98.4% (Cost $52,564,140) 55,028,335 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.6% 927,178 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $55,955,513 ================================================================================ FUTURES CONTRACTS Expiration Underlying Face Unrealized Contracts Purchased Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 41 U.S. Treasury 2-Year Notes March 2007 $8,405,000 $17,849 ================================= Expiration Underlying Face Unrealized Contracts Sold Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 32 U.S. Treasury 10-Year Notes March 2007 $3,494,000 $(27,321) ================================= NOTES TO SCHEDULE OF INVESTMENTS Ambac = Ambac Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FHLMC = Federal Home Loan Mortgage Corporation FNMA = Federal National Mortgage Association FSA = Financial Security Assurance, Inc. GNMA = Government National Mortgage Association GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corporation VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2006. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated for futures contracts. (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. See Notes to Financial Statements. - ------ 9 Florida Municipal Bond - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2006 ------------------------------ AVERAGE ANNUAL RETURNS - ------------------------------------------------------------------------------------------ SINCE INCEPTION 6 MONTHS(1) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE - ------------------------------------------------------------------------------------------ INVESTOR CLASS 3.62% 4.80% 4.24% 5.00% 5.39% 4/11/94 - ------------------------------------------------------------------------------------------ LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 2.96% 4.07% 4.01% 4.70% 5.13%(2) -- - ------------------------------------------------------------------------------------------ LIPPER FLORIDA INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE RETURNS(3) 3.04% 4.30% 3.88% 4.11% 4.39%(4) -- - ------------------------------------------------------------------------------------------ Investor Class's Lipper Ranking as of 11/30/06(3) -- 2 of 8 2 of 5 1 of 5 1 of 4(4) -- - ------------------------------------------------------------------------------------------ Investor Class's Lipper Ranking as of 12/31/06(3) -- 4 of 8 2 of 5 1 of 5 1 of 4(4) -- - ------------------------------------------------------------------------------------------ A Class 2/27/04 No sales charge* 3.49% 4.54% -- -- 2.21% With sales charge* -1.19% -0.15% -- -- 0.53% - ------------------------------------------------------------------------------------------ B Class 2/27/04 No sales charge* 3.11% 3.77% -- -- 1.44% With sales charge* -1.89% -0.23% -- -- 0.37% - ------------------------------------------------------------------------------------------ C Class 2/27/04 No sales charge* 3.11% 3.76% -- -- 1.45% With sales charge* 2.11% 3.76% -- -- 1.45% - ------------------------------------------------------------------------------------------ *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) Total returns for periods less than one year are not annualized. (2) Since 3/31/94, the date nearest the Investor Class's inception for which data are available. (3) Data provided by Lipper Inc. -- A Reuters Company. (c)2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown and are based on average annual total returns. This listing might not represent the complete universe of funds tracked by Lipper. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (4) Since 4/14/94, the date nearest the Investor Class's inception for which data are available. (continued) - ------ 10 Florida Municipal Bond - Performance GROWTH OF $10,000 OVER 10 YEARS $10,000 investment made November 30, 1996
ONE-YEAR RETURNS OVER 10 YEARS Periods ended November 30 - ----------------------------------------------------------------------------------------------- 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 - ----------------------------------------------------------------------------------------------- Investor Class 6.78% 7.39% 0.00% 7.09% 7.82% 6.35% 5.62% 2.10% 2.38% 4.80% - ----------------------------------------------------------------------------------------------- Lehman Brothers Municipal 5-Year GO Index 5.38% 6.32% 1.49% 5.62% 8.24% 6.47% 5.72% 2.36% 1.52% 4.07% - ----------------------------------------------------------------------------------------------- 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. - ------ 11 Florida Municipal Bond - Portfolio Commentary LEAD PORTFOLIO MANAGERS: ALAN KRUSS AND STEVEN PERMUT PERFORMANCE SUMMARY Florida Municipal Bond returned 3.62%* for the six months ended November 30, 2006, marking the fund's best semiannual-report return since November 30, 2000. The fund's peer group--represented by the average total return of Lipper's Florida Intermediate Municipal Debt Funds--returned 3.04%. The Lehman Brothers Municipal 5-Year GO Index--indicative of the performance of intermediate-term municipal bonds--returned 2.96%. As discussed in the Market Perspective on page 2, slower U.S. economic growth, the Fed's interest rate pause, and forecasts of slow growth and lower interest rates in 2007 drove these returns. Municipal bonds finished the reporting period with flair, posting their second-biggest November gains since 1999, according to Lehman Brothers. Seeking yield, investors gravitated toward lower-rated and longer-maturity municipal securities. As a result, the yield gap (spread) between short- and long-term securities decreased, and spreads between investment- and non-investment-grade municipals remained relatively narrow. Several of our strategies capitalized on these trends, enabling Florida Municipal Bond's relative outperformance. Over time, our repeatable, multi-layered investment approach has provided long-term investors with remarkable relative returns. For periods ended November 30, 2006, Florida Municipal Bond ranked #2 among its Lipper peer group for the past one and five years and ranked #1 based on 10-year performance. In addition, the fund outperformed the Lehman Brothers Municipal 5-Year GO Index for each of those time frames. DURATION MATTERED MOST We extended Florida Municipal Bond's duration (interest rate sensitivity) near the beginning of the reporting period in anticipation of a municipal market rally. We believe we extended duration approximately two-tenths of a year longer than the Lipper group average for much of the period. A bond rally from the end of June to the end of November rewarded this position--the portfolio's greater sensitivity to interest rate changes translated to more bond price appreciation Part of the duration extension took place in June, the start of what has tradition- PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- Weighted Average Maturity 7.3 yrs 7.7 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 4.8 yrs 4.5 yrs - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2006 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 3.46% - -------------------------------------------------------------------------------- A Class 3.04% - -------------------------------------------------------------------------------- B Class 2.47% - -------------------------------------------------------------------------------- C Class 2.46% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.00% Tax Bracket 4.61% - -------------------------------------------------------------------------------- 28.00% Tax Bracket 4.81% - -------------------------------------------------------------------------------- 33.00% Tax Bracket 5.16% - -------------------------------------------------------------------------------- 35.00% Tax Bracket 5.32% - -------------------------------------------------------------------------------- (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. Total returns for periods less than one year are not annualized. (continued) - ------ 12 Florida Municipal Bond - Portfolio Commentary ally been a strong technical period for municipal bonds. Unfortunately, the greater interest rate sensitivity worked against us when bonds slumped that month, tempering performance as the duration extended further. However, our strategy paid off in the third quarter of 2006 and in November as municipal bonds rallied. BOND MATURITY STRUCTURE & CREDIT QUALITY COUNTED We also implemented a "barbell strategy," as we expected the spread between two- and 30-year AAA municipal bonds to contract further. The barbell refers to the fact that we believe we concentrated more of the portfolio in short- and long-term bonds than what was typical in the fund's Lipper peer group. This strategy was rewarded by a nearly 50 basis-point (0.50%--a basis point equals 0.01%) spread narrowing, which boosted performance. In addition, anticipating that lower-rated (BBB) investment-grade bonds would prop up Florida Municipal Bond's yield while enhancing the fund's return, we selectively increased triple-B holdings from 19% to 24% of the portfolio. According to Lehman Brothers, BBB municipal bonds outperformed AAA equivalents by approximately 117 basis points during the reporting period, rewarding this strategy in June and October in particular. OUR STARTING POINT FOR THE NEXT SIX MONTHS As of November 30, 2006, we still expected most of the portfolio strategies outlined in this commentary to generate favorable results. However, municipal bond issuance increased toward the end of the reporting period, partially reversing the dearth of new municipal bond supply that supported prices through much of 2006. As a result, we considered trimming the fund's duration. In addition, the full repeal of Florida's Intangible Personal Property Tax--which took effect on January 1, 2007--led us to purchase some non-Florida municipal bonds. Also, we expect the Treasury yield curve to "steepen" in 2007, where long-term yields revert to more typical levels above short-term yields (Treasury yields were in an "inverted" position on November 30, with short-term higher than long-term). In a move we believe will help fund performance, we established a "Treasury overlay" (using Treasury futures contracts), a relatively small position that will perform well if the Treasury yield curve steepens as anticipated. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- AAA 70% 78% - -------------------------------------------------------------------------------- AA 1% 1% - -------------------------------------------------------------------------------- A 5% 2% - -------------------------------------------------------------------------------- BBB 24% 19% - -------------------------------------------------------------------------------- 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, 2006 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Water and Sewer Revenue 16% - -------------------------------------------------------------------------------- Prerefunded 15% - -------------------------------------------------------------------------------- Certificates of Participation (COPs)/Leases 12% - -------------------------------------------------------------------------------- General Obligation (GO) 8% - -------------------------------------------------------------------------------- Hospital Revenue 8% - -------------------------------------------------------------------------------- - ------ 13 Florida Municipal Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 98.4% FLORIDA -- 77.2% - -------------------------------------------------------------------------------- $1,110,000 Broward County Airport Systems Rev., (Passenger Facility), (Conventional Lien H-1), 5.25%, 10/1/12 (Ambac) $ 1,146,386 - -------------------------------------------------------------------------------- 400,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.00%, 4/1/14 422,848 - -------------------------------------------------------------------------------- 500,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/15 542,285 - -------------------------------------------------------------------------------- 525,000 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/16 568,192 - -------------------------------------------------------------------------------- 500,000 Broward County School Board COP, Series 2002 B, 5.375%, 7/1/11, Prerefunded at 100% of Par (FSA)(1) 538,620 - -------------------------------------------------------------------------------- 1,000,000 Callaway/Bay County Wastewater System Rev., 5.00%, 9/1/23 (MBIA) 1,069,820 - -------------------------------------------------------------------------------- 1,475,000 Collier County School Board COP, 5.50%, 2/15/12 (FSA)(2) 1,605,833 - -------------------------------------------------------------------------------- 1,150,000 Duval County School Board COP, 5.75%, 7/1/16 (FSA) 1,209,478 - -------------------------------------------------------------------------------- 100,000 Escambia County Housing Finance Auth. Single Family Mortgage Rev., Series 1998 A, (Multi-County Program), 4.85%, 4/1/07 (GNMA/FNMA) 100,301 - -------------------------------------------------------------------------------- 195,000 Florida Housing Finance Corp. Rev., Series 1999-2, (Homeowner Mortgage), 4.60%, 1/1/21 (FSA) 195,930 - -------------------------------------------------------------------------------- 1,000,000 Florida Municipal Loan Council GO, Series 2002 C, 5.25%, 11/1/21 (MBIA) 1,085,850 - -------------------------------------------------------------------------------- 350,000 Gainesville Utilities System Rev., Series 1996 A, 5.75%, 10/1/09 370,923 - -------------------------------------------------------------------------------- 675,000 Greater Orlando Aviation Auth. Rev., Series 1999 A, 5.25%, 10/1/09 (FGIC) 704,369 - -------------------------------------------------------------------------------- 1,000,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/15 1,081,630 - -------------------------------------------------------------------------------- 1,000,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/18 1,081,660 - -------------------------------------------------------------------------------- 1,235,000 Indian River County Rev., (Spring Training Facility), 5.25%, 4/1/15 (FGIC)(2) 1,325,624 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 850,000 Lee County Industrial Development Health Care Facilities Auth. Rev., Series 1999 A, (Shell Point Village), 5.50%, 11/15/09 $ 878,152 - -------------------------------------------------------------------------------- 1,000,000 Miami Beach Stormwater Rev., 5.75%, 9/1/17 (FGIC) 1,084,080 - -------------------------------------------------------------------------------- 1,910,000 Miami Beach Water & Sewer Rev., 5.625%, 9/1/16 (Ambac)(2) 2,060,527 - -------------------------------------------------------------------------------- 650,000 Miami Parking Facilities Rev., 5.25%, 10/1/15 (MBIA) 724,276 - -------------------------------------------------------------------------------- 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/11, Prerefunded at 100% of Par (FSA)(1) 1,086,600 - -------------------------------------------------------------------------------- 1,000,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/11, Prerefunded at 100% of Par (FSA)(1) 1,086,600 - -------------------------------------------------------------------------------- 1,875,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/12, Prerefunded at 100% of Par (MBIA)(1)(2) 2,061,675 - -------------------------------------------------------------------------------- 450,000 Orlando and Orange County Expressway Auth. Rev., 6.50%, 7/1/11 (FGIC) 505,409 - -------------------------------------------------------------------------------- 760,000 Palm Beach County Airport Systems Rev., 5.75%, 10/1/14 (MBIA) 866,210 - -------------------------------------------------------------------------------- 240,000 Palm Beach County Airport Systems Rev., 5.75%, 10/1/14 (MBIA) 275,388 - -------------------------------------------------------------------------------- 1,000,000 Palm Beach County School Board COP, Series 2002 A, 5.375%, 8/1/12, Prerefunded at 100% of Par (FSA)(1) 1,091,050 - -------------------------------------------------------------------------------- 2,000,000 Pasco County Solid Waste Disposal & Resource Recovery System Rev., 6.00%, 4/1/10 (Ambac)(2) 2,118,198 - -------------------------------------------------------------------------------- 155,000 Pensacola Airport Rev., Series 1997 B, 5.40%, 10/1/07 (MBIA) 157,193 - -------------------------------------------------------------------------------- 300,000 Plantation Health Facilities Auth. Rev., (Covenant Village of Florida Inc.), 4.70%, 12/1/07 301,626 - -------------------------------------------------------------------------------- 1,000,000 Sumter County School Board COP, 5.50%, 1/1/21 (MBIA) 1,092,960 - -------------------------------------------------------------------------------- 1,000,000 Sunrise Utility System Rev., 5.20%, 10/1/22 (Ambac) 1,134,550 - -------------------------------------------------------------------------------- 400,000 Tampa Guaranteed Entitlement Rev., 6.00%, 10/1/18 (Ambac) 459,688 - -------------------------------------------------------------------------------- 1,000,000 Tampa Water & Sewer Rev., 6.00%, 10/1/17 (FSA) 1,201,750 - -------------------------------------------------------------------------------- 31,235,681 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 14 Florida Municipal Bond - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- ILLINOIS -- 2.6% - -------------------------------------------------------------------------------- $1,000,000 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Education Advancement Fund), 5.25%, 5/1/19 $ 1,070,600 - -------------------------------------------------------------------------------- IOWA -- 5.2% - -------------------------------------------------------------------------------- 2,000,000 Iowa Finance Auth. Health Facilities Development Rev., Series 2006 A, (Care Initiatives), 5.25%, 7/1/14(2) 2,097,380 - -------------------------------------------------------------------------------- OKLAHOMA -- 2.6% - -------------------------------------------------------------------------------- 1,000,000 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/16 1,047,470 - -------------------------------------------------------------------------------- PUERTO RICO -- 5.4% - -------------------------------------------------------------------------------- 1,000,000 Government Development Bank of Puerto Rico Rev., Series 2006 B, 5.00%, 12/1/16 1,090,130 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2006 B, 5.25%, 7/1/17 1,104,130 - -------------------------------------------------------------------------------- 2,194,260 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- TEXAS -- 5.4% - -------------------------------------------------------------------------------- $1,000,000 City of Richardson GO, 5.25%, 2/15/18 (MBIA) $ 1,113,690 - -------------------------------------------------------------------------------- 1,000,000 Texas Public Finance Auth. Charter School Finance Corp. Rev., Series 2006 A, (KIPP, Inc.), 5.25%, 2/15/14 (ACA) 1,073,210 - -------------------------------------------------------------------------------- 2,186,900 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $37,949,310) 39,832,291 - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS -- 0.5% 195,000 Federated Florida Municipal Cash Trust (Cost $195,000) 195,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 98.9% (Cost $38,144,310) 40,027,291 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.1% 448,042 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $40,475,333 ================================================================================ FUTURES CONTRACTS Expiration Underlying Face Unrealized Contracts Purchased Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 31 U.S. Treasury 2-Year Notes March 2007 $6,355,000 $13,495 ================================= Expiration Underlying Face Unrealized Contracts Sold Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 32 U.S. Treasury 10-Year Notes March 2007 $3,494,000 $(27,322) ================================= NOTES TO SCHEDULE OF INVESTMENTS ACA = American Capital Access Ambac = Ambac Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FNMA = Federal National Mortgage Association FSA = Financial Security Assurance, Inc. GNMA = Government National Mortgage Association GO = General Obligation MBIA = MBIA Insurance Corporation (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated for futures contracts. See Notes to Financial Statements. - ------ 15 Long-Term Tax-Free - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2006 ---------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 6 MONTHS(1) 1 YEAR 5 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- A CLASS 3/31/97 No sales charge* 4.64% 5.92% 4.90% 5.98% With sales charge* -0.03% 1.12% 3.94% 5.48% - -------------------------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL BOND INDEX 4.53% 6.12% 5.40% 6.03% -- - -------------------------------------------------------------------------------- LIPPER GENERAL MUNICIPAL DEBT FUNDS AVERAGE RETURNS(2) 4.19% 5.77% 4.72% 5.16% -- - -------------------------------------------------------------------------------- A Class's Lipper Ranking as of 11/30/06(2) -- 118 of 259 86 of 228 16 of 152 -- - -------------------------------------------------------------------------------- A Class's Lipper Ranking as of 12/31/06(2) -- 122 of 257 90 of 227 16 of 151 -- - -------------------------------------------------------------------------------- Investor Class(1) 4.78% -- -- 5.21% 4/3/06 - -------------------------------------------------------------------------------- Institutional Class(1) 4.88% -- -- 5.35% 4/3/06 - -------------------------------------------------------------------------------- B Class 3/31/97 No sales charge* 4.25% 5.28% 4.20% 5.28% With sales charge* -0.75% 1.28% 4.03% 5.28% - -------------------------------------------------------------------------------- C Class(1) 4/3/06 No sales charge* 4.25% -- -- 4.52% With sales charge* 3.25% -- -- 3.52% - -------------------------------------------------------------------------------- *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) Total returns for periods less than one year are not annualized. (2) Data provided by Lipper Inc. -- A Reuters Company. (c)2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown and are based on average annual total returns. This listing might not represent the complete universe of funds tracked by Lipper. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (continued) - ------ 16 Long-Term Tax-Free - Performance GROWTH OF $10,000 OVER LIFE OF CLASS $10,000 investment made March 31, 1997
ONE-YEAR RETURNS OVER LIFE OF CLASS Periods ended November 30 - ----------------------------------------------------------------------------------------------- 1997* 1998 1999 2000 2001 2002 2003 2004 2005 2006 - ----------------------------------------------------------------------------------------------- A Class** (no sales charge) 8.98% 7.64% -1.09% 8.67% 9.54% 6.17% 6.23% 3.21% 3.02% 5.92% - ----------------------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index 7.88% 7.76% -1.07% 8.18% 8.75% 6.32% 6.65% 4.07% 3.88% 6.12% - ----------------------------------------------------------------------------------------------- *From 3/31/97 (the class's inception date) to 11/30/97. Not annualized. Long-Term Tax-Free A Class's initial investment is $9,550 to reflect the Maximum 4.50% initial sales charge. **Class returns would have been lower, along with ending value, if fees had not been waived. 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 A 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. - ------ 17 Long-Term Tax-Free - Portfolio Commentary LEAD PORTFOLIO MANAGERS: ROBERT MILLER AND STEVEN PERMUT PERFORMANCE SUMMARY Long-Term Tax-Free returned 4.64%* for the six months ended November 30, 2006. The fund's peer group--represented by the average return of Lipper's General Municipal Debt Funds--returned 4.19%. The Lehman Brothers Municipal Bond Index--indicative of the performance of the broad, investment-grade municipal-bond market--returned 4.53%. As discussed in the Market Perspective on page 2, slower U.S. economic growth, the Fed's interest rate pause, and forecasts of slow growth and lower interest rates in 2007 drove these returns. Municipal bonds finished the reporting period with flair, posting their second-biggest November gains since 1999, according to Lehman Brothers. Seeking yield, investors gravitated toward lower-rated and longer-maturity municipal securities. As a result, the yield gap (spread) between short- and long-term securities decreased, and spreads between investment- and non-investment-grade municipals remained relatively narrow. Several of our strategies capitalized on these trends, helping to explain Long-Term Tax-Free's relative outperformance. DURATION MATTERED MOST We extended Long-Term Tax-Free's duration (interest rate sensitivity) near the beginning of the reporting period in anticipation of a municipal market rally. We believe we extended duration approximately two-tenths of a year longer than the Lipper group average for much of the period. A bond rally from the end of June to the end of November rewarded this position -- the portfolio's greater sensitivity to interest rate changes translated to more bond price appreciation Part of the duration extension took place in June, the start of what has traditionally been a strong technical period for municipal bonds. Unfortunately, the greater interest rate sensitivity worked against us when bonds slumped that month, tempering performance as the duration extended further. However, our strategy paid off in the third quarter of 2006 and in November as municipal bonds rallied. PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- Weighted Average Maturity 12.2 yrs 13.7 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 5.7 yrs 5.4 yrs - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2006 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 3.65% - -------------------------------------------------------------------------------- Institutional Class 3.85% - -------------------------------------------------------------------------------- A Class 3.24% - -------------------------------------------------------------------------------- B Class 2.65% - -------------------------------------------------------------------------------- C Class 2.65% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.00% Tax Bracket 4.87% - -------------------------------------------------------------------------------- 28.00% Tax Bracket 5.07% - -------------------------------------------------------------------------------- 33.00% Tax Bracket 5.45% - -------------------------------------------------------------------------------- 35.00% Tax Bracket 5.62% - -------------------------------------------------------------------------------- (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 A Class shares and are not reduced by sales charges. A Class shares are subject to a maximum sales charge of 4.50%. Had the sales charge been applied, returns would be lower than those shown. Total returns for periods less than one year are not annualized. (continued) - ------ 18 Long-Term Tax-Free - Portfolio Commentary OTHER EFFECTIVE STRATEGIES Anticipating that lower-rated (BBB) investment-grade bonds would prop up Long-Term Tax-Free's yield while enhancing the fund's return, we worked side-by-side with our municipal credit research team to carefully and selectively increase BBB holdings from 6% to 23% of the portfolio. According to Lehman Brothers, BBB municipal bonds outperformed AAA equivalents by approximately 117 basis points (1.17% -- a basis point equals 0.01%) during the reporting period, rewarding this strategy in June and October in particular. We also believe we concentrated more of the portfolio in short- and long-term bonds than what was typical in the fund's Lipper peer group. We expected the spread between two- and 30-year AAA municipal bonds to contract further. Our "barbell strategy" was rewarded by a nearly 50 basis-point spread narrowing, which boosted performance. Lastly, we continued to monitor seasonal fluctuations in bond supply among the various states. Partially reflecting these efforts, our larger portfolio shifts included selling some of our Texas bonds, adding California securities, and liquidating Florida municipal bonds ahead of the elimination of Florida's Intangible Personal Property Tax. OUR STARTING POINT FOR THE NEXT SIX MONTHS As of November 30, 2006, we still expected most of the portfolio strategies outlined in this commentary to generate favorable results. However, municipal bond issuance increased toward the end of the reporting period--partially reversing the dearth of new municipal bond supply that supported prices through much of 2006--so we trimmed the fund's duration. Also, we expect the Treasury yield curve to "steepen" in 2007, where long-term yields revert to more typical levels above short-term yields (Treasury yields were in an "inverted" position on November 30, with short-term higher than long-term). In a move we believe will help fund performance, we established a "Treasury overlay" (using Treasury futures contracts), a relatively small position that will perform well if the Treasury yield curve steepens as anticipated. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- AAA 47% 73% - -------------------------------------------------------------------------------- AA 13% 18% - -------------------------------------------------------------------------------- A 9% 3% - -------------------------------------------------------------------------------- BBB 23% 6% - -------------------------------------------------------------------------------- Unrated 8% -- - -------------------------------------------------------------------------------- Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. TOP FIVE SECTORS AS OF NOVEMBER 30, 2006 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- General Obligation (GO) 34% - -------------------------------------------------------------------------------- Housing Revenue 12% - -------------------------------------------------------------------------------- Special Tax Revenue 9% - -------------------------------------------------------------------------------- Prerefunded 8% - -------------------------------------------------------------------------------- Industrial Development Revenue 7% - -------------------------------------------------------------------------------- - ------ 19 Long-Term Tax-Free - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 96.2% ALASKA -- 3.1% - -------------------------------------------------------------------------------- $1,000,000 Aleutians East Borough Rev., (Aleutian Pribilof Islands Association, Inc.), 5.50%, 6/1/36 (ACA) $ 1,081,050 - -------------------------------------------------------------------------------- ARIZONA -- 3.1% - -------------------------------------------------------------------------------- 1,000,000 Arizona Board of Regents COP, Series 2006 A, (University of Arizona), 5.00%, 6/1/18 (Ambac) 1,095,890 - -------------------------------------------------------------------------------- CALIFORNIA -- 12.1% - -------------------------------------------------------------------------------- 1,000,000 California GO, 5.00%, 6/1/16 1,086,960 - -------------------------------------------------------------------------------- 1,000,000 Fillmore Redevelopment Agency Tax Allocation Rev., Series 2006 A, (Central City Redevelopment), 5.375%, 5/1/31 1,038,910 - -------------------------------------------------------------------------------- 1,000,000 Jurupa Community Services District Special Tax Rev., Series 2006 A (Community Facilities District No. 17), 5.20%, 9/1/36 1,030,550 - -------------------------------------------------------------------------------- 1,000,000 Murrieta Valley Unified School District Public Financing Auth. Special Tax Rev., Series 2006 A, 5.125%, 9/1/26 (AGC) 1,095,550 - -------------------------------------------------------------------------------- 4,251,970 - -------------------------------------------------------------------------------- COLORADO -- 2.9% - -------------------------------------------------------------------------------- 1,000,000 El Paso County School District No 8 & Fountain-Fort Carson School District Finance Corp. COP, 4.00%, 12/15/15 (Ambac) 1,015,330 - -------------------------------------------------------------------------------- CONNECTICUT -- 3.1% - -------------------------------------------------------------------------------- 1,000,000 Connecticut GO, Series 2006 D, 5.00%, 11/1/26 1,091,890 - -------------------------------------------------------------------------------- GEORGIA -- 3.3% - -------------------------------------------------------------------------------- 1,000,000 Fulton County Development Auth. Rev., Series 2001 A, (TUFF/Atlanta Housing, LLC Project at Georgia State University), 5.50%, 9/1/18 (Ambac)(1) 1,097,060 - -------------------------------------------------------------------------------- 40,000 Municipal Electric Authority Rev., Series 1998 Y, 6.40%, 1/1/13 (Ambac) 44,822 - -------------------------------------------------------------------------------- 1,141,882 - -------------------------------------------------------------------------------- ILLINOIS -- 3.0% - -------------------------------------------------------------------------------- 1,000,000 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/30 1,037,590 - -------------------------------------------------------------------------------- INDIANA -- 3.1% - -------------------------------------------------------------------------------- 1,000,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/20 (FSA) 1,094,180 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- IOWA -- 4.9% - -------------------------------------------------------------------------------- $1,250,000 Iowa Finance Auth. Health Facilities Development Rev., Series 2006 A, (Care Initiatives), 5.50%, 7/1/21(1) $ 1,331,875 - -------------------------------------------------------------------------------- 360,000 Iowa Finance Auth. Rev., 5.875%, 2/15/10, Prerefunded at 101% of Par (Ambac)(2) 388,080 - -------------------------------------------------------------------------------- 1,719,955 - -------------------------------------------------------------------------------- KANSAS -- 3.1% - -------------------------------------------------------------------------------- 1,000,000 City of Lawrence Rev., (Lawrence Memorial Hospital), 5.25%, 7/1/20 1,085,000 - -------------------------------------------------------------------------------- MICHIGAN -- 10.6% - -------------------------------------------------------------------------------- 1,200,000 Michigan Building Auth. Rev., Series 2003 I, (Facilities Program), 5.25%, 10/15/11 (FSA)(1) 1,291,920 - -------------------------------------------------------------------------------- 1,000,000 Michigan Building Auth. Rev., Series 2003 I, (Facilities Program), 5.25%, 10/15/12 (FSA) 1,089,120 - -------------------------------------------------------------------------------- 1,225,000 Rochester Community School District GO, (School Building & Site), 5.00%, 5/1/14 (FGIC) (Q-SBLF)(1) 1,336,426 - -------------------------------------------------------------------------------- 3,717,466 - -------------------------------------------------------------------------------- MISSOURI -- 0.4% - -------------------------------------------------------------------------------- 120,000 Saline County Industrial Development Auth. Rev., (John Fitzgibbon Memorial Hospital Inc.), 6.50%, 12/1/28 (Acquired 7/10/01, Cost $112,118)(3) 123,990 - -------------------------------------------------------------------------------- NEW YORK -- 6.2% - -------------------------------------------------------------------------------- 1,000,000 City of New York GO, Series 2006 A, 5.00%, 8/1/19 1,086,590 - -------------------------------------------------------------------------------- 1,000,000 City of New York GO, Series 2006 I, 5.00%, 4/1/23 1,075,200 - -------------------------------------------------------------------------------- 2,161,790 - -------------------------------------------------------------------------------- NORTH CAROLINA -- 3.3% - -------------------------------------------------------------------------------- 1,000,000 North Carolina Medical Care Commission Rev., Series 2004 A, (Health Care Housing - ARC Projects), 5.50%, 10/1/24 1,082,400 - -------------------------------------------------------------------------------- 55,000 North Carolina Municipal Power Agency No. 1 Catawba Rev., 6.50%, 1/1/10 (MBIA)(2) 59,743 - -------------------------------------------------------------------------------- 1,142,143 - -------------------------------------------------------------------------------- OHIO -- 3.2% - -------------------------------------------------------------------------------- 1,000,000 Columbus City School District GO, (School Facilities Construction & Improvement), 5.50%, 12/1/16 (FSA)(1) 1,132,950 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 20 Long-Term Tax-Free - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- PENNSYLVANIA -- 9.7% - -------------------------------------------------------------------------------- $1,000,000 Allegheny County Industrial Development Auth. Rev., (Residential Resources, Inc.), 4.50%, 9/1/11 $ 1,010,170 - -------------------------------------------------------------------------------- 1,000,000 Central Dauphin School District GO, 7.00%, 2/1/27 (MBIA/ State Aid Withholding)(1) 1,255,000 - -------------------------------------------------------------------------------- 1,000,000 City of Pittsburgh GO, Series 2006 B, 5.25%, 9/1/17 (FSA)(1) 1,120,830 - -------------------------------------------------------------------------------- 3,386,000 - -------------------------------------------------------------------------------- PUERTO RICO -- 8.8% - -------------------------------------------------------------------------------- 1,000,000 Government Development Bank of Puerto Rico Rev., 3.90%, 12/8/06 999,980 - -------------------------------------------------------------------------------- 1,000,000 Government Development Bank of Puerto Rico Rev., 4.05%, 2/8/07 999,770 - -------------------------------------------------------------------------------- 1,000,000 Puerto Rico Commonwealth GO, Series 2006 B, 5.25%, 7/1/22 1,097,430 - -------------------------------------------------------------------------------- 3,097,180 - -------------------------------------------------------------------------------- SOUTH CAROLINA -- 2.9% - -------------------------------------------------------------------------------- 1,000,000 City of Myrtle Beach Tax Allocation Rev., Series 2006 A, (Myrtle Beach Air Force Base Redevelopment Project Area), 5.25%, 11/1/26 1,027,590 - -------------------------------------------------------------------------------- TEXAS -- 9.4% - -------------------------------------------------------------------------------- 825,000 Garza County Public Facility Corp. Rev., 5.50%, 10/1/16 884,169 - -------------------------------------------------------------------------------- 1,250,000 Wharton Independent School District GO, (School Building), 5.00%, 2/15/37 (PSF-GTD)(1) 1,330,800 - -------------------------------------------------------------------------------- 1,000,000 Winkler County GO, 5.25%, 2/15/25 (RADIAN) 1,081,420 - -------------------------------------------------------------------------------- 3,296,389 - -------------------------------------------------------------------------------- TOTAL MUNICIPAL SECURITIES (Cost $32,617,827) 33,700,235 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL SECURITIES -- 1.4% ARIZONA -- 1.4% - -------------------------------------------------------------------------------- $ 350,000 Phoenix Industrial Development Auth. Rev., Series 2003 A, (Southwest Human Development), VRDN, 3.46%, 12/7/06 $ 350,000 - -------------------------------------------------------------------------------- 125,000 Pima County Industrial Development Auth. Rev., (Tucson Electric), VRDN, 3.55%, 12/6/06 (LOC: Bank of New York) 125,000 - -------------------------------------------------------------------------------- TOTAL SHORT-TERM MUNICIPAL SECURITIES (Cost $475,000) 475,000 - -------------------------------------------------------------------------------- MUNICIPAL DERIVATIVES -- 1.3% TEXAS -- 1.3% - -------------------------------------------------------------------------------- 360,000 Texas GO, VRDN, Inverse Floater, 8.57%, 12/1/28(4) (Cost $416,944) 439,258 - -------------------------------------------------------------------------------- TEMPORARY CASH INVESTMENTS(5) 13,000 Federated California Municipal Cash Trust (Cost $13,000) 13,000 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 98.9% (Cost $33,522,771) 34,627,493 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.1% 384,829 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $35,012,322 ================================================================================ FUTURES CONTRACTS Expiration Underlying Face Unrealized Contracts Purchased Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 27 U.S. Treasury 2-Year Notes March 2007 $5,535,000 $11,754 ================================= Expiration Underlying Face Unrealized Contracts Sold Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 29 U.S. Treasury 10-Year Notes March 2007 $3,166,438 $(24,761) ================================= See Notes to Financial Statements. (continued) - ------ 21 Long-Term Tax-Free - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) NOTES TO SCHEDULE OF INVESTMENTS ACA = American Capital Access AGC = Assured Guaranty Corp. Ambac = Ambac Assurance Corporation ARC = Auction Rate Certificate COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance, Inc. GO = General Obligation LOC = Letter of Credit MBIA = MBIA Insurance Corporation PSF-GTD = Permanent School Fund - Guaranteed Q-SBLF = Qualified State Bond Loan Fund RADIAN = Radian Asset Assurance, Inc. VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2006. (1) Security, or a portion thereof, has been segregated for futures contracts. (2) Escrowed to maturity in U.S. government securities or state and local government securities. (3) 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, 2006 was $123,990, which represented 0.4% of total net assets. (4) Inverse floaters have interest rates that move inversely to market interest rates. Inverse floaters typically have durations longer than long-term bonds, which may cause their value to be more volatile than long-term bonds when interest rates change. Final maturity is indicated. (5) Category is less than 0.05% of total net assets. See Notes to Financial Statements. - ------ 22 THIS PAGE INTENTIONALLY LEFT BLANK - ------ 23 High-Yield Municipal - Performance TOTAL RETURNS AS OF NOVEMBER 30, 2006 ---------------------- AVERAGE ANNUAL RETURNS - -------------------------------------------------------------------------------- SINCE INCEPTION 6 MONTHS(1) 1 YEAR 5 YEARS INCEPTION DATE - -------------------------------------------------------------------------------- INVESTOR CLASS 4.86% 7.79% 7.21% 6.24%(2) 3/31/98 - -------------------------------------------------------------------------------- LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX 6.28% 8.79% 7.10% 6.48% -- - -------------------------------------------------------------------------------- LIPPER HIGH-YIELD MUNICIPAL DEBT FUNDS AVERAGE RETURNS(3) 5.02% 8.39% 6.39% 4.82% -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 11/30/06(3) -- 41 of 78 14 of 66 4 of 44(2) -- - -------------------------------------------------------------------------------- Investor Class's Lipper Ranking as of 12/31/06(3) -- 41 of 78 14 of 66 4 of 44(2) -- - -------------------------------------------------------------------------------- A Class 1/31/03 No sales charge* 4.73% 7.52% -- 6.62% With sales charge* 0.06% 2.71% -- 5.36% - -------------------------------------------------------------------------------- B Class 1/31/03 No sales charge* 4.34% 6.72% -- 5.86%(4) With sales charge* -0.66% 2.72% -- 5.19%(4) - -------------------------------------------------------------------------------- C Class 7/24/02 No sales charge* 4.33% 6.72% -- 5.80% With sales charge* 3.33% 6.72% -- 5.80% - -------------------------------------------------------------------------------- *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) Total returns for periods less than one year are not annualized. (2) 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. (3) Data provided by Lipper Inc. -- A Reuters Company. (c)2006 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Lipper Fund Performance -- Performance data is total return, and is preliminary and subject to revision. Lipper Rankings -- Rankings are based only on the universe shown and are based on average annual total returns. This listing might not represent the complete universe of funds tracked by Lipper. The data contained herein has been obtained from company reports, financial reporting services, periodicals and other resources believed to be reliable. Although carefully verified, data on compilations is not guaranteed by Lipper and may be incomplete. No offer or solicitations to buy or sell any of the securities herein is being made by Lipper. (4) Class returns would have been lower if the class had not received partial reimbursements or waivers of its distribution and service fees. (continued) - ------ 24 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 2005 2006 - ------------------------------------------------------------------------------------------ Investor Class 6.08%** -0.70%** 4.33% 8.64% 7.99% 7.03% 6.23% 7.03% 7.79% - ------------------------------------------------------------------------------------------ Lehman Brothers Long-Term Municipal Bond Index 5.56% -5.10% 10.70% 10.30% 6.09% 7.55% 5.53% 7.57% 8.79% - ------------------------------------------------------------------------------------------ *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 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. - ------ 25 High-Yield Municipal - Portfolio Commentary LEAD PORTFOLIO MANAGER: STEVEN PERMUT PERFORMANCE SUMMARY High-Yield Municipal returned 4.86% for the six months ended November 30, 2006. Its peer group, represented by the average return of 78 high-yield municipal debt funds tracked by Lipper Inc., returned 5.02%. Meanwhile, the investment-grade Lehman Brothers Long-Term Municipal Bond Index returned 6.28%. Bond rallies in the third quarter of 2006 and November 2006 produced these positive absolute returns. Against its peers, High-Yield Municipal's relative underperformance was primarily the result of its underweight in airline bonds and what we believe is its higher overall credit quality compared with many of its higher-yielding peers. Lower-quality, higher-yielding municipals significantly outperformed higher quality during the period. Against the Lehman Index, High-Yield Municipal underperformed because of its shorter duration (less sensitivity to interest-rate changes). Longer-duration portfolios outperformed shorter-duration during the period's bond rallies. Though High-Yield Municipal underperformed its Lipper group for the six months, its long-term relative performance remained solid. The fund outperformed the Lipper group average for the five-year and since-fund-inception periods ended November 30, 2006 (see page 24). WE AVOIDED AIRLINE BONDS, WHICH SOARED The strong performance of corporate municipal bonds, especially airline and tobacco bonds, helped the high-yield municipal sector outperform most others in the U.S. bond market for the reporting period (see the market returns table on page 2). Favorable litigation rulings for some major tobacco companies boosted returns in that sector. But airlines were the real high-flyers. Yields on high-yield airline bonds fell to five-year lows as major airlines continued to pull out of bankruptcy and become profitable, and signs of merger activity in the industry began to stir. We're typically cautious regarding corporate municipals, a position that in this case accounted for much of the fund's PORTFOLIO AT A GLANCE - -------------------------------------------------------------------------------- AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- Weighted Average Maturity 18.7 yrs 18.9 yrs - -------------------------------------------------------------------------------- Average Duration (Modified) 5.5 yrs 5.6 yrs - -------------------------------------------------------------------------------- YIELDS AS OF NOVEMBER 30, 2006 - -------------------------------------------------------------------------------- 30-DAY SEC YIELD - -------------------------------------------------------------------------------- Investor Class 4.31% - -------------------------------------------------------------------------------- A Class 3.87% - -------------------------------------------------------------------------------- B Class 3.31% - -------------------------------------------------------------------------------- C Class 3.31% - -------------------------------------------------------------------------------- INVESTOR CLASS 30-DAY TAX-EQUIVALENT YIELDS(1) - -------------------------------------------------------------------------------- 25.00% Tax Bracket 5.75% - -------------------------------------------------------------------------------- 28.00% Tax Bracket 5.99% - -------------------------------------------------------------------------------- 33.00% Tax Bracket 6.43% - -------------------------------------------------------------------------------- 35.00% Tax Bracket 6.63% - -------------------------------------------------------------------------------- (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. Total returns for periods less than one year are not annualized. (continued) - ------ 26 High-Yield Municipal - Portfolio Commentary underperformance versus its peers. We held no airline bonds, and we believe our tobacco bond weighting was around neutral compared to other funds. We feel our caution has a solid foundation: aside from their greater volatility, corporate bonds are subject to risks that don't apply as often to municipal bonds, such as litigation risk, bankruptcy, fluctuating profit levels, or--as in the case of airlines--the effects of energy prices on the issuing corporation. NO SIGNIFICANT CHANGES IN PORTFOLIO STRATEGY Our investment strategy during the period continued to focus on land-based bonds and other non-rated securities. We maintained an overweight position in non-rated bonds that met our credit-quality criteria (these securities made up 58% of the portfolio on November 30, 2006). The securities we typically seek offer a high level of income, plus the potential for future credit-rating upgrades, which can boost their value. We looked for land-based bonds in areas where we believe housing demand is greater than supply. Land-based bonds can appreciate as housing projects are developed and credit risk diminishes, and we favor bonds issued by large, reputable, builders with strong track-records. On November 30, 2006, 43% of the portfolio's assets were invested in land-based bonds. STARTING POINT FOR THE NEXT SIX MONTHS We believe High-Yield Municipal's time-tested strategy offers opportunities to add value under most economic and market scenarios. "It's all about picking the right bonds," says lead portfolio manager Steven Permut. "Security selection has been key to the fund's solid performance in both up and down markets." As of November 30, 2006, we saw opportunities in certain health-care-related bonds, reflected in our growing position in BBB-rated health-care bonds. We also continued to avoid airline bonds. Though that position weighed on recent performance, we still believe that the long-term reduction in risk and volatility is worth the short-term loss of return. PORTFOLIO COMPOSITION BY CREDIT RATING - -------------------------------------------------------------------------------- % OF FUND % OF FUND INVESTMENTS INVESTMENTS AS OF AS OF 11/30/06 5/31/06 - -------------------------------------------------------------------------------- AAA 17% 12% - -------------------------------------------------------------------------------- AA 1% 1% - -------------------------------------------------------------------------------- A 1% -- - -------------------------------------------------------------------------------- BBB 20% 12% - -------------------------------------------------------------------------------- BB 3% 4% - -------------------------------------------------------------------------------- Unrated 58% 71% - -------------------------------------------------------------------------------- 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, 2006 - -------------------------------------------------------------------------------- % OF FUND INVESTMENTS - -------------------------------------------------------------------------------- Land Secured 43% - -------------------------------------------------------------------------------- Special Tax Revenue 10% - -------------------------------------------------------------------------------- Project Finance Revenue 7% - -------------------------------------------------------------------------------- Tax Allocation/Tax Increment 7% - -------------------------------------------------------------------------------- Hospital Revenue 7% - -------------------------------------------------------------------------------- - ------ 27 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES -- 99.0% ALABAMA -- 0.4% - -------------------------------------------------------------------------------- $1,000,000 Montgomery Medical Clinic Board Health Care Facility Rev., (Jackson Hospital & Clinic), 5.25%, 3/1/36 $ 1,054,240 - -------------------------------------------------------------------------------- ALASKA -- 0.2% - -------------------------------------------------------------------------------- 500,000 Anchorage Schools GO, Series 2000 A, 5.75%, 12/1/10, Prerefunded at 100% of Par (MBIA)(1) 541,390 - -------------------------------------------------------------------------------- ARIZONA -- 5.1% - -------------------------------------------------------------------------------- 590,000 Centerra Community Facilities District GO, 5.50%, 7/15/29 612,733 - -------------------------------------------------------------------------------- 2,000,000 Gilbert Water Resource Municipal Property Corp. Rev., (Development Fee & Sub-Lien), 4.90%, 4/1/19 2,036,680 - -------------------------------------------------------------------------------- 3,015,000 Pronghorn Ranch Community Facilities District GO, 6.40%, 7/15/29(2) 3,316,772 - -------------------------------------------------------------------------------- 1,120,000 Quailwood Meadows Community Facilities District GO, 6.00%, 7/15/22 1,199,363 - -------------------------------------------------------------------------------- 2,000,000 Quailwood Meadows Community Facilities District GO, 6.125%, 7/15/29 2,140,400 - -------------------------------------------------------------------------------- 991,000 Sundance Community Facilities Assessment District No. 2 Rev., 7.125%, 7/1/27 1,117,174 - -------------------------------------------------------------------------------- 892,000 Sundance Community Facilities Assessment District No. 3 Rev., 6.50%, 7/1/29 984,741 - -------------------------------------------------------------------------------- 395,000 Sundance Community Facilities District GO, 6.25%, 7/15/29 440,658 - -------------------------------------------------------------------------------- 1,500,000 Vistancia Community Facilities District GO, 5.50%, 7/15/20 1,572,810 - -------------------------------------------------------------------------------- 1,200,000 Vistancia Community Facilities District GO, 5.75%, 7/15/24 1,270,536 - -------------------------------------------------------------------------------- 14,691,867 - -------------------------------------------------------------------------------- ARKANSAS -- 0.3% - -------------------------------------------------------------------------------- 1,000,000 Pulaski County Public Facilities Board Rev., Series 2006 A, (Philander Smith College), 5.60%, 6/1/36 1,011,760 - -------------------------------------------------------------------------------- CALIFORNIA -- 15.5% - -------------------------------------------------------------------------------- 2,000,000 Beaumont Financing Auth. Local Agency Rev., Series 2003 A, 6.875%, 9/1/27 2,271,760 - -------------------------------------------------------------------------------- 1,490,000 Beaumont Financing Auth. Special Tax Rev., Series 2005 B, 5.40%, 9/1/35 1,564,619 - -------------------------------------------------------------------------------- 2,000,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B, (Palomar Estates E&W), 7.00%, 9/15/36(2) 2,218,120 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 735,000 California Statewide Communities Development Auth. Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/11, Prerefunded at 101% of Par(1) $ 864,595 - -------------------------------------------------------------------------------- 2,020,000 City of Lake Elsinore Community Facilities District No. 2006-2 Special Tax Rev., Series 2006 A, (Viscaya), 5.40%, 9/1/36 2,082,438 - -------------------------------------------------------------------------------- 250,000 City of Palm Springs Rev., (Palm Springs International Airport), 5.45%, 7/1/20 259,728 - -------------------------------------------------------------------------------- 530,000 City of Palm Springs Rev., (Palm Springs International Airport), 5.55%, 7/1/28 547,108 - -------------------------------------------------------------------------------- 3,105,000 City of Tracy Community Facilities District No. 2006-01 Special Tax Rev., (NEI Phase II), 5.75%, 9/1/36 3,168,590 - -------------------------------------------------------------------------------- 4,000,000 City of Vallejo COP, (Marine World Foundation), 7.00%, 2/1/17 4,095,040 - -------------------------------------------------------------------------------- 4,000,000 Fillmore Redevelopment Agency Tax Allocation Rev., Series 2006 A, (Central City Redevelopment), 5.375%, 5/1/31 4,155,640 - -------------------------------------------------------------------------------- 500,000 Golden State Tobacco Securitization Corp. Rev., Series 2003 A1, 6.625%, 6/1/40 570,355 - -------------------------------------------------------------------------------- 2,420,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2003 A1, 6.75%, 6/1/39(2) 2,785,057 - -------------------------------------------------------------------------------- 885,000 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/10, Prerefunded at 102% of Par(1) 1,015,139 - -------------------------------------------------------------------------------- 2,000,000 Hawaiian Gardens Redevelopment Agency Tax Allocation Rev., Series 2006 B, (Redevelopment Project No. 1), 5.40%, 12/1/25 2,055,540 - -------------------------------------------------------------------------------- 2,235,000 Independent Cities Lease Finance Auth. Rev., Series 2004 A, (Morgan Hill - Hacienda Various Projects), 5.90%, 11/15/34 2,392,165 - -------------------------------------------------------------------------------- 2,000,000 Indio Redevelopment Agency Tax Allocation Rev., Series 2004 B, (Sub-Merged Project Area), 6.50%, 8/15/34 2,224,220 - -------------------------------------------------------------------------------- 2,100,000 Menifee Union School District Special Tax Rev., (Community Facilities District No. 2005-2), 5.375%, 9/1/36 2,144,037 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 28 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $ 680,000 Murrieta Valley Unified School District Special Tax Rev., (Community Facilities District No. 2002-4 - Improvement Area B), 5.45%, 9/1/38 $ 694,192 - -------------------------------------------------------------------------------- 2,000,000 Northern Mariana Islands Commonwealth GO, Series 2003 A, 6.75%, 10/1/33(2) 2,259,000 - -------------------------------------------------------------------------------- 1,390,000 Perris Community Facilities District No. 3, Series 2005 A, (Improvement Area No. 2), 5.30%, 9/1/35 1,438,872 - -------------------------------------------------------------------------------- 3,000,000 Perris Public Financing Auth. Special Tax Rev., Series 2003 A, 6.25%, 9/1/33 3,299,880 - -------------------------------------------------------------------------------- 1,000,000 Soledad Improvement Bond Act of 1915 Special Assessment, (Diamond Ridge Assessment District No. 2002-01), 6.75%, 9/2/33 1,099,250 - -------------------------------------------------------------------------------- 1,585,000 Vallejo Multifamily Housing Rev., Series 1998 B, (Solano Affordable Housing), 8.25%, 4/1/39 (Acquired 12/12/02, Cost $1,715,588)(3) 1,821,387 - -------------------------------------------------------------------------------- 45,026,732 - -------------------------------------------------------------------------------- COLORADO -- 8.3% - -------------------------------------------------------------------------------- 700,000 City of Black Hawk Rev., 5.00%, 12/1/18 720,972 - -------------------------------------------------------------------------------- 750,000 Colorado Health Facilities Auth. Rev., (The Evangelical Lutheran Good Samaritan Society), 5.25%, 6/1/31 801,480 - -------------------------------------------------------------------------------- 2,500,000 Colorado Health Facilities Auth. Rev., (The Evangelical Lutheran Good Samaritan Society), 5.25%, 6/1/36(2) 2,665,575 - -------------------------------------------------------------------------------- 3,000,000 Denver Health & Hospital Auth. Healthcare Rev., Series 2004 A, 6.25%, 12/1/33(2) 3,402,360 - -------------------------------------------------------------------------------- 640,000 Douglas County School District No. Re-1 GO, Series 2002 B, (Douglas & Elbert Counties), 5.75%, 12/15/12, Prerefunded at 100% of Par (FSA/State Aid Withholding)(1) 716,134 - -------------------------------------------------------------------------------- 800,000 Eagle County Air Terminal Corp. Rev., Series 2006 A, (Airport Terminal), 5.15%, 5/1/17 820,136 - -------------------------------------------------------------------------------- 475,000 Eagle County Air Terminal Corp. Rev., Series 2006 B, (Airport Terminal), 5.25%, 5/1/20 486,505 - -------------------------------------------------------------------------------- 5,725,000 Granby Ranch Metropolitan District GO, 6.75%, 12/1/36 5,898,353 - -------------------------------------------------------------------------------- 3,000,000 One Horse Business Improvement District Rev., 6.00%, 6/1/24(2) 3,204,900 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $1,500,000 Plaza Metropolitan District No. 1 Rev., 8.00%, 12/1/25 $ 1,674,780 - -------------------------------------------------------------------------------- 2,000,000 Todd Creek Farms Metropolitan District No. 1 Rev., 5.60%, 12/1/14 2,076,340 - -------------------------------------------------------------------------------- 1,500,000 Todd Creek Farms Metropolitan District No. 1 Rev., 6.125%, 12/1/19 1,587,375 - -------------------------------------------------------------------------------- 24,054,910 - -------------------------------------------------------------------------------- CONNECTICUT -- 0.4% - -------------------------------------------------------------------------------- 1,000,000 Connecticut Development Auth. Industrial Rev., (Afco Cargo BDL-LLC), 8.00%, 4/1/30 1,089,100 - -------------------------------------------------------------------------------- DISTRICT OF COLUMBIA -- 0.7% - -------------------------------------------------------------------------------- 1,000,000 District of Columbia COP, (Public Safety & Emergency), 5.50%, 1/1/19 (Ambac) 1,101,770 - -------------------------------------------------------------------------------- 750,000 Metropolitan Washington D.C. Airports Auth. General Rev., Series 2001 A, 5.50%, 10/1/18 (MBIA) 809,123 - -------------------------------------------------------------------------------- 1,910,893 - -------------------------------------------------------------------------------- FLORIDA -- 13.7% - -------------------------------------------------------------------------------- 2,800,000 Anthem Park Community Development District Rev., 5.80%, 5/1/36 2,946,104 - -------------------------------------------------------------------------------- 5,000,000 Arborwood Community Development District Special Assessment Rev., Series 2006 B, (Centex Homes), 5.25%, 5/1/16 5,159,150 - -------------------------------------------------------------------------------- 1,470,000 Bartam Park Community Development Special Assessment, 5.30%, 5/1/35 1,492,256 - -------------------------------------------------------------------------------- 2,800,000 Belmont Community Development District Special Assessment Rev., Series 2006 B, 5.125%, 11/1/14 2,854,628 - -------------------------------------------------------------------------------- 1,120,000 Cascades at Groveland Community Development District Special Assessment Rev., 5.30%, 5/1/36 1,135,288 - -------------------------------------------------------------------------------- 2,380,000 Concorde Estates Community Development District Rev., Series 2004 B, 5.00%, 5/1/11 2,381,571 - -------------------------------------------------------------------------------- 155,000 Covington Park Community Development District Rev., Series 2004 B, (Capital Improvement), 5.30%, 11/1/09 155,192 - -------------------------------------------------------------------------------- 980,000 Double Branch Community Development District Special Assessment, Series 2002 A, 6.70%, 5/1/34 1,083,576 - -------------------------------------------------------------------------------- 145,000 Double Branch Community Development District Special Assessment, Series 2003 C, 5.125%, 5/1/08 145,125 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 29 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $3,455,000 Dupree Lakes Community Development District Rev., 5.00%, 11/1/10 $ 3,457,280 - -------------------------------------------------------------------------------- 1,000,000 East Homestead Community Development District Special Assessment Rev., 5.375%, 5/1/36 1,018,250 - -------------------------------------------------------------------------------- 980,000 East Homestead Community Development District Special Assessment Rev., Series 2006 B, 5.00%, 5/1/11 994,073 - -------------------------------------------------------------------------------- 520,000 Fleming Island Plantation Community Development District Special Assessment, Series 2000 B, 7.375%, 5/1/31 563,846 - -------------------------------------------------------------------------------- 640,000 Gateway Services Community Development District Special Assessment, Series 2003 B, (Sun City Center - Fort Meyers), 5.50%, 5/1/10 643,187 - -------------------------------------------------------------------------------- 5,000 Heritage Harbor South Community Development District Rev., Series 2002 B, 5.40%, 11/1/08 5,012 - -------------------------------------------------------------------------------- 2,250,000 Lee County Industrial Development Health Care Facilities Auth. Rev., (Shell Point Village), 5.125%, 11/15/36(2) 2,335,275 - -------------------------------------------------------------------------------- 320,000 Middle Village Community Development District Special Assessment, Series 2004 B, 5.00%, 5/1/09 320,262 - -------------------------------------------------------------------------------- 2,500,000 Midtown Miami Community Development District Special Assessment, Series 2004 A, 6.25%, 5/1/37(2) 2,741,075 - -------------------------------------------------------------------------------- 1,000,000 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/12, Prerefunded at 100% of Par (MBIA)(1) 1,099,560 - -------------------------------------------------------------------------------- 1,300,000 Palm Glades Community Development District Special Assessment, Series 2006 A, 5.30%, 5/1/36 1,318,707 - -------------------------------------------------------------------------------- 100,000 Reunion East Community Development District Special Assessment Rev., Series 2002 B, 5.90%, 11/1/07 100,462 - -------------------------------------------------------------------------------- 1,245,000 South-Dade Venture Community Development District Rev., 6.125%, 5/1/34 1,343,118 - -------------------------------------------------------------------------------- 1,210,000 Sterling Hill Community Development District Special Assessment, Series 2003 B, 5.50%, 11/1/10 1,213,315 - -------------------------------------------------------------------------------- 380,000 Stoneybrook West Community Development District Special Assessment, Series 2000 A, 7.00%, 5/1/32 407,858 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 950,000 Waterchase Community Development District Rev., Series 2001 A, 6.70%, 5/1/32 $ 1,021,896 - -------------------------------------------------------------------------------- 1,680,000 Waters Edge Community Development District Rev., 5.30%, 5/1/36 1,702,932 - -------------------------------------------------------------------------------- 1,995,000 Westchester Community Development District No. 1 Special Assessment, (Infrastructure), 6.125%, 5/1/35 2,131,498 - -------------------------------------------------------------------------------- 39,770,496 - -------------------------------------------------------------------------------- GEORGIA -- 0.4% - -------------------------------------------------------------------------------- 1,235,000 City of Atlanta Tax Allocation Rev., (Princeton Lakes), 5.50%, 1/1/31 1,271,865 - -------------------------------------------------------------------------------- GUAM -- 0.6% - -------------------------------------------------------------------------------- 1,500,000 Guam Government Waterworks Auth. Rev., 6.00%, 7/1/25 1,658,145 - -------------------------------------------------------------------------------- ILLINOIS -- 7.6% - -------------------------------------------------------------------------------- 1,325,000 Bedford Park Tax Allocation Rev., 5.125%, 12/30/18 1,343,683 - -------------------------------------------------------------------------------- 3,000,000 Chicago Park District GO, Series 2006 C, 5.00%, 1/1/12 (FGIC)(2) 3,195,690 - -------------------------------------------------------------------------------- 3,000,000 Chicago Tax Increment Allocation Rev., Series 2004 B, (Pilsen Redevelopment), (Junior Lien), 6.75%, 6/1/22(2) 3,292,470 - -------------------------------------------------------------------------------- 6,000,000 City of Yorkville Special Service Area No. 2005-109 Special Tax Rev., (Bristol Bay), 5.875%, 3/1/36 6,103,199 - -------------------------------------------------------------------------------- 3,350,000 Pingree Grove Special Service Area No. 7 Special Tax Rev., Series 2006-1, (Cambridge Lakes), 6.00%, 3/1/36 3,467,217 - -------------------------------------------------------------------------------- 1,000,000 Village of Bolingbrook Rev., 6.25%, 1/1/24(4) 991,650 - -------------------------------------------------------------------------------- 3,500,000 Volo Village Special Service Area No. 3 Special Tax Rev., Series 2006-1, (Symphony Meadows), 6.00%, 3/1/36 3,596,215 - -------------------------------------------------------------------------------- 21,990,124 - -------------------------------------------------------------------------------- IOWA -- 1.3% - -------------------------------------------------------------------------------- 1,500,000 County of Carroll Rev., Series 2006 A, (St. Anthony Regional Hospital), 5.00%, 11/1/31 1,545,495 - -------------------------------------------------------------------------------- 2,000,000 Tobacco Settlement Auth. Rev., Series 2005 C, 5.50%, 6/1/42(2) 2,117,560 - -------------------------------------------------------------------------------- 3,663,055 - -------------------------------------------------------------------------------- MARYLAND -- 2.1% - -------------------------------------------------------------------------------- 1,240,000 Anne Arundel County Special Obligation Rev., (Arundel Mills), 7.10%, 7/1/09, Prerefunded at 102% of Par(1) 1,369,766 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 30 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $1,000,000 Anne Arundel County Special Obligation Rev., (National Business Park), 7.375%, 7/1/10, Prerefunded at 102% of Par(1) $ 1,143,640 - -------------------------------------------------------------------------------- 1,000,000 Baltimore Rev., (North Locust Point), 5.50%, 9/1/34 1,053,530 - -------------------------------------------------------------------------------- 1,000,000 Maryland Industrial Development Financing Auth. Rev., Series 2005 A, (Our Lady of Good Counsel High School), 6.00%, 5/1/35 1,083,340 - -------------------------------------------------------------------------------- 1,210,000 Prince Georges County Rev., (Woodview Village Phase II - Subdistrict), 7.00%, 7/1/12 1,427,159 - -------------------------------------------------------------------------------- 6,077,435 - -------------------------------------------------------------------------------- MINNESOTA -- 2.6% - -------------------------------------------------------------------------------- 7,000,000 St. Paul Housing & Redevelopment Auth. Health Care Facilities Rev., (Healthpartners Obligated Group), 5.25%, 5/15/36 7,455,140 - -------------------------------------------------------------------------------- MISSOURI -- 0.8% - -------------------------------------------------------------------------------- 355,000 Grindstone Plaza Transportation Development District Rev., Series 2006 A, 5.50%, 10/1/31 363,506 - -------------------------------------------------------------------------------- 500,000 Grindstone Plaza Transportation Development District Rev., Series 2006 A, 5.55%, 10/1/36 511,025 - -------------------------------------------------------------------------------- 860,000 Missouri Bottom Transportation Development District Hazelwood Rev., 7.20%, 5/1/33 965,617 - -------------------------------------------------------------------------------- 330,000 Missouri Housing Development Commission Mortgage Rev., Series 1998 B2, (Single Family), 6.40%, 9/1/29 336,250 - -------------------------------------------------------------------------------- 2,176,398 - -------------------------------------------------------------------------------- NEVADA -- 7.8% - -------------------------------------------------------------------------------- 1,085,000 Clark County Improvement District No. 121 Special Assessment, (Southern Highlands Area), 7.50%, 12/1/09, Prerefunded at 102% of Par(1) 1,214,158 - -------------------------------------------------------------------------------- 3,000,000 Clark County Improvement District No. 142 Special Assessment, 5.50%, 8/1/12 3,094,770 - -------------------------------------------------------------------------------- 675,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.25%, 2/1/12 695,986 - -------------------------------------------------------------------------------- 705,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.375%, 2/1/13 727,024 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- $ 685,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.40%, 2/1/14 $ 706,358 - -------------------------------------------------------------------------------- 1,410,000 Henderson Local Improvement District No. T-14 Special Assessment, 5.25%, 3/1/13 1,455,092 - -------------------------------------------------------------------------------- 1,545,000 Henderson Local Improvement District No. T-15 Special Assessment, 6.10%, 3/1/24 1,598,890 - -------------------------------------------------------------------------------- 1,000,000 Henderson Local Improvement District No. T-16 Special Assessment, (The Falls at Lake Las Vegas), 5.00%, 3/1/20 1,005,340 - -------------------------------------------------------------------------------- 250,000 Henderson Local Improvement District No. T-17 Special Assessment, 5.00%, 9/1/18 258,800 - -------------------------------------------------------------------------------- 6,600,000 Henderson Local Improvement District No. T-18 Special Assessment, 5.30%, 9/1/35 6,747,705 - -------------------------------------------------------------------------------- 1,105,000 Henderson Redevelopment Agency Tax Allocation Rev., Series 2002 B, 7.10%, 10/1/22 1,225,489 - -------------------------------------------------------------------------------- 350,000 Henderson Redevelopment Agency Tax Allocation Rev., Series 2002 B, 7.20%, 10/1/25 387,615 - -------------------------------------------------------------------------------- 1,275,000 Las Vegas Improvement District No. 607 Special Assessment, 5.50%, 6/1/13 1,319,804 - -------------------------------------------------------------------------------- 495,000 Las Vegas Improvement District No. 808-Summerlin Area Special Assessment, 5.70%, 6/1/08 505,207 - -------------------------------------------------------------------------------- 740,000 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.20%, 12/1/10 762,651 - -------------------------------------------------------------------------------- 780,000 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.45%, 12/1/11 804,094 - -------------------------------------------------------------------------------- 22,508,983 - -------------------------------------------------------------------------------- NEW JERSEY -- 9.9% - -------------------------------------------------------------------------------- 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)(1) 1,058,310 - -------------------------------------------------------------------------------- 1,300,000 New Jersey Economic Development Auth. Rev., (Seabrook Village, Inc. Facility), 6.625%, 11/15/36 1,333,943 - -------------------------------------------------------------------------------- 5,000,000 New Jersey Economic Development Auth. Rev., Series 2006 A, (Gloucester Marine Terminal), 6.625%, 1/1/37 5,223,200 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 31 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- $5,000,000 New Jersey Economic Development Auth. Rev., Series 2006 B, (Gloucester Marine Terminal), 6.875%, 1/1/37 $ 5,191,700 - -------------------------------------------------------------------------------- 2,000,000 New Jersey Economic Development Auth. Rev., Series 2006 C, (Gloucester Marine Terminal), 6.50%, 1/1/15 2,041,380 - -------------------------------------------------------------------------------- 4,000,000 Tobacco Settlement Financing Corp. Rev., 6.00%, 6/1/37(2) 4,374,080 - -------------------------------------------------------------------------------- 8,835,000 Tobacco Settlement Financing Corp. Rev., 6.125%, 6/1/42(2) 9,715,231 - -------------------------------------------------------------------------------- 28,937,844 - -------------------------------------------------------------------------------- NEW MEXICO -- 1.3% - -------------------------------------------------------------------------------- 1,490,000 Cabezon Public Improvement District Special Tax Rev., 6.30%, 9/1/34 1,598,785 - -------------------------------------------------------------------------------- 1,000,000 Mariposa East Public Improvement District GO, 6.00%, 9/1/32 1,051,510 - -------------------------------------------------------------------------------- 1,000,000 Ventana West Public Improvement District Special Levy Rev., 6.875%, 8/1/33 1,091,850 - -------------------------------------------------------------------------------- 3,742,145 - -------------------------------------------------------------------------------- NEW YORK -- 0.4% - -------------------------------------------------------------------------------- 1,000,000 Onondaga County Industrial Development Auth. Rev., (Air Cargo), 7.25%, 1/1/32 1,091,680 - -------------------------------------------------------------------------------- NORTH DAKOTA -- 0.4% - -------------------------------------------------------------------------------- 1,500,000 Ward County Health Care Facilities Rev., (Trinity Obligated Group), 5.125%, 7/1/29 1,586,655 - -------------------------------------------------------------------------------- OHIO -- 2.0% - -------------------------------------------------------------------------------- 1,150,000 Hebron Waterworks Rev., 5.875%, 12/1/25 1,214,883 - -------------------------------------------------------------------------------- 745,000 Hebron Waterworks Rev., 6.125%, 12/1/29 798,580 - -------------------------------------------------------------------------------- 215,000 New Albany Plain Local School District GO, 5.50%, 6/1/12, Prerefunded at 100% of Par (FGIC)(1) 235,846 - -------------------------------------------------------------------------------- 285,000 New Albany Plain Local School District GO, 5.50%, 12/1/19 (FGIC) 311,146 - -------------------------------------------------------------------------------- 1,800,000 Pinnacle Community Infrastructure Financing Facilities Auth. Rev., Series 2004 A, 6.25%, 12/1/36 1,921,303 - -------------------------------------------------------------------------------- 1,100,000 Port of Greater Cincinnati Development Auth. Special Assessment, (Cooperative Public Parking Infrastructure), 6.40%, 2/15/34 1,196,723 - -------------------------------------------------------------------------------- 5,678,481 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- OKLAHOMA -- 1.2% - -------------------------------------------------------------------------------- $2,500,000 Norman Regional Hospital Auth. Rev., 5.375%, 9/1/36(2) $ 2,667,925 - -------------------------------------------------------------------------------- 750,000 Oklahoma City Industrial & Cultural Facilities Trust Rev., 6.75%, 1/1/23 810,840 - -------------------------------------------------------------------------------- 3,478,765 - -------------------------------------------------------------------------------- OREGON -- 0.6% - -------------------------------------------------------------------------------- 2,000,000 Cow Creek Band of Umpqua Tribe of Indians Rev., Series 2006 C, 5.625%, 10/1/26 2,055,040 - -------------------------------------------------------------------------------- PENNSYLVANIA -- 2.9% - -------------------------------------------------------------------------------- 4,375,000 Allegheny County Redevelopment Auth. Tax Allocation, (Pittsburgh Mills), 5.10%, 7/1/14 4,542,824 - -------------------------------------------------------------------------------- 1,000,000 Allegheny County Redevelopment Auth. Tax Allocation, (Pittsburgh Mills), 5.60%, 7/1/23 1,071,560 - -------------------------------------------------------------------------------- 1,325,000 Chartiers Valley School District GO, Series 2004 A, 5.00%, 10/15/20 (FSA/State Aid Withholding) 1,431,822 - -------------------------------------------------------------------------------- 1,000,000 Langhorne Manor Boro Higher Education Auth. Rev., (Philadelphia Biblical University), 5.50%, 4/1/25 1,024,420 - -------------------------------------------------------------------------------- 360,000 New Morgan Municipal Auth. Office Rev., Series 1999 A, (Commonwealth Office), 5.375%, 6/1/08 359,374 - -------------------------------------------------------------------------------- 8,430,000 - -------------------------------------------------------------------------------- PUERTO RICO -- 1.0% - -------------------------------------------------------------------------------- 1,000,000 Government Development Bank of Puerto Rico Rev., 4.00%, 1/24/07 999,750 - -------------------------------------------------------------------------------- 2,000,000 Government Development Bank of Puerto Rico Rev., 4.05%, 2/8/07 1,999,540 - -------------------------------------------------------------------------------- 2,999,290 - -------------------------------------------------------------------------------- RHODE ISLAND -- 0.2% - -------------------------------------------------------------------------------- 500,000 Cranston GO, 6.375%, 11/15/09, Prerefunded at 101% of Par (FGIC)(1) 544,420 - -------------------------------------------------------------------------------- SOUTH CAROLINA -- 0.8% - -------------------------------------------------------------------------------- 1,000,000 City of Myrtle Beach Tax Allocation Rev., Series 2006 A, (Myrtle Beach Air Force Base Redevelopment Project Area), 5.30%, 10/1/35 1,029,900 - -------------------------------------------------------------------------------- 1,250,000 Lancaster County Special Assessment, (Sun City Lakes Improvement), 5.45%, 12/1/37 1,279,000 - -------------------------------------------------------------------------------- 2,308,900 - -------------------------------------------------------------------------------- See Notes to Financial Statements. (continued) - ------ 32 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) Principal Amount Value - -------------------------------------------------------------------------------- TENNESSEE -- 2.6% - -------------------------------------------------------------------------------- $1,410,000 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 B, (Campus Development Foundation, Inc. Phase I LLC), 5.50%, 10/1/20 $ 1,477,539 - -------------------------------------------------------------------------------- 3,565,000 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 B, (Campus Development Foundation, Inc. Phase I LLC), 6.00%, 10/1/35 3,802,429 - -------------------------------------------------------------------------------- 2,000,000 Sullivan County Health, Educational & Housing Facilities Board Hospital Rev., Series 2006 C, (Wellmont Health System), 5.25%, 9/1/36(2) 2,130,220 - -------------------------------------------------------------------------------- 7,410,188 - -------------------------------------------------------------------------------- TEXAS -- 1.5% - -------------------------------------------------------------------------------- 610,000 Abia Development Corp. Airport Facilities Rev., (Aero Austin L.P.), 6.75%, 1/1/11 638,774 - -------------------------------------------------------------------------------- 400,000 Bexar County Health Facilities Development Corp. Rev., (Army Retirement Residence), 6.125%, 7/1/22 434,068 - -------------------------------------------------------------------------------- 1,000,000 Bexar County Health Facilities Development Corp. Rev., (Army Retirement Residence), 6.30%, 7/1/32(2) 1,093,660 - -------------------------------------------------------------------------------- 2,000,000 Pearland Development Auth. Tax Allocation Rev., 5.50%, 9/1/28 (RADIAN-IBC)(2) 2,195,640 - -------------------------------------------------------------------------------- 4,362,142 - -------------------------------------------------------------------------------- UTAH -- 0.5% - -------------------------------------------------------------------------------- 1,235,000 West Valley City Rev., Series 2001 A, 5.50%, 7/15/15 (MBIA) 1,338,197 - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- VIRGINIA -- 0.7% - -------------------------------------------------------------------------------- $2,000,000 Tobacco Settlement Financing Corp. Rev., 5.625%, 6/1/37(2) $ 2,142,200 - -------------------------------------------------------------------------------- WASHINGTON -- 0.8% - -------------------------------------------------------------------------------- 860,000 Cowlitz County Kelso School District No. 458 GO, 5.75%, 12/1/18 (FSA) 949,079 - -------------------------------------------------------------------------------- 250,000 Port of Seattle Rev., Series 2000 B, 6.00%, 2/1/15 (MBIA) 286,563 - -------------------------------------------------------------------------------- 1,080,000 Terrace Heights Sewer District Rev., 5.00%, 1/1/33 1,100,087 - -------------------------------------------------------------------------------- 2,335,729 - -------------------------------------------------------------------------------- WISCONSIN -- 4.4% - -------------------------------------------------------------------------------- 5,000,000 Badger Tobacco Asset Securitization Corp. Rev., 6.125%, 6/1/27(2) 5,413,650 - -------------------------------------------------------------------------------- 3,200,000 Wisconsin GO, Series 2006-1, 5.00%, 5/1/10 (MBIA)(2) 3,351,040 - -------------------------------------------------------------------------------- 2,000,000 Wisconsin Health & Educational Facilities Auth. Rev., Series 2004 A, (Southwest Health Center), 6.25%, 4/1/34 2,072,640 - -------------------------------------------------------------------------------- 1,750,000 Wisconsin Health & Educational Facilities Auth. Rev., Series 2006 A, (Marshfield Clinic), 5.375%, 2/15/34(2) 1,879,150 - -------------------------------------------------------------------------------- 12,716,480 - -------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES -- 99.0% (Cost $273,695,706) 287,110,689 - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.0% 2,882,798 - -------------------------------------------------------------------------------- TOTAL NET ASSETS -- 100.0% $289,993,487 ================================================================================ FUTURES CONTRACTS Expiration Underlying Face Unrealized Contracts Purchased Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 211 U.S. Treasury 2-Year Notes March 2007 $43,255,000 $91,851 ================================= Expiration Underlying Face Unrealized Contracts Sold Date Amount at Value Gain (Loss) - -------------------------------------------------------------------------------- 112 U.S. Treasury 10-Year Notes March 2007 $12,229,000 $(95,627) ================================= See Notes to Financial Statements. (continued) - ------ 33 High-Yield Municipal - Schedule of Investments NOVEMBER 30, 2006 (UNAUDITED) NOTES TO SCHEDULE OF INVESTMENTS Ambac = Ambac Assurance Corporation COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance, Inc. GO = General Obligation MBIA = MBIA Insurance Corporation RADIAN-IBC = Radian Asset Assurance, Inc. -- Insured Bond Certificates (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated for futures contracts. (3) 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, 2006 was $1,821,387, which represented 0.6% of total net assets. (4) Step-coupon security. These securities are issued with a zero-coupon and become interest bearing at a predetermined rate and date and are issued at a substantial discount from their value at maturity. Rate shown is effective November 30, 2006. See Notes to Financial Statements. - ------ 34 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, 2006 to November 30, 2006. 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) - ------ 35 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 6/1/06 - EXPENSE 6/1/06 11/30/06 11/30/06 RATIO* - -------------------------------------------------------------------------------- ARIZONA MUNICIPAL BOND SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,037.70 $2.50 0.49% - -------------------------------------------------------------------------------- A Class $1,000 $1,036.40 $3.78 0.74% - -------------------------------------------------------------------------------- B Class $1,000 $1,032.50 $7.59 1.49% - -------------------------------------------------------------------------------- C Class $1,000 $1,032.50 $7.59 1.49% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.61 $2.48 0.49% - -------------------------------------------------------------------------------- A Class $1,000 $1,021.36 $3.75 0.74% - -------------------------------------------------------------------------------- B Class $1,000 $1,017.60 $7.54 1.49% - -------------------------------------------------------------------------------- C Class $1,000 $1,017.60 $7.54 1.49% - -------------------------------------------------------------------------------- FLORIDA MUNICIPAL BOND SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,036.20 $2.50 0.49% - -------------------------------------------------------------------------------- A Class $1,000 $1,034.90 $3.77 0.74% - -------------------------------------------------------------------------------- B Class $1,000 $1,031.10 $7.59 1.49% - -------------------------------------------------------------------------------- C Class $1,000 $1,031.10 $7.59 1.49% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.61 $2.48 0.49% - -------------------------------------------------------------------------------- A Class $1,000 $1,021.36 $3.75 0.74% - -------------------------------------------------------------------------------- B Class $1,000 $1,017.60 $7.54 1.49% - -------------------------------------------------------------------------------- C Class $1,000 $1,017.60 $7.54 1.49% - -------------------------------------------------------------------------------- *Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. (continued) - ------ 36 Shareholder Fee Examples (Unaudited) - -------------------------------------------------------------------------------- EXPENSES PAID BEGINNING ENDING DURING PERIOD* ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE 6/1/06 - EXPENSE 6/1/06 11/30/06 11/30/06 RATIO* - -------------------------------------------------------------------------------- LONG-TERM TAX-FREE SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,047.80 $2.57 0.50% - -------------------------------------------------------------------------------- Institutional Class $1,000 $1,048.80 $1.54 0.30% - -------------------------------------------------------------------------------- A Class $1,000 $1,046.40 $3.85 0.75% - -------------------------------------------------------------------------------- B Class $1,000 $1,042.50 $7.68 1.50% - -------------------------------------------------------------------------------- C Class $1,000 $1,042.50 $7.68 1.50% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,022.56 $2.54 0.50% - -------------------------------------------------------------------------------- Institutional Class $1,000 $1,023.56 $1.52 0.30% - -------------------------------------------------------------------------------- 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% - -------------------------------------------------------------------------------- HIGH-YIELD MUNICIPAL SHAREHOLDER FEE EXAMPLE - -------------------------------------------------------------------------------- ACTUAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,048.60 $3.18 0.62% - -------------------------------------------------------------------------------- A Class $1,000 $1,047.30 $4.47 0.87% - -------------------------------------------------------------------------------- B Class $1,000 $1,043.40 $8.30 1.62% - -------------------------------------------------------------------------------- C Class $1,000 $1,043.30 $8.30 1.62% - -------------------------------------------------------------------------------- HYPOTHETICAL - -------------------------------------------------------------------------------- Investor Class $1,000 $1,021.96 $3.14 0.62% - -------------------------------------------------------------------------------- A Class $1,000 $1,020.71 $4.41 0.87% - -------------------------------------------------------------------------------- B Class $1,000 $1,016.95 $8.19 1.62% - -------------------------------------------------------------------------------- C Class $1,000 $1,016.95 $8.19 1.62% - -------------------------------------------------------------------------------- *Expenses are equal to the class's annualized expense ratio listed in the table above, multiplied by the average account value over the period, multiplied by 183, the number of days in the most recent fiscal half-year, divided by 365, to reflect the one-half year period. - ------ 37 Statement of Assets and Liabilities NOVEMBER 30, 2006 (UNAUDITED) - ---------------------------------------------------------------------------------------------------- ARIZONA FLORIDA LONG-TERM HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND TAX-FREE MUNICIPAL - ---------------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------------- Investment securities, at value (cost of $52,564,140, $38,144,310, $33,522,771, and $273,695,706, respectively) $55,028,335 $40,027,291 $34,627,493 $287,110,689 - --------------------------------- Cash 23,858 -- 1,157 -- - --------------------------------- Receivable for investments sold -- -- -- 1,402,660 - --------------------------------- Receivable for capital shares sold -- 257 1,900 212,916 - --------------------------------- Receivable for variation margin on futures contracts -- -- -- 655 - --------------------------------- Interest receivable 970,474 529,270 443,866 4,421,123 - ---------------------------------------------------------------------------------------------------- 56,022,667 40,556,818 35,074,416 293,148,043 - ---------------------------------------------------------------------------------------------------- LIABILITIES - ---------------------------------------------------------------------------------------------------- Disbursements in excess of demand deposit cash -- 17,333 -- 153,919 - --------------------------------- Payable for investments purchased -- -- -- 2,369,987 - --------------------------------- Payable for capital shares redeemed -- -- 28,343 126,910 - --------------------------------- Payable for variation margin on futures contracts 4,032 6,220 5,875 -- - --------------------------------- Accrued management fees 22,061 16,132 11,114 144,418 - --------------------------------- Distribution fees payable 354 736 1,050 24,423 - --------------------------------- Service fees (and distribution fees -- A Class) payable 495 473 3,619 38,164 - --------------------------------- Dividends payable 40,212 40,591 12,093 296,735 - ---------------------------------------------------------------------------------------------------- 67,154 81,485 62,094 3,154,556 - ---------------------------------------------------------------------------------------------------- NET ASSETS $55,955,513 $40,475,333 $35,012,322 $289,993,487 ==================================================================================================== See Notes to Financial Statements. (continued) - ------ 38 Statement of Assets and Liabilities NOVEMBER 30, 2006 (UNAUDITED) - ---------------------------------------------------------------------------------------------------- ARIZONA FLORIDA LONG-TERM HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND TAX-FREE MUNICIPAL - ---------------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: - ---------------------------------------------------------------------------------------------------- Capital paid in $53,710,480 $38,969,147 $34,573,621 $279,078,120 - --------------------------------- Undistributed net investment income -- -- 27,510 -- - --------------------------------- Accumulated net realized loss on investment transactions (209,690) (362,968) (680,524) (2,495,840) - --------------------------------- Net unrealized appreciation on investments 2,454,723 1,869,154 1,091,715 13,411,207 - ---------------------------------------------------------------------------------------------------- $55,955,513 $40,475,333 $35,012,322 $289,993,487 ==================================================================================================== INVESTOR CLASS - ---------------------------------------------------------------------------------------------------- Net assets $53,609,441 $38,211,319 $243,571 $101,090,727 - --------------------------------- Shares outstanding 4,935,858 3,566,628 22,168 9,403,923 - --------------------------------- Net asset value per share $10.86 $10.71 $10.99 $10.75 - ---------------------------------------------------------------------------------------------------- INSTITUTIONAL CLASS - ---------------------------------------------------------------------------------------------------- Net assets N/A N/A $17,255,060 N/A - --------------------------------- Shares outstanding N/A N/A 1,570,400 N/A - --------------------------------- Net asset value per share N/A N/A $10.99 N/A - ---------------------------------------------------------------------------------------------------- A CLASS - ---------------------------------------------------------------------------------------------------- Net assets $1,769,213 $1,065,623 $15,800,887 $148,560,644 - --------------------------------- Shares outstanding 162,892 99,465 1,438,032 13,819,797 - --------------------------------- Net asset value per share $10.86 $10.71 $10.99 $10.75 - --------------------------------- Maximum offering price (net asset value divided by 0.955) $11.37 $11.21 $11.51 $11.26 - ---------------------------------------------------------------------------------------------------- B CLASS - ---------------------------------------------------------------------------------------------------- Net assets $42,785 $16,125 $1,671,316 $4,494,513 - --------------------------------- Shares outstanding 3,940 1,505 152,124 418,100 - --------------------------------- Net asset value per share $10.86 $10.71 $10.99 $10.75 - ---------------------------------------------------------------------------------------------------- C CLASS - ---------------------------------------------------------------------------------------------------- Net assets $534,074 $1,182,266 $41,488 $35,847,603 - --------------------------------- Shares outstanding 49,172 110,352 3,776 3,334,705 - --------------------------------- Net asset value per share $10.86 $10.71 $10.99 $10.75 - ---------------------------------------------------------------------------------------------------- See Notes to Financial Statements. - ------ 39 Statement of Operations FOR THE SIX MONTHS ENDED NOVEMBER 30, 2006 (UNAUDITED) - ---------------------------------------------------------------------------------------------------- ARIZONA FLORIDA LONG-TERM HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND TAX-FREE MUNICIPAL - ---------------------------------------------------------------------------------------------------- INVESTMENT INCOME (LOSS) - ---------------------------------------------------------------------------------------------------- INCOME: - --------------------------------- Interest $1,265,759 $ 957,971 $ 811,941 $ 7,434,910 - ---------------------------------------------------------------------------------------------------- EXPENSES: - --------------------------------- Management fees 135,110 101,062 70,867 845,248 - --------------------------------- Distribution Fees: - --------------------------------- B Class 159 59 6,904 16,830 - --------------------------------- C Class 1,736 4,756 126 123,272 - --------------------------------- Service Fees: - --------------------------------- B Class 53 20 2,301 5,610 - --------------------------------- C Class 579 1,585 42 41,091 - --------------------------------- Distribution and service fees -- A Class 3,441 1,490 21,736 175,046 - --------------------------------- Trustees' fees and expenses 1,402 1,144 991 7,338 - --------------------------------- Other expenses 39 28 2,797 751 - ---------------------------------------------------------------------------------------------------- 142,519 110,144 105,764 1,215,186 - ---------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 1,123,240 847,827 706,177 6,219,724 - ---------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) - ---------------------------------------------------------------------------------------------------- NET REALIZED GAIN (LOSS) ON: - --------------------------------- Investment transactions 5,400 48,171 245,281 203,104 - --------------------------------- Futures and swaps transactions (60,651) (38,396) (20,120) (209,106) - ---------------------------------------------------------------------------------------------------- (55,251) 9,775 225,161 (6,002) - ---------------------------------------------------------------------------------------------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: - --------------------------------- Investments 1,006,878 613,015 749,428 6,713,344 - --------------------------------- Futures and swaps (10,094) (9,480) (36,360) (22,838) - ---------------------------------------------------------------------------------------------------- 996,784 603,535 713,068 6,690,506 - ---------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) 941,533 613,310 938,229 6,684,504 - ---------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,064,773 $1,461,137 $1,644,406 $12,904,228 ==================================================================================================== See Notes to Financial Statements. - ------ 40 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2006 (UNAUDITED) AND YEAR ENDED MAY 31, 2006 - ---------------------------------------------------------------------------------------------------- ARIZONA MUNICIPAL BOND FLORIDA MUNICIPAL BOND - ---------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS NOV. 30, 2006 MAY 31, 2006 NOV. 30, 2006 MAY 31, 2006 - ---------------------------------------------------------------------------------------------------- OPERATIONS - ---------------------------------------------------------------------------------------------------- Net investment income (loss) $ 1,123,240 $ 2,238,857 $ 847,827 $ 1,867,355 - --------------------------------- Net realized gain (loss) (55,251) (22,700) 9,775 128,131 - --------------------------------- Change in net unrealized appreciation (depreciation) 996,784 (1,306,999) 603,535 (1,317,179) - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 2,064,773 909,158 1,461,137 678,307 - ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------------------------------------- From net investment income - --------------------------------- Investor Class (1,063,265) (2,116,841) (804,883) (1,747,251) - --------------------------------- A Class (52,294) (149,814) (22,966) (68,050) - --------------------------------- B Class (647) (564) (245) (702) - --------------------------------- C Class (7,034) (16,490) (19,733) (51,352) - --------------------------------- From net realized gains - --------------------------------- Investor Class -- (107,409) -- -- - --------------------------------- A Class -- (8,242) -- -- - --------------------------------- B Class -- (5) -- -- - --------------------------------- C Class -- (1,271) -- -- - ---------------------------------------------------------------------------------------------------- Decrease in net assets from distributions (1,123,240) (2,400,636) (847,827) (1,867,355) - ---------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - ---------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (1,555,601) (133,483) (3,706,904) (8,645,069) - ---------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (614,068) (1,624,961) (3,093,594) (9,834,117) NET ASSETS - ---------------------------------------------------------------------------------------------------- Beginning of period 56,569,581 58,194,542 43,568,927 53,403,044 - ---------------------------------------------------------------------------------------------------- End of period $55,955,513 $56,569,581 $40,475,333 $43,568,927 ==================================================================================================== See Notes to Financial Statements. (continued) - ------ 41 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2006 (UNAUDITED) AND YEARS ENDED MAY 31, 2006 AND MARCH 31, 2006 (AS NOTED) - -------------------------------------------------------------------------------- LONG-TERM TAX-FREE - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS NOV. 30, 2006 MAY 31, 2006(1) MARCH 31, 2006(2) - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income (loss) $ 706,177 $ 235,080 $ 3,211,231 - ----------------------------- Net realized gain (loss) 225,161 216,023 1,534,758 - ----------------------------- Change in net unrealized appreciation (depreciation) 713,068 (299,120) (1,633,663) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 1,644,406 151,983 3,112,326 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income - ----------------------------- Investor Class (1,394) (150) -- - ----------------------------- Institutional Class (351,560) (101,957) -- - ----------------------------- A Class (325,270) (123,267) (3,153,287) - ----------------------------- B Class (27,525) (9,596) (58,352) - ----------------------------- C Class (496) (111) -- - -------------------------------------------------------------------------------- Decrease in net assets from distributions (706,245) (235,081) (3,211,639) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions (3,765,746) (991,372) (86,867,934) - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (2,827,585) (1,074,470) (86,967,247) NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 37,839,907 38,914,377 125,881,624 - -------------------------------------------------------------------------------- End of period $35,012,322 $37,839,907 $ 38,914,377 ================================================================================ Undistributed net investment income $27,510 $27,578 $33,650 ================================================================================ (1) Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31, resulting in a two-month annual reporting period (see Note 8). (2) Year ended March 31, 2006. See Notes to Financial Statements. (continued) - ------ 42 Statement of Changes in Net Assets SIX MONTHS ENDED NOVEMBER 30, 2006 (UNAUDITED) AND YEAR ENDED MAY 31, 2006 - -------------------------------------------------------------------------------- HIGH-YIELD MUNICIPAL - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS NOV. 30, 2006 MAY 31, 2006 - -------------------------------------------------------------------------------- OPERATIONS - -------------------------------------------------------------------------------- Net investment income (loss) $ 6,219,724 $ 9,534,884 - --------------------------------------------- Net realized gain (loss) (6,002) 135,918 - --------------------------------------------- Change in net unrealized appreciation (depreciation) 6,690,506 (139,841) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 12,904,228 9,530,961 - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - -------------------------------------------------------------------------------- From net investment income - --------------------------------------------- Investor Class (2,332,005) (3,542,920) - --------------------------------------------- A Class (3,180,794) (4,950,399) - --------------------------------------------- B Class (84,998) (154,146) - --------------------------------------------- C Class (621,927) (898,478) - -------------------------------------------------------------------------------- Decrease in net assets from distributions (6,219,724) (9,545,943) - -------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS - -------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions 34,402,211 86,282,597 - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS 41,086,715 86,267,615 NET ASSETS - -------------------------------------------------------------------------------- Beginning of period 248,906,772 162,639,157 - -------------------------------------------------------------------------------- End of period $289,993,487 $248,906,772 ================================================================================ See Notes to Financial Statements. - ------ 43 Notes to Financial Statements NOVEMBER 30, 2006 (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), Long-Term Tax-Free Fund (Long-Term Tax-Free) and High-Yield Municipal Fund (High-Yield Municipal) (collectively, the funds) are four funds in a series issued by the trust (see Note 8). Arizona Municipal, Florida Municipal and High-Yield Municipal are non-diversified under the 1940 Act. Long-Term Tax-Free is 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 taxes imposed by the state of Florida. Arizona Municipal and Florida Municipal invest primarily in Arizona and Florida municipal obligations, respectively. Long-Term Tax-Free's investment objective is to seek high current income that is exempt from federal income taxes consistent with preservation of capital. Long-Term Tax-Free invests primarily in long-term investment-grade municipal obligations. High-Yield Municipal's investment objective is to seek high current income that is 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 -- Arizona Municipal, Florida Municipal and High-Yield Municipal are authorized to issue the Investor Class, the A Class, the B Class and the C Class. Long-Term Tax-Free is authorized to issue the Investor Class, the Institutional 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 distribution and shareholder servicing expenses and arrangements. All shares of the fund represent an equal pro rata interest in the assets of the class to which such shares belong, and have identical voting, dividend, liquidation and other rights and the same terms and conditions, except for class specific expenses and exclusive rights to vote on matters affecting only individual classes. Income, non-class specific expenses, and realized and unrealized capital gains and losses of the fund are allocated to each class of shares based on their relative net assets. Sale of Long-Term Tax-Free's Investor Class, Institutional Class and C Class commenced on April 3, 2006. SECURITY VALUATIONS -- Debt securities maturing in greater than 60 days are valued at current market value as provided by a commercial pricing service or at the mean of the most recent bid and asked prices. Debt securities maturing within 60 days may be valued at cost, plus or minus any amortized discount or premium. If an event occurs after the value of a security was established but before the net asset value per share was determined that was likely to materially change the net asset value, that security would be valued at fair value as determined in accordance with procedures adopted by the Board of Trustees. If the funds determine that the market price of a portfolio security is not readily available, or that the valuation methods mentioned above do not reflect the security's fair value, such security is valued at its fair value as determined by, or in accordance with procedures adopted by, the Board of Trustees or its designee if such fair value determination would materially impact a fund's net asset value. Certain other circumstances may cause the funds to fair value a security such as: a security has been declared in default; trading in a security has been halted during the trading day; or there is a foreign market holiday and no trading will commence. SECURITY TRANSACTIONS -- Security transactions are accounted for as of the trade date. Net realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME -- Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. WHEN-ISSUED AND FORWARD COMMITMENTS -- The funds may engage in securities transactions on a when-issued or forward commitment basis. Under these arrangements, the securities' prices and yields are fixed on the date of the commitment, but payment and delivery are scheduled for a future date. During this period, securities are subject to market fluctuations. The funds will segregate cash, cash equivalents or other appropriate liquid securities on their records in amounts sufficient to meet the purchase price. FUTURES CONTRACTS -- 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 (continued) - ------ 44 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the funds. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gains and losses. 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 futures and swaps transactions and unrealized appreciation (depreciation) on futures and swaps, respectively. SWAP AGREEMENTS -- The funds may enter into a swap agreement in order to attempt to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets; protect against currency fluctuations; attempt to manage duration to protect against any increase in the price of securities the funds anticipate purchasing at a later date; or gain exposure to certain markets in the most economical way possible. A basic swap agreement is a contract in which two parties agree to exchange the returns earned or realized on predetermined investments or instruments. Credit default swaps enable an investor to buy/sell protection against a credit event of a specific issuer. The seller of credit protection against a security or basket of securities receives an up-front or periodic payment to compensate against potential default events. The funds may enhance returns by selling protection or attempt to mitigate credit risk by buying protection. The funds will segregate cash, cash equivalents or other appropriate liquid securities on their records in amounts sufficient to meet requirements. Unrealized gains are reported as an asset and unrealized losses are reported as a liability on the Statement of Assets and Liabilities. Swap agreements are valued daily and changes in value, including the periodic amounts of interest to be paid or received on swaps, are recorded as unrealized appreciation (depreciation) on futures and swaps. Realized gain or loss is recorded upon receipt or payment of a periodic settlement or termination of swap agreements. The risks of entering into swap agreements include the possible lack of liquidity, failure of the counterparty to meet its obligations, and that there may be unfavorable changes in the underlying investments and instruments. 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. INDEMNIFICATIONS -- Under the trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business, the funds enter into contracts that provide general indemnifications. The funds maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. The risk of material loss from such claims is considered by management to be remote. USE OF ESTIMATES -- The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from these estimates. 2. FEES AND TRANSACTIONS WITH RELATED PARTIES MANAGEMENT FEES -- The trust has entered into a Management Agreement with American Century Investment Management, Inc. (ACIM) (the investment advisor), under which ACIM provides the funds with investment advisory and management services in exchange for a single, unified management fee (the fee) 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 advisor that are in the same broad investment category as each fund and (2) a Complex Fee based on the assets of all the funds in the American Century family of funds. The rates for the Investment Category Fee range from 0.1625% to 0.2800% for (continued) - ------ 45 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) 2. FEES AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED) Arizona Municipal Bond, Florida Municipal Bond and Long-Term Tax-Free, and from 0.2925% to 0.4100% for High-Yield Municipal. The rates for the Complex Fee (Investor Class, A Class, B Class and C Class) range from 0.2500% to 0.3100%. The Institutional Class is 0.2000% less at each point within the Complex Fee range. For the six months ended November 30, 2006, the effective annual management fees for the Investor Class, A Class, B Class and C Class of Arizona Municipal Bond, Florida Municipal Bond, Long-Term Tax-Free and High-Yield Municipal were 0.48%, 0.48%, 0.49% and 0.61%, respectively. The effective annual management fee for the six months ended November 30, 2006 for the Institutional Class of Long-Term Tax-Free was 0.29%. 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, 2006, are detailed in the Statement of Operations. RELATED PARTIES -- Certain officers and trustees of the trust are also officers and/or directors, and, as a group, controlling stockholders of American Century Companies, Inc. (ACC), the parent of the trust 's investment advisor, ACIM, the distributor of the trust, ACIS, and the trust 's transfer agent, American Century Services, LLC. Arizona Municipal, Florida Municipal, and High-Yield Municipal 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 JPMorgan Chase & Co. (JPM). JPM is an equity investor in ACC. 3. INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the six months ended November 30, 2006, were as follows: - -------------------------------------------------------------------------------- ARIZONA FLORIDA LONG-TERM HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND TAX-FREE MUNICIPAL - -------------------------------------------------------------------------------- Purchases $5,399,805 $13,695,804 $23,921,233 $82,060,536 - -------------------------------------------------------------------------------- Proceeds from sales $4,894,629 $15,355,635 $27,256,318 $44,128,932 - -------------------------------------------------------------------------------- (continued) - ------ 46 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) 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, 2006 - ----------------------------- Sold 305,272 $ 3,281,564 32,776 $ 348,093 - ----------------------------- Issued in reinvestment of distributions 78,288 841,998 54,412 578,269 - ----------------------------- Redeemed (355,613) (3,811,815) (368,050) (3,897,446) - ------------------------------------------------------------------------------------------ Net increase (decrease) 27,947 $ 311,747 (280,862) $(2,971,084) ========================================================================================== YEAR ENDED MAY 31, 2006 - ----------------------------- Sold 613,514 $ 6,636,684 246,633 $ 2,652,581 - ----------------------------- Issued in reinvestment of distributions 163,985 1,772,268 117,890 1,258,818 - ----------------------------- Redeemed (725,455) (7,834,221) (1,090,319) (11,653,420) - ------------------------------------------------------------------------------------------ Net increase (decrease) 52,044 $ 574,731 (725,796) $ (7,742,021) ========================================================================================== A CLASS - ------------------------------------------------------------------------------------------ SIX MONTHS ENDED NOVEMBER 30, 2006 - ----------------------------- Sold 9,958 $ 106,913 1,183 $ 12,535 - ----------------------------- Issued in reinvestment of distributions 2,118 22,728 1,716 18,237 - ----------------------------- Redeemed (199,525) (2,140,609) (34,213) (362,578) - ------------------------------------------------------------------------------------------ Net increase (decrease) (187,449) $(2,010,968) (31,314) $(331,806) ========================================================================================== YEAR ENDED MAY 31, 2006 - ----------------------------- Sold 47,873 $ 518,217 126,790 $ 1,355,237 - ----------------------------- Issued in reinvestment of distributions 7,329 79,253 4,548 48,563 - ----------------------------- Redeemed (94,635) (1,024,647) (195,259) (2,087,562) - ------------------------------------------------------------------------------------------ Net increase (decrease) (39,433) $ (427,177) (63,921) $ (683,762) ========================================================================================== B CLASS - ------------------------------------------------------------------------------------------ SIX MONTHS ENDED NOVEMBER 30, 2006 - ----------------------------- Sold -- -- 102 $1,069 - ----------------------------- Issued in reinvestment of distributions 4 $39 23 244 - ----------------------------- Redeemed -- -- (9) (90) - ------------------------------------------------------------------------------------------ Net increase (decrease) 4 $39 116 $1,223 ========================================================================================== YEAR ENDED MAY 31, 2006 - ----------------------------- Sold 3,705 $40,065 930 $ 10,068 - ----------------------------- Issued in reinvestment of distributions 7 81 64 682 - ----------------------------- Redeemed (6) (69) (1,398) (14,902) - ------------------------------------------------------------------------------------------ Net increase (decrease) 3,706 $40,077 (404) $ (4,152) ========================================================================================== (continued) - ------ 47 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - ------------------------------------------------------------------------------------------ ARIZONA MUNICIPAL BOND FLORIDA MUNICIPAL BOND - ------------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------ C CLASS - ------------------------------------------------------------------------------------------ SIX MONTHS ENDED NOVEMBER 30, 2006 - ----------------------------- Sold 13,185 $141,609 10,284 $ 108,806 - ----------------------------- Issued in reinvestment of distributions 183 1,972 71 757 - ----------------------------- Redeemed -- -- (48,746) (514,800) - ------------------------------------------------------------------------------------------ Net increase (decrease) 13,368 $143,581 (38,391) $(405,237) ========================================================================================== YEAR ENDED MAY 31, 2006 - ----------------------------- Sold 6,550 $ 71,351 37,288 $ 398,765 - ----------------------------- Issued in reinvestment of distributions 408 4,415 731 7,805 - ----------------------------- Redeemed (36,753) (396,880) (58,234) (621,704) - ------------------------------------------------------------------------------------------ Net increase (decrease) (29,795) $(321,114) (20,215) $(215,134) ========================================================================================== - ------------------------------------------------------------------------------------------ LONG-TERM TAX-FREE HIGH-YIELD MUNICIPAL - ------------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------ INVESTOR CLASS - ------------------------------------------------------------------------------------------ SIX MONTHS ENDED NOVEMBER 30, 2006 - ----------------------------- Sold 20,469 $221,597 1,899,235 $19,898,624 - ----------------------------- Issued in reinvestment of distributions 127 1,382 142,140 1,507,706 - ----------------------------- Redeemed (774) (8,388) (721,945) (7,637,232) - ------------------------------------------------------------------------------------------ Net increase (decrease) 19,822 $214,591 1,319,430 $13,769,098 ========================================================================================== YEAR ENDED MAY 31, 2006(1) - -------------------------- Sold 2,332 $25,011 3,090,565 $ 32,478,010 - ----------------------------- Issued in reinvestment of distributions 14 150 203,441 2,138,238 - ----------------------------- Redeemed -- -- (1,206,280) (12,677,908) - ------------------------------------------------------------------------------------------ Net increase (decrease) 2,346 $25,161 2,087,726 $ 21,938,340 ========================================================================================== INSTITUTIONAL CLASS - ------------------------------------------------------------------------------------------ SIX MONTHS ENDED NOVEMBER 30, 2006 - ----------------------------- Issued in reinvestment of distributions 32,464 $351,171 N/A ========================================================================================== YEAR ENDED MAY 31, 2006(1) - ----------------------------- Sold 1,528,405 $16,397,564 N/A - ----------------------------- Issued in reinvestment of distributions 9,531 101,943 - ------------------------------------------------------------------------------------------ Net increase (decrease) 1,537,936 $16,499,507 ========================================================================================== (1) April 3, 2006 (commencement of sale) through May 31, 2006 for Long-Term Tax-Free. (continued) - ------ 48 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - ------------------------------------------------------------------------------------------ LONG-TERM TAX-FREE HIGH-YIELD MUNICIPAL - ------------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------ A CLASS - ------------------------------------------------------------------------------------------ SIX MONTHS ENDED NOVEMBER 30, 2006 - ----------------------------- Sold 7,346 $ 79,207 2,799,803 $ 29,594,541 - ----------------------------- Issued in reinvestment of distributions 21,912 236,934 257,333 2,729,070 - ----------------------------- Redeemed (393,788) (4,242,109) (1,586,603) (16,798,623) - ------------------------------------------------------------------------------------------ Net increase (decrease) (364,530) $(3,925,968) 1,470,533 $ 15,524,988 ========================================================================================== YEAR ENDED MAY 31, 2006(1) - ----------------------------- Sold 12,548 $ 136,284 7,491,063 $ 78,741,071 - ----------------------------- Issued in reinvestment of distributions 8,047 86,066 393,167 4,132,250 - ----------------------------- Redeemed (1,653,051) (17,732,706) (3,075,940) (32,326,114) - ------------------------------------------------------------------------------------------ Net increase (decrease) (1,632,456) $(17,510,356) 4,808,290 $ 50,547,207 ========================================================================================== YEAR ENDED MARCH 31, 2006 - ----------------------------- Sold 477,920 $ 5,222,488 N/A - ----------------------------- Issued in reinvestment of distributions 267,697 2,902,942 - ----------------------------- Redeemed (8,803,698) (94,593,140) - ------------------------------------------------------------------------------------------ Net increase (decrease) (8,058,081) $(86,467,710) ========================================================================================== B CLASS - ------------------------------------------------------------------------------------------ SIX MONTHS ENDED NOVEMBER 30, 2006 - ----------------------------- Sold 2,901 $ 30,835 24,484 $ 257,591 - ----------------------------- Issued in reinvestment of distributions 2,015 21,775 2,846 30,184 - ----------------------------- Redeemed (43,988) (473,651) (34,677) (366,168) - ------------------------------------------------------------------------------------------ Net increase (decrease) (39,072) $(421,041) (7,347) $ (78,393) ========================================================================================== YEAR ENDED MAY 31, 2006(1) - ----------------------------- Sold 196 $ 2,093 123,399 $1,296,933 - ----------------------------- Issued in reinvestment of distributions 762 8,145 4,831 50,768 - ----------------------------- Redeemed (3,837) (41,044) (43,215) (454,221) - ------------------------------------------------------------------------------------------ Net increase (decrease) (2,879) $(30,806) 85,015 $ 893,480 ========================================================================================== YEAR ENDED MARCH 31, 2006 - ----------------------------- Sold 11,759 $ 128,146 N/A - ----------------------------- Issued in reinvestment of distributions 4,486 48,607 - ----------------------------- Redeemed (53,456) (576,977) - ------------------------------------------------------------------------------------------ Net increase (decrease) (37,211) $(400,224) ========================================================================================== (1) April 1, 2006 through May 31, 2006. Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31, resulting in a two-month annual reporting period (see Note 8). (continued) - ------ 49 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) 4. CAPITAL SHARE TRANSACTIONS (CONTINUED) - ------------------------------------------------------------------------------------------ LONG-TERM TAX-FREE HIGH-YIELD MUNICIPAL - ------------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------ C CLASS - ------------------------------------------------------------------------------------------ SIX MONTHS ENDED NOVEMBER 30, 2006 - ----------------------------- Sold 1,388 $15,005 668,478 $ 7,062,582 - ----------------------------- Issued in reinvestment of distributions 46 496 19,883 210,920 - ----------------------------- Redeemed -- -- (197,364) (2,086,984) - ------------------------------------------------------------------------------------------ Net increase (decrease) 1,434 $15,501 490,997 $ 5,186,518 ========================================================================================== YEAR ENDED MAY 31, 2006(1) - ----------------------------- Sold 2,332 $25,011 1,499,384 $15,763,095 - ----------------------------- Issued in reinvestment of distributions 10 111 28,473 299,249 - ----------------------------- Redeemed -- -- (300,586) (3,158,774) - ------------------------------------------------------------------------------------------ Net increase (decrease) 2,342 $25,122 1,227,271 $12,903,570 ========================================================================================== (1) April 3, 2006 (commencement of sale) through May 31, 2006 for Long-Term Tax-Free. 5. BANK LINE OF CREDIT Arizona Municipal, Florida Municipal, and High-Yield Municipal, along with certain other funds managed by ACIM or American Century Global Investment Management, Inc. (ACGIM), have a $500,000,000 unsecured bank line of credit agreement (the agreement) with JPMCB. Long-Term Tax-Free entered into the agreement on December 14, 2006. 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, 2006. 6. RISK FACTORS Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. Arizona Municipal Bond and Florida Municipal Bond concentrate their investments in a single state and therefore may have more exposure to credit risk related to the states of Arizona and Florida, respectively, than a fund with a broader geographical diversification. Long-Term Tax-Free may invest primarily in lower-rated debt securities, which are subject to substantial risks including price volatility, liquidity risk, and default risk. 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. 7. FEDERAL TAX INFORMATION The book-basis character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements. Certain distributions have been recharacterized between income, realized gain and capital for federal income tax purposes. (continued) - ------ 50 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) 7. FEDERAL TAX INFORMATION As of November 30, 2006, the components of investments for federal income tax purposes were as follows: - -------------------------------------------------------------------------------- ARIZONA FLORIDA LONG-TERM HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND TAX-FREE MUNICIPAL - -------------------------------------------------------------------------------- Federal tax cost of investments $52,564,140 $38,144,310 $33,522,771 $273,695,706 ================================================================================ Gross tax appreciation of investments $2,477,367 $1,882,981 $1,106,165 $13,426,793 - ------------------ Gross tax depreciation of investments (13,172) -- (1,443) (11,810) - -------------------------------------------------------------------------------- Net tax appreciation (depreciation) of investments $2,464,195 $1,882,981 $1,104,722 $13,414,983 ================================================================================ 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, 2006: - -------------------------------------------------------------------------------- ARIZONA FLORIDA LONG-TERM HIGH-YIELD MUNICIPAL BOND MUNICIPAL BOND TAX-FREE MUNICIPAL - -------------------------------------------------------------------------------- Accumulated capital losses -- $(295,636) $(690,854) $(2,437,926) - -------------------------------------------------------------------------------- Capital loss deferrals $(154,439) $(81,454) -- $(32,850) - -------------------------------------------------------------------------------- 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 2012 2013 2014 - --------------------------------------------------------------------------------------------------------- Florida Municipal Bond -- -- -- -- -- $(295,636) -- - --------------------------------------------------------------------------------------------------------- Long-Term Tax-Free -- -- -- -- $(158,880) $(142,310) $(389,664) - --------------------------------------------------------------------------------------------------------- High-Yield Municipal $(178,014) $(1,090,034) $(323,643) -- $(145,918) $(700,317) -- - --------------------------------------------------------------------------------------------------------- The capital loss deferrals represent net capital losses incurred in the seven-month period ended May 31, 2006. The funds have elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. 8. REORGANIZATION PLAN As of the close of business on March 31, 2006, Long-Term Tax-Free acquired all of the net assets of the Mason Street Municipal Bond Fund (Municipal Bond), one fund in a series issued by Mason Street Funds, Inc., pursuant to a plan of reorganization approved by the acquired funds' shareholders on March 15, 2006. In the post reorganization, Long-Term Tax-Free is maintaining the financial statements and performance history of Municipal Bond. Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31. Prior to the reorganization, Municipal Bond had A Class and B Class shares. At the close of business and as a result of the reorganization, A Class shares and B Class shares of the acquired fund were converted to A Class shares and B Class shares, respectively, of Long-Term Tax-Free. A Class and B Class net assets of Municipal Bond before the reorganization were $36,833,546 and $2,080,831, respectively. Immediately after the reorganization, A Class and B Class net assets of Long-Term Tax-Free were $36,833,546 and $2,080,831, respectively. (continued) - ------ 51 Notes to Financial Statements NOVEMBER 30, 2006 (UNAUDITED) 9. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an Interpretation of FASB Statement No. 109" (FIN 48). FIN 48 establishes a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. FIN 48 is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (FAS 157), in September 2006, which is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands the required financial statement disclosures about fair value measurements. Management is currently evaluating the impact of adopting FIN 48 and FAS 157. - ------ 52 Arizona Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - ----------------------------------------------------------------------------------------------- INVESTOR CLASS - ----------------------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003 2002 - ----------------------------------------------------------------------------------------------- PER-SHARE DATA - ----------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.68 $10.96 $10.83 $11.40 $10.89 $10.69 - ----------------------------------------------------------------------------------------------- Income From Investment Operations - -------------------------- Net Investment Income (Loss) 0.22 0.42(2) 0.42 0.41 0.41 0.44 - -------------------------- Net Realized and Unrealized Gain (Loss) 0.18 (0.25) 0.13 (0.53) 0.59 0.27 - ----------------------------------------------------------------------------------------------- Total From Investment Operations 0.40 0.17 0.55 (0.12) 1.00 0.71 - ----------------------------------------------------------------------------------------------- Distributions - -------------------------- From Net Investment Income (0.22) (0.43) (0.42) (0.41) (0.41) (0.44) - -------------------------- From Net Realized Gains -- (0.02) --(3) (0.04) (0.08) (0.07) - ----------------------------------------------------------------------------------------------- Total Distributions (0.22) (0.45) (0.42) (0.45) (0.49) (0.51) - ----------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.86 $10.68 $10.96 $10.83 $11.40 $10.89 =============================================================================================== TOTAL RETURN(4) 3.77% 1.59% 5.21% (1.06)% 9.36% 6.74% RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.49%(5) 0.49% 0.50% 0.51% 0.51% 0.51% - -------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 4.06%(5) 3.89% 3.86% 3.70% 3.70% 4.04% - -------------------------- Portfolio Turnover Rate 9% 44% 48% 26% 50% 77% - -------------------------- Net Assets, End of Period (in thousands) $53,609 $52,404 $53,203 $60,203 $75,787 $66,327 - ----------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) Computed using average shares outstanding throughout the period. (3) Per-share amount is less than $0.005. (4) 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. (5) Annualized. See Notes to Financial Statements. - ------ 53 Arizona Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.68 $10.96 $10.83 $11.25 - -------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income (Loss) 0.20 0.39(3) 0.40 0.10 - --------------------------------- Net Realized and Unrealized Gain (Loss) 0.18 (0.25) 0.13 (0.42) - -------------------------------------------------------------------------------- Total From Investment Operations 0.38 0.14 0.53 (0.32) - -------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income (0.20) (0.40) (0.40) (0.10) - --------------------------------- From Net Realized Gains -- (0.02) --(4) -- - -------------------------------------------------------------------------------- Total Distributions (0.20) (0.42) (0.40) (0.10) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.86 $10.68 $10.96 $10.83 ================================================================================ TOTAL RETURN(5) 3.64% 1.34% 4.94% (2.87)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.74%(6) 0.74% 0.75% 0.76%(6) - --------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.81%(6) 3.64% 3.61% 3.63%(6) - --------------------------------- Portfolio Turnover Rate 9% 44% 48% 26%(7) - --------------------------------- Net Assets, End of Period (in thousands) $1,769 $3,741 $4,271 $1,523 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Computed using average shares outstanding throughout the period. (4) Per-share amount is less than $0.005. (5) 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. (6) Annualized. (7) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 54 Arizona Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.68 $10.96 $10.83 $11.25 - -------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income (Loss) 0.16 0.36(3) 0.32 0.08 - --------------------------------- Net Realized and Unrealized Gain (Loss) 0.18 (0.30) 0.13 (0.42) - -------------------------------------------------------------------------------- Total From Investment Operations 0.34 0.06 0.45 (0.34) - -------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income (0.16) (0.32) (0.32) (0.08) - --------------------------------- From Net Realized Gains -- (0.02) --(4) -- - -------------------------------------------------------------------------------- Total Distributions (0.16) (0.34) (0.32) (0.08) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.86 $10.68 $10.96 $10.83 ================================================================================ TOTAL RETURN(5) 3.25% 0.61% 4.19% (3.06)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.49%(6) 1.49% 1.50% 1.51%(6) - --------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.06%(6) 2.89% 2.86% 2.88%(6) - --------------------------------- Portfolio Turnover Rate 9% 44% 48% 26%(7) - --------------------------------- Net Assets, End of Period (in thousands) $43 $42 $3 $2 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Computed using average shares outstanding throughout the period. (4) Per-share amount is less than $0.005. (5) 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. (6) Annualized. (7) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 55 Arizona Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.68 $10.96 $10.83 $11.25 - -------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income (Loss) 0.16 0.30(3) 0.31 0.08 - --------------------------------- Net Realized and Unrealized Gain (Loss) 0.18 (0.24) 0.13 (0.42) - -------------------------------------------------------------------------------- Total From Investment Operations 0.34 0.06 0.44 (0.34) - -------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income (0.16) (0.32) (0.31) (0.08) - --------------------------------- From Net Realized Gains -- (0.02) --(4) -- - -------------------------------------------------------------------------------- Total Distributions (0.16) (0.34) (0.31) (0.08) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.86 $10.68 $10.96 $10.83 ================================================================================ TOTAL RETURN(5) 3.25% 0.58% 4.15% (3.06)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.49%(6) 1.49% 1.50% 1.51%(6) - --------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.06%(6) 2.89% 2.86% 2.88%(6) - --------------------------------- Portfolio Turnover Rate 9% 44% 48% 26%(7) - --------------------------------- Net Assets, End of Period (in thousands) $534 $382 $719 $12 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) February 27, 2004 (commencement of sale) through May 31, 2004. (3) Computed using average shares outstanding throughout the period. (4) Per-share amount is less than $0.005. (5) 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. (6) Annualized. (7) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2004. See Notes to Financial Statements. - ------ 56 Florida Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - ----------------------------------------------------------------------------------------------- INVESTOR CLASS - ----------------------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003 2002 - ----------------------------------------------------------------------------------------------- PER-SHARE DATA - ----------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.55 $10.81 $10.68 $11.29 $10.73 $10.67 - ----------------------------------------------------------------------------------------------- Income From Investment Operations - -------------------------- Net Investment Income (Loss) 0.22 0.42 0.39 0.42 0.42 0.44 - -------------------------- Net Realized and Unrealized Gain (Loss) 0.16 (0.26) 0.13 (0.56) 0.62 0.19 - ----------------------------------------------------------------------------------------------- Total From Investment Operations 0.38 0.16 0.52 (0.14) 1.04 0.63 - ----------------------------------------------------------------------------------------------- Distributions - -------------------------- From Net Investment Income (0.22) (0.42) (0.39) (0.42) (0.42) (0.44) - -------------------------- From Net Realized Gains -- -- -- (0.05) (0.06) (0.13) - ----------------------------------------------------------------------------------------------- Total Distributions (0.22) (0.42) (0.39) (0.47) (0.48) (0.57) - ----------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.71 $10.55 $10.81 $10.68 $11.29 $10.73 =============================================================================================== TOTAL RETURN(2) 3.62% 1.48% 4.88% (1.30)% 9.90% 5.98% RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.49%(3) 0.49% 0.50% 0.51% 0.51% 0.51% - -------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 4.11%(3) 3.90% 3.56% 3.82% 3.78% 4.03% - -------------------------- Portfolio Turnover Rate 34% 28% 44% 59% 45% 75% - -------------------------- Net Assets, End of Period (in thousands) $38,211 $40,604 $49,451 $63,142 $70,078 $54,565 - ----------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (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. - ------ 57 Florida Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.55 $10.81 $10.68 $11.11 - -------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income (Loss) 0.21 0.39 0.36 0.09 - --------------------------------- Net Realized and Unrealized Gain (Loss) 0.16 (0.26) 0.13 (0.43) - -------------------------------------------------------------------------------- Total From Investment Operations 0.37 0.13 0.49 (0.34) - -------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income (0.21) (0.39) (0.36) (0.09) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.71 $10.55 $10.81 $10.68 ================================================================================ TOTAL RETURN(3) 3.49% 1.23% 4.62% (3.10)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.74%(4) 0.74% 0.75% 0.76%(4) - --------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.86%(4) 3.65% 3.31% 3.34%(4) - --------------------------------- Portfolio Turnover Rate 34% 28% 44% 59%(5) - --------------------------------- Net Assets, End of Period (in thousands) $1,066 $1,380 $2,105 $761 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (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. - ------ 58 Florida Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.55 $10.81 $10.68 $11.11 - -------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income (Loss) 0.17 0.31 0.28 0.07 - --------------------------------- Net Realized and Unrealized Gain (Loss) 0.16 (0.26) 0.13 (0.43) - -------------------------------------------------------------------------------- Total From Investment Operations 0.33 0.05 0.41 (0.36) - -------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income (0.17) (0.31) (0.28) (0.07) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.71 $10.55 $10.81 $10.68 ================================================================================ TOTAL RETURN(3) 3.11% 0.47% 3.83% (3.28)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.49%(4) 1.49% 1.50% 1.51%(4) - --------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.11%(4) 2.90% 2.56% 2.59%(4) - --------------------------------- Portfolio Turnover Rate 34% 28% 44% 59%(5) - --------------------------------- Net Assets, End of Period (in thousands) $16 $15 $19 $17 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (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. - ------ 59 Florida Municipal Bond - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.55 $10.81 $10.68 $11.11 - -------------------------------------------------------------------------------- Income From Investment Operations - --------------------------------- Net Investment Income (Loss) 0.17 0.31 0.28 0.07 - --------------------------------- Net Realized and Unrealized Gain (Loss) 0.16 (0.26) 0.13 (0.43) - -------------------------------------------------------------------------------- Total From Investment Operations 0.33 0.05 0.41 (0.36) - -------------------------------------------------------------------------------- Distributions - --------------------------------- From Net Investment Income (0.17) (0.31) (0.28) (0.07) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.71 $10.55 $10.81 $10.68 ================================================================================ TOTAL RETURN(3) 3.11% 0.47% 3.84% (3.28)% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.49%(4) 1.49% 1.50% 1.51%(4) - --------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.11%(4) 2.90% 2.56% 2.59%(4) - --------------------------------- Portfolio Turnover Rate 34% 28% 44% 59%(5) - --------------------------------- Net Assets, End of Period (in thousands) $1,182 $1,570 $1,827 $1,032 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (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. - ------ 60 Long-Term Tax-Free - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- INVESTOR CLASS - -------------------------------------------------------------------------------- 2006(1) 2006(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.70 $10.72 - -------------------------------------------------------------------------------- Income From Investment Operations - -------------------------------------------------- Net Investment Income (Loss) 0.22 0.06 - -------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.29 (0.02) - -------------------------------------------------------------------------------- Total From Investment Operations 0.51 0.04 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------------- From Net Investment Income (0.22) (0.06) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.99 $10.70 ================================================================================ TOTAL RETURN(3) 4.78% 0.42% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.50%(4) 0.49%(4) - -------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 4.00%(4) 3.85%(4) - -------------------------------------------------- Portfolio Turnover Rate 73% 62% - -------------------------------------------------- Net Assets, End of Period (in thousands) $244 $25 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) April 3, 2006 (commencement of sale) through May 31, 2006. (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 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. See Notes to Financial Statements. - ------ 61 Long-Term Tax-Free - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- INSTITUTIONAL CLASS - -------------------------------------------------------------------------------- 2006(1) 2006(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.70 $10.72 - -------------------------------------------------------------------------------- Income From Investment Operations - -------------------------------------------------- Net Investment Income (Loss) 0.23 0.07 - -------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.29 (0.02) - -------------------------------------------------------------------------------- Total From Investment Operations 0.52 0.05 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------------- From Net Investment Income (0.23) (0.07) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.99 $10.70 ================================================================================ TOTAL RETURN(3) 4.88% 0.45% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.30%(4) 0.29%(4) - -------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 4.20%(4) 4.05%(4) - -------------------------------------------------- Portfolio Turnover Rate 73% 62% - -------------------------------------------------- Net Assets, End of Period (in thousands) $17,255 $16,456 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) April 3, 2006 (commencement of sale) through May 31, 2006. (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 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. See Notes to Financial Statements. - ------ 62 Long-Term Tax-Free - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED) - --------------------------------------------------------------------------------------------------------- A CLASS - --------------------------------------------------------------------------------------------------------- 2006(1) 2006(2) 2006 2005 2004 2003 2002 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.70 $10.72 $10.74 $11.06 $10.98 $10.50 $10.70 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - -------------------------- Net Investment Income (Loss) 0.20 0.06 0.35(3) 0.33(3) 0.33(3) 0.41(3) 0.44 - -------------------------- Net Realized and Unrealized Gain (Loss) 0.29 (0.02) (0.03) (0.15) 0.24 0.61 0.01 - --------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.49 0.04 0.32 0.18 0.57 1.02 0.45 - --------------------------------------------------------------------------------------------------------- Distributions - -------------------------- From Net Investment Income (0.20) (0.06) (0.34) (0.33) (0.33) (0.42) (0.45) - -------------------------- From Net Realized Gains -- -- -- (0.17) (0.16) (0.12) (0.20) - --------------------------------------------------------------------------------------------------------- Total Distributions (0.20) (0.06) (0.34) (0.50) (0.49) (0.54) (0.65) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.99 $10.70 $10.72 $10.74 $11.06 $10.98 $10.50 ========================================================================================================= TOTAL RETURN(4) 4.64% 0.40% 3.01% 1.63% 5.31% 9.88% 4.26% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.75%(5) 0.74%(5) 0.82% 0.84% 0.85% 0.85% 0.85% - -------------------------- Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 0.75%(5) 0.74%(5) 0.82% 0.84% 0.89% 0.93% 1.00% - -------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.75%(5) 3.60%(5) 3.21% 3.01% 3.01% 3.78% 4.14% - -------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 3.75%(5) 3.60%(5) 3.21% 3.01% 2.97% 3.70% 3.99% - -------------------------- Portfolio Turnover Rate 73% 62% 27% 43% 815%(6) 48% 173% - -------------------------- Net Assets, End of Period (in thousands) $15,801 $19,288 $36,834 $123,399 $120,606 $107,770 $57,373 - --------------------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) April 1, 2006 through May 31, 2006. Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31, resulting in a two-month annual reporting period. For the years before May 31, 2006, Long-Term Tax-Free's fiscal year was March 31 (see Note 8). (3) Computed using average shares outstanding throughout the period. (4) 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. (5) Annualized. (6) Portfolio turnover rate includes the effect of using U.S. Treasuries in same day trades to manage interest rate risk. The rate would be 238% if this trading activity was excluded from the calculation. See Notes to Financial Statements. - ------ 63 Long-Term Tax-Free - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MARCH 31 (EXCEPT AS NOTED) - --------------------------------------------------------------------------------------------------------- B CLASS - --------------------------------------------------------------------------------------------------------- 2006(1) 2006(2) 2006 2005 2004 2003 2002 - --------------------------------------------------------------------------------------------------------- PER-SHARE DATA - --------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.70 $10.72 $10.73 $11.06 $10.98 $10.50 $10.70 - --------------------------------------------------------------------------------------------------------- Income From Investment Operations - -------------------------- Net Investment Income (Loss) 0.16 0.05 0.27(3) 0.26(3) 0.26(3) 0.34(3) 0.37 - -------------------------- Net Realized and Unrealized Gain (Loss) 0.29 (0.02) (0.01) (0.16) 0.24 0.61 --(4) - --------------------------------------------------------------------------------------------------------- Total From Investment Operations 0.45 0.03 0.26 0.10 0.50 0.95 0.37 - --------------------------------------------------------------------------------------------------------- Distributions - ----------------- From Net Investment Income (0.16) (0.05) (0.27) (0.26) (0.26) (0.35) (0.37) - -------------------------- From Net Realized Gains -- -- -- (0.17) (0.16) (0.12) (0.20) - --------------------------------------------------------------------------------------------------------- Total Distributions (0.16) (0.05) (0.27) (0.43) (0.42) (0.47) (0.57) - --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.99 $10.70 $10.72 $10.73 $11.06 $10.98 $10.50 ========================================================================================================= TOTAL RETURN(5) 4.25% 0.28% 2.42% 0.89% 4.62% 9.16% 3.58% RATIOS/SUPPLEMENTAL DATA - --------------------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.50%(6) 1.49%(6) 1.50% 1.50% 1.50% 1.50% 1.50% - -------------------------- Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 1.50%(6) 1.49%(6) 1.54% 1.52% 1.54% 1.58% 1.65% - -------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.00%(6) 2.85%(6) 2.49% 2.36% 2.39% 3.11% 3.49% - -------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 3.00%(6) 2.85%(6) 2.45% 2.34% 2.35% 3.03% 3.34% - -------------------------- Portfolio Turnover Rate 73% 62% 27% 43% 815%(7) 48% 173% - -------------------------- Net Assets, End of Period (in thousands) $1,671 $2,046 $2,081 $2,483 $2,674 $3,533 $1,429 - --------------------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) April 1, 2006 through May 31, 2006. Long-Term Tax-Free's fiscal year end was changed from March 31 to May 31, resulting in a two-month annual reporting period. For the years before May 31, 2006, Long-Term Tax-Free's fiscal year was March 31 (see Note 8). (3) Computed using average shares outstanding throughout the period. (4) Per-share amount is less than $0.005. (5) 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. (6) Annualized. (7) Portfolio turnover rate includes the effect of using U.S. Treasuries in same day trades to manage interest rate risk. The rate would be 238% if this trading activity was excluded from the calculation. See Notes to Financial Statements. - ------ 64 Long-Term Tax-Free - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2006(1) 2006(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.70 $10.72 - -------------------------------------------------------------------------------- Income From Investment Operations - -------------------------------------------------- Net Investment Income (Loss) 0.16 0.05 - -------------------------------------------------- Net Realized and Unrealized Gain (Loss) 0.29 (0.02) - -------------------------------------------------------------------------------- Total From Investment Operations 0.45 0.03 - -------------------------------------------------------------------------------- Distributions - -------------------------------------------------- From Net Investment Income (0.16) (0.05) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.99 $10.70 ================================================================================ TOTAL RETURN(3) 4.25% 0.26% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.50%(4) 1.49%(4) - -------------------------------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.00%(4) 2.85%(4) - -------------------------------------------------- Portfolio Turnover Rate 73% 62% - -------------------------------------------------- Net Assets, End of Period (in thousands) $41 $25 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) April 3, 2006 (commencement of sale) through May 31, 2006. (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. See Notes to Financial Statements. - ------ 65 High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - ----------------------------------------------------------------------------------------------- INVESTOR CLASS - ----------------------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003 2002 - ----------------------------------------------------------------------------------------------- PER-SHARE DATA - ----------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.50 $10.50 $10.04 $10.25 $9.87 $9.62 - ----------------------------------------------------------------------------------------------- Income From Investment Operations - -------------------------- Net Investment Income (Loss) 0.25 0.50 0.51 0.52 0.53 0.53 - -------------------------- Net Realized and Unrealized Gain (Loss) 0.25 --(2) 0.46 (0.21) 0.38 0.25 - ----------------------------------------------------------------------------------------------- Total From Investment Operations 0.50 0.50 0.97 0.31 0.91 0.78 - ----------------------------------------------------------------------------------------------- Distributions - -------------------------- From Net Investment Income (0.25) (0.50) (0.51) (0.52) (0.53) (0.53) - ----------------------------------------------------------------------------------------------- Net Asset Value, End of Period $10.75 $10.50 $10.50 $10.04 $10.25 $9.87 =============================================================================================== TOTAL RETURN(3) 4.86% 4.91% 9.84% 3.07% 9.40% 8.25% RATIOS/SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.62%(4) 0.62% 0.63% 0.64% 0.64% 0.64% - -------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 4.79%(4) 4.80% 4.92% 5.06% 5.22% 5.39% - -------------------------- Portfolio Turnover Rate 17% 16% 30% 27% 43% 28% - -------------------------- Net Assets, End of Period (in thousands) $101,091 $84,896 $62,945 $54,340 $53,621 $36,162 - ----------------------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) Per-share amount is 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. 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. See Notes to Financial Statements. - ------ 66 High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- A CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.50 $10.50 $10.04 $10.25 $10.06 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income (Loss) 0.24 0.48 0.48 0.49 0.17 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.25 --(3) 0.46 (0.21) 0.19 - -------------------------------------------------------------------------------- Total From Investment Operations 0.49 0.48 0.94 0.28 0.36 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.24) (0.48) (0.48) (0.49) (0.17) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.75 $10.50 $10.50 $10.04 $10.25 ================================================================================ TOTAL RETURN(4) 4.73% 4.65% 9.56% 2.81% 3.57% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 0.87%(5) 0.87% 0.88% 0.89% 0.88%(5) - ------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 4.54%(5) 4.55% 4.67% 4.81% 5.03%(5) - ------------------------- Portfolio Turnover Rate 17% 16% 30% 27% 43%(6) - ------------------------- Net Assets, End of Period (in thousands) $148,561 $129,681 $79,154 $33,335 $2,117 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) January 31, 2003 (commencement of sale) through May 31, 2003. (3) Per-share amount is less than $0.005. (4) 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. (5) Annualized. (6) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2003. See Notes to Financial Statements. - ------ 67 High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- B CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.50 $10.50 $10.04 $10.25 $10.06 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income (Loss) 0.20 0.40 0.40 0.42 0.15 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.25 --(3) 0.46 (0.21) 0.19 - -------------------------------------------------------------------------------- Total From Investment Operations 0.45 0.40 0.86 0.21 0.34 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.20) (0.40) (0.40) (0.42) (0.15) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.75 $10.50 $10.50 $10.04 $10.25 ================================================================================ TOTAL RETURN(4) 4.34% 3.87% 8.75% 2.05% 3.44% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.62%(5) 1.62% 1.63% 1.64% 1.63%(5) - ------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.79%(5) 3.80% 3.92% 4.06% 4.35%(5) - ------------------------- Portfolio Turnover Rate 17% 16% 30% 27% 43%(6) - ------------------------- Net Assets, End of Period (in thousands) $4,495 $4,468 $3,573 $2,541 $708 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) January 31, 2003 (commencement of sale) through May 31, 2003. (3) Per-share amount is less than $0.005. (4) 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. (5) Annualized. (6) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2003. See Notes to Financial Statements. - ------ 68 High-Yield Municipal - Financial Highlights FOR A SHARE OUTSTANDING THROUGHOUT THE YEARS ENDED MAY 31 (EXCEPT AS NOTED) - -------------------------------------------------------------------------------- C CLASS - -------------------------------------------------------------------------------- 2006(1) 2006 2005 2004 2003(2) - -------------------------------------------------------------------------------- PER-SHARE DATA - -------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $10.50 $10.50 $10.04 $10.25 $10.03 - -------------------------------------------------------------------------------- Income From Investment Operations - ------------------------- Net Investment Income (Loss) 0.20 0.40 0.40 0.43 0.39 - ------------------------- Net Realized and Unrealized Gain (Loss) 0.25 --(3) 0.46 (0.21) 0.22 - -------------------------------------------------------------------------------- Total From Investment Operations 0.45 0.40 0.86 0.22 0.61 - -------------------------------------------------------------------------------- Distributions - ------------------------- From Net Investment Income (0.20) (0.40) (0.40) (0.43) (0.39) - -------------------------------------------------------------------------------- Net Asset Value, End of Period $10.75 $10.50 $10.50 $10.04 $10.25 ================================================================================ TOTAL RETURN(4) 4.33% 3.86% 8.74% 2.20% 6.15% RATIOS/SUPPLEMENTAL DATA - -------------------------------------------------------------------------------- Ratio of Operating Expenses to Average Net Assets 1.62%(5) 1.62% 1.63% 1.54% 1.39%(5) - ------------------------- Ratio of Net Investment Income (Loss) to Average Net Assets 3.79%(5) 3.80% 3.92% 4.16% 4.55%(5) - ------------------------- Portfolio Turnover Rate 17% 16% 30% 27% 43%(6) - ------------------------- Net Assets, End of Period (in thousands) $35,848 $29,862 $16,967 $8,457 $1,454 - -------------------------------------------------------------------------------- (1) Six months ended November 30, 2006 (unaudited). (2) July 24, 2002 (commencement of sale) through May 31, 2003. (3) Per-share amount is less than $0.005. (4) 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. (5) Annualized. (6) Portfolio turnover is calculated at the fund level. Percentage indicated was calculated for the year ended May 31, 2003. See Notes to Financial Statements. - ------ 69 Share Class Information Four classes of shares are authorized for sale by Arizona Municipal Bond, Florida Municipal Bond and High-Yield Municipal: Investor Class, A Class, B Class, and C Class. Five classes of shares are authorized for sale by Long-Term Tax-Free: Investor Class, Institutional Class, A Class, B Class, and C Class. The total expense ratio of Institutional Class shares is lower than that of Investor Class shares. The total expense ratios of A Class, B Class, and C Class shares are higher than that of Investor Class. INVESTOR CLASS shares are available for purchase in two ways: 1) directly from American Century without any commissions or other fees; or 2) through certain financial intermediaries (such as banks, broker-dealers, insurance companies and investment advisors), which may require payment of a transaction fee to the financial intermediary. 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 unified management fee of Institutional Class shares is 0.20% less than the unified management fee of Investor Class shares. A CLASS shares are sold primarily through institutions such as investment advisors, banks, broker-dealers, and insurance companies. A Class shares are sold at their offering price, which is net asset value plus an initial sales charge that ranges from 4.50% to 0.00% for fixed-income funds, depending on the amount invested. The initial sales charge is deducted from the purchase amount before it is invested. A Class shares may be subject to a contingent deferred sales charge (CDSC). There is no CDSC on shares acquired through reinvestment of dividends or capital gains. The prospectus contains information regarding reductions and waivers of sales charges for A Class shares. The unified management fee for A Class shares is the same as for Investor Class shares. A Class shares also are subject to a 0.25% annual Rule 12b-1 distribution and service fee. B CLASS shares are sold primarily through institutions such as investment advisors, banks, broker-dealers, and insurance companies. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% after the sixth year. There is no CDSC on shares acquired through reinvestment of dividends or capital gains. The unified management fee for B Class shares is the same as for Investor Class shares. B Class shares also are subject to a 1.00% annual Rule 12b-1 distribution and service fee. B Class shares automatically convert to A Class shares (with lower expenses) eight years after their purchase date. (continued) - ------ 70 Share Class Information C CLASS shares are sold primarily through institutions such as investment advisors, banks, broker-dealers, and insurance companies. C Class shares redeemed within 12 months of purchase are subject to a CDSC of 1.00%. There is no CDSC on shares acquired through reinvestment of dividends or capital gains. The unified management fee for C Class shares is the same as for Investor Class shares. C Class shares also are subject to a Rule 12b-1 distribution and service fee of 1.00%. All classes of shares represent a pro rata interest in the fund and generally have the same rights and preferences. - ------ 71 Additional Information PROXY VOTING GUIDELINES American Century Investment Management, Inc., the funds' investment advisor, is responsible for exercising the voting rights associated with the securities purchased and/or held by the funds. A description of the policies and procedures the advisor uses in fulfilling this responsibility is available without charge, upon request, by calling 1-800-345-2021. It is also available on American Century's website at americancentury.com and on the Securities and Exchange Commission's website at sec.gov. Information regarding how the investment advisor voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the "About Us" page at americancentury.com. It is also available at sec.gov. QUARTERLY PORTFOLIO DISCLOSURE The funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The funds' Forms N-Q are available on the SEC's website 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 website at americancentury.com and, upon request, by calling 1-800-345-2021. - ------ 72 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 3-YEAR MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that are investment-grade and have maturities between two and four years. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. The LEHMAN BROTHERS MUNICIPAL 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. The LEHMAN BROTHERS NON-INVESTMENT-GRADE MUNICIPAL BOND INDEX is composed of non-investment grade U.S. municipal securities with a remaining maturity of one year or more. The LEHMAN BROTHERS U.S. AGGREGATE INDEX represents securities that are taxable, registered with the Securities and Exchange Commission, and U.S. dollar-denominated. The index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The LEHMAN BROTHERS U.S. TREASURY INDEX is composed of those securities included in the Lehman Brothers U.S. Aggregate Index that are public obligations of the U.S. Treasury with a remaining maturity of one year or more. - ------ 73 Notes - ------ 74 Notes - ------ 75 Notes - ------ 76 [back cover] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE: 1-800-345-2021 or 816-531-5575 INVESTORS USING ADVISORS: 1-800-378-9878 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL PROFESSIONALS, INSURANCE COMPANIES: 1-800-345-6488 TELECOMMUNICATIONS DEVICE FOR THE DEAF: 1-800-634-4113 or 816-444-3485 AMERICAN CENTURY MUNICIPAL TRUST INVESTMENT ADVISOR: American Century Investment Management, Inc. Kansas City, Missouri THIS REPORT AND THE STATEMENTS IT CONTAINS ARE SUBMITTED FOR THE GENERAL INFORMATION OF OUR SHAREHOLDERS. THE REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Proprietary Holdings, Inc. American Century Investment Services, Inc., Distributor 0701 ©2007 American Century Proprietary Holdings, Inc. SH-SAN-52638N 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. During the reporting period, there were no material changes to the procedures by which shareholders may recommend nominees to the registrant's board. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the registrant's second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Not applicable for semiannual report filings. (a)(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are filed and attached hereto as Exhibit 99.302CERT. (a)(3) Not applicable. (b) A certification by the registrant's chief executive officer and chief financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, is furnished and attached hereto as Exhibit 99.906CERT.SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: AMERICAN CENTURY MUNICIPAL TRUST By: /s/ William M. Lyons ------------------------------------------- Name: William M. Lyons Title: President Date: January 29, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ William M. Lyons ------------------------------------------- Name: William M. Lyons Title: President (principal executive officer) Date: January 29, 2007 By: /s/ Robert J. Leach ------------------------------------------- Name: Robert J. Leach Title: Vice President, Treasurer, and Chief Financial Officer (principal financial officer) Date: January 29, 2007