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) CHARLES A. ETHERINGTON, 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: 11-30-2007 -------------------------------------------------------ITEM 1. REPORTS TO STOCKHOLDERS. [front cover] AMERICAN CENTURY INVESTMENTS Semiannual Report November 30, 2007 [photo of winter] Tax-Free Money Market Fund Tax-Free Bond Fund [american century investments logo and text logo] OUR MESSAGE TO YOU [photo of Jonathan Thomas] JONATHAN THOMAS President and CEO American Century Companies, Inc. To help you monitor your investment, my colleagues and I take pride in providing you with the semiannual report for the American Century(R) Tax-Free Money Market and Tax-Free Bond funds for the six months ended November 30, 2007. I am honored to be addressing you in the "Our Message" space long devoted to company founder Jim Stowers, Jr. and his son Jim Stowers III. Jim Stowers III stepped down from the ACC board in July 2007, his final step in a well-planned career transition to pursue new ventures outside the company. This reflected his family's support of our company's direction and the leadership team of American Century Investments. The Stowers family remains an integral part of our heritage, leadership, and financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the American Century Companies, Inc. (ACC) board of directors with Richard Brown, who has been on the board since 1998. American Century Investments, our clients, and our employees have been my top priority since I became company president and CEO in March, 2007. We have also added the executive talents of overall chief investment officer (CIO) Enrique Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito, and chief operating officer Barry Fink. This skilled group, combined with our existing senior management team, has already had a positive impact on the development and management of the products and services we take pride in delivering to you. We believe the ultimate measure of our performance is our clients' success. Therefore, our focus continues to be on building a long-term relationship with you and on delivering superior investment performance across our product line. /s/Jonathan Thomas [photo of James E. Stowers, Jr.] JAMES E. STOWERS, JR. Founder and Co-Chairman of the Board American Century Companies, Inc. [photo of Richard Brown] RICHARD BROWN Co-Chairman of the Board American Century Companies, Inc. 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. . . . . . . . . . . . . . . . . . . . . 30 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . 32 Statement of Operations . . . . . . . . . . . . . . . . . . . . . 33 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . 34 Notes to Financial Statements . . . . . . . . . . . . . . . . . . 35 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . 41 OTHER INFORMATION Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . 45 Approval of Management Agreements for Tax-Free Money Market and Tax-Free Bond . . . . . . . . . . . . . . . . . . . . . . . . . . 47 47 Share Class Information . . . . . . . . . . . . . . . . . . . . . 51 Additional Information. . . . . . . . . . . . . . . . . . . . . . 52 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . 53 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 Chief Investment Officer] By David MacEwen, Chief Investment Officer, Fixed Income MOSTLY POSITIVE RETURNS, VOLATILE MARKETS U.S. bonds generally enjoyed positive returns during the six months ended November 30, 2007. But the ride was bumpy--bond market volatility surged as waves from the bursting housing and subprime mortgage/credit bubbles spread to the broader economy and financial markets. To help alleviate some of the market and economic concerns, the Federal Reserve made a series of cuts to its discount and federal funds target rates. The volatility, credit, and liquidity concerns in the market all favored Treasury securities over credit-sensitive bonds. Looking at the U.S. economy, growth remained surprisingly strong, though many economists are discussing the possibility of recession going forward. Inflation was fairly tame outside of volatile food and energy prices as the trailing 12-month percentage change in core consumer prices finished November at 2.3%. MUNICIPALS TRAILED TAXABLE BONDS It's typical for the broad investment- grade municipal market to underperform the investment-grade taxable market when Treasurys rally, as happened during the period. The effects of the housing and credit crunches and resulting flight to safe-haven Treasury bonds were felt most keenly in the municipal market in July and August, the worst two-month period for 10-year municipal bonds relative to Treasurys since September and October of 2001. Municipal underperformance was primarily a result of a lack of liquidity and re-pricing of risk for longer-term and lower-quality bonds. In addition, some high-quality, insured bonds suffered from concerns about the health of the insurance providers themselves as a result of losses in other parts of their business. However, we should point out that municipal bonds historically have been an exceptionally safe investment, with relatively low default rates, and the underperformance was more of a technical (supply and demand) story than an underlying credit quality story. The net effect was that yields for longer-term municipals were little changed, meaning essentially flat returns. However, high-yield bonds were hit hardest of all municipal investments in July and August as credit quality concerns affected all sectors of the market, resulting in negative returns for the six months. U.S. Fixed-Income Total Returns For the six months ended November 30, 2007* LEHMAN BROTHERS MUNICIPAL MARKET INDICES Municipal Bond Index 2.40% Three-Year Municipal Bond Index 3.27% Five-Year General Obligation (GO) Bond Index 3.83% Long-Term Municipal Bond Index 0.06% Non-Investment-Grade (High-Yield) Index - -2.43% TAXABLE MARKET RETURNS Lehman Brothers U.S. Aggregate Bond Index 5.32% Lehman Brothers U.S. Treasury Bond Index 7.79% Three-Month Treasury Bill 2.60% 10-Year Treasury Note 9.67% *Total returns for periods less than one year are not annualized. - ------ 2 PERFORMANCE Tax-Free Money Market Total Returns as of November 30, 2007 Average Annual Returns 6 5 10 Since Inception months(1) 1 year years years(2) Inception(2) Date INVESTOR CLASS 1.67% 3.33% 1.97% 2.40% 3.31% 7/31/84 AVERAGE RETURN OF LIPPER'S TAX-EXEMPT MONEY MARKET FUNDS(3) 1.51% 3.03% 1.69% 2.13% 3.17%(4) -- Fund's Lipper Ranking(3) as of 11/30/07 13 of 119 13 of 112 5 of 84 5 of 70 5 of 25(4) -- as of 12/31/07 10 of 114 10 of 108 6 of 84 5 of 69 5 of 25(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. © 2007 Reuters. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the pr ior 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 ammericancentury.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 PORTFOLIO COMMENTARY Tax-Free Money Market Lead Portfolio Manager: Todd Pardula Macro Strategy Team Representative: Steven Permut PERFORMANCE SUMMARY Tax-Free Money Market returned 1.67%* for the six months ended November 30, 2007, surpassing the 1.51% average return of the 114 funds in Lipper Inc.'s Tax-Exempt Money Market Funds category. The portfolio's return for the reporting period and for the five- and 10-year periods ended November 30, 2007, ranked in the top 10% of the Lipper category (see the previous page). CREDIT, GROWTH CONCERNS PROMPTED FED RATE CUTS Early in the reporting period, a lingering threat of inflation kept the Federal Reserve (the Fed) on hold, and its short-term interest rate benchmark, the federal funds rate target, at 5.25%. In late July, though, the mounting credit crisis sent investors fleeing to the safety of U.S. Treasury securities, inflation worries took a back seat to rising recession fears, and the Fed implemented its first rate cuts since 2003. MUNICIPAL MONEY MARKET YIELDS FELL LESS THAN TREASURY BILL YIELDS The Fed's easing campaign further fueled the rally in the Treasury bill market. The yield on the benchmark three-month Treasury bill fell by 158 basis points during the reporting period, from 4.73% to 3.15%. Meanwhile, supply and demand forces limited the magnitude of the decline in the municipal money market. Quarter-end pressures in June and September caused municipal money market yields to spike, as securities dealers raised rates to more attractive levels to deplete their inventories. After peaking at 3.59% in mid-September, Tax-Free Money Market's 7-day current yield ended the reporting period at 3.33%, compared with 3.41% at the beginning of the six-month period. LITTLE DIRECT IMPACT FROM SIV AND BOND INSURER ISSUES In late July, when serious credit issues re-emerged, the bulk of the problems were confined to the stock and bond markets. But eventually, the panic filtered through to the asset-backed segment of the money market, where subprime mortgage exposure within certain asset-backed securities and structured investment vehicles (SIVs) came into play. But such securities are not represented within the municipal money market, so Tax-Free Money Market had no direct exposure to subprime-backed securities or SIVs. Yields as of November 30, 2007 7-Day Current Yield 3.33% 7-Day Effective Yield 3.38% 7-Day Tax-Equivalent Current Yields(1) 25.00% Tax Bracket 4.44% 28.00% Tax Bracket 4.63% 33.00% Tax Bracket 4.97% 35.00% Tax Bracket 5.12% (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. - ------ 4 Tax-Free Money Market Concerns about the credit quality of municipal bond insurers also had little impact on the portfolio during the reporting period. Though securities within the portfolio were insured by these companies, the ratings of our insurers remained intact, and we think they will continue to do so. More important, we strongly believe the underlying high credit quality of the securities within our portfolio will allow them to retain their value whether the insurers keep their ratings or not. PORTFOLIO STRATEGY Floating-rate securities continued to comprise the bulk of the portfolio throughout the six-month period. These "floaters" gave us the flexibility to capture occasional spikes in rates while maintaining liquidity. Throughout the first half of the reporting period, the portfolio's average maturity remained relatively short, falling to a period low of 11 days in late July. A few weeks later, during the height of the summer's credit crunch, growing expectations for a Fed rate cut prompted us to add longer-term municipal money market securities to the portfolio. This strategy helped us lock in higher yields for the portfolio before the Fed launched its easing campaign in August. This strategy also resulted in a "barbelled" maturity structure, with shorter-term securities at one "end" of the portfolio providing liquidity and longer-term securities at the other generating yield. The portfolio ended the reporting period with an average maturity of 29 days. OUTLOOK The credit bubble, which resulted from interest rates being held too low for too long earlier this decade, is bursting, and the probability of a hard landing or recession has increased. We believe the Fed will execute additional rate cuts as consumer spending and the economy weaken in 2008. We expect to continue our emphasis on floaters to maintain adequate liquidity in these uncertain times. This should result in an average maturity that's neutral to slightly short of its benchmark. Portfolio Composition by Credit Rating % of fund % of fund investments investments as of as of 11/30/07 5/31/07 A-1+ 80% 80% A-1 20% 20% 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 11/30/07 5/31/07 1-30 days 92% 96% 31-90 days -- -- 91-180 days -- 1% More than 180 days 8% 3% - ------ 5 SCHEDULE OF INVESTMENTS Tax-Free Money Market NOVEMBER 30, 2007 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value Municipal Securities -- 100.1% ALABAMA -- 1.8% $3,040 Deutsche Bank Spears/Lifers Trust Various States, Series 2007 DB-417, VRDN, 3.72%, 12/6/07 (MBIA) (LIQ FAC: Deutsche Bank AG) (Guaranty Agreement: JPMorgan Chase Bank) (Acquired 10/26/07, 10/26/07, Cost $3,040)(1) $ 3,040 1,000 Gulf Shores Medical Clinic Board Rev., (Colonial Pinnacle MOB, LLC), VRDN, 3.68%, 12/6/07 (LOC: Regions Bank) 1,000 800 Mobile Industrial Development Board Rev., (Holnam Inc.), VRDN, 3.74%, 12/5/07 (LOC: Bayerische Landesbank) 800 -------- 4,840 -------- ARIZONA -- 3.0% 6,750 Maricopa County Industrial Development Auth. Rev., (Michael Pylman Dairies), VRDN, 3.76%, 12/6/07 (LOC: LaSalle Bank N.A) 6,750 1,600 Maricopa County Paradise Valley Unified School District No. 69 GO, Series 2007 B, (School Improvement Project of 2005), 4.25%, 7/1/08 (FSA) 1,604 -------- 8,354 -------- CALIFORNIA -- 3.7% 2,340 Alameda County Industrial Development Auth. Rev., (BAT Properties LLC), VRDN, 3.85%, 12/6/07 (LOC: Bank of the West) 2,340 954 California Economic Development Financing Auth. Rev., (Wesflex Pipe Manufacturing), VRDN, 3.90%, 12/6/07 (LOC: Wells Fargo Bank N.A.) 954 7,000 Puttable Floating Option Tax-Exempt Receipts, VRDN, 3.88%, 12/6/07 (LOC: Lloyds TSB Bank plc) (Acquired 6/8/05, Cost $7,000)(1) 7,000 -------- 10,294 -------- COLORADO -- 4.7% 2,840 Arvada Water Enterprise Rev., VRDN, 3.65%, 12/3/07 (FSA) (SBBPA: Dexia Public Finance Bank) 2,840 Principal Amount ($ IN THOUSANDS) Value $2,900 City of Thornton Industrial Development Rev., (Kroger Co.), VRDN, 3.68%, 12/6/07 (LOC: U.S. Bank N.A.) $ 2,900 5,800 Colorado Housing & Finance Auth. Rev., (Kroger Co.), VRDN, 3.68%, 12/6/07 (LOC: U.S. Bank N.A.) 5,800 1,500 Hotchkiss Industrial Development Rev., (Kroger Co.), VRDN, 3.68%, 12/6/07 (LOC: U.S. Bank N.A.) 1,500 -------- 13,040 -------- FLORIDA -- 3.1% 3,405 Broward County Health Facilities Auth. Rev., (John Knox Village), VRDN, 6.00%, 12/3/07 (RADIAN) (SBBPA: SunTrust Bank) 3,405 4,300 Miami-Dade County Industrial Development Auth. Rev., (Palmer Trinity Private College), VRDN, 3.67%, 12/6/07 (LOC: Keybank N.A.) 4,300 700 Seminole County Industrial Development Auth. Rev., VRDN, 3.78%, 12/6/07 (LOC: Bank of America N.A.) 700 -------- 8,405 -------- HAWAII -- 1.8% 3,000 Hawaii Pacific Health Rev., Series 2004 B, (Department Budget & Finance), VRDN, 5.25%, 12/5/07 (RADIAN) (SBBPA: Bank of Nova Scotia) 3,000 2,000 Hawaii Pacific Health Rev., Series 2004 B2, (Department Budget & Finance), VRDN, 5.25%, 12/5/07 (RADIAN) (SBBPA: Bank of Nova Scotia) 2,000 -------- 5,000 -------- IDAHO -- 1.5% 3,000 Boise City Housing Auth. Multifamily Rev., Series 2002 B, (Civic Plaza Housing), VRDN, 3.73%, 12/5/07 (LOC: Keybank N.A.) 3,000 1,190 Boise City Housing Auth. Multifamily Rev., Series 2002 C, (Civic Plaza Housing), VRDN, 3.66%, 12/5/07 (LOC: Keybank N.A.) 1,190 -------- 4,190 -------- - ------ 6 Tax-Free Money Market Principal Amount ($ IN THOUSANDS) Value INDIANA -- 10.8% $2,800 Jasper County Industrial Development Rev., (Newberry Farms LLC), VRDN, 3.76%, 12/6/07 (LOC: Farm Credit Services America and Bank of the West) $ 2,800 4,875 La Porte Industrial Development Rev., (KKO Realty), VRDN, 3.76%, 12/6/07 (LOC: Bank of New York) 4,875 1,515 Morgan County Rev., Series 2002 A, (Morgan Hospital & Medical Center), VRDN, 3.71%, 12/6/07 (LOC: Fifth Third Bank) 1,515 11,545 Morgan County Rev., Series 2002 B, (Morgan Hospital & Medical Center), VRDN, 3.66%, 12/6/07 (LOC: Fifth Third Bank) 11,545 6,045 Tell City-Troy Township Elementary School Building Corp. Rev., VRDN, 3.86%, 12/6/07 (FSA/State Aid Withholding) (SBBPA: Merrill Lynch Capital Services, Inc.) (Acquired 10/26/07, Cost $6,045)(1) 6,045 2,875 Vincennes Economic Development Rev., (Grandview Care Inc.), VRDN, 3.85%, 12/6/07 (LOC: Bank One N.A.) 2,875 -------- 29,655 -------- KENTUCKY -- 0.7% 1,000 Murray Industrial Building Rev., (Kroger Co.), VRDN, 3.68%, 12/6/07 (LOC: U.S. Bank N.A.) 1,000 1,000 Winchester Industrial Building Rev., (Kroger Co.), VRDN, 3.68%, 12/6/07 (LOC: U.S. Bank N.A.) 1,000 -------- 2,000 -------- LOUISIANA -- 10.6% 13,000 Jefferson Sales Tax District Rev., VRDN, 3.68%, 12/6/07 (Ambac) (SBBPA: JPMorgan Chase Bank) 13,000 3,900 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev, (Capital Projects and Equipment Acquisition Program), VRDN, 3.68%, 12/6/07 (Ambac) (SBBPA: JPMorgan Chase Bank) 3,900 Principal Amount ($ IN THOUSANDS) Value $2,395 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Trinity Episcopal School), VRDN, 3.70%, 12/5/07 (LOC: Whitney National Bank and SunTrust Bank) $ 2,395 9,700 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., Series 2006 A, (Capital and Equipment Acquisition Program), VRDN, 3.68%, 12/6/07 (Ambac) (SBBPA: BNP Paribas) 9,700 -------- 28,995 -------- MARYLAND -- 0.2% 440 Maryland Economic Development Corp. Rev., Series 2002 B, (Federation of American Societies), VRDN, 3.70%, 12/5/07 (LOC: SunTrust Bank) 440 -------- MINNESOTA -- 4.8% 6,740 Dakota County Community Development Agency Rev., (Catholic Finance Corp.), VRDN, 3.75%, 12/5/07 (LOC: U.S. Bank N.A.) 6,740 6,500 East Grand Forks Rev., (American Crystal Sugar Co.), VRDN, 3.76%, 12/6/07 (LOC: Cobank ACB and Wachovia Bank N.A.) 6,500 -------- 13,240 -------- MISSISSIPPI -- 3.0% 1,905 Mississippi Business Finance Corp. Rev., Series 2004 B, VRDN, 3.70%, 12/6/07 (LOC: Wells Fargo Bank N.A.) 1,905 6,250 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Magnolia Regional Health Center), VRDN, 5.00%, 12/6/07 (RADIAN) (SBBPA: Regions Bank) 6,250 -------- 8,155 -------- MISSOURI -- 6.6% 6,700 Jackson County Industrial Development Auth. Rev., (Linda Hall Library), VRDN, 3.71%, 12/6/07 (LOC: Commerce Bank N.A.) 6,700 - ------ 7 Tax-Free Money Market Principal Amount ($ IN THOUSANDS) Value $2,355 Kansas City Industrial Development Auth. Rev., (Plaza Manor Nursing), VRDN, 3.73%, 12/6/07 (LOC: First National Bank of Omaha and Comerica Bank) $ 2,355 9,100 Missouri Health & Educational Facilities Auth. Rev., (Pembroke Hill School), VRDN, 3.71%, 12/6/07 (LOC: Commerce Bank N.A.) 9,100 -------- 18,155 -------- MONTANA -- 0.8% 2,300 City of Forsyth Rev., (Pacificorp), VRDN, 3.67%, 12/3/07 (LOC: BNP Paribas) 2,300 -------- NEBRASKA -- 0.8% 2,150 Lancaster County Hospital Auth. No. 1 Health Facilities Rev., Series 2000 A, (Immanuel Health Systems - Williamsburg), VRDN, 3.66%, 12/3/07 (LOC: Allied Irish Bank plc) 2,150 -------- NEW YORK -- 0.6% 1,695 New York City Industrial Development Agency Civic Facility Rev., (1998 Peninsula Hospital Center), VRDN, 3.85%, 12/6/07 (LOC: JPMorgan Chase Bank) 1,695 -------- OHIO -- 0.5% 1,435 County of Hamilton Rev., Series 2006 A, (Sales Tax), 4.00%, 12/1/07 1,435 -------- OKLAHOMA -- 0.3% 750 Oklahoma Capital Improvement Auth. State Facilities Rev., Series 2006 D, (Higher Education), VRDN, 3.67%, 12/3/07 (CIFG) (SBBPA: Fortis Bank SA N.V.) 750 -------- OREGON -- 1.5% 4,000 Oregon GO, Series 2007 A, (Tax Anticipation Notes), 4.50%, 6/30/08 4,020 -------- PENNSYLVANIA -- 1.8% 5,000 Pennsylvania Higher Educational Facilities Auth. Hospital Rev., VRDN, 3.98%, 12/6/07 (SBBPA: Lloyds TSB Bank plc) (Acquired 11/6/07, Cost $5,000)(1) 5,000 -------- Principal Amount ($ IN THOUSANDS) Value SOUTH CAROLINA -- 5.8% $3,150 BB&T Municipal Trust, Series 2007-1003, VRDN, 3.67%, 12/6/07 (LOC: Branch Banking & Trust) (LIQ FAC: Branch Banking & Trust) (Acquired 5/24/07, Cost $3,150)(1) $ 3,150 4,680 BB&T Municipal Trust., Series 2007-1005, VRDN, 3.67%, 12/6/07 (LOC: Branch Banking & Trust) (LIQ FAC: Branch Banking & Trust) (Acquired 6/28/07, Cost $4,680)(1) 4,680 8,150 South Carolina Jobs Economic Development Auth Rev., (Greenville Technical College), VRDN, 3.65%, 12/6/07 (LOC: SunTrust Bank) 8,150 -------- 15,980 -------- TENNESSEE -- 3.1% 600 Blount County Public Building Auth. Rev, Series 2005 D-5-D, (Local Government Public Improvement), VRDN, 3.65%, 12/3/07 (XLCA) (SBBPA: Depfa Bank plc) 600 7,880 Bradley County Industrial Development Board Rev., (Kroger Co.), VRDN, 3.68%, 12/6/07 (LOC: U.S. Bank N.A.) 7,880 -------- 8,480 -------- TEXAS -- 18.1% 13,700 Brazos Harbor Industrial Development Corp. Rev., (BASF Corp.), VRDN, 3.90%, 12/5/07 13,700 10,000 Crawford Education Facilities Corp. Rev., Series 2004 A, (University Package System A), VRDN, 3.67%, 12/6/07 (LOC: BNP Paribas) 10,000 3,000 Hale County Industrial Development Corp. Rev., (Struikmans), VRDN, 3.76%, 12/6/07 (LOC: Farm Credit Services America and Bank of the West) 3,000 5,380 Muleshoe Economic Development Corp. Rev., (John Lyle & Grace Ajean), VRDN, 3.71%, 12/6/07 (LOC: Wells Fargo Bank N.A.) 5,380 - ------ 8 Tax-Free Money Market Principal Amount ($ IN THOUSANDS) Value $4,500 Port of Corpus Christi Auth. of Nueces County Solid Waste Disposal Rev., (Flint Hills Resources, LP), VRDN, 3.87%, 12/5/07 $ 4,500 13,000 Texas GO, (Tax & Revenue Anticipation Notes), 4.50%, 8/28/08 13,075 -------- 49,655 -------- VIRGINIA -- 0.7% 1,755 Bristol Industrial Development Auth. Rev., (Bristol Health Care Center Inc.), VRDN, 3.40%, 12/1/07 (LOC: Regions Bank) 1,755 -------- WASHINGTON -- 8.3% 2,500 Marysville School District No. 25, Snohomish County GO, 4.00%, 12/1/08 (FSA/School Bond Guarantee)(2) 2,515 6,305 Puttable Floating Option Tax-Exempt Receipts, VRDN, 3.86%, 12/6/07 (FGIC) (LIQ FAC: Merrill Lynch & Co., Inc.) (Acquired 10/26/07, Cost $6,305)(1) 6,305 14,000 Washington Health Care Facilities Auth. Rev., (Swedish Health Services), VRDN, 3.69%, 12/5/07 (LOC: Citibank N.A.) (Acquired 3/9/07, Cost $14,000)(1)(3) 14,000 -------- 22,820 -------- WEST VIRGINIA -- 1.5% 4,000 West Virginia Economic Development Auth. Rev., (Collins Hardwood Co.), VRDN, 3.76%, 12/6/07 (LOC: American AG Credit and Bank of America N.A.) 4,000 -------- Principal Amount ($ IN THOUSANDS) Value TOTAL INVESTMENT SECURITIES -- 100.1% 274,803 -------- OTHER ASSETS AND LIABILITIES -- (0.1)% (245) -------- TOTAL NET ASSETS -- 100.0% $274,558 ======== Notes to Schedule of Investments Ambac = Ambac Assurance Corporation CIFG = CDC IXIS Financial Guaranty North America FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance, Inc. GO = General Obligation LIQ FAC = Liquidity Facilities 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, 2007. XLCA = XL Capital Ltd. (1) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at November 30, 2007 was $49,220 (in thousands), which represented 17.9% of total net assets. None of the restricted securities were considered illiquid. (2) When-issued security. (3) Security, or a portion thereof, has been segregated for a when-issued security. See Notes to Financial Statements. - ------ 9 PERFORMANCE Tax-Free Bond Total Returns as of November 30, 2007 Average Annual Returns 6 5 10 Since Inception months(1) 1 year years years Inception Date INVESTOR CLASS 2.61% 2.81% 3.75% 4.65% 5.36% 3/2/87 LEHMAN BROTHERS MUNICIPAL 5-YEAR GO INDEX 3.83% 4.44% 3.61% 4.60% 5.51%(2) -- AVERAGE RETURN OF LIPPER'S INTERMEDIATE MUNICIPAL DEBT FUNDS(3) 2.41% 2.48% 3.39% 4.24% 5.52%(4) -- Investor Class's 60 of 33 of 11 of Lipper Ranking(3) 159 120 76 as of 11/30/07 -- 53 of 31 of 10 of 9 of 13(4) -- as of 12/31/07 -- 158 120 76 9 of 13(4) -- Institutional Class 2.72% 3.02% -- -- 3.66% 4/15/03 Advisor Class 2.49% 2.56% -- -- 3.35% 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) 2007 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. - ------ 10 Tax-Free Bond Growth of $10,000 Over 10 Years
$10,000 investment made November 30, 1997
One-Year Returns Over 10 Years Periods ended November 30 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Investor Class 6.77% -0.24% 7.29% 8.25% 6.02% 5.72% 2.14% 2.90% 5.23% 2.81% Lehman Brothers Municipal 5-Year GO Index 6.32% 1.49% 5.62% 8.24% 6.47% 5.72% 2.36% 1.52% 4.07% 4.44% 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 PORTFOLIO COMMENTARY Tax-Free Bond Lead Portfolio Manager: Robert Miller Macro Strategy Team Representative: Steven Permut PERFORMANCE SUMMARY Tax-Free Bond returned 2.61%* for the six months ended November 30, 2007. By comparison, its broad market index--the Lehman Brothers Municipal 5-Year General Obligation Index--returned 3.83%, while the average return of the 160 intermediate municipal debt funds tracked by Lipper Inc. was 2.41%. The portfolio's average annual returns also exceeded those of its Lipper group average for the one-, five-, and 10-year periods ended November 30, 2007 (see page 10). The portfolio's absolute return reflected a difficult investment climate for municipal bonds (see the Market Perspective on page 2). Relative to the Lehman index, the portfolio lagged primarily because we held an overweight position in higher-yielding, lower-quality bonds, which underperformed AAA bonds. CREDIT ALLOCATION DETRACTED The key factor limiting Tax-Free Bond's performance relative to its broad market index was our overweight position in bonds rated BBB and A. Unfortunately, mounting credit concerns and a global margin call led traders to sell credit-sensitive bonds indiscriminately in this period; indeed, August was one of the worst months for municipal bonds on record. In that environment, lower-rated bonds, including those we held, trailed the highest-quality securities by a wide margin. In addition, a number of our insured, AA rated bonds backed by Radian Asset Assurance underperformed. They were weighed down by negative comments about other municipal bond insurers by the big credit rating agencies, such as Standard & Poor's and Moody's. It's worth pointing out that two of the big three rating agencies reiterated stable outlooks for Radian, and our own analysts are positive on the insurer. What's more, we have strong faith in the underlying credit quality of the bonds in our portfolios regardless of the insurer. As a result, we viewed the dip in insured bond prices as a buying opportunity. For example, we were able to add insured bonds with yields that matched comparable uninsured bonds--in other words, we effectively got the insurance for free. DURATION POSITION DETRACTED SLIGHTLY We lengthened the portfolio's duration slightly in the summer in anticipation of a strong technical period for municipal bonds. Many municipal bonds make coupon payments in July, when supply is typically light, creating a supply and demand imbalance as municipal investors look to put their interest income back to work. So having a longer duration (greater sensitivity to bond price changes) typically benefits the portfolio during the summer months. Unfortunately, the opposite happened, and this positioning detracted from performance. Yields as of November 30, 2007 30-Day SEC Yield Investor Class 3.71% Institutional Class 3.92% Advisor Class 3.47% Investor Class 30-Day Tax-Equivalent Yields(1) 25.00% Tax Bracket 4.95% 28.00% Tax Bracket 5.15% 33.00% Tax Bracket 5.54% 35.00% Tax Bracket 5.71% (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. - ------ 12 Tax-Free Bond CURVE STEEPENING HELPED On a positive note, we helped performance relative to the index and peer group by virtue of a yield curve steepening bias we had in place using two- and 10-year Treasury futures contracts. We preferred to use Treasury futures because they're a pure play on changes in the shape of the curve. For the six months, the Treasury yield curve steepened sharply--the difference in yield between two- and 10-year Treasury securities went from -3 basis points (the yield curve was inverted) to +94 basis points (a more normal, upward slope). OUTLOOK "We believe the underperformance of the municipal market in recent months was driven by technical factors and a lack of liquidity in the marketplace resulting from an extreme aversion to risk, rather than changes in credit fundamentals," said Macro Strategy Team Representative Steven Permut. "As a result, we believe municipal bonds are very attractive relative to fully taxable investments and in terms of their absolute yields." "Given our value-oriented investment process and long-term approach," Permut continued, "we view this period as a buying opportunity. So we're working to complete some of the longer-term trades we've been making over the past year--such as trading up in credit quality and moving into more defensive sectors--at what we believe are very attractive price levels. And given our view of rates and the economy, we expect to maintain our yield curve steepening bias while managing duration conservatively." Portfolio Composition by Credit Rating % of fund % of fund investments investments as of as of 11/30/07 5/31/07 AAA 67% 63% AA 11% 9% A 9% 7% BBB 11% 21% Lower than BBB 1% -- Not Rated 1% -- 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, 2007 % of net % of net assets as of assets as of 11/30/07 5/31/07 California 10.0% 6.3% Arizona 8.6% 6.5% Pennsylvania 5.9% 5.5% Washington 5.6% 7.5% Texas 5.6% 7.0% - ------ 13 SCHEDULE OF INVESTMENTS Tax-Free Bond NOVEMBER 30, 2007 (UNAUDITED) Principal Amount ($ IN THOUSANDS) Value Municipal Securities -- 102.4% ALABAMA -- 0.6% $ 865 Alabama Water Pollution Control Auth., 5.75%, 8/15/18 (Ambac) $ 920 190 East Central Industrial Development Auth. Rev., 5.25%, 9/1/08, Prerefunded at 100% of Par (Ambac)(1) 193 810 East Central Industrial Development Auth. Rev., 5.25%, 9/1/13 (Ambac) 821 1,035 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1)(2) 1,130 790 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1) 857 840 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1) 931 645 Helena Utilities Board Rev., 5.75%, 4/1/12, Prerefunded at 101% of Par (MBIA)(1) 715 -------- 5,567 -------- ALASKA -- 0.1% 1,125 Borough of Aleutians East Rev., (Aleutian Pribilof Islands Inc.), 5.00%, 6/1/20 (ACA)(2) 1,087 -------- ARIZONA -- 8.6% 1,505 Arizona Board of Regents COP, Series 2002 A, (University of Arizona), 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(1) 1,645 1,935 Arizona Board of Regents COP, Series 2006 A, (University of Arizona), 5.00%, 6/1/18 (Ambac)(2) 2,089 1,275 Arizona Health Facilities Auth. Rev., (Blood Systems Inc.), 4.00%, 4/1/12(2) 1,273 1,175 Arizona Health Facilities Auth. Rev., (Blood Systems Inc.), 4.50%, 4/1/16(2) 1,181 1,000 Arizona Health Facilities Auth. Rev., (Blood Systems Inc.), 5.00%, 4/1/21(2) 1,015 7,500 Arizona Health Facilities Auth. Rev., Series 2007 B, (Banner Health), VRDN, 4.32%, 1/2/08(2) 7,501 Principal Amount ($ IN THOUSANDS) Value $ 1,750 Arizona School Facilities Board Rev., (State School Improvement), 5.50%, 7/1/11, Prerefunded at 100% of Par(1)(2) $ 1,883 1,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/11(2) 1,029 1,000 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/12(2) 1,032 1,880 Arizona Tourism & Sports Auth. Rev., (Baseball Training Facilities), 5.00%, 7/1/13(2) 1,947 2,000 Arizona Tourism & Sports Auth. Rev., Series 2003 A, (Multipurpose Stadium Facility), 5.25%, 7/1/17 (MBIA) 2,163 1,910 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/11 (MBIA)(2) 1,992 2,130 Energy Management Services LLC Rev., (Arizona State University - Main Campus), 4.50%, 7/1/12 (MBIA)(2) 2,239 460 Glendale Industrial Development Auth. Rev., Series 1998 A, (Midwestern University), 5.375%, 5/15/08, Prerefunded at 101% of Par(1) 469 500 Glendale Industrial Development Auth. Rev., Series 2001 A, (Midwestern University), 5.75%, 5/15/11, Prerefunded at 101% of Par(1) 544 1,155 Maricopa County Gilbert Unified School District No. 41 GO, 5.75%, 7/1/11 (FSA)(2) 1,253 1,445 Maricopa County Phoenix Union High School District No. 210 GO, 4.75%, 7/1/11 (FSA)(2) 1,519 1,955 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.00%, 7/1/10(2) 2,009 2,415 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/11(2) 2,520 2,000 Maricopa County Saddle Mountain Unified School District No. 90 GO, Series 2003 A, 5.25%, 7/1/12(2) 2,099 - ------ 14 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 1,000 Maricopa County Scottsdale Elementary School District No. 48 GO, 6.60%, 7/1/12(2) $ 1,139 1,265 Mohave County Community College District COP, 5.75%, 3/1/14 (Ambac)(2) 1,330 2,150 Mohave County Community College District Rev., (State Board of Directors), 6.00%, 3/1/10, Prerefunded at 100% of Par (MBIA)(1)(2) 2,278 2,155 Mohave County Industrial Development Auth., Series 2004 A, (Mohave Prison), 5.00%, 4/1/14 (XLCA)(2) 2,314 1,815 Navajo County Unified School District No. 20 Rev., Series 2006 A, 5.00%, 7/1/17 (MBIA)(2) 1,991 1,000 Phoenix Civic Improvement Corp. Waste System Rev., (Junior Lien), 6.25%, 7/1/10, Prerefunded at 101% of Par (FGIC)(1) 1,083 1,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 5.50%, 7/1/19 (FGIC) 1,076 1,000 Phoenix Civic Improvement Corp. Water System Rev., (Junior Lien), 5.00%, 7/1/21 (MBIA) 1,061 1,070 Phoenix GO, Series 1995 A, 6.25%, 7/1/17 1,288 2,000 Phoenix Industrial Development Auth. Government Office Lease Rev., (Capitol Mall LLC), 5.00%, 9/15/26 (Ambac) 2,079 1,200 Pima County Indian Oasis-Baboquivari Unified School District No. 40, Series 2002 A, 4.60%, 7/1/13 (MBIA) 1,259 1,710 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/18 (Ambac) 1,911 1,800 Pima County Metropolitan Domestic Water Improvement District Rev., 5.25%, 7/1/19 (Ambac) 2,013 2,600 Pima County Tucson Unified School District No. 1 GO, 4.625%, 7/1/13 (FSA) 2,740 1,125 Pima County Unified School District No. 6 Marana GO, 5.50%, 7/1/15 (FGIC) 1,195 820 Pinal County COP, 4.75%, 6/1/13 (Ambac) 860 Principal Amount ($ IN THOUSANDS) Value $ 3,970 Pinal County COP, 5.00%, 12/1/25 $ 4,010 775 Pinal County Unified School District No. 43 Apache Junction GO, Series 2006 B, (School Improvement), 5.00%, 7/1/16, Prerefunded at 100% of Par (FGIC)(1) 856 1,000 Queen Creek Improvement District No. 1 Special Tax Rev., 5.00%, 1/1/11 1,020 1,000 Queen Creek Improvement District No. 1 Special Tax Rev., 5.00%, 1/1/16 1,012 1,600 Scottsdale GO, 6.25%, 7/1/09, Prerefunded at 100% of Par(1) 1,673 1,000 Sedona COP, 5.75%, 7/1/09, Prerefunded at 101% of Par(1) 1,047 3,085 South Tucson Municipal Property Corp. Rev., 5.50%, 6/1/24 3,189 -------- 75,826 -------- CALIFORNIA -- 10.0% 3,445 Association of Bay Area Government Tax Allocation Rev., Series 2007 A, 5.00%, 9/1/33 (Ambac)(3) 3,556 10,000 California GO, 5.00%, 8/1/22(2) 10,350 6,550 California GO, 5.00%, 11/1/22 (XLCA)(2) 6,963 10,000 California GO, 5.00%, 11/1/25(2) 10,303 7,500 California GO, 5.00%, 6/1/26(2) 7,658 7,500 California GO, 5.00%, 11/1/26(2) 7,697 1,000 California Public Works Board Lease, Series 1994 A, (Various University of California Projects), 6.20%, 10/1/08(2) 1,002 1,000 California Statewide Communities Development Auth. Rev., Series 2002 E, (Kaiser Permanente), 4.70%, 6/1/09(2) 1,019 230 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.00%, 10/1/12 (FSA)(1) 248 845 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.00%, 10/1/12 (FSA) 908 - ------ 15 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 430 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.25%, 10/1/13, Prerefunded at 101% of Par (FSA)(1) $ 477 1,570 California Statewide Communities Development Auth. Water & Waste Rev., Series 2004 A, (Pooled Financing Program), 5.25%, 10/1/19 (FSA)(2) 1,704 2,000 City of Lodi Wastewater System COP, Series 2007 A, 5.00%, 10/1/32 (FSA)(3) 2,065 7,000 City of Vista COP, (Community Projects), 5.00%, 5/1/37 (MBIA)(3) 7,140 3,510 Foothill-De Anza Community College District GO, Series 2007 B, (Election of 2006), 5.00%, 8/1/17 (Ambac)(2) 3,808 2,000 Foothill-De Anza Community College District GO, Series 2007 B, (Election of 2006), 5.00%, 8/1/27 (Ambac)(2) 2,093 1,070 Hesperia Unified School District COP, (2007 Capital Improvement), 5.00%, 2/1/17 (Ambac)(2) 1,163 3,000 Imperial Irrigation District COP, (Water Systems), 5.50%, 7/1/29 (Ambac)(2) 3,177 2,200 Manteca Unified School District GO, 5.25%, 8/1/14, Prerefunded at 100% of Par (FSA)(1)(2) 2,446 1,625 Peninsula Corridor Joint Powers Board Farebox Rev., Series 2007 A, 5.00%, 10/1/32 (Ambac) 1,699 4,335 Peninsula Corridor Joint Powers Board Farebox Rev., Series 2007 A, 5.00%, 10/1/37 (Ambac)(2) 4,525 1,000 Plumas Unified School District GO, 5.25%, 8/1/20 (FSA) 1,130 2,145 San Francisco Uptown Parking Corporation Rev., (Union Square), 5.50%, 7/1/15 (MBIA) 2,322 1,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/20 (MBIA) 1,095 Principal Amount ($ IN THOUSANDS) Value $ 2,000 San Francisco Uptown Parking Corporation Rev., (Union Square), 6.00%, 7/1/31 (MBIA) $ 2,160 1,575 San Marcos Public Facilities Auth. Tax Allocation Rev., Series 2006 A, (Project Area No. 3), 5.00%, 8/1/20 (Ambac) 1,673 -------- 88,381 -------- COLORADO -- 3.4% 1,120 Antelope Heights Metropolitan District GO, Series 2007 A, 5.00%, 12/1/27 (RADIAN)(2) 1,087 1,100 Arapahoe County Water & Wastewater Public Improvement District GO, Series 2002 B, 5.75%, 12/1/17 (MBIA)(2) 1,210 1,500 Bromley Park Metropolitan District No. 2 GO, Series 2007 A, 5.00%, 12/1/27 (RADIAN)(2) 1,485 900 Colorado Educational & Cultural Facilities Auth. Rev., (University Facilities-Northwest Nazarene), 4.75%, 11/1/10 914 800 Colorado Educational & Cultural Facilities Auth. Rev., (University Facilities-Northwest Nazarene), 4.60%, 11/1/16 796 1,280 Colorado Health Facilities Auth. Rev., (Yampa Valley Medical Center), 5.00%, 9/15/11(2) 1,311 1,635 Colorado Health Facilities Auth. Rev., (Yampa Valley Medical Center), 5.00%, 9/15/16(2) 1,663 450 Colorado Water Resources & Power Development Auth. Rev., Series 2000 A, 6.25%, 9/1/10, Prerefunded at 100% of Par(1) 485 50 Colorado Water Resources & Power Development Auth. Rev., Series 2000 A, 6.25%, 9/1/16 54 1,350 Compark Business Campus Metropolitan District GO, Series 2007 A, 5.30%, 12/1/22 (RADIAN)(2) 1,387 3,500 Denver Airport Rev., Series 2007 E, 5.00%, 11/15/32(2) 3,629 1,430 Denver West Metropolitan District GO, 5.25%, 12/1/24 1,470 - ------ 16 Tax-Free Bond 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)(1) $ 1,114 1,020 El Paso County School District No. 8 & Fountain-Fort Carson School District Finance Corp. COP, 4.25%, 12/15/13 (Ambac)(2) 1,047 2,115 Fronterra Village Metropolitan District No. 2 GO, 5.00%, 12/1/37(2) 2,097 1,250 Interlocken Consolidated Metropolitan District GO, Series 1999 B, 5.625%, 12/15/16 (RADIAN)(2) 1,306 1,500 SBC Metropolitan District GO, 5.00%, 12/1/20 (ACA) 1,456 5,000 University of Colorado Regents COP, 6.00%, 12/1/22 (MBIA-IBC)(2) 5,332 1,000 Vista Ridge Metropolitan District GO, Series 2006 A, 5.00%, 12/1/21 (RADIAN) 1,009 1,400 Vista Ridge Metropolitan District GO, Series 2006 A, 5.00%, 12/1/26 (RADIAN) 1,388 -------- 30,240 -------- CONNECTICUT -- 2.7% 2,150 City of Bridgeport GO, Series 2004 A, 5.25%, 8/15/14, Prerefunded at 100% of Par (MBIA)(1)(2) 2,387 4,000 Connecticut GO, Series 2001 C, 5.50%, 12/15/13 (MBIA-IBC)(2) 4,468 5,000 Connecticut GO, Series 2006 C, 5.00%, 6/1/14(2) 5,460 1,595 Connecticut GO, Series 2006 D, 5.00%, 11/1/15(2) 1,762 1,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 C, (Hospital for Special Care Issue), 5.25%, 7/1/27 (RADIAN)(2) 1,010 2,660 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 I, (Quinnipiac University), 5.00%, 7/1/16 (MBIA)(3) 2,935 1,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 I, (Quinnipiac University), 5.00%, 7/1/17 (MBIA)(3) 1,099 Principal Amount ($ IN THOUSANDS) Value $ 4,100 Connecticut Special Tax Rev., Series 2007 A, (Transportation Infrastructure), 5.00%, 8/1/23 (Ambac)(2) $ 4,397 -------- 23,518 -------- DISTRICT OF COLUMBIA -- 0.3% 1,385 District of Columbia GO, Series 1999 B, 5.50%, 6/1/09 (FSA)(2) 1,430 1,155 District of Columbia Rev., (Gonzaga College High School), 5.20%, 7/1/12 (FSA)(2) 1,198 -------- 2,628 -------- FLORIDA -- 2.5% 400 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.00%, 4/1/14 416 500 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/15 532 525 Broward County Educational Facilities Auth. Rev., Series 2004 B, (Nova Southeastern), 5.50%, 4/1/16 556 1,475 Collier County School Board COP, 5.50%, 2/15/12 (FSA)(2) 1,592 1,150 Duval County School Board COP, 5.75%, 7/1/16 (FSA)(2) 1,191 1,000 Florida Municipal Loan Council, Series 2002 C, 5.25%, 11/1/21 (MBIA)(2) 1,066 1,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/16 1,057 1,000 Halifax Hospital Medical Center Rev., Series 2006 A, 5.25%, 6/1/18(2) 1,046 1,235 Indian River County Rev., (Spring Training Facility), 5.25%, 4/1/15 (FGIC)(2) 1,318 850 Lee County Industrial Development Auth. Healthcare Facilities Rev., Series 1999 A, (Shell Point Village), 5.50%, 11/15/09(1) 885 1,000 Miami Beach Stormwater Rev., 5.75%, 9/1/17 (FGIC)(2) 1,072 1,910 Miami Beach Water & Sewer Rev., 5.625%, 9/1/16 (Ambac)(2) 2,041 650 Miami Parking Facilities Rev., 5.25%, 10/1/15 (MBIA) 718 - ------ 17 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 1,000 Miami-Dade County School Board COP, Series 2001 C, 5.50%, 10/1/11, Prerefunded at 100% of Par (FSA)(1)(2) $ 1,081 1,875 Orange County School Board COP, Series 2002 A, 5.50%, 8/1/12, Prerefunded at 100% of Par (MBIA)(1) 2,054 450 Orlando and Orange County Expressway Auth. Rev., (Junior Lien) 6.50%, 7/1/11 (FGIC) 497 1,000 Orlando Utilities Commission Water & Electric Rev., Series 1989 D, 6.75%, 10/1/17(1) 1,193 1,000 Sumter County School Board COP, 5.50%, 7/2/12, Prerefunded at 100% of Par (MBIA)(1) 1,094 1,000 Sunrise Utility System Rev., 5.20%, 10/1/22 (Ambac) 1,090 400 Tampa Guaranteed Entitlement Rev., 6.00%, 10/1/18 (Ambac) 457 1,000 Tampa Water & Sewer Rev., 6.00%, 10/1/17 (FSA) 1,185 -------- 22,141 -------- GEORGIA -- 0.8% 2,100 Douglasville-Douglas County Water & Sewer Auth. Rev., 5.00%, 6/1/22 (MBIA)(2) 2,248 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)(2) 1,353 255 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/09, Prerefunded at 100% of Par (MBIA-IBC/GO of Participants)(1) 260 20 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/11, Prerefunded at 100% of Par (MBIA-IBC)(1) 21 615 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC) 658 110 Georgia Municipal Electric Power Auth. Rev., Series 1991 V, 6.50%, 1/1/12 (MBIA-IBC)(1) 120 2,185 Paulding County GO, (Courthouse - Government Complex), 5.00%, 2/1/32 (FGIC) 2,286 -------- 6,946 -------- Principal Amount ($ IN THOUSANDS) Value GUAM -- 0.5% $ 2,500 Guam Government GO, Series 2007 A, 5.00%, 11/15/23(2) $ 2,380 2,500 Guam Government GO, Series 2007 A, 5.125%, 11/15/27(2) 2,358 -------- 4,738 -------- HAWAII -- 0.2% 1,000 Honolulu City & County GO, Series 2007 A, 5.00%, 7/1/19 (FSA)(2) 1,087 500 Maui County GO, Series 2000 A, 6.50%, 3/1/10, Prerefunded at 101% of Par (FGIC)(1) 540 -------- 1,627 -------- IDAHO -- 0.1% 1,000 Blaine County Hailey School District No. 61 GO, 5.00%, 7/30/10 (Ambac/School Bond Guarantee)(2) 1,048 -------- ILLINOIS -- 3.7% 2,000 Bedford Park GO, Series 2004 A, 5.25%, 12/15/20 (FSA)(2) 2,178 4,000 Chicago O'Hare International Airport Rev., Series 1993 A, (Senior Lien), 5.00%, 1/1/12 (MBIA-IBC)(2) 4,223 1,015 City of Chicago Rev., Series 2006 A, 5.00%, 11/1/13 (Ambac)(2) 1,100 4,915 Cook County Township High School District No. 211 GO, (Palatine & Schaumburg Townships), 5.00%, 12/1/10 (FSA)(2) 5,163 2,000 Illinois Dedicated Tax Rev., (Civic Center), 6.25%, 12/15/20 (Ambac)(2) 2,369 595 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.00%, 5/15/08 599 655 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.125%, 5/15/10 677 400 Illinois Development Finance Auth. Rev., Series 2001 B, (Midwestern University), 5.75%, 5/15/11, Prerefunded at 101% of Par(1) 436 1,775 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/09 1,784 - ------ 18 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 2,785 Illinois Finance Auth. Student Housing Rev., Series 2006 B, (Educational Advancement Fund, Inc.), 5.00%, 5/1/11 $ 2,813 1,140 Illinois Health Facilities Auth. Rev., Series 1992 C, (Evangelical Hospital), 6.75%, 4/15/12(1)(2) 1,232 1,000 Illinois Regional Transportation Auth. Rev., Series 1990 A, 7.20%, 11/1/20 (Ambac) 1,230 930 Kane County Community Unit School District No. 304 GO, 6.20%, 1/1/24 (FSA) 1,060 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)(1) 1,141 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)(1) 1,263 75 Ogle Lee & De Kalb Counties Township High School District No. 212 GO, 6.00%, 12/1/18 (MBIA) 82 1,000 Southwestern Illinois Development Auth. Rev., (Triad School District No. 2), 5.00%, 10/1/18 (MBIA/GO of District) 1,084 1,250 Town of Cicero GO, Series 2005 A, 5.25%, 1/1/20 (XLCA)(2) 1,345 1,000 Town of Cicero GO, Series 2005 A, 5.25%, 1/1/21 (XLCA)(2) 1,072 1,000 University of Illinois COP, (Utility Infrastructure), 5.75%, 8/15/08 (MBIA) 1,016 1,000 University of Illinois COP, Series 2006 A, (Academic Facilities), 5.00%, 3/15/16 (Ambac) 1,085 -------- 32,952 -------- INDIANA -- 4.3% 25,000 Franklin Economic Development Rev., (The Franklin United Methodist Home, Inc.), VRDN, 6.25%, 12/6/07 (RADIAN) (SBBPA: Fifth Third Bank)(2) 25,000 1,000 Hamilton Southeastern Consolidated School Building Corp. Rev., (Hamilton County), 4.25%, 7/15/20 (FSA/State Aid Withholding)(2) 1,006 Principal Amount ($ IN THOUSANDS) Value $ 1,520 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/17 (FSA)(2) $ 1,654 1,600 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/18 (FSA)(2) 1,731 1,680 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/19 (FSA)(2) 1,806 220 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/11, Prerefunded at 100% of Par(1) 240 780 Indiana Transportation Finance Auth. Rev., Series 1990 A, 7.25%, 6/1/15 918 1,435 Indianapolis Local Public Improvement Bond Bank Rev., Series 2002 A, 5.00%, 7/1/12 (MBIA)(2) 1,533 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)(1)(2) 1,627 1,650 Valparaiso Middle Schools Building Corp. Rev., (First Mortgage), 5.75%, 7/15/11, Prerefunded at 100% of Par (FGIC)(1) 1,790 1,000 Zionsville Community Schools Building Corp., (First Mortgage), 5.75%, 1/15/12, Prerefunded at 100% of Par (FGIC/State Aid Withholding)(1) 1,094 -------- 38,399 -------- IOWA -- 0.6% 2,000 Iowa Finance Auth. Health Facilities Development Rev., Series 2006 A, (Care Initiatives), 5.25%, 7/1/14(2) 2,054 1,485 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/13(2) 1,526 1,690 Iowa Finance Auth. Rev., Series 2006 A, (Development Care Initiatives), 5.25%, 7/1/16(2) 1,727 -------- 5,307 -------- - ------ 19 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value KANSAS -- 0.3% $ 1,280 Wichita Hospital Facilities Rev., Series 2001 III, 5.25%, 11/15/13 $ 1,347 1,195 Wichita Hospital Facilities Rev., Series 2001 III, 5.50%, 11/15/16 1,258 -------- 2,605 -------- LOUISIANA -- 2.1% 1,495 City of Monroe Sales Tax Increment Rev., (Tower Drive Economic Development) 5.00%, 3/1/21 (RADIAN)(2) 1,498 1,740 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Ascension Parish Library), 5.25%, 4/1/23 (Ambac) 1,856 5,000 Louisiana Local Government Environmental Facilities & Community Development Auth. Rev., (Recreational Facilities, Inc.), 5.25%, 10/1/27 (Ambac)(2) 5,342 1,105 Louisiana Public Facilities Auth. Rev., Series 2006 A, (Black & Gold Facilities), 4.00%, 7/1/13 (CIFG)(2) 1,117 1,205 Louisiana Public Facilities Auth. Rev., Series 2006 A, (Black & Gold Facilities), 5.00%, 7/1/15 (CIFG)(2) 1,287 1,465 Louisiana Public Facilities Auth. Rev., Series 2007 A, (Black & Gold Facilities), 5.00%, 7/1/22 (CIFG)(3) 1,512 6,000 Louisiana Public Facilities Auth. Rev., Series 2007 A, (Black & Gold Facilities), 5.00%, 7/1/32 (CIFG)(3) 6,074 -------- 18,686 -------- MAINE -- 0.4% 3,000 Maine Health & Higher Educational Facilities Auth. Rev., Series 2007 B, 5.00%, 7/1/37 (FGIC) 3,119 -------- MARYLAND -- 2.5% 10,000 Maryland GO, First Series 2005 A, (State and Local Facilities Loan), 5.25%, 2/15/15(2) 11,167 10,000 Maryland GO, Second Series 2005 A, (State and Local Facilities Loan), 5.00%, 8/1/11(2) 10,623 -------- 21,790 -------- Principal Amount ($ IN THOUSANDS) Value MASSACHUSETTS -- 2.2% $10,000 Commonwealth of Massachusetts GO, Series 2002 C, (Consolidated Loan of 2002), 5.50%, 11/1/12 (FSA)(2) $ 10,989 1,410 Massachusetts Development Finance Agency Rev., Series 2007 A, 5.00%, 10/1/25 (MBIA)(2) 1,495 1,550 Massachusetts Development Finance Agency Rev., Series 2007 A, 5.00%, 10/1/27 (MBIA)(2) 1,636 1,855 Massachusetts Development Finance Agency Rev., Series 2007 C, 5.00%, 10/1/17(2) 1,922 2,500 Massachusetts GO, Series 2006 D, 5.00%, 8/1/14(2) 2,722 760 Massachusetts Health & Educational Facilities Auth. Rev., Series 1992 F, 6.25%, 7/1/12 (Ambac) 810 -------- 19,574 -------- MICHIGAN -- 4.6% 3,500 Detroit GO, Series 2004 A-1, 5.25%, 4/1/23 (Ambac)(2) 3,699 1,485 Grand Valley State University Rev., 5.75%, 12/1/10, Prerefunded at 100% of Par (FGIC)(1)(2) 1,591 1,265 Kalamazoo Public Schools GO, 4.00%, 5/1/13 (FSA)(2) 1,302 1,545 Kalamazoo Public Schools GO, 5.25%, 5/1/16 (FSA)(2) 1,720 5,000 Michigan Building Auth. Rev., Series 2003 I, (Facilities Program), 5.25%, 10/15/11 (FSA)(2) 5,355 2,345 Michigan Higher Education Facilities Auth. Rev., (Limited Obligation -- Hillsdale College), 5.00%, 3/1/26 2,380 1,450 Michigan Higher Education Facilities Auth. Rev., (Limited Obligation -- Kalamazoo College), 5.00%, 12/1/33 1,454 1,070 Pontiac City School District GO, 5.00%, 5/1/13 (XLCA) 1,153 1,110 Pontiac City School District GO, 5.00%, 5/1/14 (XLCA) 1,206 1,260 Pontiac City School District GO, 5.00%, 5/1/15 (XLCA) 1,376 1,425 Pontiac City School District GO, 5.00%, 5/1/16 (XLCA) 1,559 1,595 Pontiac City School District GO, 5.00%, 5/1/17 (XLCA) 1,735 - ------ 20 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 575 Taylor GO, 5.00%, 9/1/11 (MBIA) $ 610 2,010 Wayne Charter County Airport Rev., Series 2002 C, 5.00%, 12/1/11 (FGIC) 2,117 2,215 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/13 (FGIC) 2,380 2,335 Wayne Charter County Airport Rev., Series 2002 C, 5.375%, 12/1/14 (FGIC) 2,501 3,000 Wayne County Airport Auth. Rev., (Detroit Metropolitan Airport), 5.00%, 12/1/18 (FGIC) 3,206 2,000 Wayne County Airport Auth. Rev., (Detroit Metropolitan Airport), 5.00%, 12/1/19 (FGIC) 2,125 2,895 Wayne County Airport Auth. Rev., (Detroit Metropolitan Airport), 5.00%, 12/1/21 (FGIC) 3,048 -------- 40,517 -------- MINNESOTA -- 0.3% 1,500 Minnesota Higher Education Facilities Auth. Rev., Series 2005-6G, (Saint John University), 5.00%, 10/1/12 1,579 1,000 Minnesota Municipal Electric Power Agency Rev., 5.00%, 10/1/27(3) 1,043 -------- 2,622 -------- MISSISSIPPI -- 2.1% 1,150 Harrison County School District GO, 5.00%, 10/1/24 (FSA)(2) 1,225 1,000 Mississippi Development Bank Special Obligation Rev., (Pearl Capital Projects and Equipment Prepayment), 5.25%, 7/1/26 (FSA)(2) 1,061 1,550 Mississippi Development Bank Special Obligation Rev., (Scott County Public Improvement), 5.00%, 11/1/25 (Ambac)(2) 1,629 1,510 Mississippi Development Bank Special Obligation Rev., (Scott County Public Improvement), 5.00%, 11/1/27 (Ambac)(2) 1,579 1,565 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Biloxi, Mississippi), 5.00%, 11/1/15 (Ambac)(2) 1,712 Principal Amount ($ IN THOUSANDS) Value $ 1,645 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Biloxi, Mississippi), 5.00%, 11/1/16 (Ambac)(2) $ 1,801 1,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Municipal Energy Agency Power Supply), 5.00%, 3/1/17 (XLCA)(2) 1,061 4,620 Mississippi Development Bank Special Obligation Rev., Series 2007 A, 5.00%, 7/1/19 (Ambac)(2) 5,061 1,195 University of Southern Mississippi Rev., Series 2006 A, 5.00%, 3/1/17 (FSA) 1,299 1,940 University of Southern Mississippi Rev., Series 2006 A, 5.00%, 3/1/18 (FSA) 2,100 -------- 18,528 -------- MISSOURI -- 1.8% 1,425 Jackson County Public Building Corp. Rev., Series 2006 A, (Capital Improvements), 5.00%, 12/1/15 (MBIA) 1,561 2,775 Missouri Development Finance Board, Series 2000 A, (Midtown Redevelopment), 5.75%, 4/1/10, Prerefunded at 100% of Par (MBIA)(1)(2) 2,929 2,415 Missouri Health & Educational Facilities Auth. Rev., Series 1998 A, (Park Lane Medical Center), 5.60%, 1/1/15 (MBIA)(1)(2) 2,572 3,145 Missouri Joint Municipal Electric Utility Commission Rev., (Plum Point), 5.00%, 1/1/16 (MBIA)(2) 3,403 3,030 Missouri State Highways & Transit Commission Rev., Series 2006 A, 5.00%, 5/1/13(2) 3,282 1,000 Platte County Industrial Development Auth. Transportation Rev., (Zona Rosa Retail Project), 5.00%, 12/1/32 (CNTY GTD) 1,032 1,000 St. Louis Municipal Finance Corp. Rev., Series 2006 A, (Carnahan Courthouse), 4.00%, 2/15/17 (Ambac) 1,014 -------- 15,793 -------- - ------ 21 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value NEBRASKA -- 0.7% $ 3,260 Omaha Public Power District Electric System Rev., Series 2007 A, 4.00%, 2/1/18 $ 3,253 3,000 Omaha Public Power District Electric System Rev., Series 2007 A, 5.00%, 2/1/21 3,191 -------- 6,444 -------- NEVADA -- 0.6% 1,410 Clark County Economic Development Rev., (University of Southern Nevada), 5.00%, 4/1/27 (RADIAN)(2) 1,362 1,550 Reno Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(1) 1,692 1,865 Reno Sales and Room Tax Rev., (ReTrac-Reno Transportation Rail Access Corridor), 5.50%, 6/1/12, Prerefunded at 100% of Par (Ambac)(1) 2,036 -------- 5,090 -------- NEW HAMPSHIRE -- 1.9% 9,890 New Hampshire Health & Education Facilities Auth. Rev., (Wentworth-Douglass Hospital), VRDN, 6.00%, 12/3/07 (RADIAN) (SPPBA: Fleet National Bank) 9,890 1,660 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/11(2) 1,703 680 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/12 698 1,030 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/13 1,059 3,000 New Hampshire Health & Education Facilities Auth. Rev., Series 2004 A, (Kendal at Hanover), 5.00%, 10/1/18 3,030 -------- 16,380 -------- NEW JERSEY -- 4.0% 4,235 New Jersey Transit Corporation COP, 5.00%, 10/1/12 (FSA)(2) 4,520 5,595 New Jersey Transit Corporation COP, 5.00%, 10/1/13 (FSA)(2) 6,025 Principal Amount ($ IN THOUSANDS) Value $ 7,400 New Jersey Transportation Trust Fund Auth. Rev., Series 2004 B, 5.25%, 12/15/12 (FGIC)(2) $ 8,038 15,000 New Jersey Transportation Trust Fund Auth. Rev., Series 2006 A, 5.25%, 12/15/20(2) 16,689 -------- 35,272 -------- NEW MEXICO -- 1.9% 2,340 City of Clayton Rev., (Jail Project), 5.00%, 11/1/10 (CIFG)(2) 2,432 6,675 Los Alamos County Inc. Rev., Series 2004 A, 5.00%, 7/1/11 (FSA)(2) 7,064 1,425 New Mexico Finance Auth. Rev., Series 2007 E, (Senior Lien Public Project Revolving Fund), 5.00%, 6/1/21 (MBIA) 1,528 1,925 New Mexico Finance Auth. Rev., Series 2007 E, (Senior Lien Public Project Revolving Fund), 5.00%, 6/1/25 (MBIA) 2,030 2,150 New Mexico Finance Auth. Rev., Series 2007 E, (Senior Lien Public Project Revolving Fund), 5.00%, 6/1/29 (MBIA) 2,255 1,415 San Juan County Gross Receipts Tax Rev., Series 2001 A, 5.75%, 9/15/11, Prerefunded at 101% of Par (Ambac)(1) 1,552 -------- 16,861 -------- NEW YORK -- 3.1% 2,975 City of New York GO, Series 2002 B, 5.25%, 8/1/09 (CIFG) 3,068 2,885 City of New York GO, Series 2002 C, 5.25%, 8/1/09 (CIFG) 2,975 5,000 City of New York GO, Series 2003 I, 5.75%, 3/1/13, Prerefunded at 100% of Par(1)(2) 5,592 5,195 City of New York GO, Series 2004 D, 5.00%, 11/1/17 (FSA)(2) 5,643 4,000 City of New York GO, Series 2006 J1, 5.00%, 6/1/18 4,258 2,000 New York City Transitional Finance Auth. Rev., Series 2005 A1, 5.00%, 11/1/10 2,102 1,440 New York Dormitory Auth. Rev., Series 1990 A, (UNIC Educational Facilities), 7.50%, 5/15/13 (MBIA-IBC) 1,727 - ------ 22 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 1,000 New York Dormitory Auth. Rev., Series 2005 F, 5.00%, 3/15/12 (FSA) $ 1,067 1,000 Niagara Falls Bridge Commission Toll Rev., Series 1993 B, 5.25%, 10/1/15 (FGIC) 1,074 -------- 27,506 -------- NORTH CAROLINA -- 2.7% 1,000 Charlotte Airport Rev., Series 2004 A, 5.25%, 7/1/24 (MBIA)(2) 1,054 2,060 Greensboro Rev., (Combined Enterprise System), 5.25%, 6/1/20(2) 2,330 2,095 North Carolina Capital Facilities Finance Agency Student Housing Rev., Series 2004 B, (The NCA&T University Foundation, LLC), VRDN, 6.00%, 12/6/07 (RADIAN) (SBBPA: Wachovia Bank N.A.) 2,095 3,190 North Carolina Medical Care Commission Hospital Rev., (Wilson Medical Center), 5.25%, 11/1/18 3,382 4,150 North Carolina Medical Care Commission Hospital Rev., Series 2004 A, (Health Care Housing - ARC Projects), 5.50%, 10/1/24 4,206 2,500 North Carolina Medical Care Commission Retirement Facilities Rev., Series 2007 A, (Southminster), 5.625%, 10/1/27 2,469 1,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., 6.00%, 1/1/10 (MBIA) 1,056 2,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 2003 A, 5.50%, 1/1/13 2,134 5,000 University of North Carolina at Chapel Hill Rev., 5.00%, 12/1/36(3) 5,276 -------- 24,002 -------- NORTH DAKOTA -- 0.2% 1,500 Grand Forks Health Care System Rev., (Altru Health System Obligation Group), 7.125%, 8/15/10, Prerefunded at 101% of Par(1)(2) 1,657 -------- Principal Amount ($ IN THOUSANDS) Value OHIO -- 3.1% $10,000 Buckeye Tobacco Settlement Financing Auth. Rev., Series 2007 A-2, (Asset-Backed Senior Current Interest Turbo Term), 6.50%, 6/1/47(2) $ 10,302 1,150 Mad River Local School District GO, (Classroom Facilities), 5.75%, 12/1/12, Prerefunded at 100% of Par (FGIC)(1)(2) 1,280 1,700 Milford Exempt Village School District GO, (School Improvement), 6.00%, 12/1/11, Prerefunded at 100% of Par (FSA)(1)(2) 1,874 1,005 Ohio GO, Series 2005 A, (Infrastructure Improvement), 5.00%, 9/1/11 1,067 1,365 Ohio GO, Series 2005 A, (Infrastructure Improvement), 5.00%, 9/1/12 1,466 750 Ohio Higher Educational Facility Commission Rev., Series 1990 B, (Case Western Reserve University), 6.50%, 10/1/20 909 5,895 Ohio Water Development Auth. Rev., (Water Pollution Control Loan Fund), 5.00%, 12/1/13(2) 6,420 1,505 Summit County GO, 5.75%, 12/1/12, Prerefunded at 101% of Par (FGIC)(1) 1,688 1,550 Tri Valley Local School District GO, 5.75%, 6/1/12, Prerefunded at 100% of Par (FGIC)(1) 1,709 300 Trumbull County Health Care Facilities Rev., (Shepherd of the Valley Lutheran Retirement Services, Inc.), VRDN, 5.15%, 12/3/07 (RADIAN) (SBBPA: Fleet National Bank) 300 27,015 -------- OKLAHOMA -- 1.5% 1,000 Comanche County Hospital Auth. Rev., 5.00%, 7/1/11 (RADIAN)(2) 1,027 1,525 Comanche County Hospital Auth. Rev., 5.00%, 7/1/12 (RADIAN)(2) 1,569 1,730 Durant Community Facilities Auth. GO, 5.75%, 11/1/24 (XLCA)(2) 1,909 - ------ 23 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 1,300 Oklahoma County Finance Auth. Rev., (Western Heights Public Schools), 4.00%, 9/1/10 (Assured Guaranty) $ 1,326 1,610 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/13 1,680 1,730 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/14 1,800 1,710 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/15 1,773 2,130 Pottawatomie County Facilities Auth. Rev., (Shawnee Public Schools), 5.00%, 9/1/16 2,201 -------- 13,285 -------- OREGON -- 1.0% 2,015 Clackamas County School District No. 62 GO, 5.50%, 6/15/10 (School Bond Guarantee)(2) 2,126 2,000 Cow Creek Band of Umpqua Tribe of Indians Rev., Series 2006 C, 5.625%, 10/1/26 (Acquired 6/9/06, Cost $2,000)(4) 1,940 4,750 Tri-County Metropolitan Transportation District Rev., (Payroll Tax & Grant Receipt), 4.00%, 5/1/14 (MBIA)(2) 4,783 -------- 8,849 -------- PENNSYLVANIA -- 5.9% 2,250 Allegheny County Industrial Development Auth. Rev., (Residential Resources, Inc.), 4.75%, 9/1/14 2,263 2,500 Allegheny County Redevelopment Auth. Tax Allocation, (Pittsburgh Mills), 5.10%, 7/1/14 2,508 1,150 Central Dauphin School District GO, 7.00%, 2/1/16, Prerefunded at 100% of Par (MBIA/State Aid Withholding)(1)(2) 1,425 15,805 City of Pittsburgh GO, Series 2006 B, 5.25%, 9/1/16 (FSA)(2) 17,662 1,160 City of Scranton Parking Auth. Rev., 5.00%, 6/1/17 (RADIAN) 1,194 2,580 East Stroudsburg Area School District GO, 7.75%, 9/1/16, Prerefunded at 100% of Par (FSA/State Aid Withholding)(1) 3,370 Principal Amount ($ IN THOUSANDS) Value $ 1,155 Exeter Township GO, 5.25%, 7/15/15 (Ambac)(2) $ 1,282 1,830 Exeter Township GO, 5.30%, 7/15/19 (Ambac)(2) 2,059 5,000 Geisinger Auth. Health System Rev., VRDN, 4.06%, 2/1/08, resets quarterly at 67% of the 3-month LIBOR plus 0.77% with no caps(2) 5,000 1,000 Oxford Area School District GO, Series 2001 A, 5.50%, 2/15/12, Prerefunded at 100% of Par (FGIC/State Aid Withholding)(1) 1,087 1,125 Pennsylvania GO, 5.375%, 7/1/18 (FSA) 1,278 1,000 Pennsylvania Higher Educational Facilties Auth. Rev., (Philadelphia University), 5.00%, 6/1/22 1,012 2,975 Philadelphia School District GO, Series 2002 A, 5.25%, 2/1/11 (FSA/State Aid Withholding) 3,154 2,570 Scranton Parking Auth. Rev., 5.00%, 6/1/22 (RADIAN) 2,597 1,300 Scranton Parking Auth. Rev., 5.25%, 6/1/27 (RADIAN) 1,319 4,500 Westmoreland County Municipal Auth. Rev., 5.25%, 8/15/15, Prerefunded at 100% of Par (FSA)(1) 5,029 -------- 52,239 -------- PUERTO RICO -- 2.2% 2,500 Puerto Rico GO, Series 2006 A, 5.25%, 7/1/22 2,586 3,000 Puerto Rico GO, Series 2006 A, 5.25%, 7/1/26 3,063 5,000 Puerto Rico GO, Series 2006 B, 5.25%, 7/1/17(2) 5,298 575 Puerto Rico Highway & Transportation Auth. Rev., Series 2007 CC, 5.00%, 7/1/14 606 2,000 Puerto Rico Infrastructure Financing Auth. Special Tax Rev., Series 2006 B, 5.00%, 7/1/13 2,097 3,700 Puerto Rico Municipal Finance Agency GO, Series 2005 A, 5.00%, 8/1/11 3,856 2,000 Puerto Rico, Series 2006 B, 5.00%, 12/1/16 2,101 -------- 19,607 -------- - ------ 24 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value RHODE ISLAND -- 0.5% $ 1,000 Cranston GO, 6.375%, 11/15/09, Prerefunded at 101% of Par (FGIC)(1)(2) $ 1,068 2,000 Rhode Island Depositors Economic Protection Corp. Special Obligation Rev., Series 1993 A, 6.25%, 8/1/16 (MBIA)(1) 2,388 1,265 Rhode Island Health & Educational Building Corp., 5.00%, 10/1/17 (RADIAN) 1,287 -------- 4,743 -------- SOUTH CAROLINA -- 3.2% 5,455 Charleston Educational Excellence Finance Corp. Rev., (Charleston County School District), 5.00%, 12/1/19(2) 5,778 1,700 Florence Water & Sewer Rev., 7.50%, 3/1/18 (Ambac)(2) 1,860 1,060 Kershaw County Rev., (School Improvements), 5.00%, 12/1/17 (CIFG)(2) 1,129 2,260 Kershaw County Rev., (School Improvements), 5.00%, 12/1/18 (CIFG)(2) 2,394 2,000 Kershaw County Rev., (School Improvements), 5.00%, 12/1/19 (CIFG)(2) 2,107 3,000 Kershaw County Rev., (School Improvements), 5.00%, 12/1/20 (CIFG)(2) 3,147 2,300 Lancaster Educational Assistance Program Inc. Rev., (School District Lancaster County), 5.00%, 12/1/26(2) 2,275 3,500 Laurens County School District No. 55 Rev., 5.25%, 12/1/30(2) 3,509 625 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC)(1) 789 875 Piedmont Municipal Power Agency Rev., 6.75%, 1/1/19 (FGIC) 1,079 140 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1) 168 375 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC) 445 485 Piedmont Municipal Power Agency Rev., Series 1991 A, 6.50%, 1/1/16 (FGIC)(1) 583 Principal Amount ($ IN THOUSANDS) Value $ 1,095 Spartanburg County Health Services District Inc. Hospital Rev., 5.50%, 4/15/16 (FSA) $ 1,166 1,345 Sumter Waterworks and Sewer System Improvement Rev., 5.00%, 12/1/22 (XLCA) 1,442 -------- 27,871 -------- TENNESSEE -- 0.4% 3,730 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 A, (Campus Development Foundation, Inc. Phase I LLC), 5.00%, 10/1/15 3,755 -------- TEXAS -- 5.6% 1,000 Canadian River Municipal Water Auth. Rev., (Conjunctive Use Groundwater), 5.00%, 2/15/19 (Ambac) 1,072 2,035 Cash Special Utility District Rev., 5.25%, 9/1/24 (MBIA)(2) 2,168 340 Clint Independent School District GO, (Unlimited Tax School Building and Refunding Bonds), 6.00%, 2/15/11, Prerefunded at 100% of Par (PSF-GTD)(1) 368 1,475 Clint Independent School District GO, (Unlimited Tax School Building and Refunding Bonds), 6.00%, 2/15/17 (PSF-GTD)(2) 1,591 500 Corpus Christi Independent School District GO, 4.00%, 8/15/13 (PSF-GTD) 500 2,000 Donna Independent School District GO, 5.00%, 2/15/15 (PSF-GTD)(2) 2,180 1,115 Edcouch-Elsa Independent School District GO, 5.00%, 2/15/14 (PSF-GTD)(2) 1,209 400 Garza County Public Facility Corp. Rev., 4.75%, 10/1/08 400 420 Garza County Public Facility Corp. Rev., 4.75%, 10/1/09 420 585 Garza County Public Facility Corp. Rev., 4.75%, 10/1/10 585 610 Garza County Public Facility Corp. Rev., 5.00%, 10/1/11 614 2,015 Garza County Public Facility Corp. Rev., 5.00%, 10/1/13(2) 2,016 1,115 Garza County Public Facility Corp. Rev., 5.25%, 10/1/14(2) 1,129 1,225 Garza County Public Facility Corp. Rev., 5.25%, 10/1/15(2) 1,236 - ------ 25 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 1,145 Garza County Public Facility Corp. Rev., 5.25%, 10/1/16(2) $ 1,152 1,000 Garza County Public Facility Corp. Rev., 5.50%, 10/1/16(2) 1,023 1,000 Gregg County Health Facilities Development Corp. Rev., Series 2006 A, (Good Shepherd Medical Center), 5.00%, 10/1/16(2) 1,021 655 Harris County Housing Finance Corporation Rev., (Las Americas Apartments), 4.90%, 3/1/11 (FNMA) 666 2,300 Hays Consolidated Independent School District GO, 5.20%, 8/15/11 (PSF-GTD)(5) 2,019 700 Hays Consolidated Independent School District GO, 5.20%, 8/15/11 (PSF-GTD)(1)(5) 615 1,750 Hidalgo County GO, 5.50%, 8/15/12, Prerefunded at 100% of Par (FGIC)(1)(2) 1,917 1,295 Hidalgo County GO, 5.50%, 8/15/12, Prerefunded at 100% of Par (FGIC)(1)(2) 1,419 4,730 Houston Combined Utility System Rev., (First Lien), 5.00%, 11/15/35 (FSA)(2) 4,911 1,500 Houston Water & Sewer System Rev., Series 1997 C, (Junior Lien), 5.375%, 12/1/07, Prerefunded at 101% of Par (FGIC)(1)(2) 1,515 1,630 Live Oak GO, 5.25%, 8/1/22 (MBIA)(2) 1,749 1,000 Lubbock Health Facilities Development Corp. Rev., (Lutheran Retirement), 6.00%, 3/20/29 (GNMA)(2) 1,059 1,740 Montgomery County GO, 5.50%, 3/1/14 (Ambac)(2) 1,941 550 Pasadena Independent School District GO, Series 2001 A, 6.05%, 2/15/16 (PSF-GTD) 641 1,500 Pearland Independent School District GO, 6.00%, 2/15/09, Prerefunded at 100% of Par (PSF-GTD)(1) 1,548 2,000 San Antonio Electric and Gas Rev., 7.10%, 2/1/09 (FGIC)(1)(5) 1,921 2,120 Southside Independent School District GO, Series 2004 A, 5.25%, 8/15/25 (PSF-GTD) 2,254 Principal Amount ($ IN THOUSANDS) Value $ 1,000 Tarrant County Cultural Education Facilities Finance Corp. Retirement Facility Rev., (Air Force Village Obligated Group), 5.00%, 5/15/16 $ 1,020 650 Texas Public Finance Auth. Building Rev., (Technical College), 6.25%, 8/1/09 (MBIA) 671 1,000 Texas Public Finance Auth. Charter School Finance Corp. Rev., Series 2006 A, (KIPP, Inc.), 5.25%, 2/15/14 (ACA) 1,017 1,000 Travis County Health Facilities Development Corp. Rev., Series 1999 A, (Ascension Health Credit), 5.875%, 11/15/09, Prerefunded at 101% of Par (Ambac)(1) 1,058 1,265 West Oso Independent School District GO, 5.50%, 8/15/13, Prerefunded at 100% of Par (PSF-GTD)(1) 1,404 1,000 Williamson County GO, Series 2004 A, (Unlimited Tax Road & Refunding Bonds), 5.00%, 2/15/19 (MBIA) 1,096 -------- 49,125 -------- U.S. VIRGIN ISLANDS -- 0.4% 2,000 Virgin Islands Public Finance Auth. Rev., Series 1998 A, (Senior Lien), 5.20%, 10/1/09 2,040 1,500 Virgin Islands Water & Power Auth. Electric System Rev., Series 2007 A, 5.00%, 7/1/24 1,518 -------- 3,558 -------- UTAH -- 1.6% 1,000 Salt Lake City Hospital Rev., Series 1988 A, (Intermountain Health Corporation), 8.125%, 5/15/15(1) 1,156 1,495 Utah County Municipal Building Auth. Lease Rev., 5.00%, 11/1/09 (Ambac)(1) 1,543 1,820 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1) 1,951 1,915 Utah County Municipal Building Auth. Lease Rev., 5.25%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1) 2,053 1,000 Utah County Municipal Building Auth. Lease Rev., 5.50%, 11/1/11, Prerefunded at 100% of Par (Ambac)(1) 1,081 - ------ 26 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value $ 3,155 Utah State Board of Regents Hospital Rev., Series 2006 A, (University of Utah), 5.25%, 8/1/21 (MBIA) $ 3,475 1,130 West Valley City Municipal Building Auth. Lease Rev., Series 2002 A, 5.00%, 8/1/10 (Ambac) 1,181 1,305 West Valley City Utility Sales Tax Rev., Series 2001 A, 5.50%, 7/15/11, Prerefunded at 100% of Par (MBIA)(1) 1,404 -------- 13,844 -------- VERMONT -- 0.5% 4,290 University of Vermont & State Agricultural College GO, 5.00%, 10/1/19 (Ambac)(2) 4,652 -------- VIRGINIA -- 0.5% 1,500 Fairfax County COP, 5.30%, 4/15/23(2) 1,575 1,115 Pittsylvania County GO, Series 2001 B, 5.75%, 3/1/18 (MBIA/State Aid Withholding) 1,210 1,510 Virginia Resources Auth. Infrastructure Rev., Series 2005 C, (Virginia Pooled Financing Program), 5.00%, 11/1/30 1,577 -------- 4,362 -------- WASHINGTON -- 5.6% 1,000 Benton County Public Utility District No. 1 Rev., Series 2001 A, 5.625%, 11/1/19 (FSA)(2) 1,072 1,000 Cowlitz County Kelso School District No. 458 GO, 5.75%, 12/1/18 (FSA/School Bond Guarantee)(2) 1,087 1,750 Energy Northwest Rev., 4.75%, 7/1/20 (MBIA) 1,816 3,500 Energy Northwest Rev., Series 2002 A, (Columbia Generating), 5.75%, 7/1/18 (MBIA)(2) 3,801 10,000 Energy Northwest Rev., Series 2002 B, (Columbia Generating), 6.00%, 7/1/18 (Ambac)(2) 10,963 1,555 King County Lake Washington School District No. 414 GO, 5.75%, 12/1/12, Prerefunded at 100% of Par(1) 1,731 Principal Amount ($ IN THOUSANDS) Value $ 1,000 King County Public Hospital District No. 2 GO, (Evergreen Healthcare), 5.00%, 12/1/14 (MBIA) $ 1,080 1,000 Kitsap County School District No. 303 Bainbridge Island GO, 5.00%, 12/1/17 (MBIA/School Bond Guarantee) 1,087 1,260 Mason County Shelton School District No. 309 GO, 5.625%, 12/1/11, Prerefunded at 100% of Par (FGIC/School Bond Guarantee)(1) 1,371 1,000 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (Ambac)(1) 1,102 1,120 Metropolitan Park District of Tacoma GO, 6.00%, 12/1/11, Prerefunded at 100% of Par (Ambac)(1) 1,235 6,715 Snohomish County Edmonds School District No. 15 GO, 5.00%, 12/1/17 (FGIC/School Bond Guarantee) 7,249 1,720 University of Washington Rev., (Student Facilities Fee), 5.875%, 6/1/10, Prerefunded at 101% of Par (FSA)(1) 1,844 1,000 Washington GO, Series 1990 A, 6.75%, 2/1/15 1,148 1,935 Washington Higher Education Facilities Auth. Rev., (Pacific Lutheran University), 5.00%, 11/1/22 (RADIAN) 1,921 1,895 Washington Higher Education Facilities Auth. Rev., (Pacific Lutheran University), 5.00%, 11/1/23 (RADIAN) 1,870 1,290 Washington Higher Education Facilities Auth. Rev., (Pacific Lutheran University), 5.00%, 11/1/24 (RADIAN) 1,265 4,570 Washington Public Power Supply System Rev., Series 1998 A, (Nuclear Project No. 2), 5.00%, 7/1/12 (FSA) 4,702 1,500 Whitman County Pullman School District No. 267 GO, 5.625%, 12/1/16 (FSA/School Bond Guarantee) 1,635 1,675 Yakima County School District No. 208 West Valley GO, 5.00%, 12/1/18 (MBIA/School Bond Guarantee) 1,816 -------- 49,795 -------- - ------ 27 Tax-Free Bond Principal Amount ($ IN THOUSANDS) Value WISCONSIN -- 0.6% $ 1,990 Wisconsin Clean Water Rev., 6.875%, 6/1/11 $ 2,155 2,590 Wisconsin Health & Educational Facilities Auth. Rev., (Aurora Medical Group), 6.00%, 11/15/10 (FSA) 2,782 750 Wisconsin Health & Educational Facilities Auth. Rev., (Blood Center Southeastern), 5.75%, 6/1/34 766 -------- 5,703 -------- Principal Amount ($ IN THOUSANDS) Value TOTAL INVESTMENT SECURITIES -- 102.4% (Cost $883,233) $905,254 -------- OTHER ASSETS AND LIABILITIES -- (2.4)% (21,070) -------- TOTAL NET ASSETS -- 100.0% $884,184 ======== Futures Contracts (AMOUNTS IN THOUSANDS) Expiration Underlying Face Unrealized Gain Contracts Purchased Date Amount at Value (Loss) 1,152 U.S. Treasury 2-Year Notes March 2008 $242,046 $(111) ======== ======== (AMOUNTS IN THOUSANDS) Expiration Underlying Face Unrealized Gain Contracts Sold Date Amount at Value (Loss) 721 U.S. Treasury 10-Year Notes March 2008 $81,619 $(1,198) ======== ======== - ------ 28 Tax-Free Bond Notes to Schedule of Investments ACA = American Capital Access Ambac = Ambac Assurance Corporation CIFG = CDC IXIS Financial Guaranty North America COP = Certificates of Participation CNTY GTD = County Guaranteed FGIC = Financial Guaranty Insurance Co. FNMA = Federal National Mortgage Association FSA = Financial Security Assurance, Inc. GNMA = Government National Mortgage Association GO = General Obligation LIBOR = London Interbank Offered Rate MBIA = MBIA Insurance Corporation MBIA-IBC = MBIA Insured Bond Certificates PSF-GTD = Permanent School Fund - Guaranteed RADIAN = Radian Asset Assurance, Inc. resets = The frequency with which a security's coupon changes, based on current market conditions or an underlying index. The more frequently a security resets, the less risk the investor is taking that the coupon will vary significantly from current market rates. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2007. XLCA = XL Capital Ltd. (1) Escrowed to maturity in U.S. government securities or state and local government securities. (2) Security, or a portion thereof, has been segregated for futures contracts and/or when-issued securities. (3) When-issued security. (4) Security was purchased under Rule 144A of the Securities Act of 1933 or is a private placement and, unless registered under the Act or exempted from registration, may only be sold to qualified institutional investors. The aggregate value of restricted securities at November 30, 2007 was $1,940 (in thousands), which represented 0.2% of total net assets. (5) 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. - ------ 29 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, 2007 to November 30, 2007. 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 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. - ------ 30 Beginning Expenses Paid Account Ending During Period* Annualized Value Account Value 6/1/07 - Expense 6/1/07 11/30/07 11/30/07 Ratio* Tax-Free Money Market ACTUAL Investor Class $1,000 $1,016.70 $2.57 0.51% HYPOTHETICAL Investor Class $1,000 $1,022.45 $2.58 0.51% Tax-Free Bond ACTUAL Investor Class $1,000 $1,026.10 $2.48 0.49% Institutional Class $1,000 $1,027.20 $1.47 0.29% Advisor Class $1,000 $1,024.90 $3.75 0.74% HYPOTHETICAL Investor Class $1,000 $1,022.55 $2.48 0.49% Institutional Class $1,000 $1,023.55 $1.47 0.29% Advisor Class $1,000 $1,021.30 $3.74 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 366, to reflect the one-half year period. - ------ 31 STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 2007 (UNAUDITED) (AMOUNTS IN THOUSANDS EXCEPT AS NOTED) Tax-Free Money Market Tax-Free Bond ASSETS Investment securities, at value (cost of $274,803 and $883,233, respectively) $274,803 $905,254 Cash 1,034 -- Receivable for investments sold -- 3,162 Receivable for capital shares sold -- 1,027 Receivable for variation margin on futures contracts -- 99 Interest receivable 1,337 12,225 Prepaid portfolio insurance 8 -- -------- -------- 277,182 921,767 -------- -------- LIABILITIES Disbursements in excess of demand deposit cash -- 2,830 Payable for investments purchased 2,515 34,036 Accrued management fees 109 343 Dividends payable -- 374 -------- -------- 2,624 37,583 -------- -------- NET ASSETS $274,558 $884,184 ======== ======== NET ASSETS CONSIST OF: Capital paid in $274,618 $867,715 Accumulated net realized loss on investment transactions (60) (4,243) Net unrealized appreciation on investments -- 20,712 -------- -------- $274,558 $884,184 ======== ======== INVESTOR CLASS ($ AND SHARES IN FULL) Net assets $274,558,464 $844,837,746 Shares outstanding 274,618,448 78,680,141 Net asset value per share $1.00 $10.74 INSTITUTIONAL CLASS ($ AND SHARES IN FULL) Net assets N/A $39,112,024 Shares outstanding N/A 3,642,531 Net asset value per share N/A $10.74 ADVISOR CLASS ($ AND SHARES IN FULL) Net assets N/A $234,652 Shares outstanding N/A 21,853 Net asset value per share N/A $10.74 See Notes to Financial Statements. - ------ 32 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007 (UNAUDITED) (AMOUNTS IN THOUSANDS) Tax-Free Tax-Free Money Market Bond INVESTMENT INCOME (LOSS) INCOME: Interest $5,177 $17,980 ------ ------- EXPENSES: Management fees 662 1,906 Trustees' fees and expenses 5 21 Portfolio insurance 25 -- Other expenses 1 4 ------ ------- 693 1,931 ------ ------- NET INVESTMENT INCOME (LOSS) 4,484 16,049 ------ ------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (9) (3,606) Futures and swaps transactions -- 2,800 ------ ------- (9) (806) ------ ------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments -- 8,493 Futures and swaps -- (1,708) ------ ------- -- 6,785 ------ ------- NET REALIZED AND UNREALIZED GAIN (LOSS) (9) 5,979 ------ ------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $4,475 $22,028 ====== ======= See Notes to Financial Statements. - ------ 33 STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED NOVEMBER 30, 2007 (UNAUDITED) AND YEAR ENDED MAY 31, 2007 (AMOUNTS IN THOUSANDS) Tax-Free Money Market Tax-Free Bond Nov. 30, May 31, Nov. 30, May 31, Increase (Decrease) in Net Assets 2007 2007 2007 2007 OPERATIONS Net investment income (loss) $ 4,484 $ 8,801 $ 16,049 $ 25,677 Net realized gain (loss) (9) (4) (806) (2,502) Change in net unrealized appreciation (depreciation) -- -- 6,785 1,235 -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations 4,475 8,797 22,028 24,410 -------- -------- -------- -------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (4,484) (8,801) (15,617) (25,320) Institutional Class -- -- (452) (348) Advisor Class -- -- (5) (9) -------- -------- -------- -------- Decrease in net assets from distributions (4,484) (8,801) (16,074) (25,677) -------- -------- -------- -------- CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions (1,166) 3,529 157,273 48,925 -------- -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS (1,175) 3,525 163,227 47,658 NET ASSETS Beginning of period 275,733 272,208 720,957 673,299 -------- -------- -------- -------- End of period $274,558 $275,733 $884,184 $720,957 ======== ======== ======== ======== Undistributed net investment income -- -- -- $25 ======== ======== ======== ======== See Notes to Financial Statements. - ------ 34 NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2007 (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. Tax-Free Money Market is diversified under Rule 2a-7 of the 1940 Act. Tax-Free Bond is 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. 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 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 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 as determined by, or in accordance with procedures adopted by, the Board of Trustees or its designee if such determination would materially impact a fund's net asset value. Certain other circumstances may cause the funds to use alternative procedures to 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 -- For financial reporting purposes, 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. - ------ 35 NOVEMBER 30, 2007 (UNAUDITED) (AMOUNTS IN THOUSANDS) 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 and swaps transactions and unrealized appreciation (depreciation) on futures and swaps, respectively. SWAP AGREEMENTS -- Tax-Free Bond may enter into swap agreements 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 Tax-Free Bond 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. Tax-Free Bond 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. The funds are no longer subject to examination by tax authorities for years prior to 2004. At this time, management has not identified any uncertain tax positions that would materially impact the financial statements. Accordingly, no provision has been made for federal or state income taxes. Interest and penalties associated with any federal or state income tax obligations, if any, are recorded as interest expense. DISTRIBUTIONS TO SHAREHOLDERS--Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually. Tax-Free Money Market does not expect to realize any long-term capital gains, and accordingly, does not expect to pay any capital gains distributions. INDEMNIFICATIONS -- Under the trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. 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. - ------ 36 NOVEMBER 30, 2007 (UNAUDITED) (AMOUNTS IN THOUSANDS) 2. FEES AND TRANSACTIONS WITH RELATED PARTIES On July 27, 2007, the Advisor Class shareholders of Tax-Free Bond approved a change to the class's fee structure. The change was approved by the Board of Trustees on December 8, 2006. Effective September 4, 2007, the fee structure change resulted in an increase of 0.25% in the unified management fee and a simultaneous decrease of 0.25% in the total distribution and service fee, resulting in no change to the total operation expense ratio of the class. 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 and Advisor Class. The Institutional Class is 0.2000% less at each point within the Complex Fee range. Prior to September 4, 2007, the Advisor Class was 0.25% less at each point within the 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, 2007 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, 2007 was 0.28% and 0.33%, respectively. DISTRIBUTION AND SERVICE FEES -- The Board of Trustees has adopted a Master Distribution and Individual 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 and service fee of 0.25%. Prior to September 4, 2007, the Board of Trustees had adopted a Master Distribution and Shareholder Services Plan for the Advisor Class, pursuant to rule 12b-1 of the 1940 Act, which provided that the Advisor would pay ACIS an annual distribution fee of 0.25% and annual service fee of 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, 2007, 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, 2007, 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. - ------ 37 NOVEMBER 30, 2007 (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, 2007, were $384,099 and $264,685, respectively. All investment transactions for Tax-Free Money Market were considered short-term during the six months ended November 30, 2007. 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows (unlimited number of shares authorized): Six months ended November Year ended May 31, 30, 2007 2007 Shares Amount Shares Amount Tax-Free Money Market INVESTOR CLASS Sold 94,578 $ 94,578 219,384 $ 219,384 Issued in reinvestment of distributions 4,436 4,436 8,653 8,653 Redeemed (100,180) (100,180) (224,508) (224,508) --------- --------- --------- --------- Net increase (decrease) (1,166) $ (1,166) 3,529 $ 3,529 ========= ========= ========= ========= Tax-Free Bond INVESTOR CLASS Sold 11,936 $127,029 23,605 $ 254,185 Issued in connection with acquisition (Note 7) 7,774 82,360 -- -- Issued in reinvestment of distributions 1,211 12,911 1,862 20,025 Redeemed (8,750) (93,123) (21,328) (228,430) --------- --------- --------- --------- 12,171 129,177 4,139 45,780 --------- --------- --------- --------- INSTITUTIONAL CLASS Sold 2,941 31,337 342 3,693 Issued in reinvestment of distributions 41 439 31 329 Redeemed (329) (3,514) (116) (1,258) --------- --------- --------- --------- 2,653 28,262 257 2,764 --------- --------- --------- --------- ADVISOR CLASS Sold 5 57 35 372 Issued in reinvestment of distributions -- 4 1 9 Redeemed (21) (227) -- -- --------- --------- --------- --------- (16) (166) 36 381 --------- --------- --------- --------- Net increase (decrease) 14,808 $157,273 4,432 $ 48,925 ========= ========= ========= ========= 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 0.40%. Tax-Free Bond did not borrow from the line during the six months ended November 30, 2007. Effective December 12, 2007, Tax-Free Bond along with certain other funds managed by ACIM or ACGIM, have a $500 million unsecured bank line of credit agreement with Bank of America, N.A. (the Bank of America agreement). The funds may borrow money for temporary or emergency purposes to fund shareholder redemptions. Borrowings under the Bank of America agreement bear interest at the Federal Funds rate plus 0.40%. - ------ 38 NOVEMBER 30, 2007 (UNAUDITED) (AMOUNTS IN THOUSANDS) 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, 2007, the components of investments for federal income tax purposes were as follows: Tax-Free Money Market Tax-Free Bond Federal tax cost of investments $274,803 $883,233 ======== ======== Gross tax appreciation of investments -- $23,166 Gross tax depreciation of investments -- (1,145) -------- -------- Net tax appreciation (depreciation) of investments -- $22,021 ======== ======== The cost of investments for federal income tax purposes was the same as the cost for financial reporting purposes. As of May 31, 2007, Tax-Free Money Market and Tax-Free Bond had accumulated capital losses of $(48) and $(2,477), respectively, 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 2014 2015 Tax-Free Money Market $(32) $(9) -- $(4) $(1) -- $(2) Tax-Free Bond -- -- -- -- -- -- $(2,477) Tax-Free Money Market and Tax-Free Bond had capital loss deferrals of $(3) and $(795), respectively, which represent net capital losses incurred in the seven-month period ended May 31, 2007. The funds have elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. 7. REORGANIZATION PLAN On December 8, 2006, the Board of Trustees of Arizona Municipal Bond Fund (Arizona Municipal) and Florida Municipal Bond Fund (Florida Municipal), two funds in a series issued by the trust, approved a plan of reorganization (the reorganization) pursuant to which Tax-Free Bond acquired all of the assets of Arizona Municipal and Florida Municipal in exchange for shares of equal value of Tax-Free Bond and assumption by Tax-Free Bond of certain ordinary course liabilities of Arizona Municipal and Florida Municipal. The financial statements and performance history of Tax-Free Bond were carried over in the post-reorganization. The reorganization was approved by shareholders on Arizona Municipal and Florida Municipal on July 27, 2007. The reorganization was effective at the close of business on September 4, 2007. The acquisition was accomplished by a tax-free exchange of shares. On September 4, 2007, Arizona Municipal and Florida Municipal exchanged its shares for shares of Tax-Free Bond as follows: Shares Shares Original Fund/Class Exchanged New Fund/Class Received Arizona Municipal - Tax-Free Bond - Investor Class 4,494 Investor Class 4,498 Tax-Free Bond - Arizona Municipal - A Class 164 Investor Class 164 Tax-Free Bond - Arizona Municipal - B Class 4 Investor Class 4 Tax-Free Bond - Arizona Municipal - C Class 51 Investor Class 51 - ------ 39 NOVEMBER 30, 2007 (UNAUDITED) (AMOUNTS IN THOUSANDS) Shares Shares Original Fund/Class Exchanged New Fund/Class Received Florida Municipal - Tax-Free Bond - Investor Class 2,922 Investor Class 2,881 Tax-Free Bond - Florida Municipal - A Class 85 Investor Class 84 Tax-Free Bond - Florida Municipal - B Class 1 Investor Class 1 Tax-Free Bond - Florida Municipal - C Class 92 Investor Class 91 The net assets of Arizona Municipal, Florida Municipal and Tax-Free Bond immediately before the acquisition were $49,969, $32,391 and $744,182, respectively. Arizona Municipal and Florida Municipal unrealized appreciation of $1,048 and $721 was combined with that of Tax-Free Bond. Immediately after the acquisition, the combined net assets were $826,542. Tax-Free Bond acquired capital loss carryovers of $(152,225) and $(83,627) from Arizona Municipal and Florida Municipal, respectively. 8. CORPORATE EVENT On July 27, 2007, the Advisor Class shareholders of Tax-Free Bond approved a reclassification of Advisor Class shares into Investor Class shares. The change was approved by the Board of Trustees on December 8, 2006. The reclassification was effective on December 3, 2007. 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. Management has concluded that the adoption of FIN 48 will not materially impact the financial statements. 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 that adopting FAS 157 will have on the financial statement disclosures. - ------ 40 FINANCIAL HIGHLIGHTS Tax-Free Money Market Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006 2005 2004 2003 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 0.03 0.02 0.01 0.01 0.01 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.02) (0.03) (0.02) (0.01) (0.01) (0.01) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ====== ====== ====== ====== ====== ====== TOTAL RETURN(2) 1.67% 3.26% 2.51% 1.33% 0.64% 1.05% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.51%(3) 0.52% 0.52% 0.51% 0.51% 0.51% Ratio of Net Investment Income (Loss) to Average Net Assets 3.32%(3) 3.22% 2.47% 1.31% 0.65% 1.04% Net Assets, End of Period (in thousands) $274,558 $275,733 $272,208 $284,851 $276,245 $272,256 (1) Six months ended November 30, 2007 (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. - ------ 41 Tax-Free Bond Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006 2005 2004 2003 PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.67 $10.88 $10.71 $11.19 $10.63 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.22 0.42 0.40 0.38 0.37 0.39 Net Realized and Unrealized Gain (Loss) 0.06 0.01 (0.20) 0.17 (0.45) 0.58 ------ ------ ------ ------ ------ ------ Total From Investment Operations 0.28 0.43 0.20 0.55 (0.08) 0.97 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.22) (0.42) (0.40) (0.38) (0.37) (0.39) From Net Realized Gains -- -- (0.01) -- (0.03) (0.02) ------ ------ ------ ------ ------ ------ Total Distributions (0.22) (0.42) (0.41) (0.38) (0.40) (0.41) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.74 $10.68 $10.67 $10.88 $10.71 $11.19 ====== ====== ====== ====== ====== ====== TOTAL RETURN(2) 2.61% 4.08% 1.87% 5.16% (0.79)% 9.31% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.49%(3) 0.49% 0.49% 0.50% 0.51% 0.51% Ratio of Net Investment Income (Loss) to Average Net Assets 4.06%(3) 3.91% 3.73% 3.46% 3.34% 3.62% Portfolio Turnover Rate 38% 43% 79% 77% 60% 57% Net Assets, End of Period (in thousands) $844,838 $709,988 $665,458 $610,420 $583,689 $620,000 (1) Six months ended November 30, 2007 (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. - ------ 42 Tax-Free Bond Institutional Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006 2005 2004 2003(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.67 $10.88 $10.71 $11.19 $10.90 ------ ------ ------ ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.23 0.44 0.42 0.40 0.39 0.05 Net Realized and Unrealized Gain (Loss) 0.06 0.01 (0.20) 0.17 (0.45) 0.29 ------ ------ ------ ------ ------ ------ Total From Investment Operations 0.29 0.45 0.22 0.57 (0.06) 0.34 ------ ------ ------ ------ ------ ------ Distributions From Net Investment Income (0.23) (0.44) (0.42) (0.40) (0.39) (0.05) From Net Realized Gains -- -- (0.01) -- (0.03) -- ------ ------ ------ ------ ------ ------ Total Distributions (0.23) (0.44) (0.43) (0.40) (0.42) (0.05) ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.74 $10.68 $10.67 $10.88 $10.71 $11.19 ====== ====== ====== ====== ====== ====== TOTAL RETURN(3) 2.72% 4.28% 2.07% 5.37% (0.60)% 3.14% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.29%(4) 0.29% 0.29% 0.30% 0.31% 0.30%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 4.26%(4) 4.11% 3.93% 3.66% 3.54% 3.68%(4) Portfolio Turnover Rate 38% 43% 79% 77% 60% 57%(5) Net Assets, End of Period (in thousands) $39,112 $10,567 $7,815 $8,796 $7,711 $7,609 (1) Six months ended November 30, 2007 (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. - ------ 43 Tax-Free Bond Advisor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.67 $10.83 ------ ------ ------ Income From Investment Operations Net Investment Income (Loss) 0.20 0.39 0.31 Net Realized and Unrealized Gain (Loss) 0.06 0.01 (0.15) ------ ------ ------ Total From Investment Operations 0.26 0.40 0.16 ------ ------ ------ Distributions From Net Investment Income (0.20) (0.39) (0.31) From Net Realized Gains -- -- (0.01) ------ ------ ------ Total Distributions (0.20) (0.39) (0.32) ------ ------ ------ Net Asset Value, End of Period $10.74 $10.68 $10.67 ====== ====== ====== TOTAL RETURN(3) 2.49% 3.82% 1.51% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.74%(4) 0.74% 0.74%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 3.81%(4) 3.66% 3.52%(4) Portfolio Turnover Rate 38% 43% 79%(5) Net Assets, End of Period (in thousands) $235 $402 $25 (1) Six months ended November 30, 2007 (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. - ------ 44 PROXY VOTING RESULTS A special meeting of shareholders was held on July 27, 2007, to vote on the following proposals. The proposals received the required number of votes of the American Century Municipal Trust or the applicable fund, depending on the proposal, and were adopted. A summary of voting results is listed below each proposal. PROPOSAL 1: To elect eight Trustees to the Board of Trustees of American Century Municipal Trust (the proposal was voted on by all shareholders of funds issued by American Century Municipal Trust). Jonathan S. Thomas For: 971,971,911 Withhold: 35,637,340 Abstain: 0 Broker Non-Vote: 0 John Freidenrich For: 972,343,950 Withhold: 35,265,301 Abstain: 0 Broker Non-Vote: 0 Ronald J. Gilson For: 972,631,125 Withhold: 34,978,126 Abstain: 0 Broker Non-Vote: 0 Kathryn A. Hall For: 972,615,828 Withhold: 34,993,423 Abstain: 0 Broker Non-Vote: 0 Peter F. Pervere For: 972,437,541 Withhold: 35,171,710 Abstain: 0 Broker Non-Vote: 0 Myron S. Scholes For: 971,715,093 Withhold: 35,894,158 Abstain: 0 Broker Non-Vote: 0 John B. Shoven For: 972,787,586 Withhold: 34,821,665 Abstain: 0 Broker Non-Vote: 0 Jeanne D. Wohlers For: 971,890,161 Withhold: 35,719,090 Abstain: 0 Broker Non-Vote: 0 - ------ 45 PROPOSAL 2: To approve a change in the fee structure of the Advisor Class of Tax-Free Bond. This proposal was voted on by the Advisor Class shareholders of Tax-Free Bond. Tax-Free Bond For: 357,450 Against: 0 Abstain: 0 Broker Non-Vote: 0 PROPOSAL 3: To approve the reclassification of the Advisor Class shares of the Tax-Free Bond, whereby all of the Advisor Class shares will be reclassified as Investor Class shares of Tax-Free Bond. This proposal was voted on by the Advisor Class shareholders of Tax-Free Bond. Tax-Free Bond For: 357,450 Against: 0 Abstain: 0 Broker Non-Vote: 0 - ------ 46 APPROVAL OF MANAGEMENT AGREEMENTS Tax-Free Money Market, Tax-Free Bond Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated and approved by a majority of a fund's independent directors or trustees (the "Directors") each year. At American Century, this process is referred to as the "15(c) Process." As a part of this process, the board reviews fund performance, shareholder services, audit and compliance information, and a variety of other reports from the advisor concerning fund operations. In addition to this annual review, the board of directors oversees and evaluates on a continuous basis at its quarterly meetings the nature and quality of significant services performed by the advisor, fund performance, audit and compliance information, and a variety of other reports relating to fund operations. The board, or committees of the board, also holds special meetings as needed. Under a Securities and Exchange Commission rule, each fund is required to disclose in its annual or semiannual report, as appropriate, the material factors and conclusions that formed the basis for the board's approval or renewal of any advisory agreements within the fund's most recently completed fiscal half-year period. ANNUAL CONTRACT REVIEW PROCESS As part of the annual 15(c) Process undertaken during the most recent fiscal half-year period, the Directors reviewed extensive data and information compiled by the advisor and certain independent providers of evaluative data (the "15(c) Providers") concerning Tax-Free Money Market and Tax-Free Bond (the "funds") and the services provided to the funds under the management agreements. The information considered and the discussions held at the meetings included, but were not limited to: * the nature, extent and quality of investment management, shareholder services and other services provided to the funds under the management agreements; * reports on the advisor's activities relating to the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * data comparing the cost of owning the funds to the cost of owning similar funds; * data comparing the funds' performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; * financial data showing the profitability of the funds to the advisor and the overall profitability of the advisor; and * data comparing services provided and charges to other investment management clients of the advisor. In keeping with its practice, the funds' board of directors held two regularly scheduled meetings to review and discuss the information provided by the advisor and to complete its negotiations with the advisor regarding the renewal of the management agreements, including the setting of the applicable advisory fee. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 47 FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, the 15(c) Providers, and the board's independent counsel, and evaluated such information for each fund for which the board has responsibility. The Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the agreement under the terms ultimately determined by the board to be appropriate, the Directors' decision was based on the following factors. NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management agreements, the advisor is responsible for providing or arranging for all services necessary for the operation of the funds. The board noted that under the management agreements, the advisor provides or arranges at its own expense a wide variety of services including: * fund construction and design * portfolio security selection * initial capitalization/funding * securities trading * custody of fund assets * daily valuation of the funds' portfolio * shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping and communications * legal services * regulatory and portfolio compliance * financial reporting * marketing and distribution The Directors noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry and the changing regulatory environment. In performing their evaluation, the Directors considered information received in connection with the annual review, as well as information provided on an ongoing basis at their regularly scheduled board and committee meetings. INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes, and liquidity. In evaluating investment performance, the board expects the advisor to manage the funds in accordance with its investment objectives and approved strategies. In providing these services, the advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. - ------ 48 At each quarterly meeting the Directors review investment performance information for the funds, together with comparative information for appropriate benchmarks and peer groups of funds managed similarly to the funds. The Directors also review detailed performance information during the 15(c) Process. If performance concerns are identified, the Directors discuss with the advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. Each fund's performance for both the one- and three-year periods was above the median for its peer group. SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a comprehensive package of transfer agency, shareholder, and other services. The Directors review reports and evaluations of such services at their regular quarterly meetings, including the annual meeting concerning contract review, and reports to the board. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the advisor. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor provides detailed information concerning its cost of providing various services to the funds, its profitability in managing the funds, its overall profitability, and its financial condition. The Directors have reviewed with the advisor the methodology used to prepare this financial information. This financial information regarding the advisor is considered in order to evaluate the advisor's financial condition, its ability to continue to provide services under the management agreements, and the reasonableness of the current management fee. ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the advisor's practices generally meet or exceed industry best practices. ECONOMIES OF SCALE. The Directors review reports provided by the advisor on economies of scale for the complex as a whole and the year-over-year changes in revenue, costs, and profitability. The Directors concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. This analysis is also complicated by the additional services and content provided by the advisor and its reinvestment in its ability to provide and expand those services. Accordingly, the Directors also seek to evaluate economies of scale by reviewing other information, such as year-over-year profitability of the advisor generally, the profitability of its management of the funds specifically, the expenses incurred by the advisor in providing various functions to the funds, and the breakpoint fees of competitive funds not managed by the advisor. The Directors believe the advisor is appropriately sharing economies of scale through its competitive fee structure, fee breakpoints as the fund complex and the funds increase in size, and through reinvestment in its business to provide shareholders additional content and services. In particular, separate breakpoint schedules based on the size of the entire fund complex and on the size of the funds reflect the complexity of assessing economies of scale. - ------ 49 COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the funds, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the funds' independent directors (including their independent legal counsel). Under the unified fee structure, the advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The board believes the unified fee structure is a benefit to fund shareholders because it clearly discloses to shareholders the cost of owning fund shares, and, since the unified fee cannot be increased without a vote of fund shareholders, it shifts to the advisor the risk of increased costs of operating the funds and provides a direct incentive to minimize administrative inefficiencies. Part of the Directors' analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the funds' unified fee to the total expense ratio of other funds in the funds' peer group. The unified fee charged to shareholders of each fund was in the lowest quartile of the total expense ratios of its respective peer group. COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The Directors also requested and received information from the advisor concerning the nature of the services, fees, and profitability of its advisory services to advisory clients other than the funds. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the funds. The Directors analyzed this information and concluded that the fees charged and services provided to the funds were reasonable by comparison. COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information from the advisor concerning collateral benefits it receives as a result of its relationship with the funds. They concluded that the advisor's primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Directors noted that the advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit fund shareholders. The Directors also determined that the advisor is able to provide investment management services to certain clients other than the funds, at least in part, due to its existing infrastructure built to serve the fund complex. The Directors concluded, however, that the assets of those other clients are not material to the analysis and, in any event, are included with the assets of the funds to determine breakpoints in the funds' fee schedule, provided they are managed using the same investment team and strategy. CONCLUSIONS OF THE DIRECTORS As a result of this process, the Directors, in the absence of particular circumstances and assisted by the advice of legal counsel that is independent of the advisor, taking into account all of the factors discussed above and the information provided by the advisor concluded that the investment management agreement between the funds and the advisor is fair and reasonable in light of the services provided and should be renewed. - ------ 50 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 of Institutional Class shares is lower than that of Investor Class shares. The total expense ratio of Advisor Class shares is higher than that of Investor Class shares. The Advisor Class is no longer available effective December 3, 2007. INVESTOR CLASS shares are available for purchase in two ways: 1) directly from American Century without any commissions or other fees; and/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. The funds' prospectuses contain additional information regarding eligibility for Investor Class shares. 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. The unified management fee for Advisor Class shares is the same as for Investor Class shares. Advisor Class shares are subject to a 0.25% annual Rule 12b-1 distribution and service fee. All classes of shares represent a pro rata interest in the funds and generally have the same rights and preferences. - ------ 51 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. - ------ 52 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. - ------ 53 NOTES - ------ 54 NOTES - ------ 55 NOTES - ------ 56 [back cover] CONTACT US AMERICANCENTURY.COM AUTOMATED INFORMATION LINE: 1-800-345-8765 INVESTOR SERVICES REPRESENTATIVE: 1-800-345-2021 or 816-531-5575 BUSINESS, NOT-FOR-PROFIT, EMPLOYER-SPONSORED RETIREMENT PLANS: 1-800-345-3533 BANKS AND TRUST COMPANIES, BROKER-DEALERS, FINANCIAL 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. American Century Investment Services, Inc., Distributor ©2008 American Century Proprietary Holdings, Inc. All rights reserved. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Proprietary Holdings, Inc. 0801 SH-SAN-57971N [front cover] AMERICAN CENTURY INVESTMENTS Semiannual Report November 30, 2007 [photo of winter] Long-Term Tax-Free Fund High-Yield Municipal Fund [american century investments logo and text logo] OUR MESSAGE TO YOU [photo of Jonathan Thomas] JONATHAN THOMAS President and CEO American Century Companies, Inc. To help you monitor your investment, my colleagues and I take pride in providing you with the semiannual report for the American Century® Long-Term Tax-Free and High-Yield Municipal funds for the six months ended November 30, 2007. I am honored to be addressing you in the "Our Message" space long devoted to company founder Jim Stowers, Jr. and his son Jim Stowers III. Jim Stowers III stepped down from the American Century Companies, Inc. (ACC) board of directors in July 2007, his final step in a well-planned career transition to pursue new ventures outside the company. This reflected his family's support of our company's direction and its leadership team. The Stowers family remains an integral part of our heritage, leadership, and financial structure. In fact, Jim Stowers, Jr. continues as co-chair of the ACC board with Richard Brown, who has been on the board since 1998. American Century Investments, our clients, and our employees have been my top priority since I became company president and CEO in March, 2007. We have also added the executive talents of overall chief investment officer (CIO) Enrique Chang, international equity CIO Mark On, U.S. growth equity CIO Steve Lurito, and chief operating officer Barry Fink. This skilled group, combined with our existing senior management team, has already had a positive impact on the development and management of the products and services we take pride in delivering to you. We believe the ultimate measure of our performance is our clients' success. Therefore, our focus continues to be on building a long-term relationship with you and on delivering superior investment performance across our product line. /s/Jonathan Thomas [photo of James E. Stowers, Jr.] JAMES E. STOWERS, JR. Founder and Co-Chairman of the Board American Century Companies, Inc. [photo of Richard Brown] RICHARD BROWN Co-Chairman of the Board American Century Companies, Inc. TABLE OF CONTENTS Market Perspective. . . . . . . . . . . . . . . . . . . . . . . . 2 U.S. Fixed-Income Total Returns. . . . . . . . . . . . . . . . . 2 LONG-TERM TAX-FREE Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . 5 Portfolio at at Glance . . . . . . . . . . . . . . . . . . . . . 5 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Portfolio Composition By Credit Rating . . . . . . . . . . . . . 6 Top Five Sectors . . . . . . . . . . . . . . . . . . . . . . . . 6 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . 7 HIGH-YIELD MUNICIPAL Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Portfolio Commentary. . . . . . . . . . . . . . . . . . . . . . . 12 Portfolio at at Glance . . . . . . . . . . . . . . . . . . . . . 12 Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Portfolio Composition By Credit Rating . . . . . . . . . . . . . 13 Top Five Sectors . . . . . . . . . . . . . . . . . . . . . . . . 13 Schedule of Investments . . . . . . . . . . . . . . . . . . . . . 14 Shareholder Fee Examples. . . . . . . . . . . . . . . . . . . . . 20 FINANCIAL STATEMENTS Statement of Assets and Liabilities . . . . . . . . . . . . . . . 22 Statement of Operations . . . . . . . . . . . . . . . . . . . . . 24 Statement of Changes in Net Assets. . . . . . . . . . . . . . . . 25 Notes to Financial Statements . . . . . . . . . . . . . . . . . . 26 Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . 32 OTHER INFORMATION Proxy Voting Results. . . . . . . . . . . . . . . . . . . . . . . 41 Approval of Management Agreements for Long-Term Tax-Free and High-Yield Municipal. . . . . . . . . . . 42 Share Class Information . . . . . . . . . . . . . . . . . . . . . 46 Additional Information. . . . . . . . . . . . . . . . . . . . . . 47 Index Definitions . . . . . . . . . . . . . . . . . . . . . . . . 48 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 Chief Investment Officer] By David MacEwen, Chief Investment Officer, Fixed Income MOSTLY POSITIVE RETURNS, VOLATILE MARKETS U.S. bonds generally enjoyed positive returns during the six months ended November 30, 2007. But the ride was bumpy -- bond market volatility surged as waves from the bursting housing and subprime mortgage/credit bubbles spread to the broader economy and financial markets. To help alleviate some of the market and economic concerns, the Federal Reserve made a series of cuts to its discount and federal funds target rates. The volatility, credit, and liquidity concerns in the market all favored Treasury securities over credit-sensitive bonds. Looking at the U.S. economy, growth remained surprisingly strong, though many economists are discussing the possibility of recession going forward. Inflation was fairly tame outside of volatile food and energy prices, as the trailing 12-month percentage change in core consumer prices finished November at 2.3%. MUNICIPALS TRAILED TAXABLE BONDS It's typical for the broad investment-grade municipal market to underperform the investment-grade taxable market when Treasurys rally, as happened during the period. The effects of the housing and credit crunches and resulting flight to safe-haven Treasury bonds were felt most keenly in the municipal market in July and August, the worst two-month period for 10-year municipal bonds relative to Treasurys since September and October of 2001. Municipal underperformance was primarily a result of a lack of liquidity and re-pricing of risk for longer-term and lower-quality bonds. In addition, some high-quality, insured bonds suffered from concerns about the health of the insurance providers themselves as a result of losses in other parts of their business. However, we should point out that municipal bonds historically have been an exceptionally safe investment, with relatively low default rates, and the underperformance was more of a technical (supply and demand) story than an underlying credit quality story. The net effect was that yields for longer-term municipals were little changed, meaning essentially flat returns. However, high-yield bonds were hit hardest of all municipal investments in July and August as credit quality concerns affected all sectors of the market, resulting in negative returns for the six months. U.S. Fixed-Income Total Returns For the six months ended November 30, 2007* LEHMAN BROTHERS MUNICIPAL MARKET INDICES Municipal Bond 2.40% 3-Year Municipal Bond 3.27% 5-Year General Obligation (GO) 3.83% Long-Term Municipal Bond 0.06% Non-Investment-Grade (High-Yield) -2.43% TAXABLE MARKET RETURNS Lehman Brothers U.S. Aggregate Index 5.32% Lehman Brothers U.S. Treasury Index 7.79% 3-Month Treasury Bill 2.60% 10-Year Treasury Note 9.67% *Total returns for periods less than one year are not annualized. - ------ 2 PERFORMANCE Long-Term Tax-Free Total Returns as of November 30, 2007 Average Annual Returns 6 Since Inception months(1) 1 year 5 years 10 years Inception Date A CLASS No sales charge* 0.27% 0.21% 3.69% 4.90%(2) 5.43%(2) With sales charge* -4.26% -4.32% 2.75% 4.41%(2) 4.98%(2) 3/31/97 LEHMAN BROTHERS MUNICIPAL BOND INDEX(3) 2.40% 2.71% 4.68% 5.30% 5.71% -- Investor Class 0.39% 0.46% -- -- 3.39% 4/3/06 Institutional Class 0.49% 0.66% -- -- 3.59% 4/3/06 B Class No sales charge* -0.11% -0.54% 2.98%(2) 4.20%(2) 4.72%(2) With sales charge* -5.11% -4.54% 2.81%(2) 4.20%(2) 4.72%(2) 3/31/97 C Class No sales charge* -0.10% -0.53% -- -- 2.37% With sales charge* -1.08% -0.53% -- -- 2.37% 4/3/06 *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 page for more about the applicable sales charges for each share class. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) Total returns for periods less than one year are not annualized. (2) Class returns would have been lower if fees had not been waived. (3) Data provided by Lipper Inc. - A Reuters Company. ©2007 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. 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. 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 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. - ------ 3 Long-Term Tax-Free Growth of $10,000 Over 10 Years
$10,000 investment made November 30, 1997*
One-Year Returns Over 10 Years Periods ended November 30 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 A Class** (no sales charge) 7.64% -1.09% 8.67% 9.54% 6.17% 6.23% 3.21% 3.02% 5.92% 0.21% Lehman Brothers Municipal Bond Index 7.76% -1.07% 8.18% 8.75% 6.32% 6.65% 4.07% 3.88% 6.12% 2.71% * Long-Term Tax-Free A Class's initial investment is $9,550 to reflect the maximum 4.50% initial sales charge. **Class returns may 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. 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 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. - ------ 4 PORTFOLIO COMMENTARY Long-Term Tax-Free Lead Portfolio Manager: Robert Miller Macro Strategy Team Representative: Steven Permut PERFORMANCE SUMMARY Long-Term Tax-Free returned 0.27%* for the six months ended November 30, 2007. By comparison, its broad market index -- the Lehman Brothers Municipal Bond Index -- returned 2.40%. The portfolio's absolute return reflected the difficult investment climate for long-term municipal bonds (see the Market Perspective on page 2). Relative to the Lehman index, the portfolio's performance was limited by an overweight position we held in higher-yielding, lower-quality bonds; however, our yield curve positioning helped relative results. CREDIT ALLOCATION DETRACTED We believe the key factor limiting Long-Term Tax-Free's performance was our overweight position relative to the index in bonds rated BBB and A. Unfortunately, mounting credit concerns and a global margin call led traders to sell credit-sensitive bonds indiscriminately in this period; indeed, August was one of the worst months for municipal bonds on record. In that environment, lower-rated bonds, including those we held, trailed the highest-quality securities by a wide margin. In addition, a number of our insured, AA rated bonds backed by Radian Asset Assurance underperformed. They were weighed down by negative comments about other municipal bond insurers by the big credit rating agencies, such as Standard & Poor's and Moody's. It's worth pointing out that two of the big three rating agencies reiterated stable outlooks for Radian, and our own analysts are positive on the insurer. What's more, we have strong faith in the underlying credit quality of the bonds in our portfolios regardless of the insurer. As a result, we viewed the dip in insured bond prices as a buying opportunity. For example, we were able to add insured bonds with yields that matched comparable uninsured bonds -- in other words, we effectively got the insurance for free. Portfolio at a Glance As of As of 11/30/07 5/31/07 Weighted Average Maturity 10.3 years 11.8 years Average Duration (Modified) 6.8 years 5.7 years Yields as of November 30, 2007 30-Day SEC Yield Investor Class 3.99% Institutional Class 4.19% A Class 3.57% B Class 2.99% C Class 2.99% Investor Class 30-Day Tax-Equivalent Yields(1) 25.00% Tax Bracket 5.32% 28.00% Tax Bracket 5.54% 33.00% Tax Bracket 5.96% 35.00% Tax Bracket 6.14% (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 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. - ------ 5 Long-Term Tax-Free DURATION POSITION DETRACTED SLIGHTLY We began the reporting period with a slightly long duration in anticipation of a strong technical period for municipal bonds. Many municipal bonds make coupon payments in July, when supply is typically light, creating a supply and demand imbalance as municipal investors look to put their interest income back to work. So, having a longer duration (greater sensitivity to bond price changes) typically benefits the portfolio during the summer months. Unfortunately, the opposite happened, and this positioning detracted from performance. CURVE STEEPENING HELPED On a positive note, we helped relative performance by virtue of a yield curve steepening bias we had in place using two- and 10-year Treasury futures contracts. We preferred to use Treasury futures because they're a pure play on changes in the shape of the curve, without worrying about the quality or structure of securities you'd have to hold to achieve the same effect in the municipal cash market. For the six months, the Treasury yield curve steepened sharply -- the difference in yield between two- and 10-year Treasury securities went from -3 basis points (the yield curve was inverted) to +94 basis points (a more normal, upward slope). OUTLOOK "We believe the underperformance of the municipal market in recent months was driven by technical factors and a lack of liquidity in the marketplace resulting from an extreme aversion to risk, rather than changes in credit fundamentals," said Macro Strategy Team Representative Steven Permut. "As a result, we believe municipal bonds are very attractive relative to fully taxable investments and in terms of their absolute yields." "Given our value-oriented investment process and long-term approach," Permut continued, "we view this period as a buying opportunity. So we're working to complete some of the longer-term trades we've been making over the past year - -- such as trading up in credit quality and moving into more defensive sectors - -- at what we believe are very attractive price levels. And given our view of rates and the economy, we expect to maintain our yield curve steepening bias while managing duration conservatively." Portfolio Composition By Credit Rating % of fund % of fund investments investments as of as of 11/30/07 5/31/07 AAA 64% 37% AA 10% 14% A 11% 10% BBB 15% 30% Unrated -- 9% Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. Top Five Sectors as of November 30, 2007 % of fund investments General Obligation (GO) 31% Hospital Revenue 14% Higher Education 11% Certificates of Participation (COPs)/Leases 8% Special Tax Revenue 7% - ------ 6 SCHEDULE OF INVESTMENTS Long-Term Tax-Free NOVEMBER 30, 2007 (UNAUDITED) Principal Amount Value Municipal Securities -- 101.6% ARIZONA -- 4.0% $1,000,000 Arizona Board of Regents COP, Series 2006 A, (University of Arizona), 5.00%, 6/1/18 (Ambac) $ 1,079,780 ----------- CALIFORNIA -- 16.3% 1,000,000 California GO, 5.00%, 6/1/16 1,066,649 500,000 California GO, 5.00%, 10/1/22 519,695 750,000 City of Lodi Wastewater System COP, Series 2007 A, 5.00%, 10/1/32 (FSA)(1) 774,555 500,000 City of Vista COP, (Community Projects), 5.00%, 5/1/37 (MBIA)(1) 510,000 500,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2007 A1, 5.75%, 6/1/47(2) 470,800 1,000,000 Murrieta Valley Unified School District Public Financing Auth. Special Tax Rev., Series 2006 A, 5.125%, 9/1/26 (AGC)(2) 1,047,320 ----------- 4,389,019 ----------- CONNECTICUT -- 4.7% 500,000 Connecticut GO, Series 2001 C, 5.50%, 12/15/13 (MBIA-IBC)(2) 558,525 150,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 C, (Hospital for Special Care Issue), 5.25%, 7/1/27 (RADIAN)(2) 151,455 500,000 Connecticut Health & Educational Facilities Auth. Rev., Series 2007 I, (Quinnipiac University), 5.00%, 7/1/17 (MBIA)(1) 549,710 ----------- 1,259,690 ----------- GEORGIA -- 2.2% 500,000 Fulton County Development Auth. Rev., Series 2001 A, (TUFF/Atlanta Housing, LLC Project at Georgia State University), 5.50%, 9/1/18 (Ambac)(2) 541,145 40,000 Georgia Municipal Electric Power Auth. Rev., Series 1998 Y (Project One Special Obligation), 6.40%, 1/1/13 (Ambac) 44,122 ----------- 585,267 ----------- Principal Amount Value HAWAII -- 4.0% $1,000,000 Honolulu City & County GO, Series 2007 A, 5.00%, 7/1/19 (FSA)(2) $ 1,086,830 ----------- INDIANA -- 4.0% 1,000,000 Indiana Bond Bank Rev., Series 2006 A, 5.00%, 8/1/20 (FSA)(2) 1,070,710 ----------- IOWA -- 4.7% 1,250,000 Iowa Finance Auth. Health Facilities Development Rev., Series 2006 A, (Care Initiatives), 5.50%, 7/1/21(2) 1,271,750 ----------- KANSAS -- 3.9% 1,000,000 City of Lawrence Rev., (Lawrence Memorial Hospital), 5.25%, 7/1/20 1,049,620 ----------- LOUISIANA -- 1.3% 335,000 Louisiana Public Facilities Auth. Rev., Series 2007 A, (Black & Gold Facilities), 5.00%, 7/1/32 (CIFG)(1) 339,188 ----------- MARYLAND -- 2.0% 500,000 Maryland GO, First Series 2005 B, (State and Local Facilities Loan), 5.25%, 2/15/12(2) 539,420 ----------- MASSACHUSSETTS -- 3.9% 500,000 Massachusetts Development Finance Agency Rev., Series 2007 A, (Babson College), 5.00%, 10/1/23 (MBIA)(2) 533,800 500,000 Massachusetts Water Resources Auth. Rev., Series 2006 B, 5.00%, 8/1/31 (Ambac)(2) 522,685 ----------- 1,056,485 ----------- MICHIGAN -- 7.2% 1,225,000 Rochester Community School District GO, (School Building & Site), 5.00%, 5/1/14 (FGIC) (Q-SBLF)(2) 1,329,946 560,000 Wayne County Airport Auth. Rev., (Detroit Metropolitan Airport), 5.00%, 12/1/18 (FGIC) 598,455 ----------- 1,928,401 ----------- MINNESOTA -- 1.2% 300,000 Minnesota Municipal Electric Power Agency Rev., 5.25%, 10/1/27(1) 312,855 ----------- - ------ 7 Long-Term Tax-Free Principal Amount Value MISSISSIPPI -- 5.4% $ 425,000 Mississippi Development Bank Special Obligation Rev., (Pearl Capital Projects and Equiqment Prepayment), 5.25%, 7/1/26 (FSA)(2) $ 451,112 1,000,000 Mississippi Development Bank Special Obligation Rev., Series 2006 A, (Magnolia Regional Health Center), VRDN, 5.00%, 12/6/07 (RADIAN) (SBBPA: Regions Bank) 1,000,000 ----------- 1,451,112 ----------- NEVADA -- 1.8% 500,000 Clark County Economic Development Rev., (University of Southern Nevada), 5.00%, 4/1/27 (RADIAN)(2) 483,130 ----------- NEW MEXICO -- 3.9% 1,000,000 New Mexico Finance Auth. Rev., Series 2007 E, (Senior Lien Public Project Revolving Fund), 5.00%, 6/1/29 (MBIA)(2) 1,048,960 ----------- NEW YORK -- 3.8% 500,000 City of New York GO, Series 2006 I, 5.00%, 4/1/23(2) 520,185 500,000 New York Dormitory Auth. Rev., Series 2007 B, (Manhattan College), 5.30%, 7/1/37 (RADIAN)(1) 500,645 ----------- 1,020,830 ----------- NORTH CAROLINA -- 1.0% 250,000 University of North Carolina at Chapel Hill Rev., 5.00%, 12/1/36(1) 263,793 ----------- OHIO -- 5.8% 500,000 Buckeye Tobacco Settlement Financing Auth. Rev., Series 2007 A-2, (Asset-Backed Senior Current Interest Turbo Term), 6.50%, 6/1/47(2) 515,060 1,055,000 Trumbull County Health Care Facilities Rev., (Shepherd of the Valley Lutheran Retirement Services, Inc. Obligated Group), VRDN, 5.15%, 12/3/07 (RADIAN) (SBBPA: Fleet National Bank) 1,055,000 ----------- 1,570,060 ----------- Principal Amount Value PENNSYLVANIA -- 12.5% $1,000,000 Allegheny County Industrial Development Auth. Rev., (Residential Resources, Inc.), 4.50%, 9/1/11 $ 1,001,820 1,000,000 Central Dauphin School District GO, 7.00%, 2/1/16, Prerefunded at 100% of Par (MBIA/State Aid Withholding)(2)(3) 1,239,128 1,000,000 City of Pittsburgh GO, Series 2006 B, 5.25%, 9/1/17 (FSA)(2) 1,111,140 ----------- 3,352,088 ----------- TEXAS -- 3.1% 825,000 Garza County Public Facility Corp. Rev., 5.50%, 10/1/16(2) 844,346 ----------- UTAH -- 2.0% 500,000 Utah State Board of Regents Hospital Rev., Series 2006 A, (University of Utah), 5.25%, 8/1/21 (MBIA) 550,585 ----------- VERMONT -- 1.1% 300,000 Vermont GO, Series 2007 D, 4.00%, 7/15/18 306,246 ----------- WASHINGTON -- 1.8% 500,000 Washington Higher Education Facilities Auth. Rev., (Pacific Lutheran University), 5.00%, 11/1/24 (RADIAN) 490,470 ----------- TOTAL MUNICIPAL SECURITIES (Cost $26,967,725) 27,350,635 ----------- Municipal Derivatives -- 1.6% TEXAS -- 1.6% 360,000 Texas GO, VRDN, Inverse Floater, 8.50%, 9/30/11(4) 430,729 (Cost $406,545) ----------- Temporary Cash Investments -- 0.3% 91,000 Federated California Municipal Cash Trust 91,000 (Cost $91,000) ----------- TOTAL INVESTMENT SECURITIES -- 103.5% (Cost $27,465,270) 27,872,364 ----------- OTHER ASSETS AND LIABILITIES -- (3.5)% (930,253) ----------- TOTAL NET ASSETS -- 100.0% $26,942,111 =========== - ------ 8 Long-Term Tax-Free Futures Contracts Underlying Face Unrealized Contracts Purchased Expiration Date Amount at Value Gain (Loss) 40 U.S. Treasury 2-Year Notes March 2008 $8,404,375 $(3,840) ============ =========== Underlying Face Unrealized Contracts Sold Expiration Date Amount at Value Gain (Loss) 22 U.S. Treasury 10-Year Notes March 2008 $2,490,469 $(36,573) ============ =========== Notes to Schedule of Investments AGC = Assured Guaranty Corp. Ambac = Ambac Assurance Corporation CIFG = CDC IXIS Financial Guaranty North America COP = Certificates of Participation FGIC = Financial Guaranty Insurance Co. FSA = Financial Security Assurance, Inc. GO = General Obligation MBIA = MBIA Insurance Corporation MBIA-IBC = MBIA Insured Bond Certificates Q-SBLF = Qualified State Bond Loan Fund RADIAN = Radian Asset Assurance, Inc. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2007. (1) When-issued security. (2) Security, or a portion thereof, has been segregated for futures contracts and/or when-issued securities. (3) Escrowed to maturity in U.S. government securities or state and local government securities. (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. See Notes to Financial Statements. - ------ 9 PERFORMANCE High-Yield Municipal Total Returns as of November 30, 2007 Average Annual Returns 6 Since Inception months(1) 1 year 5 years Inception Date INVESTOR CLASS -2.84% -1.13% 5.33% 5.46%(2) 3/31/98 LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX 0.06% 0.06% 5.85% 5.80% -- LIPPER HIGH-YIELD MUNICIPAL DEBT FUNDS AVERAGE RETURNS(3) -2.97% -1.79% 5.16% 4.08% -- Investor Class's Lipper Ranking(3) as of 11/30/07 -- 47 of 94 33 of 75 2 of 48(2) as of 12/31/07 -- 45 of 96 33 of 75 2 of 48(2) -- A Class No sales charge* -2.96% -1.38% -- 4.92% With sales charge* -7.30% -5.85% -- 3.93% 1/31/03 B Class No sales charge* -3.32% -2.12% -- 4.16%(4) With sales charge* -8.32% -6.12% -- 3.80%(4) 1/31/03 C Class No sales charge* -3.32% -2.12% 4.34% 4.27% With sales charge* -4.27% -2.12% 4.34% 4.27% 7/24/02 *Sales charges include initial sales charges and contingent deferred sales charges (CDSCs), as applicable. A Class shares have a 4.50% maximum initial sales charge for fixed-income funds and may be subject to a maximum CDSC of 1.00%. B Class shares redeemed within six years of purchase are subject to a CDSC that declines from 5.00% during the first year after purchase to 0.00% the sixth year after purchase. C Class shares redeemed within 12 months of purchase are subject to a maximum CDSC of 1.00%. Please see the Share Class Information page for more about the applicable sales charges for each share class. The SEC requires that mutual funds provide performance information net of maximum sales charges in all cases where charges could be applied. (1) 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. ©2007 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. 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. - ------ 10 High-Yield Municipal 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 2007 Investor Class 6.08%** -0.70%** 4.33% 8.64% 7.99% 7.03% 6.23% 7.03% 7.79% -1.13% 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% 0.06% * From 3/31/98 (the Investor Class's inception date) to 11/30/98. Not annualized. **Investor Class returns and ending value 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. - ------ 11 PORTFOLIO COMMENTARY High-Yield Municipal Lead Portfolio Manager and Macro Strategy Team Representative: Steven Permut PERFORMANCE SUMMARY High-Yield Municipal returned -2.84%* for the six months ended November 30, 2007. By comparison, its broad market index -- the investment-grade Lehman Brothers Long-Term Municipal Bond Index -- returned 0.06%, while the average return of the 104 high-yield municipal debt funds tracked by Lipper Inc. was - -2.97%. Longer-term, the portfolio's average annual returns also exceeded those of its Lipper group average for the one- and five-year periods ended November 30, 2007 (see page 10). The portfolio's absolute return and performance relative to the Lehman index reflected the difficult investment climate for high-yield municipal bonds, which lagged investment-grade securities by a wide margin (see the Market Perspective on page 2). Relative to the Lipper group, the portfolio benefited from our yield-curve positioning and credit upgrades to a number of our large, long-held positions, as well as some of our state and municipal sector allocation decisions. HIGH-YIELD LAGGED HIGH-QUALITY Our process relies on thorough credit analysis and individual security selection among high-yield bonds to generate outperformance over time. But in August 2007, which was one of the worst months for municipal bonds on record, essentially all lower-rated bonds were painted with a broad brush and sold indiscriminately. So even though we had no individual credit problems, our stake in non-rated and credit-sensitive bonds underperformed higher-rated securities. This is the key factor explaining the portfolio's negative absolute return and poor performance relative to the investment-grade Lehman index. On a positive note, we used the big sell-off in high-yield municipal bonds as an opportunity to modify the portfolio's coupon structure and increase its sector and geographic diversification. These were trades we'd been making opportunistically over the course of 2007, but the lack of liquidity and re-pricing of risk in the marketplace beginning in the summer presented us with what we believe were some compelling buying opportunities. In addition, we reduced our allocation to non-rated debt. Portfolio at a Glance As of As of 11/30/07 5/31/07 Weighted Average Maturity 16.2 years 17.0 years Average Duration (Modified) 8.2 years 5.4 years Yields as of November 30, 2007 30-Day SEC Yield Investor Class 5.02% A Class 4.55% B Class 4.02% C Class 4.02% Investor Class 30-Day Tax Equivalent Yields(1) 25.00% Tax Bracket 6.69% 28.00% Tax Bracket 6.97% 33.00% Tax Bracket 7.49% 35.00% Tax Bracket 7.72% (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. - ------ 12 High-Yield Municipal RATE, CURVE, SECTOR POSITIONING CONTRIBUTED We typically manage duration -- a measure of a bond fund's price sensitivity to interest rate changes -- conservatively, keeping it in a narrow band around what we believe is that of our peer group average. We main-tained a neutral to short duration for much of the period, which helped as municipal yields rose overall, particularly in July and August. In addition, we maintained a yield-curve steepening bias using municipal bonds as well as two- and 10-year Treasury futures. We preferred to use Treasury futures because they're a pure play on changes in the shape of the curve, and a more efficient way to express the trade than in the municipal cash market. For the six months, the Treasury yield curve steepened sharply -- the difference in yield between two- and 10-year Treasury securities went from -3 basis points (the yield curve was inverted) to +94 basis points (a more normal, upward slope). In terms of our sector allocations, we believe some of the key contributions to performance relative to the Lipper group came from having no exposure to airline bonds and a modest weight in tobacco bonds. OUTLOOK "We believe the underperformance of the municipal market in recent months was driven by technical factors and a lack of liquidity in the marketplace resulting from an extreme aversion to risk, rather than changes in credit fundamentals," said Portfolio Manager Stephen Permut. "As a result, we believe municipal bonds are very attractive relative to fully taxable investments and in terms of their absolute yields." "In that environment, we're positioning the portfolio for an eventual narrowing of credit spreads and decline in interest rates by adding longer-term, higher-coupon bonds," Permut continued. "In addition, we expect to maintain our yield curve steepening bias while managing duration conservatively. That's consistent with our well-established management strategy, based on thorough credit analysis, security selection, and investment monitoring over time. We think our track record versus our competition validates this steady, long-term approach to investing." Portfolio Composition By Credit Rating % of fund % of fund investments investments as of as of 11/30/07 5/31/07 AAA 14% 11% AA 2% 1% A -- 1% BBB 18% 19% BB 4% 4% Unrated 62% 64% Ratings provided by independent research companies. These ratings are listed in Standard & Poor's format even if they were provided by other sources. Top Five Sectors as of November 30, 2007 % of fund investments Land Secured 35% Hospital Revenue 16% Continuing Care Retirement Facility 10% Project Finance Revenue 8% Special Tax Revenue 6% - ------ 13 SCHEDULE OF INVESTMENTS High-Yield Municipal NOVEMBER 30, 2007 (UNAUDITED) Principal Amount Value Municipal Securities -- 98.6% ALABAMA -- 1.4% $ 4,150,000 Montgomery Medical Clinic Board Health Care Facility Rev., (Jackson Hospital & Clinic), 5.25%, 3/1/36(1) $ 3,970,223 ------------ ARIZONA -- 5.1% 2,500,000 Arizona Health Facilities Auth. Rev., Series 2007 B, (Banner Health), VRDN, 4.32%, 1/2/08 2,500,000 577,000 Centerra Community Facilities District GO, 5.50%, 7/15/29 537,972 3,015,000 Pronghorn Ranch Community Facilities District GO, 6.40%, 7/15/29 3,082,354 1,120,000 Quailwood Meadows Community Facilities District GO, 6.00%, 7/15/22 1,123,237 2,000,000 Quailwood Meadows Community Facilities District GO, 6.125%, 7/15/29 1,976,220 910,000 Sundance Community Facilities Assessment District No. 2 Rev., 7.125%, 7/1/27 965,301 783,000 Sundance Community Facilities Assessment District No. 3 Rev., 6.50%, 7/1/29 803,350 395,000 Sundance Community Facilities District GO, 6.25%, 7/15/29 402,134 1,500,000 Vistancia Community Facilities District GO, 5.50%, 7/15/20 1,549,365 1,200,000 Vistancia Community Facilities District GO, 5.75%, 7/15/24 1,239,888 ------------ 14,179,821 ------------ ARKANSAS -- 0.4% 1,000,000 Pulaski County Public Facilities Board Rev., Series 2006 A, (Philander Smith College), 5.60%, 6/1/36 996,750 ------------ CALIFORNIA -- 7.5% 2,000,000 California Mobilehome Park Financing Auth. Rev., Series 2003 B, (Palomar Estates E&W), 7.00%, 9/15/36 2,129,320 715,000 California Statewide Communities Development Auth. Rev., (Thomas Jefferson School of Law), 7.75%, 10/1/11, Prerefunded at 101% of Par(2) 824,838 Principal Amount Value $ 500,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2003 A1, 6.625%, 6/1/13 $ 578,595 2,420,000 Golden State Tobacco Securitization Corp. Settlement Rev., Series 2003 A1, 6.75%, 6/1/13 2,815,428 855,000 Hawaiian Gardens COP, Series 2000 A, 8.00%, 6/1/10, Prerefunded at 102% of Par(2) 955,069 2,235,000 Independent Cities Lease Finance Auth. Rev., Series 2004 A, (Morgan Hill - Hacienda Valley Mobile Estates), 5.90%, 11/15/34 2,260,948 1,970,000 Indio Redevelopment Agency Tax Allocation Rev., Series 2004 B, (Sub-Merged Project Area), 6.50%, 8/15/34 2,075,119 3,000,000 Perris Public Financing Auth. Special Tax Rev., Series 2003 A, 6.25%, 9/1/33(1) 3,141,120 3,000,000 Rancho Cordova Community Facilities District No. 2004-1 Special Tax Rev., (Sunridge Park Area), 6.125%, 9/1/37 3,038,100 1,000,000 Soledad Improvement Bond Act of 1915 Special Assessment, (Diamond Ridge Assessment District No. 2002-01), 6.75%, 9/2/33 1,063,010 1,575,000 Vallejo Multifamily Housing Rev., Series 1998 B, (Solano Affordable Housing), 8.25%, 4/1/39 (Acquired 12/12/02, Cost $1,704,764)(3) 1,750,077 ------------ 20,631,624 ------------ COLORADO -- 9.9% 3,000,000 Denver Health & Hospital Auth. Healthcare Rev., Series 2004 A, 6.25%, 12/1/14(1) 3,495,300 10,000,000 Denver Health & Hospital Auth. Healthcare Rev., Series 2007 B, VRDN, 4.84%, 12/1/07, resets quarterly at 67% of the 3-month LIBOR plus 1.10% with no caps(1) 10,000,000 5,725,000 Granby Ranch Metropolitan District GO, 6.75%, 12/1/36(1) 5,497,031 3,000,000 One Horse Business Improvement District Rev., 6.00%, 6/1/24 3,092,460 1,500,000 Plaza Metropolitan District No. 1 Rev., 8.00%, 12/1/25 1,604,265 - ------ 14 High-Yield Municipal Principal Amount Value $2,000,000 Todd Creek Farms Metropolitan District No. 1 Rev., 5.60%, 12/1/14 $ 1,975,540 1,500,000 Todd Creek Farms Metropolitan District No. 1 Rev., 6.125%, 12/1/19 1,500,840 ------------ 27,165,436 ------------ CONNECTICUT -- 0.4% 1,000,000 Connecticut Development Auth. Industrial Rev., (Afco Cargo BDL - LLC), 8.00%, 4/1/30 1,056,610 ------------ DISTRICT OF COLUMBIA -- 0.7% 1,000,000 District of Columbia COP, (Public Safety & Emergency), 5.50%, 1/1/19 (Ambac) 1,078,880 750,000 Metropolitan Washington D.C. Airports Auth. General Rev., Series 2001 A, 5.50%, 10/1/18 (MBIA) 798,795 ------------ 1,877,675 ------------ FLORIDA -- 9.2% 2,765,000 Anthem Park Community Development District Rev., 5.80%, 5/1/36 2,471,302 4,775,000 Arborwood Community Development District Special Assessment Rev., Series 2006 B, (Centex Homes), 5.25%, 5/1/16(1) 4,347,542 2,230,000 Concorde Estates Community Development District Rev., Series 2004 B, 5.00%, 5/1/11 2,214,591 140,000 Covington Park Community Development District Rev., Series 2004 B, (Capital Improvement), 5.30%, 11/1/09 139,703 970,000 Double Branch Community Development District Special Assessment, Series 2002 A, 6.70%, 5/1/34 1,040,732 2,245,000 Dupree Lakes Community Development District Rev., 5.00%, 11/1/10 2,241,408 520,000 Fleming Island Plantation Community Development District Special Assessment, Series 2000 B, 7.375%, 5/1/10 574,122 185,000 Middle Village Community Development District Special Assessment, Series 2004 B, 5.00%, 5/1/09 184,734 2,500,000 Midtown Miami Community Development District Special Assessment, Series 2004 A, 6.25%, 5/1/37 2,336,375 Principal Amount Value $6,500,000 Seminole Indian Tribe Special Obligation Rev., Series 2007 A, 5.50%, 10/1/24(1) $ 6,516,574 1,245,000 South-Dade Venture Community Development District Rev., 6.125%, 5/1/34 1,272,427 605,000 Sterling Hill Community Development District Special Assessment, Series 2003 B, 5.50%, 11/1/10 603,282 360,000 Stoneybrook West Community Development District Special Assessment, Series 2000 A, 7.00%, 5/1/32 374,922 935,000 Waterchase Community Development District Rev., Series 2001 A, 6.70%, 5/1/32, Prerefunded at 101% of Par(2) 1,027,116 ------------ 25,344,830 ------------ GEORGIA -- 0.4% 1,235,000 City of Atlanta Tax Allocation Rev., (Princeton Lakes), 5.50%, 1/1/31 1,188,873 ------------ GUAM -- 0.6% 1,500,000 Guam Government Waterworks Auth. Rev., 6.00%, 7/1/25 1,577,715 ------------ ILLINOIS -- 14.3% 1,325,000 Bedford Park Tax Allocation Rev., 5.125%, 12/30/18 1,298,633 3,000,000 Chicago Park District GO, Series 2006 C, 5.00%, 1/1/12 (FGIC)(1) 3,175,140 3,000,000 Chicago Tax Increment Allocation Rev., Series 2004 B, (Pilsen Redevelopment), (Junior Lien), 6.75%, 6/1/22(1) 3,162,690 5,995,000 City of Yorkville Special Service Area No. 2005-109 Special Tax Rev., (Bristol Bay I), 5.875%, 3/1/36(1) 5,686,436 5,000,000 Illinois Finance Auth. Rev., Series 2007 A, (Sedgebrook, Inc. Facility), 6.00%, 11/15/37(1) 4,871,050 5,000,000 Illinois Finance Auth. Rev., Series 2007 A, (Sedgebrook, Inc. Facility), 6.00%, 11/15/42(1) 4,816,250 3,347,000 Pingree Grove Special Service Area No. 7 Special Tax Rev., Series 2006-1, (Cambridge Lakes), 6.00%, 3/1/36(1) 3,229,822 1,000,000 Village of Bolingbrook Sales Tax Rev., VRDN, 0.00%, 1/3/08(4) 1,032,080 - ------ 15 High-Yield Municipal Principal Amount Principal Amount Value $5,000,000 Village of Hampshire Special Service Area No. 13 Special Tax Rev., (Tuscany Woods), 5.75%, 3/1/37(1) $ 4,593,600 4,230,000 Village of Hampshire Special Service Area No. 16 Special Tax Rev., Series 2007 A, (Crown Development - Prairie Ridge West), 6.00%, 3/1/46(1) 4,091,298 3,500,000 Volo Village Special Service Area No. 3 Special Tax Rev., Series 2006-1, (Symphony Meadows), 6.00%, 3/1/36(1) 3,377,465 ------------ 39,334,464 ------------ INDIANA -- 3.5% 7,000,000 Indiana Health & Educational Facility Financing Auth. Hospital Rev., (Community Foundation of Northwest Indiana Obligated Group), 5.50%, 3/1/37(1) 6,796,300 3,000,000 Vigo County Hospital Auth. Rev., (Union Hospital, Inc.), 5.70%, 9/1/37 (Acquired 6/27/07, Cost $3,000,000)(1)(3) 2,800,920 ------------ 9,597,220 ------------ IOWA -- 1.3% 2,000,000 Iowa Finance Auth. Senior Living Facility Rev., Series 2007 A, (Deerfield Retirement Community, Inc.), 5.50%, 11/15/37 1,837,020 2,000,000 Tobacco Settlement Auth. Rev., Series 2005 C, 5.50%, 6/1/42 1,810,820 ------------ 3,647,840 ------------ KANSAS -- 2.0% 1,100,000 Labette County Hospital Rev., Series 2007 A, 5.75%, 9/1/37 1,070,861 4,500,000 Lenexa Health Care Facility Rev., (Lakeview Village, Inc.), 5.50%, 5/15/39 4,365,720 ------------ 5,436,581 ------------ MARYLAND -- 2.1% 1,240,000 Anne Arundel County Special Obligation Rev., (Arundel Mills), 7.10%, 7/1/09, Prerefunded at 102% of Par(2) 1,334,823 1,000,000 Anne Arundel County Special Obligation Rev., (National Business Park), 7.375%, 7/1/10, Prerefunded at 102% of Par(2) 1,116,350 1,000,000 Baltimore Special Obligation Rev., (North Locust Point), 5.50%, 9/1/34 943,210 Principal Amount Value $1,000,000 Maryland Industrial Development Financing Auth. Rev., Series 2005 A, (Our Lady of Good Counsel High School), 6.00%, 5/1/35 $ 1,014,570 1,195,000 Prince Georges County Rev., (Woodview Village Phase II - Subdistrict), 7.00%, 7/1/12 1,396,967 ------------ 5,805,920 ------------ MASSACHUSSETTS -- 0.9% 2,625,000 Massachusetts Development Finance Agency Rev., Series 2007 A, (Linden Ponds, Inc. Facility), 5.75%, 11/15/42 2,507,295 ------------ MICHIGAN -- 3.5% 10,000,000 Michigan Tobacco Settlement Finance Auth., Series 2007 A, 6.00%, 6/1/48(1) 9,740,700 ------------ MINNESOTA -- 2.0% 840,000 Meeker County Hospital Facilities Rev., (Memorial Hospital), 5.75%, 11/1/27 832,096 1,720,000 Meeker County Hospital Facilities Rev., (Memorial Hospital), 5.75%, 11/1/37 1,672,098 3,000,000 North Oaks Senior Housing Rev., (Presbyterian Homes), 6.50%, 10/1/47 3,084,120 ------------ 5,588,314 ------------ MISSOURI -- 0.4% 860,000 Missouri Bottom Transportation Development District Hazelwood Rev., 7.20%, 5/1/33 920,896 255,000 Missouri Housing Development Commission Mortgage Rev., Series 1998 B2, (Single Family), 6.40%, 9/1/29 263,798 ------------ 1,184,694 ------------ NEVADA -- 5.8% 1,085,000 Clark County Improvement District No. 121 Special Assessment, (Southern Highlands Area), 7.50%, 12/1/09, Prerefunded at 102% of Par(2) 1,187,489 2,975,000 Clark County Improvement District No. 142 Special Assessment, 5.50%, 8/1/12 3,002,161 670,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.25%, 2/1/12 669,330 - ------ 16 High-Yield Municipal Principal Amount Principal Amount Value $ 700,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.375%, 2/1/13 $ 702,765 675,000 Clark County Improvement Districts No. 108 & 124 Special Assessment, Series 2003 B, 5.40%, 2/1/14 677,228 1,530,000 Henderson Local Improvement District No. T-15 Special Assessment, 6.10%, 3/1/24 1,527,016 1,105,000 Henderson Redevelopment Agency Tax Allocation Rev., Series 2002 B, 7.10%, 10/1/22 1,173,764 350,000 Henderson Redevelopment Agency Tax Allocation Rev., Series 2002 B, 7.20%, 10/1/25 371,067 1,250,000 Las Vegas Improvement District No. 607 Special Assessment, 5.50%, 6/1/13 1,221,925 490,000 Las Vegas Improvement District No. 808 Special Assessment, (Summerlin Area), 5.70%, 6/1/08 504,725 3,500,000 Las Vegas Improvement Districts No. 808 & 810 Special Assessment,(Summerlin Village 23B), 6.125%, 6/1/31 3,357,199 710,000 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.20%, 12/1/10 710,256 750,000 Reno Special Assessment District No. 4 Rev., (Somersett Parkway), 5.45%, 12/1/11 755,753 ------------ 15,860,678 ------------ NEW JERSEY -- 4.5% 5,000,000 New Jersey Economic Development Auth. Rev., Series 2006 A, (Gloucester Marine Terminal), 6.625%, 1/1/37(1) 5,134,150 5,000,000 New Jersey Economic Development Auth. Rev., Series 2006 B, (Gloucester Marine Terminal), 6.875%, 1/1/37(1) 5,171,000 2,000,000 New Jersey Economic Development Auth. Rev., Series 2006 C, (Gloucester Marine Terminal), 6.50%, 1/1/15 2,026,080 ------------ 12,331,230 ------------ NEW MEXICO -- 1.3% 1,490,000 Cabezon Public Improvement District Special Tax Rev., 6.30%, 9/1/34 1,520,813 1,000,000 Mariposa East Public Improvement District GO, 6.00%, 9/1/32 1,004,960 Principal Amount Value $1,000,000 Ventana West Public Improvement District Special Levy Rev., 6.875%, 8/1/33 $ 1,046,570 ------------ 3,572,343 ------------ NEW YORK -- 0.4% 1,000,000 Onondaga County Industrial Development Auth. Rev., (Air Cargo), 7.25%, 1/1/32 1,046,210 ------------ NORTHERN MARIANA ISLANDS -- 0.8% 1,900,000 Northern Mariana Islands GO, Series 2003 A, 6.75%, 10/1/13, Prerefunded at 100% of Par(2) 2,222,411 100,000 Northern Mariana Islands GO, Series 2003 A, 6.75%, 10/1/33 106,082 ------------ 2,328,493 ------------ OHIO -- 2.8% 1,115,000 Hebron Waterworks Rev., 5.875%, 12/1/25 1,179,046 745,000 Hebron Waterworks Rev., 6.125%, 12/1/29 793,380 285,000 New Albany Plain Local School District GO, 5.50%, 12/1/19 (FGIC) 306,404 1,800,000 Pinnacle Community Infrastructure Financing Facilities Auth. Rev., Series 2004 A, 6.25%, 12/1/36 1,832,273 1,100,000 Port of Greater Cincinnati Development Auth. Special Assessment, (Cooperative Public Parking Infrastructure), 6.40%, 2/15/34 1,137,059 2,600,000 Trumbull County Health Care Facilities Rev., (Shepherd of the Valley Lutheran Retirement Services, Inc. Obligated Group), VRDN, 5.15%, 12/3/07 (RADIAN) (SBBPA: Fleet National Bank) 2,600,000 ------------ 7,848,162 ------------ OKLAHOMA -- 1.2% 2,500,000 Norman Regional Hospital Auth. Rev., 5.375%, 9/1/36 2,463,775 750,000 Oklahoma City Industrial & Cultural Facilities Trust Rev., 6.75%, 1/1/23 773,963 ------------ 3,237,738 ------------ OREGON -- 2.4% 2,000,000 Cow Creek Band of Umpqua Tribe of Indians Rev., Series 2006 C, 5.625%, 10/1/26 (Acquired 6/9/06, Cost $2,000,000)(3) 1,939,540 - ------ 17 High-Yield Municipal Principal Amount Principal Amount Value $4,750,000 Forest Grove Student Housing Rev., (Oak Tree Foundation), 5.50%, 3/1/37 (Acquired 6/28/07, Cost $4,750,000)(1)(3) $ 4,559,668 ------------ 6,499,208 ------------ PENNSYLVANIA -- 3.7% 4,375,000 Allegheny County Redevelopment Auth. Tax Allocation, (Pittsburgh Mills), 5.10%, 7/1/14(1) 4,389,132 1,500,000 Allegheny County Redevelopment Auth. Tax Allocation, (Pittsburgh Mills), 5.60%, 7/1/23 1,510,590 1,000,000 Langhorne Manor Boro Higher Education Auth. Rev., (Philadelphia Biblical University), 5.50%, 4/1/25 997,150 185,000 New Morgan Municipal Auth. Office Rev., Series 1999 A, (Commonwealth Office), 5.375%, 6/1/08 184,402 3,000,000 Peninsula Town Center Community Development Auth. Special Obligation Rev., 6.45%, 9/1/37 3,066,030 ------------ 10,147,304 ------------ RHODE ISLAND -- 0.2% 500,000 Cranston GO, 6.375%, 11/15/09, Prerefunded at 101% of Par (FGIC)(2) 534,050 ------------ TENNESSEE -- 1.8% 1,340,000 Chattanooga Health Educational & Housing Facility Board Rev., Series 2005 B, (Campus Development Foundation, Inc. Phase I LLC), 5.50%, 10/1/20 1,331,973 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(1) 3,570,170 ------------ 4,902,143 ------------ Principal Amount Value TEXAS -- 4.6% $ 505,000 Abia Development Corp. Airport Facilities Rev., (Aero Austin L.P.), 6.75%, 1/1/11 $ 514,070 5,000,000 Lufkin Health Facilities Development Corp. Rev., (Memorial Health System of East Texas), 5.50%, 2/15/37(1) 4,974,350 2,000,000 Pearland Development Auth. Tax Allocation Rev., 5.50%, 9/1/28 (RADIAN) 2,041,620 5,500,000 Tarrant County Cultural Education Facilities Finance Corp. Retirement Facility Rev., (Buckingham Senior Living Community, Inc.), 5.75%, 11/15/37(1) 5,211,140 ------------ 12,741,180 ------------ WASHINGTON -- 0.4% 860,000 Cowlitz County Kelso School District No. 458 GO, 5.75%, 12/1/18 (FSA) (School Bond Guarantee) 934,923 250,000 Port of Seattle Rev., Series 2000 B, 6.00%, 2/1/15 (MBIA) 281,330 ------------ 1,216,253 ------------ WISCONSIN -- 3.1% 4,700,000 Badger Tobacco Asset Securitization Corp. Rev., 6.125%, 6/1/27(1) 4,865,863 2,000,000 Wisconsin Health & Educational Facilities Auth. Rev., Series 2004 A, (Southwest Health Center), 6.25%, 4/1/34 2,008,080 1,750,000 Wisconsin Health & Educational Facilities Auth. Rev., Series 2006 A, (Marshfield Clinic), 5.375%, 2/15/34 1,713,723 ------------ 8,587,666 ------------ TOTAL INVESTMENT SECURITIES -- 98.6% (Cost $273,034,263) 271,685,243 ------------ OTHER ASSETS AND LIABILITIES -- 1.4% 3,803,158 ------------ TOTAL NET ASSETS -- 100.0% $275,488,401 ============ - ------ 18 High-Yield Municipal Futures Contracts Underlying Face Unrealized Contracts Purchased Expiration Date Amount at Value Gain (Loss) 417 U.S. Treasury 2-Year Notes March 2008 $87,615,609 $118,671 ============== ============ Underlying Face Unrealized Contracts Sold Expiration Date Amount at Value Gain (Loss) 305 U.S. Treasury 10-Year Notes March 2008 $34,526,953 $(507,032) ============== ============ 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 LIBOR = London Interbank Offered Rate MBIA = MBIA Insurance Corporation RADIAN = Radian Asset Assurance, Inc. resets = The frequency with which a security's coupon changes, based on current market conditions or an underlying index. The more frequently a security resets, the less risk the investor is taking that the coupon will vary significantly from current market rates. SBBPA = Standby Bond Purchase Agreement VRDN = Variable Rate Demand Note. Interest reset date is indicated. Rate shown is effective November 30, 2007. (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, 2007 was $11,050,205, which represented 4.0% 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, 2007. See Notes to Financial Statements. - ------ 19 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, 2007 to November 30, 2007. 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 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. - ------ 20 Beginning Ending Expenses Paid Account Account During Period* Annualized Value Value 6/1/07 - Expense 6/1/07 11/30/07 11/30/07 Ratio* Long-Term Tax-Free ACTUAL Investor Class $1,000 $1,003.90 $2.45 0.49% Institutional Class $1,000 $1,004.90 $1.45 0.29% A Class $1,000 $1,002.70 $3.70 0.74% B Class $1,000 $998.90 $7.45 1.49% C Class $1,000 $999.00 $7.45 1.49% HYPOTHETICAL Investor Class $1,000 $1,022.55 $2.48 0.49% Institutional Class $1,000 $1,023.55 $1.47 0.29% A Class $1,000 $1,021.30 $3.74 0.74% B Class $1,000 $1,017.55 $7.52 1.49% C Class $1,000 $1,017.55 $7.52 1.49% High-Yield Municipal ACTUAL Investor Class $1,000 $971.60 $3.11 0.63% A Class $1,000 $970.40 $4.33 0.88% B Class $1,000 $966.80 $8.01 1.63% C Class $1,000 $966.80 $8.01 1.63% HYPOTHETICAL Investor Class $1,000 $1,021.85 $3.18 0.63% A Class $1,000 $1,020.60 $4.45 0.88% B Class $1,000 $1,016.85 $8.22 1.63% C Class $1,000 $1,016.85 $8.22 1.63% *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 366, to reflect the one-half year period. - ------ 21 STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 2007 (UNAUDITED) Long-Term High-Yield Tax-Free Municipal ASSETS Investment securities, at value (cost of $27,465,270 and $273,034,263, respectively) $27,872,364 $271,685,243 Receivable for investments sold 3,784,209 -- Receivable for capital shares sold -- 105,700 Receivable for variation margin on futures contracts 3,246 38,607 Interest receivable 325,699 4,403,348 -------------- -------------- 31,985,518 276,232,898 -------------- -------------- LIABILITIES Disbursements in excess of demand deposit cash 141,720 205,597 Payable for investments purchased 4,884,477 -- Payable for capital shares redeemed 6,425 62,107 Accrued management fees 7,973 142,390 Distribution fees payable 849 24,906 Service fees (and distribution fees -- A Class) payable 1,963 39,234 Dividends payable -- 270,263 -------------- -------------- 5,043,407 744,497 -------------- -------------- NET ASSETS $26,942,111 $275,488,401 ============== ============== See Notes to Financial Statements. - ------ 22 NOVEMBER 30, 2007 (UNAUDITED) Long-Term High-Yield Tax-Free Municipal NET ASSETS CONSIST OF: Capital paid in $27,645,199 $282,438,356 Undistributed net investment income 27,577 -- Accumulated net realized loss on investment transactions (1,097,346) (5,212,574) Net unrealized appreciation (depreciation) on investments 366,681 (1,737,381) -------------- -------------- $26,942,111 $275,488,401 ============== ============== INVESTOR CLASS Net assets $242,612 $86,121,415 Shares outstanding 22,889 8,508,327 Net asset value per share $10.60 $10.12 INSTITUTIONAL CLASS Net assets $17,375,362 N/A Shares outstanding 1,639,258 Net asset value per share $10.60 A CLASS Net assets $7,957,255 $149,646,107 Shares outstanding 750,707 14,784,227 Net asset value per share $10.60 $10.12 Maximum offering price (net asset value divided by 0.955) $11.10 $10.60 B CLASS Net assets $1,205,112 $4,263,604 Shares outstanding 113,707 421,221 Net asset value per share $10.60 $10.12 C CLASS Net assets $161,770 $35,457,275 Shares outstanding 15,262 3,502,982 Net asset value per share $10.60 $10.12 See Notes to Financial Statements. - ------ 23 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007 (UNAUDITED) Long-Term High-Yield Tax-Free Municipal INVESTMENT INCOME (LOSS) INCOME: Interest $ 666,024 $ 8,237,611 --------------- -------------- EXPENSES: Management fees 52,530 903,975 Distribution fees: B Class 4,861 16,826 C Class 397 141,164 Service fees: B Class 1,620 5,609 C Class 132 47,055 Distribution and service fees -- A Class 12,349 194,443 Trustees' fees and expenses 817 8,154 Other expenses 122 1,974 --------------- -------------- 72,828 1,319,200 --------------- -------------- NET INVESTMENT INCOME (LOSS) 593,196 6,918,411 --------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON: Investment transactions (640,923) (4,709,131) Futures and swap transactions 99,255 328,906 --------------- -------------- (541,668) (4,380,225) --------------- -------------- CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON: Investments 95,610 (11,210,921) Futures and swaps (65,970) (369,599) --------------- -------------- 29,640 (11,580,520) --------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) (512,028) (15,960,745) --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 81,168 $ (9,042,334) =============== ============== See Notes to Financial Statements. - ------ 24 STATEMENT OF CHANGES IN NET ASSETS SIX MONTHS ENDED NOVEMBER 30, 2007 (UNAUDITED) AND YEAR ENDED MAY 31, 2007 Long-Term Tax-Free High-Yield Municipal Increase (Decrease) in Nov. 30, Net Assets 2007 May 31, 2007 Nov. 30, 2007 May 31, 2007 OPERATIONS Net investment income (loss) $ 593,196 $ 1,359,480 $ 6,918,411 $ 12,750,107 Net realized gain (loss) (541,668) 350,007 (4,380,225) 1,657,489 Change in net unrealized appreciation (depreciation) 29,640 (41,606) (11,580,520) 3,122,438 ----------- ----------- ------------ ------------ Net increase (decrease) in net assets resulting from operations 81,168 1,667,881 (9,042,334) 17,530,034 ----------- ----------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income: Investor Class (4,667) (5,831) (2,389,799) (4,616,008) Institutional Class (373,580) (712,795) -- -- A Class (192,888) (588,921) (3,687,638) (6,636,230) B Class (20,361) (50,819) (89,513) (172,636) C Class (1,700) (1,115) (751,461) (1,325,233) ----------- ----------- ------------ ------------ Decrease in net assets from distributions (593,196) (1,359,481) (6,918,411) (12,750,107) ----------- ----------- ------------ ------------ CAPITAL SHARE TRANSACTIONS Net increase (decrease) in net assets from capital share transactions (3,742,020) (6,952,148) (7,504,146) 45,266,593 ----------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS (4,254,048) (6,643,748) (23,464,891) 50,046,520 NET ASSETS Beginning of period 31,196,159 37,839,907 298,953,292 248,906,772 ----------- ----------- ------------ ------------ End of period $26,942,111 $31,196,159 $275,488,401 $298,953,292 =========== =========== ============ ============ Undistributed net investment income $27,577 $27,577 -- -- =========== =========== ============ ============ See Notes to Financial Statements. - ------ 25 NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 2007 (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. Long-Term Tax-Free Fund (Long-Term Tax-Free) and High-Yield Municipal Fund (High-Yield Municipal) (collectively, the funds) are two funds in a series issued by the trust. Long-Term Tax-Free is diversified under the 1940 Act. High-Yield Municipal is non-diversified under the 1940 Act. Long-Term Tax-Free's investment objective is to seek a high level of 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 -- Long-Term Tax-Free is authorized to issue the Investor Class, the Institutional Class, the A Class, the B Class and the C Class. High-Yield Municipal is authorized to issue the Investor Class, the A Class, the B Class and the C Class. The A Class may incur an initial sales charge. The A Class, B Class and C Class may be subject to a contingent deferred sales charge. The share classes differ principally in their respective sales charges and 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. 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 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 as determined by, or in accordance with procedures adopted by, the Board of Trustees or its designee if such determination would materially impact a fund's net asset value. Certain other circumstances may cause the funds to use alternative procedures to 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 -- For financial reporting purposes, 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 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. - ------ 26 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 swap agreements 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. 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. The funds are no longer subject to examination by tax authorities for years prior to 2004. At this time, management has not identified any uncertain tax positions that would materially impact the financial statements. Accordingly, no provision has been made for federal or state income taxes. Interest and penalties associated with any federal or state income tax obligations, if any, are recorded as interest expense. 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 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. The effective annual management fee for each of the Investor Class, A Class, B Class and C Class of Long-Term Tax-Free and High-Yield Municipal for the six months ended November 30, 2007 was 0.48% and 0.62%, respectively. The effective annual management fee for the Institutional Class of Long-Term Tax-Free for the six months ended November 30, 2007 was 0.28%. - ------ 27 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 A Class will pay American Century Investment Services, Inc. (ACIS) an annual distribution and service fee of 0.25%. The plans provide that the B Class and the C Class will each pay ACIS an annual distribution fee of 0.75% 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, 2007, 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. The funds have a bank line of credit agreement with JPMorgan Chase Bank (JPMCB). JPMCB is a custodian of the funds and a wholly owned subsidiary of 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, 2007, were as follows: Long-Term Tax-Free High-Yield Municipal Purchases $31,458,230 $88,497,518 Proceeds from sales $32,546,767 $95,751,576 - ------ 28 4. CAPITAL SHARE TRANSACTIONS Transactions in shares of the funds were as follows (unlimited number of shares authorized): Six months ended Year ended November 30, 2007 May 31, 2007 Shares Amount Shares Amount Long-Term Tax-Free INVESTOR CLASS Sold 1,846 $ 19,546 20,901 $ 226,301 Issued in reinvestment of distributions 438 4,643 526 5,718 Redeemed -- -- (3,168) (34,547) ----------- ------------ ----------- ------------- 2,284 24,189 18,259 197,472 ----------- ------------ ----------- ------------- INSTITUTIONAL CLASS Issued in reinvestment of distributions 35,625 373,463 65,697 712,471 ----------- ------------ ----------- ------------- A CLASS Sold 26,048 275,867 96,442 1,049,120 Issued in reinvestment of distributions 14,370 152,315 40,105 434,715 Redeemed (424,615) (4,502,443) (804,205) (8,715,672) ----------- ------------ ----------- ------------- (384,197) (4,074,261) (667,658) (7,231,837) ----------- ------------ ----------- ------------- B CLASS Sold 640 6,806 3,841 41,044 Issued in reinvestment of distributions 1,531 16,234 3,656 39,610 Redeemed (19,824) (209,796) (67,333) (727,027) ----------- ------------ ----------- ------------- (17,653) (186,756) (59,836) (646,373) ----------- ------------ ----------- ------------- C CLASS Sold 15,115 160,371 1,388 15,004 Issued in reinvestment of distributions 156 1,650 103 1,115 Redeemed (3,842) (40,676) -- -- ----------- ------------ ----------- ------------- 11,429 121,345 1,491 16,119 ----------- ------------ ----------- ------------- Net increase (decrease) (352,512) $(3,742,020) (642,047) $(6,952,148) =========== ============ =========== ============= - ------ 29 Six months ended Year ended November 30, 2007 May 31, 2007 Shares Amount Shares Amount High-Yield Municipal INVESTOR CLASS Sold 1,265,610 $ 13,187,469 3,551,483 $ 37,619,683 Issued in reinvestment of distributions 141,877 1,464,506 273,658 2,917,123 Redeemed (2,003,410) (20,570,745) (2,805,384) (29,932,323) ----------- ------------ ----------- ------------- (595,923) (5,918,770) 1,019,757 10,604,483 ----------- ------------ ----------- ------------- A CLASS Sold 2,621,294 27,192,934 6,497,555 69,268,767 Issued in reinvestment of distributions 304,557 3,142,520 530,236 5,653,892 Redeemed (2,990,661) (30,830,101) (4,528,018) (48,368,107) ----------- ------------ ----------- ------------- (64,810) (494,647) 2,499,773 26,554,552 ----------- ------------ ----------- ------------- B CLASS Sold 14,480 149,557 66,699 710,714 Issued in reinvestment of distributions 3,614 37,278 6,014 64,138 Redeemed (45,286) (470,297) (49,747) (528,051) ----------- ------------ ----------- ------------- (27,192) (283,462) 22,966 246,801 ----------- ------------ ----------- ------------- C CLASS Sold 448,635 4,656,994 1,203,132 12,795,715 Issued in reinvestment of distributions 29,013 299,265 43,904 468,377 Redeemed (558,795) (5,763,526) (506,615) (5,403,335) ----------- ------------ ----------- ------------- (81,147) (807,267) 740,421 7,860,757 ----------- ------------ ----------- ------------- Net increase (decrease) (769,072) $(7,504,146) 4,282,917 $ 45,266,593 =========== ============ =========== ============= 5. BANK LINE OF CREDIT The funds, 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 with JPMCB. 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 0.40%. The funds did not borrow from the line during the six months ended November 30, 2007. Effective December 12, 2007, the funds, along with certain other funds managed by ACIM or ACGIM, have a $500,000,000 unsecured bank line of credit agreement with Bank of America, N.A. (the Bank of America agreement). The funds may borrow money for temporary or emergency purposes to fund shareholder redemptions. Borrowings under the Bank of America agreement bear interest at the Federal Funds rate plus 0.40%. 6. RISK FACTORS Income may be subject to state and local taxes and, if applicable, the alternative minimum tax. 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 invests primarily in lower-rated debt securities, which are subject to substantial risks including price volatility, liquidity and default risk. - ------ 30 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. As of November 30, 2007, the components of investments for federal income tax purposes were as follows: Long-Term Tax-Free High-Yield Municipal Federal tax cost of investments $27,465,270 $273,034,263 ============== ============== Gross tax appreciation of investments $420,091 $4,655,567 Gross tax depreciation of investments (12,997) (6,004,587) -------------- -------------- Net tax appreciation (depreciation) of investments $407,094 $(1,349,020) ============== ============== 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, 2007: Long-Term Tax-Free High-Yield Municipal Accumulated capital losses $(540,242) $(851,111) Capital loss deferral $(18,901) -- 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: 2010 2011 2012 2013 2014 Long-Term Tax-Free -- -- $(8,266) $(142,310) $(389,666) High-Yield Municipal $(4,877) -- $(145,918) $(700,316) -- The capital loss deferral listed above for Long-Term Tax-Free represents net capital losses incurred in the seven-month period ended May 31, 2007. Long-Term Tax-Free has elected to treat such losses as having been incurred in the following fiscal year for federal income tax purposes. 8. 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. Management has concluded that the adoption of FIN 48 will not materially impact the financial statements. 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 that adopting FAS 157 will have on the financial statement disclosures. - ------ 31 FINANCIAL HIGHLIGHTS Long-Term Tax-Free Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.22 0.43 0.06 Net Realized and Unrealized Gain (Loss) (0.18) 0.08 (0.02) ------- ------- ------- Total From Investment Operations 0.04 0.51 0.04 ------- ------- ------- Distributions From Net Investment Income (0.22) (0.43) (0.06) ------- ------- ------- Net Asset Value, End of Period $10.60 $10.78 $10.70 ======= ======= ======= TOTAL RETURN(3) 0.39% 4.84% 0.42% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.49%(4) 0.49% 0.49%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 4.16%(4) 4.00% 3.85%(4) Portfolio Turnover Rate 124% 101% 62% Net Assets, End of Period (in thousands) $243 $222 $25 (1) Six months ended November 30, 2007 (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. - ------ 32 Long-Term Tax-Free Institutional Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.23 0.45 0.07 Net Realized and Unrealized Gain (Loss) (0.18) 0.08 (0.02) ------- ------- ------- Total From Investment Operations 0.05 0.53 0.05 ------- ------- ------- Distributions From Net Investment Income (0.23) (0.45) (0.07) ------- ------- ------- Net Asset Value, End of Period $10.60 $10.78 $10.70 ======= ======= ======= TOTAL RETURN(3) 0.49% 5.05% 0.45% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.29%(4) 0.29% 0.29%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 4.36%(4) 4.20% 4.05%(4) Portfolio Turnover Rate 124% 101% 62% Net Assets, End of Period (in thousands) $17,375 $17,285 $16,456 (1) Six months ended November 30, 2007 (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. - ------ 33 Long-Term Tax-Free A Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006(2) 2006 2005 2004 2003 PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 $10.74 $11.06 $10.98 $10.50 ------- ------- ------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.21 0.41 0.06 0.35(3) 0.33(3) 0.33(3) 0.41(3) Net Realized and Unrealized Gain (Loss) (0.18) 0.08 (0.02) (0.03) (0.15) 0.24 0.61 ------- ------- ------- ------- ------- ------- ------- Total From Investment Operations 0.03 0.49 0.04 0.32 0.18 0.57 1.02 ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income (0.21) (0.41) (0.06) (0.34) (0.33) (0.33) (0.42) From Net Realized Gains -- -- -- -- (0.17) (0.16) (0.12) ------- ------- ------- ------- ------- ------- ------- Total Distributions (0.21) (0.41) (0.06) (0.34) (0.50) (0.49) (0.54) ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period $10.60 $10.78 $10.70 $10.72 $10.74 $11.06 $10.98 ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(4) 0.27% 4.58% 0.40% 3.01% 1.63% 5.31% 9.88% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.74%(5) 0.74% 0.74%(5) 0.82% 0.84% 0.85% 0.85% Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 0.74%(5) 0.74% 0.74%(5) 0.82% 0.84% 0.89% 0.93% Ratio of Net Investment Income (Loss) to Average Net Assets 3.91%(5) 3.75% 3.60%(5) 3.21% 3.01% 3.01% 3.78% Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 3.91%(5) 3.75% 3.60%(5) 3.21% 3.01% 2.97% 3.70% Portfolio Turnover Rate 124% 101% 62% 27% 43% 815%(6) 48% Net Assets, End of Period (in thousands) $7,957 $12,233 $19,288 $36,834 $123,399 $120,606 $107,770 (1) Six months ended November 30, 2007 (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 end was March 31. (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. - ------ 34 Long-Term Tax-Free B Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006(2) 2006 2005 2004 2003 PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 $10.73 $11.06 $10.98 $10.50 ------- ------- ------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.17 0.32 0.05 0.27(3) 0.26(3) 0.26(3) 0.34(3) Net Realized and Unrealized Gain (Loss) (0.18) 0.08 (0.02) (0.01) (0.16) 0.24 0.61 ------- ------- ------- ------- ------- ------- ------- Total From Investment Operations (0.01) 0.40 0.03 0.26 0.10 0.50 0.95 ------- ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income (0.17) (0.32) (0.05) (0.27) (0.26) (0.26) (0.35) From Net Realized Gains -- -- -- -- (0.17) (0.16) (0.12) ------- ------- ------- ------- ------- ------- ------- Total Distributions (0.17) (0.32) (0.05) (0.27) (0.43) (0.42) (0.47) ------- ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period $10.60 $10.78 $10.70 $10.72 $10.73 $11.06 $10.98 ======= ======= ======= ======= ======= ======= ======= TOTAL RETURN(4) (0.11)% 3.80% 0.28% 2.42% 0.89% 4.62% 9.16% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.49%(5) 1.49% 1.49%(5) 1.50% 1.50% 1.50% 1.50% Ratio of Operating Expenses to Average Net Assets (Before Expense Waiver) 1.49%(5) 1.49% 1.49%(5) 1.54% 1.52% 1.54% 1.58% Ratio of Net Investment Income (Loss) to Average Net Assets 3.16%(5) 3.00% 2.85%(5) 2.49% 2.36% 2.39% 3.11% Ratio of Net Investment Income (Loss) to Average Net Assets (Before Expense Waiver) 3.16%(5) 3.00% 2.85%(5) 2.45% 2.34% 2.35% 3.03% Portfolio Turnover Rate 124% 101% 62% 27% 43% 815%(6) 48% Net Assets, End of Period (in thousands) $1,205 $1,416 $2,046 $2,081 $2,483 $2,674 $3,533 (1) Six months ended November 30, 2007 (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 end was March 31. (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. - ------ 35 Long-Term Tax-Free C Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.78 $10.70 $10.72 ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.17 0.32 0.05 Net Realized and Unrealized Gain (Loss) (0.18) 0.08 (0.02) ------- ------- ------- Total From Investment Operations (0.01) 0.40 0.03 ------- ------- ------- Distributions From Net Investment Income (0.17) (0.32) (0.05) ------- ------- ------- Net Asset Value, End of Period $10.60 $10.78 $10.70 ======= ======= ======= TOTAL RETURN(3) (0.10)% 3.80% 0.26% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.49%(4) 1.49% 1.49%(4) Ratio of Net Investment Income (Loss) to Average Net Assets 3.16%(4) 3.00% 2.85%(4) Portfolio Turnover Rate 124% 101% 62% Net Assets, End of Period (in thousands) $162 $41 $25 (1) Six months ended November 30, 2007 (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. - ------ 36 High-Yield Municipal Investor Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006 2005 2004 2003 PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.50 $10.50 $10.04 $10.25 $9.87 ------- ------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.26 0.51 0.50 0.51 0.52 0.53 Net Realized and Unrealized Gain (Loss) (0.56) 0.18 --(2) 0.46 (0.21) 0.38 ------- ------- ------- ------- ------- ------- Total From Investment Operations (0.30) 0.69 0.50 0.97 0.31 0.91 ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income (0.26) (0.51) (0.50) (0.51) (0.52) (0.53) ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period $10.12 $10.68 $10.50 $10.50 $10.04 $10.25 ======= ======= ======= ======= ======= ======= TOTAL RETURN(3) (2.84)% 6.70% 4.91% 9.84% 3.07% 9.40% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.63%(4) 0.62% 0.62% 0.63% 0.64% 0.64% Ratio of Net Investment Income (Loss) to Average Net Assets 5.00%(4) 4.80% 4.80% 4.92% 5.06% 5.22% Portfolio Turnover Rate 32% 36% 16% 30% 27% 43% Net Assets, End of Period (in thousands) $86,121 $97,254 $84,896 $62,945 $54,340 $53,621 (1) Six months ended November 30, 2007 (unaudited). (2) Per-share amount was less than $0.005. (3) Total return assumes reinvestment of net investment income and capital gains distributions, if any. Total return 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. - ------ 37 High-Yield Municipal A Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006 2005 2004 2003(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.50 $10.50 $10.04 $10.25 $10.06 ------- ------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.25 0.48 0.48 0.48 0.49 0.17 Net Realized and Unrealized Gain (Loss) (0.56) 0.18 --(3) 0.46 (0.21) 0.19 ------- ------- ------- ------- ------- ------- Total From Investment Operations (0.31) 0.66 0.48 0.94 0.28 0.36 ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income (0.25) (0.48) (0.48) (0.48) (0.49) (0.17) ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period $10.12 $10.68 $10.50 $10.50 $10.04 $10.25 ======= ======= ======= ======= ======= ======= TOTAL RETURN(4) (2.96)% 6.43% 4.65% 9.56% 2.81% 3.57% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 0.88%(5) 0.87% 0.87% 0.88% 0.89% 0.88%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 4.75%(5) 4.55% 4.55% 4.67% 4.81% 5.03%(5) Portfolio Turnover Rate 32% 36% 16% 30% 27% 43%(6) Net Assets, End of Period (in thousands) $149,646 $158,622 $129,681 $79,154 $33,335 $2,117 (1) Six months ended November 30, 2007 (unaudited). (2) January 31, 2003 (commencement of sale) through May 31, 2003. (3) Per-share amount was 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. - ------ 38 High-Yield Municipal B Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006 2005 2004 2003(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.50 $10.50 $10.04 $10.25 $10.06 ------- ------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.21 0.40 0.40 0.40 0.42 0.15 Net Realized and Unrealized Gain (Loss) (0.56) 0.18 --(3) 0.46 (0.21) 0.19 ------- ------- ------- ------- ------- ------- Total From Investment Operations (0.35) 0.58 0.40 0.86 0.21 0.34 ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income (0.21) (0.40) (0.40) (0.40) (0.42) (0.15) ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period $10.12 $10.68 $10.50 $10.50 $10.04 $10.25 ======= ======= ======= ======= ======= ======= TOTAL RETURN(4) (3.32)% 5.64% 3.87% 8.75% 2.05% 3.44% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.63%(5) 1.62% 1.62% 1.63% 1.64% 1.63%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 4.00%(5) 3.80% 3.80% 3.92% 4.06% 4.35%(5) Portfolio Turnover Rate 32% 36% 16% 30% 27% 43%(6) Net Assets, End of Period (in thousands) $4,264 $4,790 $4,468 $3,573 $2,541 $708 (1) Six months ended November 30, 2007 (unaudited). (2) January 31, 2003 (commencement of sale) through May 31, 2003. (3) Per-share amount was 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. - ------ 39 High-Yield Municipal C Class For a Share Outstanding Throughout the Years Ended May 31 (except as noted) 2007(1) 2007 2006 2005 2004 2003(2) PER-SHARE DATA Net Asset Value, Beginning of Period $10.68 $10.50 $10.50 $10.04 $10.25 $10.03 ------- ------- ------- ------- ------- ------- Income From Investment Operations Net Investment Income (Loss) 0.21 0.40 0.40 0.40 0.43 0.39 Net Realized and Unrealized Gain (Loss) (0.56) 0.18 --(3) 0.46 (0.21) 0.22 ------- ------- ------- ------- ------- ------- Total From Investment Operations (0.35) 0.58 0.40 0.86 0.22 0.61 ------- ------- ------- ------- ------- ------- Distributions From Net Investment Income (0.21) (0.40) (0.40) (0.40) (0.43) (0.39) ------- ------- ------- ------- ------- ------- Net Asset Value, End of Period $10.12 $10.68 $10.50 $10.50 $10.04 $10.25 ======= ======= ======= ======= ======= ======= TOTAL RETURN(4) (3.32)% 5.64% 3.86% 8.74% 2.20% 6.15% RATIOS/SUPPLEMENTAL DATA Ratio of Operating Expenses to Average Net Assets 1.63%(5) 1.62% 1.62% 1.63% 1.54% 1.39%(5) Ratio of Net Investment Income (Loss) to Average Net Assets 4.00%(5) 3.80% 3.80% 3.92% 4.16% 4.55%(5) Portfolio Turnover Rate 32% 36% 16% 30% 27% 43%(6) Net Assets, End of Period (in thousands) $35,457 $38,287 $29,862 $16,967 $8,457 $1,454 (1) Six months ended November 30, 2007 (unaudited). (2) July 24, 2002 (commencement of sale) through May 31, 2003. (3) Per-share amount was 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. - ------ 40 PROXY VOTING RESULTS A special meeting of shareholders was held on July 27, 2007, to vote on the following proposal. The proposal received the required number of votes of the American Century Municipal Trust and was adopted. A summary of voting results is listed below the proposal. PROPOSAL: To elect eight Trustees to the Board of Trustees of American Century Municipal Trust (the proposal was voted on by all shareholders of funds issued by American Century Municipal Trust). Jonathan S. Thomas For: 971,971,912 Withhold: 35,637,340 Abstain: 0 Broker Non-Vote: 0 John Freidenrich For: 972,343,950 Withhold: 35,265,301 Abstain: 0 Broker Non-Vote: 0 Ronald J. Gilson For: 972,631,125 Withhold: 34,978,126 Abstain: 0 Broker Non-Vote: 0 Kathryn A. Hall For: 972,615,828 Withhold: 34,993,423 Abstain: 0 Broker Non-Vote: 0 Peter F. Pervere For: 972,437,541 Withhold: 35,171,710 Abstain: 0 Broker Non-Vote: 0 Myron S. Scholes For: 971,715,093 Withhold: 35,894,158 Abstain: 0 Broker Non-Vote: 0 John B. Shoven For: 972,787,586 Withhold: 34,821,665 Abstain: 0 Broker Non-Vote: 0 Jeanne D. Wohlers For: 971,890,161 Withhold: 35,719,090 Abstain: 0 Broker Non-Vote: 0 - ------ 41 APPROVAL OF MANAGEMENT AGREEMENTS Long-Term Tax-Free and High-Yield Municipal Under Section 15(c) of the Investment Company Act, contracts for investment advisory services are required to be reviewed, evaluated and approved by a majority of a fund's independent directors or trustees (the "Directors") each year. At American Century, this process is referred to as the "15(c) Process." As a part of this process, the board reviews fund performance, shareholder services, audit and compliance information, and a variety of other reports from the advisor concerning fund operations. In addition to this annual review, the board of directors oversees and evaluates on a continuous basis at its quarterly meetings the nature and quality of significant services performed by the advisor, fund performance, audit and compliance information, and a variety of other reports relating to fund operations. The board, or committees of the board, also holds special meetings as needed. Under a Securities and Exchange Commission rule, each fund is required to disclose in its annual or semiannual report, as appropriate, the material factors and conclusions that formed the basis for the board's approval or renewal of any advisory agreements within the fund's most recently completed fiscal half-year period. ANNUAL CONTRACT REVIEW PROCESS As part of the annual 15(c) Process undertaken during the most recent fiscal half-year period, the Directors reviewed extensive data and information compiled by the advisor and certain independent providers of evaluative data (the "15(c) Providers") concerning Long-Term Tax-Free and High-Yield Municipal (the "funds") and the services provided to the funds under the management agreements. The information considered and the discussions held at the meetings included, but were not limited to: * the nature, extent and quality of investment management, shareholder services and other services provided to the funds under the management agreements; * reports on the advisor's activities relating to the wide range of programs and services the advisor provides to the funds and its shareholders on a routine and non-routine basis; * data comparing the cost of owning the funds to the cost of owning similar funds; * data comparing the funds' performance to appropriate benchmarks and/or a peer group of other mutual funds with similar investment objectives and strategies; * financial data showing the profitability of the funds to the advisor and the overall profitability of the advisor; and * data comparing services provided and charges to other investment management clients of the advisor. In keeping with its practice, the funds' board of directors held two regularly scheduled meetings to review and discuss the information provided by the advisor and to complete its negotiations with the advisor regarding the renewal of the management agreements, including the setting of the applicable advisory fee. The board also had the benefit of the advice of its independent counsel throughout the period. - ------ 42 FACTORS CONSIDERED The Directors considered all of the information provided by the advisor, the 15(c) Providers, and the board's independent counsel, and evaluated such information for each fund for which the board has responsibility. The Directors did not identify any single factor as being all-important or controlling, and each Director may have attributed different levels of importance to different factors. In deciding to renew the agreement under the terms ultimately determined by the board to be appropriate, the Directors' decision was based on the following factors. NATURE, EXTENT AND QUALITY OF SERVICES -- GENERALLY. Under the management agreements, the advisor is responsible for providing or arranging for all services necessary for the operation of the funds. The board noted that under the management agreements, the advisor provides or arranges at its own expense a wide variety of services including: * fund construction and design * portfolio security selection * initial capitalization/funding * securities trading * custody of fund assets * daily valuation of the funds' portfolio * shareholder servicing and transfer agency, including shareholder confirmations, recordkeeping and communications * legal services * regulatory and portfolio compliance * financial reporting * marketing and distribution The Directors noted that many of these services have expanded over time both in terms of quantity and complexity in response to shareholder demands, competition in the industry and the changing regulatory environment. In performing their evaluation, the Directors considered information received in connection with the annual review, as well as information provided on an ongoing basis at their regularly scheduled board and committee meetings. INVESTMENT MANAGEMENT SERVICES. The nature of the investment management services provided is quite complex and allows fund shareholders access to professional money management, instant diversification of their investments within an asset class, the opportunity to easily diversify among asset classes, and liquidity. In evaluating investment performance, the board expects the advisor to manage the funds in accordance with its investment objectives and approved strategies. In providing these services, the advisor utilizes teams of investment professionals (portfolio managers, analysts, research assistants, and securities traders) who require extensive information technology, research, training, compliance and other systems to conduct their business. - ------ 43 At each quarterly meeting the Directors review investment performance information for the funds, together with comparative information for appropriate benchmarks and peer groups of funds managed similarly to the funds. The Directors also review detailed performance information during the 15(c) Process. If performance concerns are identified, the Directors discuss with the advisor the reasons for such results (e.g., market conditions, security selection) and any efforts being undertaken to improve performance. The funds' performance fell below the median for both the one- and three-year periods during part of the past year. The board discussed the funds' performance with the advisor and was satisfied with the efforts being undertaken by the advisor. SHAREHOLDER AND OTHER SERVICES. The advisor provides the funds with a comprehensive package of transfer agency, shareholder, and other services. The Directors review reports and evaluations of such services at their regular quarterly meetings, including the annual meeting concerning contract review, and reports to the board. These reports include, but are not limited to, information regarding the operational efficiency and accuracy of the shareholder and transfer agency services provided, staffing levels, shareholder satisfaction (as measured by external as well as internal sources), technology support, new products and services offered to fund shareholders, securities trading activities, portfolio valuation services, auditing services, and legal and operational compliance activities. Certain aspects of shareholder and transfer agency service level efficiency and the quality of securities trading activities are measured by independent third party providers and are presented in comparison to other fund groups not managed by the advisor. COSTS OF SERVICES PROVIDED AND PROFITABILITY TO THE ADVISOR. The advisor provides detailed information concerning its cost of providing various services to the funds, its profitability in managing the funds, its overall profitability, and its financial condition. The Directors have reviewed with the advisor the methodology used to prepare this financial information. This financial information regarding the advisor is considered in order to evaluate the advisor's financial condition, its ability to continue to provide services under the management agreements, and the reasonableness of the current management fee. ETHICS OF THE ADVISOR. The Directors generally consider the advisor's commitment to providing quality services to shareholders and to conducting its business ethically. They noted that the advisor's practices generally meet or exceed industry best practices. ECONOMIES OF SCALE. The Directors review reports provided by the advisor on economies of scale for the complex as a whole and the year-over-year changes in revenue, costs, and profitability. The Directors concluded that economies of scale are difficult to measure and predict with precision, especially on a fund-by-fund basis. This analysis is also complicated by the additional services and content provided by the advisor and its reinvestment in its ability to provide and expand those services. Accordingly, the Directors also seek to evaluate economies of scale by reviewing other information, such as year-over-year profitability of the advisor generally, the profitability of its management of the funds specifically, the expenses incurred by the advisor in providing various functions to the funds, and the breakpoint fees of competitive funds not managed by the advisor. The Directors believe the advisor is appropriately sharing economies of scale through its competitive fee structure, fee breakpoints as the fund complex and the funds increase in size, and through reinvestment in its business to provide shareholders additional content and services. In particular, separate breakpoint schedules based on the size of the entire fund complex and on the size of the funds reflect the complexity of assessing economies of scale. - ------ 44 COMPARISON TO OTHER FUNDS' FEES. The funds pay the advisor a single, all-inclusive (or unified) management fee for providing all services necessary for the management and operation of the funds, other than brokerage expenses, taxes, interest, extraordinary expenses, and the fees and expenses of the funds' independent directors (including their independent legal counsel). Under the unified fee structure, the advisor is responsible for providing all investment advisory, custody, audit, administrative, compliance, recordkeeping, marketing and shareholder services, or arranging and supervising third parties to provide such services. By contrast, most other funds are charged a variety of fees, including an investment advisory fee, a transfer agency fee, an administrative fee, distribution charges and other expenses. Other than their investment advisory fees and Rule 12b-1 distribution fees, all other components of the total fees charged by these other funds may be increased without shareholder approval. The board believes the unified fee structure is a benefit to fund shareholders because it clearly discloses to shareholders the cost of owning fund shares, and, since the unified fee cannot be increased without a vote of fund shareholders, it shifts to the advisor the risk of increased costs of operating the funds and provides a direct incentive to minimize administrative inefficiencies. Part of the Directors' analysis of fee levels involves reviewing certain evaluative data compiled by an independent provider and comparing the funds' unified fee to the total expense ratio of other funds in the funds' peer group. The unified fee charged to shareholders of each fund was in the lowest quartile of the total expense ratios of its respective peer group. COMPARISON TO FEES AND SERVICES PROVIDED TO OTHER CLIENTS OF THE ADVISOR. The Directors also requested and received information from the advisor concerning the nature of the services, fees, and profitability of its advisory services to advisory clients other than the funds. They observed that these varying types of client accounts require different services and involve different regulatory and entrepreneurial risks than the management of the funds. The Directors analyzed this information and concluded that the fees charged and services provided to the funds were reasonable by comparison. COLLATERAL BENEFITS DERIVED BY THE ADVISOR. The Directors reviewed information from the advisor concerning collateral benefits it receives as a result of its relationship with the funds. They concluded that the advisor's primary business is managing mutual funds and it generally does not use fund or shareholder information to generate profits in other lines of business, and therefore does not derive any significant collateral benefits from them. The Directors noted that the advisor receives proprietary research from broker-dealers that execute fund portfolio transactions and concluded that this research is likely to benefit fund shareholders. The Directors also determined that the advisor is able to provide investment management services to certain clients other than the funds, at least in part, due to its existing infrastructure built to serve the fund complex. The Directors concluded, however, that the assets of those other clients are not material to the analysis and, in any event, are included with the assets of the funds to determine breakpoints in the funds' fee schedule, provided they are managed using the same investment team and strategy. CONCLUSIONS OF THE DIRECTORS As a result of this process, the Directors, in the absence of particular circumstances and assisted by the advice of legal counsel that is independent of the advisor, taking into account all of the factors discussed above and the information provided by the advisor concluded that the investment management agreement between the funds and the advisor is fair and reasonable in light of the services provided and should be renewed. - ------ 45 SHARE CLASS INFORMATION Five classes of shares are authorized for sale by Long-Term Tax-Free: Investor Class, Institutional Class, A Class, B Class and C Class. Four classes of shares are authorized for sale by High-Yield Municipal: Investor 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 shares. INVESTOR CLASS shares are available for purchase in two ways: 1) directly from American Century without any commissions or other fees; and/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. The funds' prospectuses contain additional information regarding eligibility for Investor Class shares. 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. 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 funds and generally have the same rights and preferences. - ------ 46 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. - ------ 47 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 5-YEAR GENERAL OBLIGATION (GO) INDEX is composed of investment-grade U.S. municipal securities, with maturities of four to six years, that are general obligations of a state or local government. The LEHMAN BROTHERS LONG-TERM MUNICIPAL BOND INDEX is composed of those securities included in the Lehman Brothers Municipal Bond Index that have maturities greater than 22 years. The LEHMAN BROTHERS 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. - ------ 48 [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. American Century Investment Services, Inc., Distributor copy;2008 American Century Proprietary Holdings, Inc. All rights reserved. The American Century Investments logo, American Century and American Century Investments are service marks of American Century Proprietary Holdings, Inc. 0801 SH-SAN-57972N 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/ Jonathan S. Thomas ---------------------------------------- Name: Jonathan S. Thomas Title: President Date: January 6, 2008 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/ Jonathan S. Thomas ---------------------------------------- Name: Jonathan S. Thomas Title: President (principal executive officer) Date: January 6, 2008 By: /s/ Robert J. Leach ---------------------------------------- Name: Robert J. Leach Title: Vice President, Treasurer, and Chief Financial Officer (principal financial officer) Date: January 6, 2008